Legal Updates

A lack in a contract may be completed taking into account the circumstances of the execution of the contract and from fair parties’ point of view

September 19, 2021

Two parties signed a loan agreement, under which it was agreed to extend the repayment date by a period of six months beyond the original date, at an additional interest rate of 1.25%. However, the agreement did not specify the interest rate to apply at the end of the extension period.

The Court held that the interest rate set during the extension period shall continue to apply after its expiration. Generally, the language of the contract has a prime status in its interpretation, but sometimes in order to trace the true purpose of the contract as well as the parties’ intent, the circumstances of its execution are also considered. In the event of a lack in the contract, it is possible to complete it through the principle of good faith, which examines the contract from the point of view of fair parties and strives to continue the course of action they set when executing it. Here, a determination that the interest rate after the extension period is different from the interest rate set for the extension period rewards the borrower who has not repaid the loan on time and does not reconcile with the parties' intent or the principle of good faith. Therefore, the interest rate set during the extension period will continue to apply after its termination.