When one party is forced into an agreement by the wrongful act of another, it is known as: _______.

Misrepresentation (허위표시/虛僞表示, 과장광고/誇張廣告) is a contract law concept. It means a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.

[One sentence tip] 허위표시란 실제 해당되지 않는 사실ㆍ정보를 기재하거나 중요한 사실을 누락하는 것이고 과장광고란 내용을 실제보다 부풀려 선전하는 것을 말한다.

Contents

• 1 Keywords
• 2 Criteria
• 3 Statutory examples
  • 3.1 Capital Markets Act
  • 3.2 Fairness Acts
• 4 Misrepresentation as an event of default
• 5 References

Keywords

misrepresentation, false statement, omission, damages, penalty, boilerplate clause

Criteria

Misrepresentation is one of several vitiating factors that can affect the validity of a contract. A misrepresentation occurs when one party makes a false statement, inducing another party to contract. For an action to be successful, some criteria must be met in order to prove a misrepresentation. These include:

• A false statement of fact has been made,
• The statement was directed at the suing party and
• The statement had acted to induce the suing party to contract.

Statutory examples

Capital Markets Act

The Financial Investment Services and Capital Markets Act[1] (the “Capital Markets Act”, 자본시장과 금융투자업에 관한 법률/資本市場法) requires CEO and CFO of the issuing company, who submit the securities registration statement to the Financial Services Commission (FSC), to review and confirm that there is no false statement or omission in the material aspects of such statement, and affix its signature on the statement, respectively.[2]

If there were false statements or omissions in the material aspects of the securities registration statement and prospectus, and any investor of securities issued related therewith suffered loss owing to such misrepresentation therein, the below-mentioned persons shall be responsible for compensating such loss:

• CEO and CFO who submitted the securities registration statements to FSC, or such executive officer as stated in each subparagraph of Article 401-2 (1) of the Commercial Act;
• Certified public accountant, appraiser or credit rating agency as provided by the Enforcement Decree;
• Underwriters of such securities; and
• Producer of prospectuses at issue.[3]

Any person who offered for sale or sold securities in violation of Article 119 (except Paragraph 5) shall be subject to imprisonment of not more than five years or fine not exceeding 200 million won.[4]

Fairness Acts

The Act on Fair Labeling and Advertising[5] (표시ㆍ광고의 공정화에 관한 법률/表示廣告法), amended on September 15, 2011 and effective thereafter, calls for the fairness in commercial representation and advertisement, and otherwise the following sanctions will be inflicted on the violator:[6]

• Corrective action by the Korea Fair Trade Commission (KFTC);
• Injunction ordered by KFTC;
• Surcharge imposed by KFTC;
• Damages to the victims; and
• Punishment subject to criminal indictment.

The Fair Transactions in Franchise Business Act[7] (가맹사업거래의 공정화에 관한 법률/加盟事業法), amended on August 3, 2007, also calls for the fairness in franchise transactions, and otherwise similar sanctions like surcharge and penal provisions will be imposed on the franchisor.[8]

Misrepresentation as an event of default

In general, the loan agreement requires the borrower to represent the following matters:

• that it has full legal power to enter into and perform the Agreement;
• that it has obtained or will obtain all necessary government approvals, consents and authorizations for execution of the Agreement;
• the execution, delivery and performance by the borrower of the Agreement have been duly authorized or will be authorized by all appropriate actions of the borrower;
• that the borrower is not in default under any agreement to which it is a party, a default in respect of which might have a material adverse effect on the borrower; and
• that the Loan when made will rank at least pari passu with all other present or future indebtedness of the borrower.[9]

In the event that any representation or statement made by the borrower proves to have been incorrect, the lender may declare the Loan principal, accrued interest thereon immediately due and payable, and the lender may take all such other actions as are permitted by law.

