Liquidated Damages vs. Penalty Damages: Korean Contract Law Basics

Liquidated Damages v. Penalty Damages in Korea In Korea, liquidated damage clauses in South Korean contracts may be invalidated if the liquidated damage amount is deemed, by a Korean court of law, as “unduly excessive.” (Civil Act Art. 398(2)). Article 398 of the Civil Act may be found below.  Korean Liquidated damages law is governed by the Civil Act of Korea and related Korean Law. However, if an agreement, in Korea, notes a “penalty,” the amount of the “penalty is presumed to be determined in advance of the damages” (Civil Act Art. 398(4)) and is presumed valid.  Of course, the difference between “liquidated” and “penalty” damages, thus, would seem critical.  However, presently, in Korea, form is prevailing, in most cases, over substance. Liquidated damages, according to Korean courts, are damages where the parties contract with the intent to compensate the non-breaching party for the actual damages caused.  While, a penalty

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