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An Introduction to Regulations on Adhesion Contracts

<Competition Workshop>. An Introduction to Regulations on Adhesion Contracts. 2007. 6. 28. Jung-Hai Yoon, Ph.D. Director General Headquarters for Consumer Policy Korea Fair Trade Commission. Fair Trade Commission Republic of Korea. Contents. Ⅰ.

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An Introduction to Regulations on Adhesion Contracts

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  1. <Competition Workshop> An Introduction to Regulations on Adhesion Contracts 2007. 6. 28. Jung-Hai Yoon, Ph.D. Director General Headquarters for Consumer Policy Korea Fair Trade Commission Fair Trade Commission Republic of Korea

  2. Contents Ⅰ What are Adhesion Contracts? Ⅱ Functions of Adhesion Contracts Ⅲ The Need for Regulations Ⅳ Foreign Legislative Cases Ⅴ Korea’s Legislative Case Ⅵ Corrective Measures

  3. Contract Terms --------------------- Ⅰ. What are Adhesion Contracts? Adhesion Contracts • 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.

  4. Speedy Simplified transactions Modern Society Use of Adhesion Contracts Mass Transactions Ⅱ.  Functions of Adhesion Contracts

  5. Ⅲ. The Need for Regulations Companies devise and use Adhesion Contracts to their advantage Customers enjoy superficial freedom in deciding on contract terms and form Regulation of unfair Adhesion Contracts Establishment of sound transaction order & consumer protection

  6. Ⅳ. Foreign Legislative Cases • EU – • (1993) • UK – (1977) • – The Unfair Terms in Consumer Contracts Regulations • (1999) • Germany – (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 Contract Code (1952) • – (1981) • Japan – Consumer Contract Act (2000) • Korea – Regulation on Adhesion Contracts (1986) Guidelines on Unfair Adhesion Contracts in Consumer Contracts Unfair Contract Terms Act Normal Transaction Contract Term Act Incorporated into Civil Law Regulations on Unfair Contracts Standard Contract Act Contract Law Restatement

  7. Ⅴ. Korea’s Legislative Case Case 1 • 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

  8. Case 2 • 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

  9. Ⅵ. Corrective measures & Standard Adhesion Contract System Effectiveness of Unfair Adhesion Contracts • 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)

  10. KFTC KFTC Examination of 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

  11. No. of Applications No. of Corrective Measures 4,562 4,171 1,488 48 Examination Applications & Corrective Measures 698 456 359 43 ‘87~’92 ‘93~’97 ‘98~’02 ‘03~’06

  12. Standard Contract Term System • 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

  13. Standard Adhesion Contracts in Effect (2007.6)

  14. Standard Adhesion Contracts in Effect (2007.6)

  15. Fair Trade Commission Republic of Korea The force that can change the world - The Consumer! Thank you

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