NEWS & INSIGHTS

Mutual Rescission of a Supply Agreement After Reviewing the Discrepancy Between Loan Representations and the Actual Outstanding Debt

1. Facts and Background

A entered into a supply agreement after a sales agent explained that both the interim payments and the balance could be financed, that the interim-payment loan would be interest-free, and that A would therefore need to prepare only the initial deposit to acquire the apartment. When repayment of the interim-payment loan was later demanded, A learned that debt of several hundred million won remained outstanding. A retained LK Partners LLC to assess both the burdens of maintaining the contractual relationship and the legal and negotiated options for bringing it to an end.

2. Key Legal Issues

First, the issue was the size of the gap between the funds said to be required at the time of contracting and the total amount A was actually required to bear, and whether that gap was material to A's decision to contract. Second, it was necessary to determine whether the statements were merely sales solicitations or could support avoidance of the agreement on the ground of mistake or fraud. Third, the relative practical benefits of pursuing cancellation or rescission/termination, as opposed to resolving the matter by mutual rescission/termination, had to be compared.

3. Work Performed and Outcome

LK Partners LLC (i) reviewed the supply agreement, balcony-extension and paid-option agreements, and interim-payment loan documents together to determine the outstanding debt and payment schedule; (ii) organized, by date, the materials supporting the representations made at contract formation, including consultation notes, messages, brochures, and the representative's business card; (iii) secured a comprehensive scope of authority covering withdrawal, cancellation, rescission/termination, restitution, and settlement negotiations; and (iv) where the interim-payment loan had been disbursed, sent notice jointly to the developer and the lending institution. The supply agreement was ultimately rescinded by mutual agreement. A was released from the contractual relationship, and the remaining interim-payment and balance obligations were resolved at the same time. This case demonstrates the need to design the response sequence by reviewing the circumstances of contract formation, the contract language, the stage of performance, and the available evidence together. The available range of settlement depends on whether evidence of the original representations remains and whether resale of the unit is realistically possible. The more specifically the discrepancy between the representations and reality can be identified, the more clearly the appropriate response can be determined.