2007. 6. 28

1 Fair Trade Commission Republic of Korea

2007. 6. 28.

An Introduction to

Regulations on Adhesion Contracts

An Introduction to

Regulations on Adhesion Contracts

Jung-Hai Yoon, Ph.D.Director General

Headquarters for Consumer PolicyKorea Fair Trade Commission

<Competition Workshop>


Contents

What are Adhesion Contracts?ⅠⅠ

Functions of Adhesion ContractsⅡⅡ

The Need for RegulationsⅢⅢ

Foreign Legislative CasesⅣⅣ

Korea’s Legislative CaseⅤⅤ

Corrective Measures ⅥⅥ


Ⅰ. What are Adhesion Contracts?Ⅰ. What are Adhesion Contracts?

Contrac

t

Terms

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----------

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Any provisions forming a part of a contract prepared by a contracting party in a certain form to use when entering into an agreement with multiple parties.

Adhesion ContractsAdhesion Contracts


Ⅱ. Functions of Adhesion ContractsⅡ. Functions of Adhesion Contracts

MassTransactions

Modern Society

Use ofAdhesion Contracts

SpeedySimplifiedtransactions


Ⅲ. The Need for RegulationsⅢ. The Need for Regulations

Establishment of sound transaction order & consumer protection

Regulation of unfair Adhesion Contracts

Customers enjoy superficial freedom in deciding on contract

terms and form

Companies devise and use Adhesion Contracts

to their advantage


Ⅳ. Foreign Legislative CasesⅣ. Foreign Legislative Cases

EU –

(1993) UK – (1977)

– Law on Unfair Provisions in Consumer Contracts (1999) Germany – Normal Transaction Contract Term Act (AGBG) (1976)

– (2002) France – Law on Consumer Protection and Consumer Information

in relation to goods and services (1978)

– Code de la Consommation (1993) Sweden – (1971) Israel – (1964) U.S. – Uniform Commercial Code (1952)

– (1981) Japan – Consumer Contract Act (2000) Korea – Regulation on Adhesion Contracts (1986)

Guidelines on Unfair Adhesion Contracts inConsumer Contracts

Unfair Adhesion Contracts Act

Normal Transaction Contract Term Act

Incorporated into Civil Law

Regulations on Unfair Contracts

Standard Contract Act

Contract Law Restatement


Ⅴ. Korea’s Legislative CaseⅤ. Korea’s Legislative Case

Contract Tom, a student, pays $300 to become a member of a fitness center for three months Situation but suddenly he finds that he has to move Request Tom asks for a partial refund for the remainder of the membership that he will be unable to use due to unavoidable circumstances. Answer However, the fitness center employee denies Tom of any refund citing their Member Adhesion Contract states “No refund of usage fee”. Examination : Invalid · If Tom requested a refund prior to using the facilities: full refund · If Tom requested a refund during his membership: partial refund after deducting the usage fee of days used and a penalty of 10% of $300

Case 1Case 1


Contract Book wholesaler Kyobo entered into an agency agreement with Publisher McMillan, and paid $1,000 as a deposit under the agreement Situation When the agency agreement expired Request Kyobo requested McMillan to return the deposit Answer but McMillan refused to do so claiming the agreement stated that the deposit was “to be returned one year after the termination of the contract”. Examination : Invalid · McMillan received the deposit as a security for Kyobo’s liabilities · The deposit should be returned to Kyobo upon contract termination or cancellation · Therefore, upon termination of agreement, McMillan must return the deposit to Kyobo after deducting any monies Kyobo owes McMilan

Case 2Case 2


Unfair Adhesion Contracts are invalid

Even if certain provisions of the contract term are invalid,

other provisions remain valid and effective.

