False Advertising in Korean Real Estate Pre-Sales: 10 Supreme Court Cases

Facts

Y marketed apartments in Paju, Gyeonggi Province by prominently displaying a new “Shinunjeong Station” on site maps and scale models — directly opposite the development — and instructing sales staff to tell visitors the station would open alongside the Gyeongui double-track railway line. The marketing materials stated the apartments would be in a “station area.”

The only basis for the claim was a long-term Paju City urban development plan (target year: 2016), commissioned from the Korea Research Institute for Human Settlements. That plan contemplated relocating an existing station — not building a separate new one — and had never received approval from the Ministry of Construction and Transportation.

Supreme Court Holding

The lower court had dismissed the claim on the ground that Y’s advertisement was not entirely baseless. The Supreme Court reversed. The Paju City plan was an abstract, unilateral municipal proposal. No government agency had approved a new station at the advertised location. By presenting station construction as a near-certainty, Y created a materially false impression — precisely the conduct that Article 3(1)(1) prohibits.

Facts

Y’s marketing materials stated “Monorail — completion scheduled for end of 2005.” In reality, the government’s officially gazetted Phase 2 Airport Construction Plan (2002–2008), published December 31, 2001, made no mention of a monorail. Y had relied on indirect materials provided by the Airport Corporation without verifying the official gazette or making any inquiry to the competent authority.

Supreme Court Holding

The fraud and mistake-of-motive claims were dismissed. However, false advertising liability under the Act was upheld. Y overstated the feasibility and timeline of the monorail without verifying official government records — a classic violation of Article 3(1)(1). The Court also confirmed that the good-faith disclosure obligation under Civil Code principles was breached.

On damages, the Court found the lower court had committed legal error by attributing 15% of the entire price decline solely to the monorail’s absence without separately analyzing the contribution of other factors (property market downturn, oversupply of officetel units, shuttle bus availability). The case was remanded for recalculation. The Court also noted, sua sponte, that plaintiffs’ own failure to verify with the Airport Corporation warranted consideration in mitigation.

This ruling also established the rule — consistently followed since — that no prior KFTC corrective order is needed before filing a damages claim, so long as no such order has actually been issued.

Facts

Y’s pre-sale advertising map labeled the adjacent plot — which housed a military base including ammunition depots, a shooting range, and a helicopter landing pad — simply as “neighborhood park.” Y argued the label was based on official land-use confirmation documents issued by the local government.

Supreme Court Holding

False advertising was established. The mislabeling created a materially false impression about the nature of the adjacent land. Critically, the Court held that the mere fact that the mislabeled area involved military facilities did not exempt the advertisement from the Act’s reach. The Court also refused over-mitigation: because Y’s false advertising exploited consumer inattention in a deliberate manner, the defendant could not claim contributory negligence by the buyers.

Damages were assessed at 3% of the pre-sale price. The only issue remanded was the calculation of delay-in-occupancy penalties — a contractual question distinct from the advertising claim.

Facts

Y’s six-page brochure — prominently featuring tax incentives on the first substantive page — stated that acquisition tax would be “100% exempt for 15 years” and property tax “100% exempt for 5 years, then 50% for 3 years.” In fact, the applicable statute (Special Local Tax Limitation Act, Art. 75-2(1)(1), as amended in December 2015) expressly excluded companies relocating existing facilities from these exemptions. X, relocating from Gaeseong, purchased land for KRW 2.4 billion and later paid approximately KRW 229 million in taxes it had understood to be exempt.

Supreme Court Holding

The lower court had dismissed the claim on causation grounds. The Supreme Court reversed. The brochure created a false impression that all incoming enterprises — including relocating companies — qualified for the exemptions. Given the complexity of the legal framework, it was reasonable for a non-specialist to rely on the brochure without independently consulting the tax authority, particularly when Y was a co-developer with a local government. The Court also clarified that causation in false advertising cases requires only a “legal and normative causal nexus” — not the near-scientific standard of proof sometimes demanded in other tort contexts.

Facts

X marketed a townhouse as “33-pyeong” (approximately 109 m²), including service areas. The actual supply area under the standard measurement formula was 90.57 m² (approximately 27.39 pyeong). The sale price was set as a lump sum — not on a per-pyeong basis. The sales agreement and building register accurately stated the supply area in square meters, and Y could easily have calculated the pyeong equivalent.

Supreme Court Holding

No fraud. The “33-pyeong” label was a common shorthand used to indicate the approximate size and facilitate marketing — not a representation that formed the basis for pricing. Because Y had access to the accurate floor area through readily available documents, and because the price was not set per pyeong, the exaggeration was within acceptable commercial practice.

Facts

Y1 advertised that the commercial arcade would be developed as an advanced entertainment center under professional management, guaranteeing a monthly return of KRW 1 million or more. These representations were also made verbally at the point of sale. However, the written pre-sale contract contained no such guarantee. The arcade was subsequently operated differently, and returns were far below the promised level.

