Supreme Court: "Contract Clause Allowing Termination Upon Corrective Order Is Effective Regardless of Severity"

"If the Objective Meaning of the Wording Is Clear, It Must Be Accepted as Written"

If a contract contains a clause stating, "The contract may be terminated if a corrective order is received," the right to terminate the contract arises regardless of the severity of the violation, according to a recent Supreme Court ruling.

Supreme Court, Seocho-gu, Seoul. Yonhap News Agency

According to the legal community on June 12, the Supreme Court's Second Division (Presiding Justice Eom Sang-pil) overturned the original judgment, which had ruled against the plaintiff in an appeal filed by Mr. A, who had succeeded the position of the buyer, against Company B, the developer, seeking a refund of the contract deposit. The case has been remanded to the Daejeon District Court.

In May 2022, Mr. A succeeded to the position of buyer for an officetel unit in Dalseo-gu, Daegu, for 391.8 million won. The sales contract contained a clause stating, "If the developer receives a corrective order in accordance with Article 9 of the Building Unit Sales Act, the buyer may terminate the contract."

Subsequently, in December 2023, Company B received a corrective order from the local district office for omitting information in its sales advertisement regarding "whether a district unit plan had been established and whether an educational environment protection zone had been designated," pursuant to the Building Unit Sales Act.

Mr. A then filed a lawsuit to terminate the contract, arguing that the corrective order constituted grounds for contractual rescission as set forth in the agreement.

The previous court had dismissed Mr. A's claim. It interpreted the "corrective order" clause in the contract as not referring to all corrective orders, but rather only to orders for "material breaches," such as violations that make it difficult to achieve the purpose of the contract or would have prevented the buyer from entering into the contract had they known. Since the corrective order Company B received was deemed only a minor violation, the court found there was no basis for terminating the contract.

The Supreme Court did not accept this interpretation. The court stated, "When the grounds for termination are stipulated in a contract, the effect should be determined according to the agreed terms," and added, "If the objective meaning of the wording is clear, the existence and content of the intent must be acknowledged as written."

This content was produced with the assistance of AI translation services.