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Supplier's arbitrary termination of the agreement with its business developing agency: is it fair in Korea?

  • DONG-A LAW REVIEW
  • 2014, (64), pp.177-204
  • Publisher : The Institute for Legal Studies Dong-A University
  • Research Area : Social Science > Law

kang hyelim 1

1동아대학교

Accredited

ABSTRACT

In Korea, there are many occasions of contractual relationship between a manufacturer and a sole distributor where the sole distributor, at his own costs and efforts, find persons who would establish authorized retail stores to purchase products from the manufacturer and sell them and the sole distributor assist sales activities of the authorized retail stores. In consideration of such costs and efforts to find and assist the authorized retail stores, the sole distributor is paid from the manufacturer certain fees which are proportional to the price of products being sold from the manufacturer to the authorized retail stores. Such contract is not clearly defined under Korean laws, and it will be called as ‘business-developing agency contract’ in this paper. With regard to the legal nature of the business-developing agency contract, Busan District Court ruled that it was a contract for mandate or a contract for a concept similar to mandate. As a result, either party may at any time terminate the contract at will under Article 689 of Korean Civil Act. However, the business-developing agency should be classified as commercial agent, which is one of the forms of mandate which is separately defined by Article 87 of Korean Commercial Act. Therefore, the business-developing agency contract should not be terminated by either party at any time. In conclusion, Article 689 of Korean Civil Act applying to mandate which is generally based on special trust of each party, should not apply to a business-developing agency contract, which is deemed to be classified as an onerous contract, the main purpose of which is to seek profits of each party, and the relationship between the parties in the contract includes certain elements of partnership. Finally, to resolve effectively the complexity with regard to the definition of the business-developing agency contract and laws applying to it, this paper suggests that the provisions on mandate under Korean Civil Act should be amended so that they are applied only to gratuitous mandate contracts.

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