Provided, however, in the case the valid provisions fail to

achieve the goal of the contract or

are disadvantageous to the customer, the entire contract is

invalid.(the principle that puts the writer at a disadvantage)

Ⅵ. Corrective measures & Standard Adhesion Contract System

Ⅵ. Corrective measures & Standard Adhesion Contract System

Effectiveness of Unfair Adhesion Contracts

Effectiveness of Unfair Adhesion Contracts


Application for Examination A party that has legal interests Consumer organizations under

the Framework Act on Consumer Korea Consumer Agency

Examination conducted under the authority of the KFTC

KFTC Examination of

Adhesion Contracts

KFTC Examination of

Adhesion Contracts

KFTC


‘87~’92 ‘93~’97 ‘98~’02

48

‘03~’06

Examination Applications & Corrective Measures

43

1,488

No. of Applications

No. of Corrective Measures

359

4,171

698

4,562

456


Definition

A standard contract in a certain field takes into account the

positions of the business and client, and establishes fair rights

and obligations of both contracting parties for the

Objectives for the creation a sound transaction order and prevention of unfair Adhesion Contracts.

Condition Business have the discretion to use the Standard Adhesion Contract Enactment & Adoption As of June ’07, 54 Standard Adhesion Contracts have been adopted in 22 Transaction fields

Standard Contract Term System

Standard Contract Term System



Standard Adhesion Contracts in Effect (2007.6)Fields (no.) Name of Standard Contract

1. Apartment sales & Housing Lease (2)

Standard Apartment Agreement, Standard Housing Lease Agreement

2.Hospitals (2) Surgery Agreement (examination & anesthesia), Hospitalization Agreement

3. Bank credit loans (13)

Basic Agreement on Bank Credit Loans (business, household), Loan & Security Agreement (business), Loan Agreement (household), Additional Agreement Ⅰ(increase of ceiling), Payment Certification Agreement (business, household), Mortgage Agreement, Continuing Guarantee, Guarantee

4. Store sales Store Sale Agreement

5. Department Store Lease Department Store Lease Agreement

6. Bank deposit transactions(4)

Basic Deposit Transaction Adhesion Contract, Free Deposit & Withdrawal Account Adhesion Contract, Accumulative Deposit Account Adhesion Contract, Installment Account Adhesion Contract

7. Parking Lot Parking Lot Management Regulations

8. Leisure condominium(3)Condominium Sale Agreement, Condominium Admission Agreement, Condominium Facilities Usage Adhesion Contract

9. Travel (2)Standard Domestic Travel Adhesion Contract, Standard International Travel Adhesion Contract

10. Gift certificate Standard Gift Certificate Adhesion Contract

11. e-commerce(3)Standard Adhesion Contract for the Usage of Internet Cybermalls, Standard e-Commerce Adhesion Contract, Standard e-Insurance Adhesion Contract


Fields (no.) Name of Standard Adhesion Contract

12. Performance Arts Standard Movie Theater Adhesion Contract

13. Franchise Standard Franchise (restaurants) Adhesion Contract

14. Transportation Standard Express Delivery Adhesion Contract

15. Ceremonial Occasions(3) Standard Adhesion Contract for Marriage Information Business, Standard Adhesion Contract for Funeral Parlors, Standard Adhesion Contract for Marriage Halls

16. Education services(4)Standard Adhesion Contract for Driving Institutions, Standard Adhesion Contract for Private Institutions, Standard Adhesion Contract for Study Abroad Agencies, Standard Adhesion Contract for Tutorial Books

17. Culture, Sports, Entertainment(4)

Standard Golf Course Usage Adhesion Contract, Standard Fitness Club Adhesion Contract, Standard Adhesion Contract for System Operators, Standard Adhesion Contract for Relay Operators

18. Packing & Handling services Standard Adhesion Contract for Packing & Cargo Handling

19. Loan transactions Standard Loan Adhesion Contract

20. Electronic goods & sales device (3)

Standard Adhesion Contract for Vending Machines, Standard Adhesion Contract for Water Purifier Lease (rental), Standard Adhesion Contract for Unmanned Guard System

21. Dry cleaning Standard Adhesion Contract for Dry Cleaning Business

22. Automobile Standard Adhesion Contract for Car Sales (New)

22 fields of transactions 54 Standard Adhesion Contracts

Standard Adhesion Contracts in Effect (2007.6)

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2007. 6. 28