Hello, this is Attorney Park Jong-han from Cheongchul Law Firm.

When the contents of a sales advertisement differ from the facts, or the actual property being sold differs from the advertisement, causing harm to the buyer, the legal structure of the damages liability that the buyer can assert against the seller varies depending on whether the sales advertisement was incorporated into the contents of the sales contract. Below, we examine that structure and the representative cases recognized by precedent.

[Question] Damages liability regarding sales contracts — the structure of, and precedents on, breach-of-contract liability and tort liability (violation of the Fair Labeling and Advertising Act)

[Answer]

가. Structure of damages liability — classification by whether it is included in the contract

Where the contents of a sales advertisement are incorporated into the contents of the sales contract, the seller's failure to perform the advertised contents gives rise to breach-of-contract liability or warranty liability for defects; where they are not incorporated into the contents of the sales contract, tort damages liability is recognized on grounds of violation of the "Act on Fair Labeling and Advertising" (hereinafter the "Fair Labeling Act").

The Supreme Court has held: "Among the contents of an apartment sales advertisement, matters concerning specific transactional terms — that is, the apartment's exterior, materials, and the like — which, in light of social common sense, appear to be matters whose performance the buyer may demand from the seller as terms of the contract, become part of the sales contract; but contents of an apartment sales advertisement that are not such matters generally have only the nature of an invitation to offer, so the seller cannot be held liable for breach of contract for failing to perform them" (Supreme Court Decision 2005Da5812 dated June 1, 2007 / 대법원 2007. 6. 1. 선고 2005다5812 판결).

나. Tort damages liability — including deception by omission

Even where the contents of a sales advertisement are not incorporated into the contents of the sales contract, if they constitute false or exaggerated representations, or conceal or fail to disclose important facts, tort damages liability may be recognized.

Representatively, Supreme Court Decision 2004Da48515 dated October 12, 2006 (대법원 2006. 10. 12. 선고 2004다48515 판결) found, against a developer who sold apartments while concealing in the sales advertisement — despite knowing it — the fact that a waste landfill facility would be built nearby, a violation of the duty to disclose, and recognized damages liability toward buyers on grounds of deception by omission. That decision further held that "since a violation of the duty to disclose constitutes deception by omission, the plaintiffs may rescind the sales contract on grounds of deception and seek a refund of the sales price, or, where they do not wish to rescind the sales contract, may claim only the resulting damages," expressly recognizing that the buyer may choose between the right of rescission and the right to claim damages.

Also, Supreme Court Decision 2007Da44194 dated October 23, 2008 (대법원 2008. 10. 23. 선고 2007다44194 판결) found that causing buyers of the 43-pyeong apartment type to mistakenly believe that its exclusive-use area would be larger than that of other ordinary 43-pyeong apartments constituted a deceptive act, and recognized tort damages liability.

Meanwhile, Supreme Court Decision 2017Da212118 dated June 15, 2017 (대법원 2017. 6. 15. 선고 2017다212118 판결), in a case where the apartment's main gate and a military base's main gate were as close as 300 meters apart and the builder labeled the military base as a "neighborhood park" in the apartment catalog and other sales advertising materials, confirmed the legal principle that a damages claim lawsuit arising from false or exaggerated apartment sales advertising must be filed within three years of the resident moving into the apartment, holding that "residents and others must be deemed to have concretely and actually recognized, at the latest around the time of moving in, that the false or exaggerated advertising constituted a tort."

다. Damages liability for violation of the Fair Labeling Act

Where false or exaggerated advertising under the Fair Labeling Act is involved, strict (no-fault) damages liability is imposed on the business operator under Article 10 of the Fair Labeling Act. That is, the operator cannot escape liability on the ground that it acted without intent or negligence.

A representative case is Supreme Court Decision 2014Da57228 dated May 28, 2015 (대법원 2015. 5. 28. 선고 2014다57228 판결) (the so-called Yeongjong Sky City Apartment case). The Supreme Court held: "As to the portion of this apartment's sales advertisement stating that the Third Yeongjong Bridge would open in 2014, considering that at the time of the sales advertisement there was no concrete plan specifying 2014 as the scheduled opening time of the Third Yeongjong Bridge; that although Incheon City had announced it would complete the Third Yeongjong Bridge by 2014, apart from Incheon City's announcement there were no circumstances indicating the bridge could be completed by 2014; and that government ministries such as the Ministry of Land, Transport and Maritime Affairs were opposing construction of the Third Yeongjong Bridge on grounds of the loss-compensation burden for the Yeongjong Bridge and the Incheon Bridge, even though construction funding for the Third Yeongjong Bridge had been secured — for these reasons, it constitutes false or exaggerated advertising under the Fair Labeling Act."

As a result, the Supreme Court defined the property damages suffered by the plaintiffs as "the difference between the actual sales price and the proper sales price of this apartment had there been no false or exaggerated advertising," but, finding that calculating that amount fell into the category of cases difficult by the nature of the matter, held it reasonable to set it at 5% of each sales price.

As examined above, damages liability related to sales advertising is divided, depending on whether the advertising contents were incorporated into the contents of the sales contract, into breach-of-contract liability (including warranty liability for defects) and tort liability (including damages liability for violation of the Fair Labeling Act); in particular, for tort liability, the three-year extinctive prescription under Article 766(1) of the Civil Code may begin to run, at the latest, from around the time of moving in, so buyers must exercise their rights promptly.

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