Even when a presale contract states that a buyer may cancel if the developer receives a corrective order, courts must weigh how serious the underlying violation was, a Seoul court has ruled. The bench said existing Supreme Court precedent — which holds that the seriousness of a violation cannot be read into cancellation requirements absent contract language — needs to be reconsidered.
According to legal sources on the 2nd, Chief Judge Chung In-seop of the Seoul Central District Court's Civil Division 911 ruled against the plaintiff on the 1st in a suit filed by a person identified as A against a trust company identified as B and the project developer, seeking a refund of presale payments and confirmation that no debt was owed.
The dispute arose after the sellers incorrectly stated in a presale advertisement whether the site fell within an education environment protection zone. Under Article 6, Paragraph 2 of the Building Presale Act and related rules, presale advertisements must state whether a property lies within such a zone as designated under the Educational Environment Protection Act. The sellers stated the site did "not fall within an education environment protection zone" even though it was inside a relative protection zone. They later corrected the substance of the disclosure but still received a corrective order, and the order became final because they did not contest it. A cited the order in seeking cancellation of the presale contract and restitution.
At issue was whether the seriousness of the violation could be considered in interpreting a clause allowing cancellation upon a corrective order. The Supreme Court has previously held that the wording of such cancellation clauses makes it difficult to condition the right to cancel on the gravity of the violation or its effect on the contract's purpose.
The lower court, however, said that Supreme Court doctrine needs to be reviewed. To cancel a presale contract on the basis of a corrective order, the bench said, the violation must still have been unresolved at the time the order was issued, and it must have had a material effect on the signing or continuation of the contract. Allowing cancellation over a minor breach, the court said, could cause excessive disruption for developers, builders and other buyers in the same project.
"In this case, where the unlawful condition had already been remedied, we found it difficult to permit cancellation of the contract based solely on the fact that the corrective order became final because the seller did not contest it," Chung said.
