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STATUTES

THE REPUBLIC OF KOREA

Volume

REGULATION OF STANDARDIZED CONTRACTS ACT

Act No. 3922, Dec. 31, 1986

Amended by Act No. 4515, Dec. 8, 1992

Act No. 5491, Dec. 31, 1997

Act No. 6459, Mar. 28, 2001

Act No. 7108, Jan. 20, 2004

Act No. 7491, Mar. 31, 2005

CHAPTER I GENERAL PROVISIONS

Article 1 (Purpose)

The purpose of this Act is to protect consumers and promote the harmonious improvement of the people's living by preventing enterprisers from preparing and circulating standardized contracts containing unfair terms and conditions that constitute abuse of their negotiating position through establishing sound order in business transactions by means of the regulation of standardized contracts containing unfair terms and conditions.

Article 2 (Definitions)

(1) In this Act, the term "standardized contracts" means the general terms

Article 1 ~ 2

and conditions of a contract, regardless of their name, type, or scope, prepared in advance by one party to a contract in a certain form for the purpose of entering into a contract with a large number of persons.

(2) In this Act, the term "enterpriser" means a person who is a party to a contract and offers a standardized contract to another party as the content of the contract.

(3) In this Act, the term "customer" means a person who is a party to a contract and has received from an enterpriser an offer to incorporate a standardized contract into the contract.

Article 3 (Obligation to Specify and Explain Standardized Contracts)

(1) Prior to entering into a contract, an enterpriser shall explain to its customers the content of a standardized contract in a way that would generally be expected for the type of contract in question and shall, upon the request of the customer, deliver a copy of the standardized contract to the customer to help the customer understand the standardized contract: Provided, That this does not apply to a standardized contract which is approved by an administrative agency under other Acts and which is provided for in the Presidential Decree because of the need to effect a speedy transaction.

(2) An enterpriser shall explain the important particulars of a standardized contract so that customers can understand them: Provided, That this does not apply where such an explanation is extremely

Article 3

difficult due to the nature of the contract.

(3) If an enterpriser enters into a contract in violation of the provisions of paragraphs (1) and (2) above, he may not claim that the pertinent standardized contract forms a part of the contract.

Article 4 (Precedence of Individual Agreement)

If an enterpriser and a customer agree on a matter that is addressed in standardized contracts in a manner that is different from the standardized contracts, such agreement shall prevail over the standardized contracts.

Article 5 (Construction of Standardized Contracts)

(1) A standardized contract shall be construed impartially in accordance with the principle of trust and good faith and shall not be construed differently depending on the customer.

(2) If the meaning of a standardized contract is not clear, it shall be construed in favor of the customer.

CHAPTER II UNFAIR CLAUSES IN STANDARDIZED CONTRACTS

Article 6 (General Principles)

(1) Any clause in a standardized contract which is not fair or is contrary

Article 4 ~ 6

to the principle of trust and good faith shall be null and void.

(2) Any clause in a standardized contract that falls under any of the following subparagraphs shall be presumed to be unfair:

1. A clause which is unreasonably unfavorable to customers;

2. A clause which customers would have difficulty anticipating in light of various circumstances such as the type of transaction, type of contract, and etc.; or

3. A clause which is so restrictive of essential rights under a contract that the purpose of the contract may not be achieved.

Article 7 (Prohibition of Exemption Clause)

Any clause of a standardized contract concerning the liability of contraction parties that falls under any of the following subparagraphs shall be null and void:

1. A clause that exempts an enterpriser from liability for intentional wrongdoing of gross negligence on the part of the enterpriser, his agents, of employees;

2. A clause which limits, without a substantial reason, the extent of damages payable by the enterpriser; or

3. A clause which, without a substantial reason, excludes of limits the

Article 7

warranty liability of an ntrprisr, tightns rquirments that customers must meet to exercise their rights under the warranty of, where the enterpriser has provided a sample of the subject matter of the contract or has indicated the quality of performance, and etc. of the subject matter, excludes or limits the warranty for the subject matter.

Article 8 (Predetermination of Amount of Damages)

Any clause of a standardized contract which obligates customers to pay unreasonably heavy damages, including but not limited to, excessive liquidated damages for delay, shall be null and void.

