Supreme Court: Trust Company's "Limitation of Liability Clause" Invalid Without Explanation... Must Pay Penalty to Buyer

The Supreme Court has ruled that if a real estate trust company includes a "limitation of liability clause" in a sales contract-restricting its responsibility to the scope of trust assets-but fails to properly explain this to the buyer, the clause is invalid.

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According to legal circles on April 26, the First Division of the Supreme Court (Presiding Justice Lee Sookyeon) upheld the lower court's decision in favor of the plaintiff, dismissing the defendant's appeal in the case filed by Mr. A against Korea Trust for the return of the purchase price and payment of penalties.

Previously, in 2020, Mr. B purchased a store unit in a newly constructed building located in Geumcheon-gu, Seoul, with Korea Trust acting as the trustee. In 2022, Mr. A acquired the sales rights from Mr. B. The sales contract included a clause stating that if occupancy was not achieved within three months from the scheduled date, the contract could be terminated, and a penalty amounting to 10% of the sales price would be imposed. Additionally, a "limitation of liability clause" was specified, restricting the trustee's responsibility to the scope of the trust assets and shifting contractual liabilities to the actual project owner (the trustor).

After a delay in occupancy, Mr. A filed a lawsuit seeking termination of the contract and payment of the penalty. In response, the trust company argued that, based on the special clause, its liability was limited to the trust assets and that it could not compensate using its own assets.

The central issue in the trial was whether such a liability limitation clause constituted a "material provision" subject to the business operator's duty of explanation under the Standardized Contract Act. Both the first and second instance courts ruled in favor of Mr. A, determining that the special clause was significant enough to directly affect the buyer’s decision to enter the contract, and that the trust company had failed to provide sufficient explanation.

The Supreme Court concurred with the lower courts, dismissing the appeal. The bench stated, "When the trustee becomes a party to a sales contract in a management-type land trust, a special clause limiting or exempting liability to the trust assets constitutes a material provision that directly affects the buyer’s decision to enter into the contract."

The court further held, "A business operator bears a specific duty of explanation under the Standardized Contract Act regarding such special clauses, and if this duty is violated, the operator cannot assert the clause as part of the contract." The court particularly emphasized that simply signing at the end of the sales contract or filling out a consultation confirmation form is insufficient to fulfill the duty of explanation.

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