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

This time, we review representative practical court rulings in which the falsity or exaggeration of sales advertisements was at issue, divided into ① concealment or non-disclosure of nearby harmful facilities, ② false or exaggerated advertising regarding the planned installation of nearby facilities and equipment, ③ false or exaggerated advertising regarding the sales object itself, and ④ issues concerning whether the sales contract may be rescinded and how damages may be claimed.

[Question] Organizing practical rulings on false and exaggerated sales advertising - focusing on concealment of nearby facilities, ads about planned installations, and cases regarding the sales object itself

[Answer]

가. Concealment or non-disclosure of nearby harmful facilities — deception by omission

Where a seller, knowing of elements near the apartment being sold — such as extra-high-voltage transmission towers and lines, an elevated road, or the absence of a connection to the underground parking lot — that could materially affect a buyer's purchase decision, conceals or fails to disclose them in sales advertisements, damages liability may be recognized for violation of the "Act on Fair Labeling and Advertising" (hereinafter the "Fair Labeling Act") and for breach of the duty of disclosure under the principle of good faith.

Representatively, Uijeongbu District Court Goyang Branch Decision 2003Gahap2277 dated September 2, 2005 (의정부지방법원 고양지원 2005. 9. 2. 선고 2003가합2277 판결), in a case where the developer did not disclose to buyers that extra-high-voltage transmission towers had been installed on a road adjoining the apartment complex and that transmission lines passed through the apartment site, held that the above facts were important matters determining whether buyers would enter into the sales contract and at what price, so the concealing developer had a duty to disclose them, and that the developer that deliberately concealed them was liable to compensate buyers for "property damage equivalent to the decline in the apartment's market value."

Also, Supreme Court Decision 2009Da98775 dated January 27, 2011 (대법원 2011. 1. 27. 선고 2009다98775 판결) recognized a breach of the duty of disclosure where it was not disclosed that an elevated road was to be built in front of the complex, and Daegu District Court Decision 2008Gahap10741 dated July 3, 2009 (대구지방법원 2009. 7. 3. 선고 2008가합10741 판결) held that where only certain apartment units were not directly connected to the underground parking lot, yet this was not disclosed and the same sales price was charged as for other units, the seller must bear damages liability for breach of the duty of disclosure under the principle of good faith.

나. False or exaggerated advertising regarding the "planned installation" of nearby facilities and equipment — violation of the Fair Labeling Act

Where it is advertised that transport facilities such as a subway, railway, or monorail will newly be installed near an apartment or officetel, but they are not in fact realized, this constitutes false or exaggerated advertising under the Fair Labeling Act, and damages liability may be recognized against the seller.

Supreme Court Decision 2008Da19355 dated August 20, 2009 (대법원 2009. 8. 20. 선고 2008다19355 판결), in a case where the seller, without accurate factual verification, advertised officetel sales to the effect that "a monorail will be completed at the Incheon International Airport International Business Center" and buyers purchased on that basis, then sought damages after the officetel's market value declined, held that this constituted false or exaggerated advertising under Article 3(1)1 of the Fair Labeling Act. The decision further held that "where the occurrence of property damage from a tort is established but proving the specific amount of damages is difficult by the nature of the matter, the court may determine the amount of damages on its own authority," recognizing the court's discretionary assessment where calculating damages is difficult.

Also, Supreme Court Decision 2007Da59066 dated July 22, 2010 (대법원 2010. 7. 22. 선고 2007다59066 판결) held, as to a portion advertised — on the basis of a local government's abstract and unilateral development plan — to the effect that "a new station will be built across from the apartment complex in connection with the double-tracking and electrification of the Gyeongui Line", that this constituted false or exaggerated advertising under the Fair Labeling Act and that the seller bore damages liability.

다. False or exaggerated advertising regarding the sales object itself

Damages liability for false or exaggerated advertising is also recognized where advertised contents concerning the profitability, exclusive-use area, or permissible scope of use of common areas of the sales object itself differ from the facts or are excessively inflated.

Seoul Central District Court Decision 2007Gahap113552 dated June 3, 2010 (서울중앙지방법원 2010. 6. 3. 선고 2007가합113552 판결) held that where false advertising was made as if the sales profits of commercial units and officetels were guaranteed, the seller bore damages liability; and Daegu High Court Decision 2009Na3877 dated May 20, 2010 (대구고등법원 2010. 5. 20. 선고 2009나3877 판결) recognized damages liability for false or exaggerated advertising in a case where "at the model house, for certain unit types it was advertised that the common area in front of the entrance door could be used as if it were exclusive-use area, with bicycles and jangdokdae placed in front of the entrance door, but in reality only some of those unit types could use the common area in front of the entrance door."

라. Cases where no breach of the duty of disclosure was recognized

Conversely, where the advertised contents amount to no more than an invitation to offer, or fall within a range the buyer could already anticipate, a tort such as breach of the seller's duty of disclosure may not be recognized.

Seoul Central District Court Decision 2009Gahap127333 dated July 21, 2010 (서울중앙지방법원 2010. 7. 21. 선고 2009가합127333 판결) held that where it had been disclosed that a military facility was nearby, the sales contract could not be rescinded on the ground that a military shooting range was located nearby.

Also, Busan District Court Decision 2007Gahap24513 dated December 17, 2008 (부산지방법원 2008. 12. 17. 선고 2007가합24513 판결) dismissed a damages claim based on an infringement of view rights differing from the sales advertisement.

Also, Supreme Court Decision 2007Da9139 dated April 29, 2010 (대법원 2010. 4. 29. 선고 2007다9139 판결) held: "Where the apartment sold not only conforms to building-related statutes and the housing construction standards under the Housing Act, but was also built in accordance with the basic construction plan known to the buyer at the time the sales contract was concluded, then, absent special circumstances warranting a finding that the seller, under the principle of good faith, created trust that sunlight, view, and privacy screening would reach a certain standard, even if a certain amount of sunlight is not secured, the view is blocked, and privacy is exposed due to the orientation, height, and structure of each building and unit, this cannot be deemed a defect subject to liability for non-performance under the sales contract or to warranty liability for defects."

Furthermore, Supreme Court Decision 2012Da29601 dated November 13, 2014 (대법원 2014. 11. 13. 선고 2012다29601 판결) held: "Where apartments and the like are sold by the build-first, sell-later method, or were originally planned to be sold by the sell-first, build-later method but, contrary to plan, were not sold before completion and thus are sold after completion, the buyer can directly verify the construction condition of the actually completed apartment, including its exterior and materials, and decide whether to enter into the sales contract, so the completed apartment itself becomes the object of the sales contract; therefore, absent special circumstances such as an agreement at the time of the sales contract to carry out further construction separately from the apartment's existing condition, it is difficult to find an implied agreement making the advertised contents part of the sales contract."

As examined above, practical rulings on sales advertising carefully assess, case by case, the truth of the advertised contents, the recognized scope of the duty of disclosure, and whether rescission of the contract is available, balancing protection of buyers against the seller's freedom of advertising; accordingly, when a dispute over sales advertising arises, it is necessary to closely examine the courts' attitude in comparable cases and to build a response strategy.

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