Article 9 (Cancellation or Termination of Contract)

Any clause of a standardized contract concerning the cancellation or termination of a contract which falls under any of the following subparagraphs shall be null and void:

1. A clause which excludes of limits the right of customers to cancel or terminate the contract under Acts;

2. A clause which grants an enterpriser the right to cancel or terminate the contract which is not provided for by Acts or which reduces the requirements enterprisers must meet to exercise the right to cancel or terminate the contract as provided for by Acts, therefore putting customers at an unreasonable disadvantage;

3. A clause which,

Article 8 ~ 9

without a substantial reason, obligates customers to pay excessive restitution if they cancel or terminate a contract, or which unreasonably provides for customers to waive their claim to restitution;

4. A clause which unreasonably reduces the restitution obligation of an enterpriser or his duty to pay damages in the event of cancelling or terminating a contract; or

5. A clause in a contract providing for a continuous creditor-debtor relationship which might put customers at an unreasonable disadvantage by providing for a duration that is unreasonably short long by allowing implied extensions or renewals of the contract.

Article 10 (Performance of Obligations)

Any clause of a standardized contract concerning the performance of obligations which falls under any of the following subparagraphs shall be null and void:

1. A clause which, without a substantial reason, gives an enterpriser the power to unilaterally determine or change the content of performance; or

2. A clause which, without a substantial reason, allows an enterpriser to unilaterally suspend performance of his obligations on his behalf.

Article 11 (Protecting Rights and Interests of Customers)

Any clause of

Article 10 ~ 11

a standardized contract concerning the rights and interests of customers which falls under any of the following subparagraphs shall be null and void:

1. A clause which, without a substantial reason, excludes or limits a customer's rights of defense, offset of damages, etc., which are provided for by Acts;

2. A clause which, without a substantial reason, deprives customers of the right to refuse to perform their obligations until a set date of time;

3. A clause which unreasonably limits a customer's right to execute contracts with a third party; or

4. A clause which, without any justifiable reason, allows an enterpriser to divulge confidential information of customers he has obtained in the course of doing business with customers.

Article 12 (Deemed Expression of Intent)

Any clause of a standardized contract concerning an expression of intent which falls under any of the following subparagraphs shall be null and void:

1. A clause which provides that once a certain act of omission has occurred, customers shall be deemed to have expressed or to not have expressed a certain intent: Provided, That this does not apply where customers are notified that if they fail to express their intent within a given period, which

Article 12

is a considerable length of time, the customers shall be deemed to have expressed or not have expressed their intent, or where it is impossible to give such a notice due to unavoidable circumstances;

2. A clause which imposes unreasonably strict restrictions on the requirements for or the way in which customers may express their intent;

3. A clause which provides, without a substantial reason, that the intent of an enterpriser, which may materially affect the interest of customers, is deemed to have been communicated to customers; or

4. A clause which provides for an unreasonably long or indefinite term during which an enterpriser may express his intent which may materially affect the interest of customers.

Article 13 (Additional Obligations of Agents)

If a contract is entered into by an agent of the customer and the customer fails to perform his obligations, any clause in a standardized contract which imposes on the agent an obligation to carry out the customer's obligations in whole or in part shall be null and void.

Article 14 (Prohibition against Lawsuits, etc.)

Any clause in a standardized contract which puts customers at an unreasonable disadvantage by prohibiting customers from filling a lawsuit,

Article 13 ~ 14

or by requiring customers to agree to a certain venue by imposing the burden of proof on customers without any justifiable reason, shall be null and void.

Article 15 (Limitation on Application of this Act)

With regard to a standardized contract which is commonly used internationally of to which some other special reason applies, the application of the provisions in Articles 7 through 14 above may be limited according to the clause or type of business if the Presidential Decree provides for such limitations.

Article 16 (Special Principle of Partial Nullity)

In the event the whole or parts of the clauses in a standardized contract fail to constitute a contract under Article 3 (3) or are null and void under Articles 6 through 14, the contract shall remain effective with only the remaining portion of the standardized contract: Provided, That it is impossible to realize the objective of the contract, or the contract is unreasonably unfavorable to one party, the relevant contract shall be null and void.

CHAPTER III REGULATION OF STANDARDIZED CONTRACTS

Article 17 (Prohibition on Use of Unfair Clauses in Standardized Contracts)

Article 15 ~ 17

No enterpriser shall include in a standardized contract any of the unfair clauses referred to in Articles 6 through 14 (hereinafter referred to as "unfair clauses").

[This Article Wholly Amended by Act No. 6459, Mar. 28, 2001]

Article 17-2 (Corrective Measures)

(1) If an enterpriser breaches Article 17, the Fair Trade Commission may recommend the enterpriser to take such measures as are necessary to correct the breach, including a deletion or revision of the relevant standardized contract clauses.

