General Guide to Contracts: Contract Formation and Principles of Performance

Based on 84 consultation cases · Updated October 4, 2026 · Translated from the Korean original.

The parties and terms of a contract are determined not only from the written contract but also by considering the circumstances in which it was entered into, the parties’ intentions, and the actual course of performance. The duty to explain standard terms and conditions, the defense of simultaneous performance, and the consequences of breach are not determined uniformly in every case; the specific agreement and circumstances must be examined.

Contract parties → Party considering whether to perform → Other party → A party considers withholding performance → Is this a bilateral contract? → No → These performance defenses may not apply → Yes → Is the other party obligation due? → Yes Civil Act Article 536 → A defense may let you refuse performance → Must you perform first and has the other party performance become substantially difficult? → Check when each obligation is due → Check the contract terms on performance → Check whether you must perform first → Confirm which party must perform first → Check for substantial difficulty → Look for circumstances making the other party performance substantially difficult

Key points

A term in standard terms and conditions is not automatically invalid merely because it is unfavorable to the customer. The overall determination considers whether it involves abuse of a superior bargaining position or unfairness that runs counter to legitimate interests or reasonable expectations (Act on the Regulation of Terms and Conditions, Article 6 (약관규제법 제6조), Case 1).
Important terms in standard terms and conditions that directly affect the conclusion of a contract must be explained in a way the customer can understand. However, the duty to explain may not apply to matters that are customary in the relevant transaction and could be anticipated without a separate explanation (Act on the Regulation of Terms and Conditions, Article 3 (약관규제법 제3조), Cases 1 and 11).
If a contract is entered into in another person’s name, the contracting party is determined according to the parties’ shared intent if their intentions match. If they do not match, the determination is made by examining the specific circumstances, including the contract’s terms and the circumstances in which it was entered into (Case 22).
In a bilateral contract, the defense of simultaneous performance may be available when the other party’s obligation falls due, allowing a party to refuse to perform its own obligation. Even a party required to perform first may be entitled to the defense of insecurity if circumstances arise that make the other party’s performance substantially difficult (Civil Act, Article 536 (민법 제536조), Cases 6 and 12).
Even if the offeror states, “If you do not object within the specified period, you will be deemed to have accepted,” the offeror cannot compel acceptance on that basis alone if the other party has no duty to reply (Civil Act, Articles 527 and 528 (민법 제527조·제528조); Commercial Act, Article 53 (상법 제53조), Case 13).
Where a written contract is a requirement for formation, as with a local-government contract, the main contract may not be formed merely by the award of the bid. However, after the award has established the main terms, adding major terms that differ from the published terms may not be permitted (Act on Contracts to Which the State Is a Party, Article 11 (국가계약법 제11조), Case 21).
If a contract provides for performance for the benefit of a third party, that third party may, if the requirements are met, demand performance directly from the obligor. However, who qualifies as a third party is determined by examining the contract’s purpose and the scope of protection, among other factors (Civil Act, Article 539 (민법 제539조), Case 15).
As a general rule, the validity of a contract is governed by the law in force when it was entered into. The fact that the law is later amended does not, by itself, mean that the new provisions automatically apply to contracts already entered into (Case 25).

Frequently asked questions

Q. Are unfavorable terms written in standard terms and conditions automatically invalid?

Not necessarily. A term is not invalid merely because it is somewhat unfavorable to the customer. Whether it is unfair is determined by considering the disadvantage caused by the term and the likelihood of that disadvantage occurring, its effect on the transaction, relevant laws and regulations, and other factors as a whole.

Case 1

Q. What happens if a business operator does not explain important terms in its standard terms and conditions?

A business operator must explain important terms in a way the customer can understand. If the operator fails to do so, it may not assert that those terms form part of the contract. However, the duty to explain may not apply to matters that are customary in the relevant transaction or that the customer could reasonably anticipate without a separate explanation.

Case 1, Case 11

Q. If I entered into a contract using someone else’s name, who can be held liable?

If the person who entered into the contract and the other party share the same intent, the parties to the contract are determined according to that intent. If their intents do not match, the determination is made by considering the circumstances before and after the contract, including its terms, purpose, and the circumstances in which it was entered into, to establish whom the other party understood to be the contracting party.

