No Written Contract? Who Pays in South Korea

1. What Is Contract Party Determination Under Korean Law?

The Meaning of Contract Party Determination

Contract party determination refers to deciding to whom the rights and obligations of a specific contract belong. This is not simply about whose name appears on a contract document, but rather about determining who actually had the intention to enter into the contract.

In practice, questions about who the true contracting party is arise particularly when no written contract exists, when contracts are concluded through agents, or when another person’s name is misused.

The Korean Supreme Court’s Basic Legal Principles

The Korean Supreme Court has consistently established legal principles regarding contract party determination. The Supreme Court Decision 2022Da245129 (December 16, 2022) states:

“Determining who the parties to a contract are is a matter of interpreting the intentions of the parties involved in the contract. When the parties’ intentions align, the contracting parties should be determined according to that aligned intention. However, when the parties’ intentions do not align, judgment should be made based on who a reasonable person from the perspective of the recipient of the expression of intent would have understood to be the contracting party.”

This precedent clearly demonstrates the basic principles of contract party determination. First, if the parties’ intentions align, follow that alignment. Second, if intentions do not align, make an objective judgment from a reasonable person’s perspective.

Why Is Contract Party Determination Important?

The counterpart for exercising rights differs depending on who the contract party is. For example, to claim service fees, you must claim from the counterpart to the service contract. If you claim from the wrong party, you will lose the lawsuit, and the statute of limitations may expire against the true counterpart, causing you to lose your rights entirely.

Therefore, it is crucial to clarify the contract parties from the contract formation stage and secure evidence that can prove this in case of disputes.

2. How Are Parties Determined When a Written Contract Exists?

Principle: Effect of Written Contract Contents

When a written contract exists, the parties stated in the contract are, in principle, the contracting parties. This is because the intention expressed in writing is presumed to reflect the parties’ true intentions.

However, parties are not always determined solely by the names written in a contract. The Supreme Court has ruled that parties should be determined “by considering various circumstances including the nature, content, purpose, and circumstances of contract formation” (Supreme Court Decision 2022Da245129, December 16, 2022).

Cases of Using Another Person’s Name

When another person’s name is used in a contract, the question of who the true contracting party is becomes an issue. Supreme Court Decision 94Da4912 (September 29, 1995) provides important criteria:

“Whether a person who misused another’s name can be held liable under the contract is determined by interpreting the intentions of the actor and the counterpart. If the actor is entering the contract for themselves and the counterpart knows this, determine it as the actor’s act (natural interpretation). However, when the parties’ intentions do not align, determine based on who a reasonable person would understand to be the party—the actor or the named person—considering all circumstances before and after contract formation (normative interpretation).”

Cases Involving Agency Relationships

Party determination also becomes an issue when one party concludes a contract through an agent. Supreme Court Decision 2003Da44059 (December 12, 2003) states:

“When one party concludes a contract through an agent, if the counterpart’s intention to conclude a contract with the principal through the agent aligned, the counterpart and principal become the contracting parties regardless of whether the agent had authority.”

This precedent clarifies that the agent’s authority and contract party determination are separate issues. If the counterpart intended to contract with the principal, the principal becomes the contracting party even if the agent lacked authority.

3. How Do Korean Courts Determine Parties Without a Written Contract?

The Reality of Transactions Without Written Contracts

In practice, transactions conducted only verbally without written contracts are very common in South Korea. Particularly in continuing business relationships, written contracts may only be prepared once or twice initially, or orders and deliveries may repeat through phone calls or emails without any written contract.

The case handled by Atlas Legal was similar. The plaintiff and defendant began transacting in 2015 and never once prepared a written contract. When the defendant’s representative requested test certificate preparation by phone, the plaintiff’s staff would go to the site, conduct testing, email the results, and issue tax invoices.

The Supreme Court’s Judgment Criteria

Supreme Court Decision 2016Da238212 (January 25, 2018) presents the general legal principles for contract party determination:

“Generally, determining who the parties to a contract are is a matter of interpreting the intentions of the parties involved in the contract. When there is disagreement about interpreting the legal act between parties and interpretation of their intentions becomes an issue, the content of the legal act, the motives and circumstances under which such legal act occurred, the purpose intended to be achieved through the legal act, and the parties’ true intentions should be comprehensively examined and reasonably interpreted according to logic and empirical rules.”

This case concerned whether an intermediate supplier was the contracting party in a franchise business. The Supreme Court determined that the intermediate supplier (Maru Distribution) was the party to the food ingredient supply contract by comprehensively considering the contract content, actual transaction form, tax invoice issuance records, and payment method. This demonstrates the legal principle of prioritizing the substance of transactions over the form of contracts.