(2) If an enterpriser violating the provisions of Article 17 comes to fall under any of the following subparagraphs, the Fair Trade Commission may order him to take such measures as are necessary to correct the breach, including a deletion or revision of the relevant standardized contract clauses:

1. Where he is a market-dominating enterpriser under subparagraph 7 of Article 2 of the Monopoly Regulation and Fair Trade Act;

2. Where he concludes a contract by unfairly utilizing his negotiating positions;

3. Where the customer faces difficulties in amending the contents of the standardized contract clauses, in a contract to provide goods or services to the public, due to the urgency and

Article 17-2

swiftness of concluding such contract;

4. Where it is in fact coercive to make the standardized contract as the contents of a contract because the predominating positions of the enterpriser as a party to the contract is significant, or the scope for the customer to select other enterprisers is limited;

5. In view of the nature or purpose of the contract, where it is impossible to cancel, rescind or terminate a contract, or where it incurs a significant property losses to the customer due to such acts; and

6. Where it incurs or much likely to incur the damages to the numerous customers because the enterpriser fails to comply with the recommendation under paragraph (1) without any justifiable grounds.

(3) When recommending or ordering that the measures necessary to correct breaches under paragraphs (1) and (2) be taken, the Fair Trade Commission may, if necessary, also recommend that the enterpriser who engages in the same kind of business as that of the enterpriser concerned shall not use the same unfair clause.

[This Article Wholly Amended by Act No. 6459, Mar. 28, 2001]

Article 18 (Government-Approved Standardized Contracts, etc.)

(1) If the Fair Trade Commission deems that there is a fact that a standardized

Article 18

contract prepared by an administrative agency or approved by an administrative agency under other Acts violates the provisions of Articles 6 through 14, the Fair Trade Commission may inform the administrative agency concerned of the violation and request it to take measures necessary to correct the violation; and if the Fair Trade Commission deems that the standardized contract of a financial institution established under of the Banking Act violates the provisions of Articles 6 through 14, it may inform the Financial Supervisory Service which is established under the Act on the Establishment, etc. of Financial Supervisory Organizations of the violation and recommend that it take measures necessary to correct the violation. <Amended by Act No. 5491, Dec. 31, 1997>

(2) In case where a request for correction is filed with the administrative agency pursuant to the former part of paragraph (1), no recommendation or order for correction pursuant to the provisions of Article 17-2 (1) and (2) shall be made. <Amended by Act No. 6459, Mar. 28, 2001>

[This Article Wholly Amended by Act No. 4515, Dec. 8, 1992]

Article 19 (Petition for Review of Standardized Contracts, etc.)

With respect to a clause in a standardized contract, any person who has legal interests in a clause in a standardized contract of any consumer organization registered under the Consumer Protection Act, the Korea Consumer Protection Board, or any trade association may file a petition with the Fair Trade Commission to

Article 19

request that the Fair Trade Commission determine whether or not a given clause is in violation of this Act. <Amended by Act No. 4515, Dec. 8, 1992>

Article 19-2 (Standard Contracts)

(1) Enterprisers or enterprisers' organizations may develop contract forms to be used as standardized contracts in the certain fields of transactions in order to prevent the rampant use of unfair contracts and to ensure the sound order of transactions, and file an application with the Fair Trade Commission for examining whether contents of the contract forms are in violation of this Act.

(2) Consumers' organizations that are registered under Article 19 of the Consumer Protection Act or the Korea Consumer Protection Board established pursuant to Article 26 of the same Act (hereinafter referred to as "consumers' organizations, etc.") may ask the Fair Trade Commission to develop any contract form to be used as a standardized contract in the certain field of transaction in which consumers frequently suffer damage.

(3) In the event that the consumers' organizations, etc. referred to in paragraph (2) make a request or damage is caused to a large number of customers in the certain field of transaction, the Fair Trade Commission shall investigate the case, and if no contract is existent or unfair contents of any contract are existent, the Fair Trade Commission may urge the relevant enterpriser and the enterprisers' organizations to make a contract form to be used as a standardized contract and to apply for

Article 19-2

the examination thereof.

(4) In the event that any enterpriser and the enterprisers' organizations fail to take necessary measures within 4 months from the date on which they are urged to do so under paragraph (3), the Fair Trade Commission may make a contract form to be used as a standardized contract after hearing opinions of any party to the transaction in question and the consumers' organizations, etc. and holding consultations with ministries concerned.

(5) The Fair Trade Commission may make the examination referred to in paragraphs (1), (3) and (4) and publish newly developed contract forms (hereinafter referred to as "standard contracts") and urge enterprisers and the enterprisers' organizations to use them.

