South Korea’s Supreme Court has ruled that a trust company cannot rely on a contract clause limiting its liability if it did not explain the clause to the buyer. The decision means the trust company may still be responsible for penalties tied to delayed occupancy.
According to the legal community on the 26th, the Supreme Court’s Third Division, with Justice Lee Sook-yeon as presiding justice, recently upheld a lower court ruling that partly favored the plaintiff in a lawsuit filed by a person identified as A against K Trust Co. seeking a refund of the purchase price.
The dispute arose over the sale of a unit in a knowledge industry center building in Seoul’s Geumcheon District. K Trust, which had signed a managed land trust agreement with the project developer, was the seller that directly executed the sales contract. A became a party to the contract in March 2022 after buying the sales rights from the original buyer.
Construction was not completed by the promised move-in date of July 2022. After the delay exceeded four months, A filed suit in November that year seeking to cancel the contract and obtain a penalty payment. The contract stated that if occupancy did not occur within three months of the scheduled move-in date, the buyer could cancel and receive 10% of the sale price as a penalty.
During the litigation, K Trust argued it was shielded by a “liability-limitation clause.” The clause said the trust company, as seller, would bear responsibility only within the scope of the trust property and trust agreement, while the developer, as settlor, would be responsible for all obligations including returning cancellation payments. K Trust argued that any refund obligation belonged to the developer, not the trust company.
The trial and appellate courts rejected that argument and ruled for A, finding the trust company had to fulfill its obligations as a contracting party. The Supreme Court agreed.
The court said the clause “limits or exempts the trustee’s liability to perform obligations to the buyer to the extent of the trust property,” and that it is a matter that “can directly affect” a buyer’s decision on whether to enter the contract.
It added that even if such clauses are common in the trust industry, buyers generally have limited transaction experience and lack specialized knowledge of managed land trusts, making it difficult to assume they could anticipate the clause’s existence and content without a separate explanation.
* This article has been translated by AI.
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