Supreme Court: "Contract Valid Even If Request for Copy of Terms and Conditions After Contract Conclusion Is Refused"

The Supreme Court ruled that when a business operator fails to provide a copy of the terms and conditions upon the customer's request, the terms cannot be asserted as part of the contract only if the request was made at the time of contract formation; this does not include cases where the customer requests a copy after the contract has already been concluded and the business refuses to provide it.

According to the legal community on the 25th, the Supreme Court's 3rd Division (Presiding Justice No Jeong-hee) overturned the lower court's partial ruling in favor of the plaintiff in a lawsuit filed by Mr. A and others against a sales company and a developer for the return of a deposit, and remanded the case to the Incheon District Court. The court stated, "The lower court erred in its judgment by misunderstanding the legal principles related to Article 3, Paragraphs 2 and 4 of the Act on Terms and Conditions, which affected the ruling," explaining the reason for the reversal and remand.

Supreme Court, Seocho-dong, Seoul.

Mr. A entered into a contract on March 28, 2018, with a developer and sales company to purchase five units in a newly planned residential lodging facility in Songdo-dong, Yeonsu-gu, Incheon. At the time of contract signing, Mr. A did not have a seal and thus signed the supply contract and memorandum with a signature and fingerprint, promising to supplement the documents within three days by bringing his seal and seal certificate. However, he did not fulfill this promise. Later, on April 2, he requested the responsible staff of the developer and sales company to send him copies of the contract and other documents, but the staff refused the request, citing Mr. A's failure to keep his promise.

Subsequently, despite two reminders, Mr. A did not pay the remaining balance. The developer and sales company notified him of contract termination and sent a certified letter demanding payment of a penalty in May of the same year. The contract stipulated that if Mr. A failed to pay the second installment after two or more warnings, the contract could be canceled. Six months later, Mr. A filed a lawsuit against the companies seeking the return of the 15 million won deposit. He argued that since the developer and sales company refused his request to provide a copy of the contract, the terms were invalid under the Act on Terms and Conditions.

Article 3, Paragraph 2 of the Act on Terms and Conditions (Obligation to Prepare and Explain Terms) states, "When concluding a contract, the business operator must clearly disclose the contents of the terms and conditions in a generally expected manner according to the type of contract, and if the customer requests, provide a copy of the terms so that the customer can understand the contents," establishing the business operator's obligation to provide a copy of the terms upon customer request. Paragraph 4 of the same article states, "If the business operator violates Paragraph 2 and concludes a contract, the relevant terms cannot be asserted as part of the contract."

Meanwhile, Article 16 of the Act on Terms and Conditions (Special Provisions on Partial Invalidity) provides that if the business operator fails to provide the terms upon the customer's request at the time of contract formation, the contract remains valid except for the invalid terms; however, if the valid parts alone cannot achieve the contract's purpose or are unfairly disadvantageous to one party, the entire contract becomes invalid. Ultimately, Mr. A claimed that since the companies refused his request for a copy of the terms, the terms cannot be asserted as part of the contract, and because the terms include all important parts of the contract, the entire contract should be invalid.

The developer and sales company also filed a counterclaim demanding payment of the penalty.

The first trial ruled in favor of the developer and sales company, but the second trial sided with Mr. A. The appellate court accepted Mr. A's argument, stating, "(The provisions of the Act on Terms and Conditions) reasonably interpret that customers can request the business operator to provide the terms at any time, and the business operator has the obligation to provide them."

However, the Supreme Court's judgment differed. The court first cited precedent regarding the legislative intent of Article 3, Paragraphs 2 and 3 of the Act on Terms and Conditions. The court stated, "The purpose of imposing the obligation on business operators to disclose terms and provide copies under Article 3, Paragraph 2 and Paragraph 4 of the same article, and prohibiting the assertion of such terms if violated at contract formation, is to protect customers by enabling them to know in advance the contents that will bind each party and to prevent unforeseen disadvantages from arising."

Furthermore, "Considering the provisions and legislative intent of Article 3, Paragraphs 2 and 4 of the Act on Terms and Conditions, the reason for not allowing the assertion of the terms as part of the contract under Paragraph 4 refers to cases where the customer requested a copy of the terms at the time of contract formation, thereby imposing the obligation on the business operator to provide it, but the operator failed to fulfill this obligation. It does not include cases where the customer requests a copy after the contract has been concluded and the business operator refuses."

Finally, the court concluded, "Since the plaintiff (Mr. A) requested copies of the contract terms after the conclusion of each supply contract in this case, even if the defendants did not comply, this does not fall under the case where Article 3, Paragraph 4 of the Act on Terms and Conditions applies, nor does it constitute a violation of Article 3, Paragraph 2 of the Act on Terms and Conditions."

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