References

1. ↑ The English translation of the Act is available here. Its latest version is also available here.
2. ↑ Article 119 (Registration of Public Offering or Sale) 자본시장법 (1)-(4), (6) Omitted. (5) In filing a registration statement, the representative director of the issuer and the director responsible for filing the registration (referring to a person in a similar position, if there is no representative director or director responsible for filing the registration) shall review and confirm the matters prescribed by Presidential Decree, such as the fact that there is no false statement or representation of a material fact, nor omission of a material fact in the descriptions of the registration statement, and each of them shall sign the statement. Article 120 (Effective Date of Registration Statement, etc.) (1) The registration of securities under Article 119 (1) and (2) (hereinafter referred to as “securities registration”) shall be effective on the day after the expiration of the time period prescribed by Ordinance of the Prime Minister, considering the type of securities or the characteristics of the transaction, etc., which shall begin on the day on which the registration statement is submitted and accepted by the Financial Services Commission. (2) The Financial Services Commission shall not refuse to approve a registration statement, unless it is not prepared in conformity with the prescribed form of the registration statement, there is any false description or representation in the registration statement concerning a material fact, or any description or representation of a material fact is omitted. (3), (4) Omitted. Article 122 (Corrective Registration Statement) (1) If a registration statement submitted has not been prepared in conformity with the prescribed form for the statement, there is any false description or representation of a material fact in the registration statement, there is any omission of a material fact, or there is any uncertain description or representation of a material fact in the registration statement which might undermine reasonable investment decision of investors or significantly mislead investors, the Financial Services Commission may demand that the person present the reasons therefor and submit a corrective registration statement (hereafter referred to as “corrective registration statement” in this Chapter) with correct contents of the registration statement no later than the day before the date set for offering to acquire or purchase the securities stated in the registration statement. (2)-(5) Omitted.
3. ↑ Article 125 (Liabilities for Damages Caused by False Statements, etc.) (1) The following persons shall be liable for damages inflicted upon any person as a result of acquiring securities by including a false description or representation of any material fact in a registration statement (including a corrective registration statement and supplements thereto; hereafter the same shall apply in this Article) and an investment prospectus (including a preliminary investment prospectus and a short-form investment prospectus; hereafter the same shall apply in this Article) or omitting a material fact therefrom: Provided, That such person shall not be liable if he/she proves that he/she was unable to discover such inclusion or omission even if he/she exercised reasonable care or that the person who acquired the securities knew the fact at the time when he/she made an offer to acquire them: 1. The registrant of the relevant registration statement and directors of the issuer at the time of filing the registration (referring to persons in a similar position if there is no director, or promoters if the registration statement was filed before the corporation was incorporated); 2. A person who falls under any of subparagraphs of Article 401-2 (1) of the Commercial Act and who instructed or executed the preparation of the registration statement; 3. A certified public accountant, a certified appraiser, or a specialist in credit rating, who certified with his/her signature that the descriptions of the registration statement or the supplements thereto are true and correct (including an organization to which each of them belongs), as specified further by Presidential Decree; 4. A person who consented to include his/her statement of evaluation, analysis, or verification in the descriptions of the registration statement or the supplements thereto and confirmed such statement therein; 5. A person who executed a contract for underwriting the securities (referring to a person specified by Presidential Decree, if there are two or more persons who signed such underwriting contract); 6. A person who prepared or delivered the investment prospectus; and 7. The holder of the securities for sale at the time the registration statement for sale was filed, if the case involved a sale of securities. (2) If the forecast