Amid frequent move-in delays due to the recent slump in the real estate market, a buyer who sued a trust company to cancel a sales contract on the grounds that move-in was delayed contrary to the contract won a final victory at the Supreme Court after prevailing in the first and second trials.
Until now, lower courts had issued conflicting rulings on a "limited liability special clause" that restricts a trust company's responsibility, but the Supreme Court has now strengthened buyers' legal standing so they can get their money back through trust companies.
According to the construction industry on the 2nd, on the 12th, buyer A won a final ruling in a lawsuit to cancel a sales contract filed against Korea Trust over move-in delays at the Knowledge Industry Complex "Infinium Tower" in Geumcheon District, Seoul. Korea Trust had signed a management-type land trust contract with the developer and was responsible for project progress and fund management.
The Seoul Central District Court affirmed the first and second-instance judgments and issued a final ruling that significantly strengthens the legal standing of buyers. The key issue in this case was the scope of a trust company's liability (limited liability) when a sales contract is canceled after move-in is delayed for more than three months from the scheduled date. The Supreme Court has ruled on whether, in projects where a developer has entered into a management-type land trust or similar trust contract, the obligation to return the purchase price upon cancellation of the sales contract falls on the developer or the trust company.
Sales contracts based on a management-type land trust typically include a special clause that "limits the trust company's liability for all obligations under the sales contract to the scope of funds that constitute the trust property as defined in the trust agreement." For this reason, trust companies have argued that even if the sales contract is canceled, they bear no responsibility or should be deemed to have fulfilled their responsibility within the scope of the trust property.
However, the Supreme Court found that a special clause limiting a trust company's liability constitutes "important content" subject to the duty to explain under the Act on the Regulation of Terms and Conditions. The bench said, "It is difficult to conclude that one could fully anticipate the existence and content of special clauses, such as liability limitations, without separate explanation," finding insufficient evidence that Korea Trust fulfilled its duty to explain to the buyer.
The legal community said that, under this Supreme Court precedent, buyers are now more likely to actually get their purchase money back through trust companies.
Attorney Park Jae-hyun of law firm Juwon said, "Until now, lower courts had split on whether to recognize trust companies' limited liability special clauses," adding, "Even when buyers won lawsuits to cancel sales contracts due to move-in delays, if a trust company's limited liability clause was recognized, it was nearly impossible for buyers to actually receive their money when the developer lacked sufficient funds."
Park said, "From a buyer's perspective, they believed they were contracting with the trust company as the seller when purchasing, and the Supreme Court has ruled that recognizing a trust company's limited liability clause would produce a highly unreasonable result for buyers when canceling a sales contract," adding, "Going forward, buyers harmed by move-in delays or false or exaggerated advertising will have a path to recover the purchase price directly from the trust company."