Supreme Court sets strict bar for implied contract cancellations in subcontracting

The Supreme Court on Feb. 26 established stringent criteria for recognizing implied agreements to cancel contracts, ruling that such cancellations cannot be easily assumed when significant legal relationships remain unsettled. The high court emphasized that parties must clearly demonstrate a shared intent to terminate future obligations.

In civil case 2025Da215212 involving construction payments, the court clarified that an agreement to cancel a contract is essentially a new pact designed to extinguish the effects of an existing one. While such cancellations can occur implicitly, the justices stated this is only valid after performance has begun and both sides clearly lack the intention to realize the original contract. The court reasoned that agreeing to end a contract without defining the subsequent legal relationships is unusual under common experience.

The Supreme Court partially overturned previous rulings, remanding the case to the Daegu High Court for a retrial on specific claims involving the city of Daegu and a joint venture consortium. The lower court had failed to sufficiently verify whether the parties truly shared the intent to waive direct payment rights for uncompleted portions of the project. The court dismissed the appeal on the plaintiff's primary claim.

The ruling hinged on provisions under the Subcontracting Fair Trade Act. The court determined that for an implicit cancellation of a direct payment agreement to be valid regarding unfinished work, there must be clear proof that the subcontractor agreed not to claim direct payment from the orderer even after completing the construction. Without such explicit evidence of matching intent regarding these future claims, the court held that an agreement to cancel cannot be recognized.