Hello, Attorney Eom Sang-yoon of Law Firm Cheongchul.

From franchise agreements to financial transactions, and from construction and trust agreements, countless contracts are concluded through pre-prepared standardized terms and conditions. The Act on the Regulation of Terms and Conditions (hereinafter the “Terms Act”) sets out various regulations concerning standard terms, and Article 3 among them imposes a duty to explain “important contents,” providing that if this is neglected, the relevant clause cannot be asserted as part of the contract.

However, from a business operator’s perspective, it is practically nearly impossible to explain every line of terms spanning dozens of pages to each customer. Today, we will look at the scope and limits of the duty to explain standard terms through the recently rendered Supreme Court decision 2023Da280945, decided on Feb. 26, 2026.

[Overview of the Case and Issues]

This case concerned standard terms in a 'management-type land trust agreement,' specifically clauses limiting the trust company’s liability or allocating certain costs. Company B, as trustee of a management-type land trust, entered into an apartment sales contract with the plaintiff, a purchaser. The sales contract included a liability-limitation special agreement stating that the trust company’s liability would be limited to the extent of the trust assets.

The plaintiff argued that although those clauses were 'important contents' that restrict the customer’s rights, the trust company failed to explain them specifically, and therefore the clauses could not be included as part of the contract due to violation of the duty to explain. The main issues in this case are the following two:

1. Whether the management-type land trust’s 'liability-limitation special agreement' constitutes 'important contents' subject to the duty to explain under the Terms Act

2. Whether the content of the above special agreement falls under 'matters generally and commonly used in transactions,' such that the duty to explain may be exempted

[The Supreme Court’s Holding]

Both the lower court and the Supreme Court held that because the liability-limitation special agreement substantially restricts the purchaser’s rights, the trust company was required to explain its contents.

Under the principles of our Civil Act and Trust Act, a trustee is, as a rule, subject to unlimited liability not only with the trust property but also with its own separate property for debts arising in the course of administering trust affairs. The Supreme Court held that because the liability-limitation special agreement limits this trustee’s unlimited liability to the extent of the trust property, it is a matter that can directly affect the purchaser’s decision whether to enter into the contract and therefore constitutes 'important contents' subject to the duty to explain under the Terms Act.

Furthermore, even if the liability-limitation special agreement is common in the trust industry, a purchaser who lacks specialized knowledge of management-type land trusts would find it difficult to sufficiently anticipate the existence and content of the liability-limitation special agreement without separate explanation. Moreover, because it limits the trustee’s liability principle under the Trust Act, it does not fall under the 'mere elaboration of statutes' exempt from the duty to explain; thus, the Court held that it is not information exempt from the duty to explain.

Ultimately, the defendant trust company failed to prove that it had fulfilled the duty to explain, and the special agreement was excluded from the contract. As a result, the trust company had to pay liquidated damages to the plaintiff out of its own separate property.

[Practical Implications]

This Supreme Court decision is expected to have a significant impact on trust contract practice.

In particular, the decision held that even if a liability-limitation special agreement is customary in the industry, the duty to explain is not waived. Accordingly, in future lawsuits of a similar type, if performance of the duty to explain is not proven, it is expected that project developers, sellers, and others will not be able to rely on the liability-limitation special agreement.

Then project developers, sellers, etc. will need to prove that they fulfilled the duty to explain. Simply obtaining the purchaser’s signature may be insufficient to prove this. Therefore, major contract terms that require explanation should be prepared in a separate document (a key summary explanation sheet) and presented, and the purchaser should be asked to handwrite phrases such as 'I have received a sufficient explanation' at the bottom and sign it, so that proof of compliance with the duty to explain is left in the records.

With this decision, trust companies operating management-type land trust businesses may now face large contingent liability risks beyond the trust property. Accordingly, they should comprehensively revise the standard terms in sales contracts to make compliance with the duty to explain mandatory, and also preemptively reflect these legal risks in setting fees, reviewing early project viability, and designing the structure for allocating responsibility with contractors.