Factors Considered for Contract Party Determination

When no written contract exists, the following factors are importantly considered for contract party determination:

First, the circumstances of contract formation. It is important who first proposed the transaction and through what channels the contract terms were negotiated. In this case, it was confirmed that the defendant’s representative directly called the plaintiff to request testing.

Second, who received the service or goods. Who actually received the service deliverables or goods is an important determining factor. In this case, test certificates were directly transmitted to the defendant’s representative’s email.

Third, payment records. Who paid in the past is strong evidence for presuming the contracting party. In this case, tax invoices had been issued and payments made in the same manner from 2015 to 2024.

Fourth, industry practices. How parties are typically determined in that industry is also considered. In this case, according to the specifications, the pump installation company bears the obligation to submit test certificates, so it was industry practice for the pump installation company to also bear the cost of test certificate preparation.

4. How to Respond When the Other Party Claims a Third Party Is Responsible?

Typical Patterns of Third-Party Claims

One common defense in contract party disputes is the claim that “I am not the party; a third party is the real party.” In the case handled by Atlas Legal, the defendant argued: “The Water Authority commissioned the inspection from the plaintiff, so the plaintiff should claim the cost from the Water Authority.”

Distinguishing Between Contract Parties and Beneficiaries

To respond to such claims, you must distinguish between contract parties and contract beneficiaries (or end users). Even if a third party is the end user of certain services, this does not automatically mean the third party becomes the party to the service contract.

In this case, according to the specifications, the pump installation company (defendant) bears the obligation to submit test certificates. That is, the Water Authority only requires the pump installation company to submit test certificates, and the service contract for test certificate preparation is concluded between the pump installation company and the testing institution.

These specification provisions clearly show that the obligation to submit test certificates lies with the “contracting party,” i.e., the pump installation company. Therefore, it naturally follows that the pump installation company should also bear the cost of test certificate preparation.

Judgment of Substantive Contractual Relationships

When responding to third-party claims, the following matters should be examined:

First, who commissioned the service? In this case, the defendant’s representative directly called the plaintiff to request testing.

Second, who received the service deliverables? Test certificates were transmitted to the defendant’s email.

Third, who paid in the past? Tax invoices had been issued to the defendant in the same manner since 2015, and the defendant had been making payments.

Fourth, who bears the contractual or legal obligation? According to the specifications, the obligation to submit test certificates lies with the defendant (pump installation company).

Combining these factors, it is clear that the parties to the service contract are the plaintiff and defendant, not the plaintiff and the Water Authority.

5. Contract Party Determination in Continuing Business Relationships

Characteristics of Continuing Transaction Relationships

Unlike one-time contracts, in continuing transaction relationships, certain transaction patterns form between the parties. Such transaction patterns become very important evidence in contract party determination.

In the case handled by Atlas Legal, the plaintiff and defendant had been transacting for 10 years since 2015. During that time, the pattern of the defendant’s representative calling to request services, the plaintiff conducting testing on-site, and then issuing tax invoices was repeated.

Evidentiary Value of Transaction Records

Summarizing the tax invoice issuance records from 2015 to 2024: 4 transactions in 2015, 1 in 2016, 3 in 2017, 2 in 2018, 1 in 2019, 2 in 2020, 1 in 2021, 2 in 2022, and 2 in 2024. Particularly from April 2017, a unit price of XX won (plus VAT) per test was established and consistently applied.

These transaction records clearly show that a continuing transaction relationship existed between the plaintiff and defendant. The defendant’s sudden claim that “I am not the contracting party” directly contradicts 10 years of transaction practice.

Recognition of Implied Agreement

In continuing transaction relationships, implied agreement may be recognized even without explicit agreement. For example, in this case, although the defendant claimed “no inspection cost was agreed upon,” if transactions had continued at XX won per test since April 2017, this can be viewed as an implied agreement to that price.

The Supreme Court has also ruled that “in continuing contractual relationships, if transactions have been conducted under the same conditions for a long period, it is appropriate to consider that agreement to those conditions was reached, absent special circumstances.”

6. Atlas Legal’s Successful Case Analysis

* This case is based on an actual ongoing case, with some facts modified for understanding and client information protected.

Case Overview

Plaintiff Company A specializes in preparing test certificates that pump installation companies must submit to government agencies. They had been transacting with a pump manufacturing company operated by Defendant Mr. B since 2015.