Supreme Court Holding

No fraud and no contractual incorporation. The advertising and oral statements were invitations to deal — not contractual terms — because they were absent from the signed contract. Investment returns from commercial properties are inherently matters for each investor’s independent judgment and risk assessment. Promotional statements about potential returns, within ordinary commercial practice, do not satisfy the high bar for fraudulent misrepresentation.

Facts

The sales brochure contained the phrase “3F Seafood Restaurant — Confirmed Tenant” in a small-print tenant mix table at the bottom right corner of the advertisement. No seafood restaurant was ever confirmed. The statement was not highlighted or separately emphasized anywhere in the broader advertising materials.

Supreme Court Holding

No fraud. The statement’s placement — in a secondary tenant-mix table, not in the featured copy — meant it did not carry sufficient weight to constitute a material misrepresentation to the buyers in question (many of whom occupied floors with competing food-service tenants). The Court also rejected the claim against Y3 (the fund manager): its role was limited to cash flow management and it bore no duty to monitor or prevent false advertising by the developer.

Facts

Y1 marketed the development with two major selling points: (1) an “Ocean Park” featuring a hotel, convention center, condominiums, a water park, and a seafood restaurant, which Y1 advertised as a condition of the development approval (i.e., completion of the Ocean Park was a prerequisite for receiving the occupancy permit); and (2) a light rail line connecting the development to Busan Subway Line 2 stations, advertised as scheduled for groundbreaking in 2008.

The light rail advertising was based on Busan Metropolitan City’s official urban railway master plan, Busan’s public announcement of a 2011 target opening, and the Traffic Impact Assessment Committee’s decision requiring a light rail stop within the development footprint.

Supreme Court Holding

Ocean Park (false advertising upheld): The conditions for the Ocean Park — what facilities, when — were entirely unsettled at the time of marketing. Yet Y1 advertised it as a contractual prerequisite for the occupancy permit, inducing absolute reliance. This crossed the line into false advertising.

Light Rail (false advertising rejected): The light rail advertising directly reflected official government plans, public announcements, and regulatory committee decisions. Showing a dotted line on a site plan labeled “light rail — planned” and installing a model in the showroom was not overstating confirmed facts — it was illustrating what the government itself had stated. The Court also held that Y1 had no duty to proactively explain the speculative nature of urban railway planning, since advertisers are not generally required to highlight unfavorable information at the same level as favorable information.

Facts

In August 2022, Y2 approached X and represented that: (i) the unit had a three-year pre-lease in place, generating stable rental income; and (ii) a loan of up to 90% of the balance price was available through banks. X made two wire transfers of KRW 10 million each over two days, then signed the pre-sale contract on August 30, 2022, paying a deposit totaling KRW 89.37 million.

After the contract was signed, Y1 and the pre-lease tenant terminated their lease agreement in October 2022. Y2 continued to tell X that a new lease would be arranged. In November 2022, Y2 and Y3 issued X a written commitment (확약서) promising: (i) a move-in support payment; and (ii) six months’ equivalent rental income — regardless of whether a new lease was executed. The commitment was honored: Y2 later lent X KRW 60 million to cover a balance shortfall and offset KRW 20 million against the promised move-in support payment.

The Seoul High Court found that Y2 and Y3 had fraudulently misled X — specifically during the balance payment process — about the continued existence of the pre-lease. X appealed against Y1; Y2 and Y3 appealed against the fraud finding.

Supreme Court Holding

Y1’s liability (Y1’s portion not appealed by Y1; X’s appeal against Y1 dismissed): The lower courts’ findings on Y1 — no vicarious liability, no contractual incorporation of the pre-lease commitment — were upheld.

Y2 and Y3’s liability (reversed): The Supreme Court identified several reasons why fraud could not be sustained on these facts:

• At the time of contract execution, the pre-lease was genuinely in place. Y3’s written commitment at that point was not false.
• After the pre-lease was terminated in October 2022, Y2 and Y3 issued a new written commitment in November 2022 promising support payments irrespective of any new lease. The Court found this strongly suggested that the pre-lease termination had been implicitly acknowledged between the parties, with the written commitment representing an agreed alternative remedy.
• Y2 and Y3 fulfilled their written obligations — the KRW 20 million offset was actually applied. There was no evidence of any further unfulfilled promise.
• Statements about potential rental income and price appreciation were general, abstract assessments — not specific factual representations — and were not incorporated into the contract.

The Court articulated the governing test: false advertising or fraud requires either (a) affirmative misrepresentation of material facts in a manner deserving of moral blame, or (b) failure to disclose facts that — if known — would have caused the counterparty not to enter the transaction. Neither was satisfied here.