(6) Enterprisers and the enterprisers' organizations that are urged by the Fair Trade Commission to use the standard contracts shall, if they use any contract different from the standard contracts, indicate the major points of their difference in a manner that customers can easily understand.

(7) The Fair Trade Commission may prescribe the covers of standard contracts in order to expedite the wider use of standard contracts, and enterprisers and enterprisers' organizations may, if they use the standard contracts, use the covers of standard contracts under the conditions as published by the Fair Trade Commission.

(8) In the event

Article 19-2

ha any enerpriser or he enerprisers' organizaions use any contract different from the standard contract in their contents, such enterpriser or the enterprisers' organizations shall be prohibited from using the cover of the standard contract.

(9) In the event that any enterpriser and the enterprises' organizations use the cover of any standard contract in violation of paragraph (8), contents of any contract that are more disadvantageous to any customer than those of the standard contract shall be made invalid.

[This Article Wholly Amended by Act No. 7108, Jan. 20, 2004]

Article 20 (Investigation)

(1) If the Fair Trade Commission deems it necessary for the purpose of rendering a recommendation or an order for correction pursuant to Article 17-2 (1) and (2), and if it receives a petition under the provisions of Article 19, the Fair Trade Commission may conduct an investigation in order to determine whether a given standardized contract violates this Act. <Amended by Act No. 4515, Dec. 8, 1992; Act No. 6459, Mar. 28, 2001>

(2) The public official conducting the investigation under paragraph (1) shall hold a certificate identifying his authority and show it to the persons concerned. <Newly Inserted by Act No. 7491, Mar. 31, 2005>

Article 21 (Filling of Petition for Review)

Article 20 ~ 21

Any petition for review pursuant to Article 19 shall be filed in writing or by means of e-documents with the Fair Trade Commission. <Amended by Act No. 4515, Dec. 8, 1992; Act No. 7108, Jan. 20, 2004>

Article 22 (Statement of Opinion)

(1) Before deliberating on whether the content of a standardized contract is in violation of this Act, the Fair Trade Commission shall give notice to the pertinent enterprise or any interested party who has engaged in a transaction under the standardized contract to the effect that the standardized contract comes to the subject of review. <Amended by Act No. 4515, Dec. 8, 1992>

(2) The concerned party or interested person who has received notice under paragraph (1) above may attend hearings of the Fair Trade Commission and state his opinion or submit the necessary materials. <Amended by Act No. 4515, Dec. 8, 1992>

(3) If the standardized contract which comes to the subject of review mission has been approved or is to be approved by an administrative agency under other Acts, the Fair Trade Commission may request that the pertinent administrative agency state its opinion before commencing its review. <Amended by Act No. 4515, Dec. 8, 1992>

Article 23 (Disclosure of Unfair Clauses in Standardized Contracts)

Article 22 ~ 23

The Fair Trade Commission shall prepare and keep a list of the standardized contract which the Commission has deliverated or resolved as a violation of this Act and may disclose the list to the public when necessary. <Amended by Act No. 4515, Dec. 8, 1992>

CHAPTER IV Deleted.

Articles 24 through 29 Deleted. <by Act No. 4515, Dec. 8, 1992>

CHAPTER V SUPPLEMENTARY PROVISIONS

Article 30 (Scope of Application)

(1) This Act shall not apply to standardized contracts relating to Part III of the Commercial Act, the Labor Standards Act, or contracts involving non-profit business as provided for in the Presidential Decree.

(2) Deleted. <by Act No. 4515, Dec. 8, 1992>

(3) If there are any special provisions under other Acts with respect to standardized contracts that are used in a specific business transactions, those special provisions shall take precedence over the provisions of this Act.

Article 30-2 (Application of Monopoly Regulation and Fair Trade Act)

The provisions of

Article 30 ~ 30-2

Articles 42 through 45 the Monopoly Regulation and Fair Trade Act shall apply mutatis mutandis to the deliberations and decisions of the Fair Trade Commission under this Act, and the provisions of Articles 53 through 55 of the same Act shall apply mutatis

mutandis to appeal procedures, the institution of lawsuits and exclusive jurisdiction of lawsuits.

[This Article Newly Inserted by Act No. 4515, Dec. 8, 1992]

Article 31 (Criteria for Approval)

In the event an administrative agency approves a standardized contract under other Acts or a standardized contract is reviewed by a review organization established under other Acts with respect to a particular business transactions, the provisions of Articles 6 through 14 shall provide the criteria for such approval and review.