The transaction method was as follows: When the defendant’s representative called the plaintiff requesting “Please come to [location] on [date] and test the pump,” the plaintiff’s staff would go to the site, conduct testing using thermodynamic test methods, prepare test certificates, transmit them to the defendant’s representative’s email, and issue tax invoices.

The Defendant’s Claims

The defendant raised six defenses:

First, the defendant never requested the plaintiff to prepare test certificates.

Second, no written contract was ever prepared.

Third, no inspection cost was ever agreed upon.

Fourth, the Water Authority commissioned the inspection from the plaintiff, so the plaintiff should claim from the Water Authority.

Fifth, tax invoices were unilaterally issued by the plaintiff and cannot be the basis for establishing a service contract.

Sixth, even if a service contract was established, the plaintiff did not conduct objective inspections.

Atlas Legal’s Counterarguments

We refuted each claim as follows:

Regarding “never requested test certificate preparation”: The defendant’s representative made requests by phone, confirmed through email correspondence records. Records clearly exist showing the plaintiff’s representative emailing test certificates to the defendant’s representative.

Regarding “no written contract was prepared”: The parties had been conducting transactions verbally without preparing written contracts since 2015, which was an established transaction practice between them. The absence of a written contract does not mean no contract was formed.

Regarding “no inspection cost was agreed upon”: Since transactions had continued at XX won (plus VAT) per test since April 2017, the previous transaction price applies to this case as well without special price negotiation.

Regarding “should claim from the Water Authority”: According to the specifications, the obligation to submit test certificates lies with the pump installation company (defendant). Since the defendant requested the plaintiff to prepare test certificates and the plaintiff delivered test certificates to the defendant, the parties to the service contract are the plaintiff and defendant.

Regarding “tax invoices were unilaterally issued”: Tax invoices had been issued in the same manner since 2015, and the defendant had been making payments accordingly. This follows established transaction practice, not unilateral issuance by the plaintiff.

Regarding “did not conduct objective inspections”: The plaintiff has never cooperated with ordering parties to manipulate data under any circumstances, nor has it ever produced results desired by ordering parties. Claims of defects in service deliverables are separate from payment obligations.

Evidence Submitted

We submitted the following evidence:

Exhibit 3: Test certificates – Proving the plaintiff actually performed the service

Exhibit 5: Tax invoice issuance records – Proving transaction history from 2015 to 2024

Exhibit 6: Email correspondence records – Proving the plaintiff’s representative transmitted test certificates to the defendant’s representative

Exhibits 7, 8: Specifications – Proving the pump installation company bears the obligation to submit test certificates

7. Evidence Collection Strategies for Contract Party Disputes

Preventive Measures at Contract Formation

To prevent contract party disputes, evidence should be secured from the contract formation stage.

First, if possible, prepare a written contract even in simple form. Even without a complex contract, keeping basic matters such as parties, service content, payment, and payment timing in writing is very helpful in disputes.

Second, it is important to leave written records such as emails or text messages. Even if orders are received by phone, it is good to organize the content via email or text for confirmation purposes.

Third, tax invoices must be issued in the name of the actual transaction counterpart. If issued in a third party’s name, difficulties in determining parties may arise later.

Evidence Collection After Disputes Arise

After disputes arise, the following evidence should be collected:

First, past transaction records. All tax invoice issuance records, payment deposit records, quotations, and purchase orders should be secured.

Second, communication records. Secure contact records with the counterpart such as emails, text messages, and KakaoTalk conversation history. Records showing who requested the service and who received the deliverables are particularly important.

Third, related contracts or specifications. If obligations are specified in ordering party specifications as in this case, these can be used as evidence.

Fourth, materials proving industry practices. Materials regarding who typically bears costs in that industry are helpful if available.

Importance of Professional Assistance

Contract party determination disputes often involve complex intertwining of facts and legal principles. Professional assistance is essential for evidence collection, analysis, and construction of legal arguments.

Atlas Legal is a law firm specializing in corporate disputes with extensive successful experience in contract party determination disputes. Located in Songdo, Incheon, our firm provides professional legal services in corporate advisory, corporate disputes, and corporate crime areas.

8. FAQ

Atlas Legal, located in Songdo, Incheon, provides legal services in corporate advisory, corporate disputes, and corporate crime (fraud, breach of trust, embezzlement, tax law, customs law) areas. We recently succeeded in having a client’s payment claim recognized in a service contract dispute involving long-term transactions without a written contract, by applying the legal principles of contract party determination based on Korean Supreme Court precedents. We have professional advisory and litigation representation experience in contract disputes including contract party determination, service fee claims, and sales payment claims.

* The case introduced in this article is based on an actual ongoing case, with some facts modified for understanding and client information protected.