Contract Review

The representative types of contracts that a company encounters in the course of its operations are as follows.

If the transaction terms or the rights and obligations are stated unclearly in a contract, disputes over interpretation can easily arise.

For example, a phrase such as 'the delivery date shall be as soon as possible' has unclear legal effect and may become a cause for claims of liquidated damages for delay or for refusal to pay.

In addition, if terms such as the down payment, the balance, the performance guarantee deposit, the time of delivery, and the warranty period for defects are omitted or ambiguous, there is a high likelihood that the matter will develop into litigation over the interpretation of the contract.

There are cases in which the other party secretly inserts into a contract an excessive liquidated-damages clause, such as 'liquidated damages for delay shall be 5% of the delivery price per day,' or an unfair clause, such as 'bearing liability for damages regardless of attributable cause.'

If you sign without recognizing this, you may bear enormous monetary liability in the event of a dispute, which can lead to a critical loss to your business.

Certain types of contracts are subject to laws such as the Monopoly Regulation and Fair Trade Act, the Fair Transactions in Subcontracting Act, the Fair Transactions in Franchise Business Act, the Act on Fair Labeling and Advertising, and the Personal Information Protection Act.

In such cases, if a contract includes transaction terms prohibited by law or an unfair special agreement, that portion becomes void, and the business operator concerned may be subject to sanctions such as a penalty surcharge, demerit points, accusation, and suspension of business.

In the case of a multinational transaction contract, if there is no clause on the court of jurisdiction or the governing law in the contract, complex issues of legal application may arise under private international law, which can prolong litigation and cause legal costs to surge.

In addition, because the interpretation of the contract may differ depending on whether international norms apply, it must be coordinated by reflecting international norms, foreign law, and prevailing practice.

If the content of a contract is unclear or if the agreed terms on key issues are missing, the means available to a company to defend itself are very limited when a dispute later arises, extending to civil litigation, arbitration, and criminal accusation.

Therefore, a company should not stop at simply drafting and concluding a contract, but should, from the stage of legal review before conclusion, anticipate disputes that may arise in the future and design response clauses, the scope of damages, the cap on penalties, termination and rescission clauses, clauses on the court of jurisdiction and the governing law, and clauses on confidentiality and the attribution of intellectual property rights, thereby making the contract itself a legal shield for the company.

Regardless of the size of a transaction or the nature of the other party, a company can secure stable transactional relationships, corporate trustworthiness, and long-term management stability only by standardizing the contract drafting and review process and establishing a system of ongoing legal advisory.

Many companies, citing short-term cost savings, omit legal advisory or conclude contracts after reviewing them only internally, and in many cases they recognize the problem only after suffering loss through subsequent litigation, an investigation by the Fair Trade Commission, or a judgment voiding the contract.

By then, however, the recovery of the loss, the restoration of trust, and the management impact have already reached an irreversible level.

Legal costs are an essential expense proportional to the size of a transaction and an insurance against large risks, so management that disregards them is in fact an irrational management choice.

In the end, contract review is not a simple document check but a core means of preventing legal risk, responding to disputes, protecting management control, and establishing transactional order.

In particular, the larger the size of a transaction or the more complex the stakeholders involved, the more important it is, at the contract stage, to remove legal defects and elements of illegality through a precise review by a legal professional such as an attorney, and to supplement clauses where the company may become vulnerable.

It is now time for companies to establish contract review as a standard process within their corporate legal systems and to build a management system that blocks the risks of all transactions at the source through close collaboration with legal professionals.

□ Are the contracting parties clearly stated?

□ Are the purpose and scope of the contract specifically defined?

□ Are the contract term and renewal clause specified?

□ Are there provisions on the payment method and date, and on damages in the event of delay?

□ Are the grounds and procedures for termination specifically stated?

□ Are clauses on confidentiality, copyright, and personal information included?

□ Is the court of jurisdiction or an arbitration clause specified in the event of a dispute?

□ Are there special conditions such as a prohibition on assignment or a restriction on subcontracting?

□ Are there any elements that violate relevant laws and regulations?

□ Have the internal corporate review and the attorney's review been completed?