NEWS & INSIGHTS

Mutual Rescission or Termination Following a Request to End the Agreement Shortly After Contracting

1. Facts and Background

Within several days after signing the agreement and paying the deposit, A concluded that maintaining the agreement would be difficult and requested rescission or termination. The project owner responded that the deposit could not be returned. A retained LK Partners LLC to assess the burdens of continuing the relationship and the legal and negotiated options for ending it.

2. Key Legal Issues

First, it was necessary to determine whether a forfeiture clause for the deposit could be applied unchanged at the very early stage immediately after contract formation. Second, if the forfeiture clause constituted liquidated damages, its proportionality to the actual loss and the possibility of reduction under Article 398(2) of the Korean Civil Act had to be assessed. Third, the scope of any return upon mutual rescission or termination had to be determined.

3. Work Performed and Outcome

LK Partners LLC (i) identified the exact time when A expressed the intention to end the agreement and the stage reached in performance; (ii) examined whether resale of the unit or subsequent procedures had actually been impaired; (iii) sent a content-certified notice specifying the asserted grounds and the amount to be returned, with a response deadline; and (iv) first explored resolution at the negotiation stage. The forfeiture claim was not accepted, the parties reached mutual rescission or termination, and A recovered the deposit. This case demonstrates the importance of reviewing the entire formation and performance context. The return amount depends on the precise wording of the forfeiture clause and whether resale of the unit was materially impeded. Early-stage cases may offer broader settlement possibilities, although each case is fact-specific.