Article 31-2 (Consultant)

(1) The Fair Trade Commission may appoint a consultant if it is necessary for the purpose of reviewing a standardized contracts under this Act.

(2) The appointment of a consultant under paragraph (1) and other matters necessary therefor shall be governed by the Presidential Decree.

[This

Article 31 ~ 31-2

Article Newly Inserted by Act No. 4515, Dec. 8, 1992]

CHAPTER VI PENALTY PROVISIONS

Article 32 (Penalty Provisions)

Any person who violates any order under the provisions of Article 17-2 (2) shall be subject to imprisonment for not more than two years or a fine not exceeding one hundred million won. <Amended by Act No. 6459, Mar. 28, 2001>

[This Article Wholly Amended by Act No. 4515, Dec. 8, 1992]

Article 33 (Joint Penal Provisions)

If any representative of a corporation or any agent, employee or other employed person of a corporation or individual has committed a violation as set forth in Article 32 relating to the business of the said corporation or individual, the fines provided for in the same Article shall be imposed on the corporation of the individual as well as on the perpetrator.

[This Article Wholly Amended by Act No. 4515, Dec. 8, 1992]

Article 34 (Fine for Negligence)

(1) Any person falling under any of the following subparagraphs shall be punished by a fine for negligence not exceeding 50 million won:

Article 32 ~ 34

1. Person who has violated the provisions of Article 19-2 (8); and

2. Person who has rejected, obstructed or dodged the investigation provided for in the provisions of Article 20.

(2) Any person falling under any of the following subparagraphs shall be punished by a fine for negligence not exceeding 5 million won: <Amended by Act No. 7108, Jan. 20, 2004>

1. Person who has violated the provisions of Article 3 (1) or (2); and

2. Person who has violated the provisons of Article 19-2 (6).

(3) The fine for negligence under provided for in paragraphs (1) and (2) above shall be imposed and collected by the Fair Trade Commission as provided for in the Presidential Decree.

(4) Any person who is dissatisfied with the disposition a fine for negligence under paragraph (3) above may appeal to the Fair Trade Commission within thirty days after being notified that such a fine has been sentenced.

(5) When a person who is sentenced to a fine for negligence under paragraph (3) above has appealed in accordance with paragraph (4) above,

Article 34

the Fair Trade Commission shall, without delay, give notice to the competent court which shall, upon receiving the notice, decide the case pursuant to the Non-Contentious Case Litigation Procedure Act.

(6) If neither the appeal is filed nor the fine for negligence paid within the period as specified in paragraph (4) above, the fine for negligence shall be collected pursuant to the example of disposition on default of national taxes collected.

[This Article Newly Inserted by Act No. 4515, Dec. 8, 1992]

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on July 1, 1987.

Article 2 (Transitional Measures)

This Act shall be applicable from the contract first concluded after the enforcement of this Act.

Article 3 (Transitional Measures concerning Continuous Contract)

This Act shall apply to the portion to be executed after the enforcement of this Act, under the contractual terms and conditions on the contract aiming at a production of a relation of continuous obligation.

ADDENDA <Act No. 4515, Dec. 8, 1992>

Addenda

(1) (Enforcement Date) This Act shall enter into force on March 1, 1993.

(2) (Transitional Measures) A recommendation for correction issued by the Minister of the Economic Planning Board or a request for review filed with the said Minister in accordance with the preceeding provisions at the time when this Act enters into force shall be deemed a recommendation for correction issued by the Fair Trade Commission or a request for review filed with the said Commission under this Act.

ADDENDA <Act No. 5491, Dec. 31, 1997>

Article 1 (Enforcement Date)

This Act shall enter into force on April 1, 1998.

Articles 2 through 8 Omitted.

ADDENDA <Act No. 6459, Mar. 28, 2001>

(1) (Enforcement Date) This Act shall enter into force on the date of its promulgation.

(2) (Applicable Examples) The amendments to Article 17-2 (2) 6 shall be applicable from the contract first concluded after the enforcement of this Act.

ADDENDA <Act No. 7108, Jan. 20, 2004>

(1) (Enforcemen

Addenda

t Date) This Act shall enter into force on the date of its promulgation.

(2) (Transitional Measures concerning Standard Contracts) Any standard contract that goes through the examination of the Fair Trade Commission

in accordance with the previous provisions at the time of enforcement of this Act shall be deemed a standard contract provided for in this Act.

ADDENDUM <Act No. 7491, Mar. 31, 2005>

This Act shall enter into force on the date of its promulgation.

Addenda

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