Guide to Deposit Refunds and Contract Cancellation

Based on 11 consultation cases · Updated October 4, 2026 · Translated from the Korean original.

In principle, a deposit allows a party to cancel a contract; it does not automatically belong to the other party as a penalty. Whether a preliminary deposit or a partially paid deposit is refundable, and whether the contract can be canceled, depends on what the parties agreed and whether performance has begun.

People involved → Buyer → Seller → A contract includes a deposit One party wants to cancel → Has either party begun performance? → Yes — Civil Act Article 565(1) → Deposit-based cancellation is unavailable or the agreement controls; no automatic penalty → No → Was the agreed deposit paid or an equivalent benefit given? → Yes → Did the parties agree otherwise or make the deposit a penalty? → Yes — Civil Act Article 398(4) → No — Civil Act Article 565(1) → Before performance, either party may cancel Payer forfeits deposit; receiver returns twice the full agreed deposit → Check if performance began, including an installment or an accepted note → Performance check → Check the full agreed deposit, not just the amount received → Deposit amount check → Check preliminary contract terms and any separate penalty agreement → Terms and penalty check → Check whether the deposit was paid or an equiva…

Key points

If the parties exchanged a deposit when entering into the contract, then, unless they agreed otherwise, either party may cancel the contract before either party begins performance: the party who paid the deposit may forfeit it, and the party who received it may return twice the amount (Civil Act, Article 565(1) (민법 제565조 제1항)).
Even if only part of the deposit was paid, the amount relevant when the seller cancels is the full deposit agreed upon, not the partial amount actually received (Supreme Court Decision 2014Da231378, April 23, 2015).
A separate agreement is required for a deposit to serve as a penalty. Without such an agreement, the deposit does not automatically belong to the other party even if the contract is canceled because of a breach; a separate claim for damages may arise if actual losses are established (Civil Act, Article 398(4) (민법 제398조 제4항)).
A preliminary deposit is not a category separately defined by law. Whether it is refundable depends on the parties’ intentions and the contract terms, including whether they agreed on the essential terms of the main contract and whether the preliminary deposit would be forfeited as a penalty.
If the agreed deposit has not actually been paid and no equivalent benefit has been given to the other party, the deposit agreement may be considered not to have been formed. In that case, cancellation before payment may not require forfeiting the deposit or paying back twice its amount.
If the buyer has already begun performance, for example by paying an installment, the buyer cannot cancel by forfeiting the deposit, even if the other party has not yet performed. Delivering a promissory note for payment of the deposit or an installment with the other party’s consent may also count as beginning performance.
Whether an agreed amount of damages is excessively high is determined by considering the specific circumstances of the contract as a whole. The amount is not reduced merely because it is large or because the contract was canceled soon after it was made (Civil Act, Article 398(2) (민법 제398조 제2항)).
If the parties agreed to treat the deposit as paid by issuing a cash custody receipt for an amount equivalent to the deposit, the party in breach may have to pay the agreed penalty even if no cash was actually exchanged.

Frequently asked questions

Q. Can I get a preliminary contract deposit back if I change my mind?

Whether it is refundable is not determined merely by calling it a preliminary contract deposit. You need to consider whether the parties specifically agreed on important terms, such as the purchase price, and whether they agreed that the preliminary deposit would be forfeited as a penalty. In some cases, you may claim a refund if there was no specific agreement or penalty clause.

Case 1, Case 5

Q. There was no agreement that the preliminary deposit would be a penalty. Can I still refuse to return it?

A preliminary contract deposit does not automatically become a penalty. If there was no separate agreement that it would be forfeited as a penalty, you may claim a refund. Whether the other party suffered separate losses can be assessed independently.

Case 1, Case 5

Q. I received only part of the deposit. Can I cancel the contract by paying back twice that partial amount?

According to the court decision in the example, when the seller cancels by exercising the right to cancel by forfeiting or returning the deposit, the relevant amount is the full deposit agreed by the parties, not the partial amount actually received. The seller therefore cannot cancel by returning only twice the partial deposit.

Case 2

Q. Can I freely cancel a contract if I have not yet paid the deposit?

If the agreed deposit has not been paid and no equivalent benefit has been transferred to the other party, the deposit agreement may be considered not to have been formed, and the contract may in some cases be canceled before the deposit is paid. However, an oral agreement or preliminary agreement may also be formed if the parties agreed on the essential terms, so both the contract terms and the circumstances of any actual payment must be considered.

Case 3, Case 5

Q. Can I still forfeit the deposit and cancel the contract after paying an installment?

If the buyer has already begun performing the contract, for example by paying an installment, the contract cannot be canceled under the Civil Act, Article 565(1) (민법 제565조 제1항). The result may be the same even if the other party has not yet begun performance.

Case 7, Case 9

Q. If the contract does not say the deposit is a penalty, do I get it back?

Unless there is an agreement that the deposit will serve as a penalty, the deposit does not automatically belong to the other party merely because the contract was breached. Depending on the basis for cancellation and whether actual losses were suffered, a separate claim for damages may arise.

Case 1, Case 11

Q. Do I have to pay a penalty even though I only signed a cash custody receipt for an amount equal to the deposit?

If the parties agreed to treat the deposit as paid and prepared and delivered a cash custody receipt for an amount equivalent to the deposit, an agreement to pay a penalty may be recognized even if no cash was actually paid. If the contract is breached, you may have to pay the agreed penalty.

Case 10

Q. Can an agreed amount of damages be reduced if it is large or the contract is canceled soon after it is made?

An agreed amount of damages is not reduced merely because it is large or because the contract was canceled soon after it was made. Whether the amount is unreasonably excessive is determined by considering all the specific circumstances, including the parties’ financial positions, the contract terms, the circumstances in which the agreement was made, and the anticipated losses.

Case 4

Q. When a golf course changes operators, does the obligation to refund the deposit to a member who canceled also transfer?

The court decision in the example held that even if a membership agreement was canceled before the sports facility business was transferred, outstanding obligations to restore the parties to their original positions, such as refunding the deposit, could be included among the obligations transferred. In some cases, you may therefore claim a refund from the acquiring business.

Case 8

Relevant laws

Civil Act, Article 565(1) (민법 제565조 제1항)
Civil Act, Article 398(1) (민법 제398조 제1항)
Civil Act, Article 398(2) (민법 제398조 제2항)
Civil Act, Article 398(4) (민법 제398조 제4항)
Installation and Utilization of Sports Facilities Act, Article 2(4) (체육시설의 설치·이용에 관한 법률 제2조 제4호)
Installation and Utilization of Sports Facilities Act, Article 27 (체육시설의 설치·이용에 관한 법률 제27조)

Watch out for

Calling an agreement preliminary does not, by itself, determine whether a contract was formed or whether the preliminary deposit must be refunded. Check the agreed terms, any penalty agreement, and who received the money.
Cancellation by forfeiting or returning the deposit may be restricted depending on whether performance has begun, for example through payment of an installment or delivery of a promissory note. Check when payment or delivery occurred and whether the other party consented.
A penalty for canceling a contract must be distinguished from compensation for actual loss. A cancellation clause in the contract does not, by itself, automatically make the deposit a penalty.

Source cases

This guide was compiled by AI from the following Korea Legal Aid Corporation consultation cases (in Korean).

This guide is general legal information about Korean law, not legal advice for your situation. For a specific case, consult a lawyer or the Korea Legal Aid Corporation (call 132 in Korea).