information is described or indicated in accordance with the following subparagraphs, the persons listed in the subparagraphs of paragraph (1) shall not be liable for any damage incurred therefrom: Provided, That such persons shall be liable, if the person who acquired the securities involved proves that he/she did not know that there was any false description or representation of a material fact in the forecast information or any omission of description or representation of a material fact therein and that there was an intentional or grossly negligent act on the part of the persons listed in the subparagraphs of paragraph (1) in connection with such description or representation: 1.It was clearly stated that the description or representation at issue was a forecast information; 2.The grounds for supposition or judgement related to the forecast or prospect were clearly stated; 3.The description or representation at issue was made in good faith on the basis of a reasonable ground or supposition; and 4.It included a warning clause that the description or representation at issue may differ from other estimates or actual outcomes. (3) Paragraph (2) shall not apply in cases where a registration statement is filed in order for an unlisted corporation to make an initial public offering or sale of stocks.
4. ↑ Article 444 (Penal Provisions) A person who falls under any of the following subparagraphs shall be sentenced to imprisonment for not more than five years or to a fine not exceeding 200 million won: 1-11. Omitted; 12. A person who publicly offered or sold securities in violation of Article 119 [excluding paragraph (5)]; 13-29. Omitted.
5. ↑ The English translation of the Act is available here.
6. ↑ Article 3 (Prohibition, etc. against Unfair Labeling or Advertising) 표시광고법 (1) No business entity, etc. shall place any of the following labeling or advertising that is likely to undermine fair trade order by deceiving or misleading consumers, or compel other business entities to do so: 1. False or exaggerated labeling or advertising; 2. Deceptive labeling or advertising; 3. Unfairly comparative labeling or advertising; 4. Slanderous labeling or advertising. (2) Detailed concerning labeling or advertising referred to in each subparagraph of paragraph (1) shall be prescribed by Presidential Decree. Article 7 (Corrective Measures 시정조치) (1) Where business entities, etc. engage in unfair labeling or advertising in violation of Article 3 (1), the Fair Trade Commission may issue any of the following measures to the relevant business entities, etc. to correct such violation: 1. Suspension of the relevant violation; 2. Publication of the fact that a corrective order has been issued to the relevant business entities, etc.; 3. Corrected advertising; 4. Other measures necessary for correcting violations. (2) Matters necessary for publishing the fact that a corrective order has been issued to business entities, etc. and for corrected advertising pursuant to paragraph (1) 2 and 3 shall be prescribed by Presidential Decree. Article 7-2 (Commitments Decision 동의의결) (1) Business entities, etc. (hereafter referred to as “applicant” in this Article through Article 7-5) under investigation or deliberation by the Fair Trade Commission may file an application with the Fair Trade Commission for a commitments decision under paragraph (3) for improvement of trade order, such as voluntary removal of consumer misconceptions caused by the act subject to the relevant investigation or deliberation (hereafter referred to as “relevant act” in this Article through Article 7-5), remedy of consumer damage, etc.: Provided, That in cases falling under any of the following, the Fair Trade Commission shall proceed with the deliberation procedures under this Act without rendering a commitments decision: 1. In cases constituting a ground for accusation under Article 71 (2) of the Monopoly Regulation and Fair Trade Act applicable mutatis mutandis to Article 16 (3); 2. Where the applicant withdraws the application before a commitments decision is rendered. (2) In cases where an applicant files an application under paragraph (1), the application shall be in writing, specifying each of the following matters: 1. Facts that establish the relevant act; 2. Commitments for active improvement of trade order, such as discontinuance of the relevant act and removal of consumer misconceptions; 3. Commitments to remedy or prevent damage to consumers, other business entities, etc. (3) If the Fair Trade Commission deems that the commitments under subparagraphs 2 and 3 of paragraph (2) (hereinafter referred to as “commitments”) satisfy all of the following requirements after completing investigation into the facts of the relevant act, it may suspend the deliberation procedures and render a decision that is to the same effect as the commitments (hereinafter referred to as “commitments decision”). In such cases, it may modify the commitments after consultation with the applicant (공정거래위원회는 해당 행위의 사실관계에 대한 조사를 마친 후 제2항제2호 및 제3호에 따른 시정방안(이하 "시정방안"이라 한다)이 다음 각 호의 요건을 모두 충족한다고 판단되는 경우에는 해당 행위 관련 심의 절차를 중단하고 시정방안과 같은 취지의 의결(이하 "동의의결"이라 한다)을 할 수 있다. 