"Interest-free interim payments." "Up to 80% financing on the balance." "Guaranteed rental income." These are familiar lines in the pre-sale market. When things go wrong, however, how far they bind the developer as a matter of law is contested head-on. In large-scale contract rescission suits by purchasers of section offices, Changchun represented the developer, defeated every fraud and mistake argument and won outright (claims dismissed).
Overview of the Case
A developer sold so-called "section offices" — an office building divided into units of roughly 23 square meters each. A buyer of several units could open the partition walls between them and use them as a single larger unit (an expanded unit), and the developer ran a promotion giving a gift (gold) to purchasers who submitted a "request not to install partition walls."
The marketing and explanations at the time of sale were broadly that ▲ interim payments would be made through financial institution loans (with the developer covering the interest); ▲ up to 80% of the purchase price could be financed on the balance; and ▲ depending on the option chosen, a fixed monthly rent of KRW 500,000 could be received through a rental management company.
At the balance payment stage, however, a problem arose for purchasers of expanded units who had not installed partition walls: financing on the balance was not available up to 80%, and rental management agreements were not concluded. Those purchasers accordingly sought rescission of their pre-sale contracts and refund of the purchase price on grounds of fraud (Civil Act art. 110) or mistake (Civil Act art. 109), arguing that they had not been told of these circumstances.
The Issues
The key questions were ① whether the developer owed a duty of disclosure under the principle of good faith as to the financing and leasing terms and had deceived the purchasers by breaching it, and ② whether the purchasers' mistake was a "mistake as to a material element," a ground for rescission, or merely an unexpressed "mistake as to motive."
Changchun's Core Arguments (for the Developer)
Changchun (attorneys Jaesun Yoon and Donghwan Shin) responded along six lines.
1. The pre-sale contract is the standard of interpretation. The contract contained neither a clause that "the balance shall be paid by loan" nor any obligation on the developer to "guarantee rental income." Payment of the balance is in principle the purchaser's responsibility, and leasing risks such as vacancy are borne by the purchaser as investor.
2. What was explained amounted to neither "deception" nor "inducing mistake." Nowhere in the marketing materials or consultation records was there a promise of "80% financing in any event" or a "guaranteed fixed rent." Financing and rental management were not the developer's obligations, and so were not matters a sales agent's staff could guarantee.
3. There was no intent to deceive. Neither the financial institutions nor the rental management company told the developer at the time of contracting that financing terms and rental management would vary depending on whether partition walls were installed. A developer cannot disclose circumstances it did not know, nor can it be said to owe a duty to disclose them; and the problem arose not at contracting but only at the balance stage, some three years later.
4. Even so, this was no more than a "mistake as to motive." Even if a purchaser contracted because they valued "80% financing" or "rental management," that is merely the motive for contracting. Unless that motive was expressed to the other party and made part of the content of the declaration of intent, a contract cannot be rescinded for mistake as to motive.
5. The purchasers signed the consent form of their own free will and received consideration. The purchasers themselves signed and sealed the "consent to non-installation of partition walls" and received consideration (the gift) for it. The developer cannot be made to guarantee an expected outcome that failed to materialize because of the circumstances of third parties — the lenders and the rental management company.
6. The developer in fact stepped in to help. When the existing lender refused to finance expanded units, the developer coordinated with other financial institutions and advised that "financing of up to about 80% is available if the entrance doors alone are built separately," and a substantial number of purchasers did obtain financing after installing the doors and paid the balance.
The Court's Decision
The court accepted Changchun's arguments, holding that neither deception by the developer nor any intent to deceive could be established, and that the purchasers' mistake likewise could not be treated as a mistake giving grounds for rescission. It dismissed the claims in full. The developer went on to win in numerous parallel and follow-on suits raising the same issues.
The case shows that a "guarantee" in pre-sale advertising does not automatically become a legal obligation of the developer, and that precisely identifying the contractual wording, the scope of the duty of disclosure and the doctrine of "mistake as to motive" decides pre-sale disputes. Changchun has acted extensively for operators in disputes of many kinds arising from the pre-sale of income-producing real estate. (Outcomes may differ depending on the facts of each matter.)