Hello, I am Attorney Eom Sang-yun of Cheongchul Law Firm.
Today, I will explain the cases where a contract is not written in contracts with the state or local governments.
[Question]
I understand that verbal contracts are effective even when a written contract is not made. Is a contract effective even if a written contract is not created for contracts initiated by the state or local governments?
[Answer]
Article 11 of the law regarding contracts with the state (“State Contract Act”) stipulates that a written contract must be prepared when a contract is concluded.
Article 11 of the law regarding contracts with the state (“State Contract Act”) stipulates that a written contract must be prepared when a contract is concluded, and in such cases, the contract is finalized by the contract officer and the contracting party signing or sealing the contract. For reference, Article 14 of the law regarding contracts with local governments (Local Contract Act) also stipulates similar content.
However, Article 49 of the Enforcement Decree of the State Contract Act specifies the cases where the preparation of a written contract can be omitted.
State Contract Act Article 9 (Bid Guarantee) Article 11 (Preparation of Contracts and Establishment of Contracts) ① The head of each central government office or contract officer must prepare a written contract clearly stating each of the following matters when concluding a contract. However, in cases prescribed by Presidential Decree, the preparation of the contract can be omitted. 1. Purpose of the contract 2. Contract amount 3. Performance period 4. Contract guarantee 5. Risk burden 6. Delay penalty 7. Other necessary matters ② When preparing a contract in accordance with paragraph 1, the contract is finalized by the responsible officer and the contracting party signing or sealing the contract.
Enforcement Decree of the State Contract Act Article 49 (Omission of Contract Preparation) Law Article 11, Paragraph 1 The cases where the preparation of a written contract can be omitted according to the provisions of the clause are as follows. 1. When concluding contracts with an amount of less than 30 million won 2. In the case of an auction 3. When the buyer pays the price immediately and takes possession of the goods in the case of a sale of goods 4. When contracts are concluded between national agencies and local governments 5. In cases where it is unnecessary to prepare a written contract due to the nature of the contract for the supply of electricity, gas, and water |
In general, a contract is established even without a written contract as long as the will of both parties matches, but as mentioned above, the State Contract Act and the Local Contract Act stipulate that a contract is finalized by the signature or seal of the contract officer and the counterparty on a contract that has the content prescribed by law.
Regarding this, the Supreme Court has stated, "When a local government acts as a participant in the private economy and concludes a civil contract, it must comply with the requirements and procedures by separately preparing a contract according to the above regulations, and even if a civil contract is concluded between a local government and a private individual, the contract without compliance with the requirements and procedures stipulated in the regulations shall be void" (2009da52335, etc.), concluding that a contract where a written contract demanded by law is not prepared in contracts involving the state or local governments is void.
On the other hand, the Supreme Court has stated, "When a written contract can be omitted under the provision of Article 11, Paragraph 1 of the State Contract Act, it is reasonable to recognize the effectiveness of the contract if there is mutual agreement between the parties regarding the main contents of the contract even if the contract is not prepared according to the requirements and procedures specified in the State Contract Act" (2017da252314, etc.), indicating that for contracts with an amount of less than 30 million won, the effectiveness of the contract is recognized simply by mutual agreement (for local contracts, the threshold is 50 million won).
Therefore, in contracts initiated by the state or local governments, even if a written contract is not prepared, in principle, if there is mutual agreement, the contract is void, and exceptionally, in cases where preparation of a written contract can be omitted under Article 49 of the Enforcement Decree of the State Contract Act or Article 50 of the Local Contract Act, the effectiveness of the contract can be claimed solely based on mutual agreement.
Cheongchul Law Firm is a corporate law firm established by lawyers from the top four law firms, providing comprehensive solutions for state contracts, public contracts, bids, and more. If you have any additional inquiries, please feel free to contact us via email or phone.
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