Case 22

Q. Can I stop performing even though I agreed to perform first if the other party does not pay?

In an ongoing business relationship, there may be circumstances in which a party may refuse to perform its next obligation if it has already supplied goods or services but has not received payment that is past due, or if there are substantial grounds to doubt that the other party will make a subsequent payment. The matter is determined by considering the circumstances of the parties as a whole, including whether payment is overdue and whether there are means of securing payment.

Case 6

Q. If the other party does not pay by the contractual due date, can I refuse to perform too?

A party may exercise the defense of simultaneous performance if the parties’ obligations are reciprocal and the other party’s obligation has fallen due. The obligations do not have to have been due at the same time from the outset; the issue may also arise if the other party’s obligation falls due while the party who must perform first is still under that obligation.

Case 12, Case 16

Q. If an offer says, “If you do not object within the specified period, you will be deemed to have agreed,” will I be treated as having agreed?

If the other party has no duty to reply, the offeror cannot bind that party merely by stating that they must do so. However, the specific circumstances should be examined where a separate rule may apply, such as to a contract falling within the ordinary course of business in an ongoing commercial relationship.

Case 13

Q. Is a contract formed immediately when a bid for a local-government contract is awarded?

For the local-government contract discussed in the case, a written contract was a requirement for formation, so the main contract was not formed merely by the award of the bid. However, after the award has established the main terms, adding important terms that differ from the invitation to bid may not be permitted in the absence of special circumstances.

Case 21

Q. Can visitors who are not among those protected by the contract receive protection under a contract for the benefit of a third party?

Even if a contract is recognized as a contract for the benefit of a third party, the scope of those protected is determined by examining the contract’s purpose, the nature of the work, and how the subject matter is used. In the case, family members living with and routinely using the building under security protection were included, but people who visited temporarily were not.

Case 15

Q. If the law changes after I enter into a contract, does the new law apply to my existing contract?

As a general rule, the validity of a contract is governed by the law in force when the contract was entered into. Unless an amended law contains a special provision making it applicable to existing contracts, the new law cannot be considered automatically applicable to contracts already entered into.

Case 25

Relevant laws

Act on the Regulation of Terms and Conditions, Articles 3 and 6 (약관의 규제에 관한 법률 제3조·제6조)
Civil Act, Articles 103, 527, 528, 534, 536, and 539 (민법 제103조·제527조·제528조·제534조·제536조·제539조)
Commercial Act, Articles 52 and 53 (상법 제52조·제53조)
Act on Real Name Financial Transactions and Confidentiality, Article 3 (금융실명거래 및 비밀보장에 관한 법률 제3조)
Private School Act, Articles 28 and 51 (사립학교법 제28조·제51조)
Enforcement Decree of the Private School Act, Article 12 (사립학교법 시행령 제12조)
Act on the Ownership and Management of Aggregate Buildings, Articles 18, 23, 28, 29, 41, and 42 (집합건물의 소유 및 관리에 관한 법률 제18조·제23조·제28조·제29조·제41조·제42조)
Housing Act, Article 44 (주택법 제44조)
Mutual Savings Banks Act, Article 37 (상호저축은행법 제37조)
Enforcement Decree of the Mutual Savings Banks Act, Article 30 (상호저축은행법 시행령 제30조)
former Labor Standards Act, Article 34 (구 근로기준법 제34조)
Small and Medium Enterprise Cooperatives Act, Articles 35, 40, and 88 (중소기업협동조합법 제35조·제40조·제88조)
Local Finance Act, Article 63 (지방재정법 제63조)
Act on Contracts to Which the State Is a Party, Article 11 (국가를 당사자로 하는 계약에 관한 법률 제11조)
Housing Lease Protection Act, Article 3 (주택임대차보호법 제3조)

Watch out for

Even for the same type of contract, the parties, scope of obligations, and time for performance may vary depending on the wording of the agreement, the circumstances in which it was entered into, and the actual performance.
Before exercising the defense of simultaneous performance or the defense of insecurity, the specific requirements must be checked, including when the other party’s obligation falls due and the grounds for uncertainty about performance. Mere dissatisfaction is not enough to exercise either defense.
The effect of failing to reply to an offer may vary depending on the business relationship and applicable rules. The formation of a contract should not be assumed merely because the offer says “no response means acceptance.”
The laws cited in the cases include provisions of former laws. In an actual matter, check when the contract was entered into and whether the relevant laws are currently in force.

When a Contract Is Signed Under Someone Else's Name: Who Is Liable? — The Legal Reality of Name Borrowing

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).