이 경우 신청인과의 협의를 거쳐 시정방안을 수정할 수 있다.): 1. The commitments are in balance with the corrective measures and other sanctions that can be expected if the relevant act is found to violate this Act; 2. The commitments are deemed appropriate to recover a fair and free trade order or to protect consumers, other business entities, etc. (4) A commitments decision of the Fair Trade Commission shall not mean an admission that the relevant act violates this Act, and no one shall assert the relevant act as a violation this Act on the ground that the applicant obtained a commitments decision. [This Article Newly Inserted by Act No. 12380, Jan. 28, 2014] Article 8 (Temporary Suspension Orders 임시중지명령) (1) The Fair Trade Commission may order business entities, etc. to temporarily suspend labeling or advertising, when such labeling or advertising fall under both of the following subparagraphs: 1. Where the relevant labeling or advertising is obviously suspected to violate Article 3 (1); 2. Where the relevant labeling or advertising is likely to cause irrecoverable damage to consumers or rival business entities, and thus prevention of such damage is deemed urgently required. (2)-(5) Omitted.
7. ↑ The English translation of the Act is available here.
8. ↑ Article 9 (Prohibition on Providing False or Exaggerated Information) 가맹사업법 (1) No franchiser shall engage in the following acts when it provides prospective franchisees or franchisees with information: <Amended Act No. 12094, Aug. 13, 2013> 1. Providing information different from fact or exaggerated information (hereinafter referred to as "providing false or exaggerated information"); 2. Providing information by suppressing or minimizing any fact that has significant influence on the conclusion or maintenance of a contract (hereinafter referred to as "providing deceptive information"). (2) Types of acts referred to in the subparagraphs of paragraph (1) shall be prescribed by Presidential Decree. <Newly Inserted Act No. 12094, Aug. 13, 2013> (3) Where any franchiser provides its prospective franchisees or franchisees with any of the following information, it shall provide such information in writing: <Amended by Act No. 8630, Aug. 3, 2007; Act No. 12094, Aug. 13, 2013> 1. Information about the expected future profits of a prospective franchisee, including estimated sales, profits, gross profit, and net income; 2. Information about the past profits or expected future profits of a franchisee, including sales, profits, gross profit, and net income. (4) Each franchisor shall, whenever it provides information pursuant to paragraph (3), keep evidentiary materials which serve as a basis for the calculation of such information and which is prescribed by Presidential Decree at its office and shall allow any prospective franchisee or franchisee to inspect such materials at any time during business hours, upon request by the prospective franchisee or a franchisee. <Amended by Act No. 8630, Aug. 3, 2007; Act No. 12094, Aug. 13, 2013> (5) Notwithstanding paragraph (3), any of the following franchisers shall provide a prospective franchisee with the range of estimated sales and grounds for the calculation thereof prescribed by Presidential Decree in writing (hereinafter referred to as "paper describing the calculation of estimated sales"): <Newly Inserted Act No. 12094, Aug. 13, 2013> 1. A franchiser that is not a small and medium enterprise (referring to a person under Article 2 (1) or (3) of the Framework Act on Small and Medium Enterprises); 2. A franchiser the number of franchisees (where the franchiser possesses multiple trademarks, limited to franchisees that use the same trademark) that enter into or maintain a contract with which is not less than a number prescribed by Presidential Decree as of the end of the immediately preceding business year. (6) A franchiser shall keep a paper describing the calculation of estimated sales for five years from the date it enters into a franchise agreement. <Newly Inserted Act No. 12094, Aug. 13, 2013> (7) The Korea Fair Trade Commission may establish a standard form of a paper describing the calculation of estimated sales and encourage franchisers to use the standard form thereof. <Newly Inserted Act No. 12094, Aug. 13, 2013>
9. ↑ This would be one of the warranties made by the borrower.

When one party is forced into an agreement by the wrongful act of another it is known as?

When a contract is voidable it may be rescinded True or false?

What is a false representation of a material fact that is consciously false and intended to mislead the other party?

Where both the parties to an agreement are under a mistake it is called?