[Korea Daily eNews Yoo Soo-soo] A recent ruling in which a buyer who signed a real estate purchase and sale contract through a broker without the help of a lawyer and defaulted on the payment of the balance of the purchase price, but did not make a 'penalty agreement' during the contract process, has been in the news. 

According to the civil litigation team of Hanbyul (represented by lawyer Hyun In-hyuk), a law firm that handled the case, buyer A and seller B signed a real estate purchase and sale contract with a down payment of KRW 1 billion and a balance of KRW 7.5 billion.

Relating to the down payment, the contract stipulated that "until the balance is paid, the seller can reimburse a multiple of the down payment and cancel the contract, and the buyer can waive the down payment and cancel the contract. 


The contract did not contain the so-called "penalty covenant" clause, such as "If the seller breaches this contract, the seller shall compensate the buyer for a multiple of the down payment, and if the buyer breaches this contract, the down payment shall be null and void and no claim shall be made for its return," or "A party to the contract may claim damages against the other party for termination of the contract, and the down payment shall be considered the basis for damages unless otherwise agreed. 

The buyer failed to pay the balance and the contract was canceled, leading to a lawsuit over penalty fees.

"During the process of consulting with us, we realized that there was no penalty clause in the contract," said Hyun In-hyuk, a lawyer at Hanbyul, the law firm that led the lawsuit.<"This outcome would not have been possible if we hadn't had a deep understanding of the meaning of the down payment, the meaning of the penalty provision, or if we hadn't been thorough in our review of the contract," he said. 

This is an example of how many people assume that if they have paid a down payment or made a commitment to a down payment, they are entitled to a forfeiture of the down payment or a penalty (damages) equal to the down payment if the other party defaults. 

In reality, however, paying a down payment does not mean that you are entitled to damages equal to the down payment if the other party defaults. You must have what's called a "penalty covenant," which means that if the contract is canceled due to default, the buyer still gets to keep all of the money paid as a down payment. 

Hyun In-hyuk explained, "When it comes to down payments and penalties, there are a surprisingly large number of legal issues that lawyers have to review every time a case arises, and there are still many cases in real life that cannot be found in case law." "It would be a mistake to think that only the above provisions are clear, as it is necessary to master the overall civil jurisprudence on the conclusion, performance, and termination of contracts to provide detailed advice," he said. 

"It is also important not to delay in seeking the advice of a lawyer in the event of a dispute," he added, "as this will minimize the risk of loss to both parties."