Misrepresentation

Misrepresentation (허위표시/虛僞表示, 과장광고/誇張廣告) is a contract law concept. It means a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.

Key words
misrepresentation, false statement, omission, damages, penalty

Criteria for Misrepresentation
Misrepresentation is one of several vitiating factors that can affect the validity of a contract. A misrepresentation occurs when one party makes a false statement, inducing another party to contract. For an action to be successful, some criteria must be met in order to prove a misrepresentation. These include:
 * A false statement of fact has been made,
 * The statement was directed at the suing party and
 * The statement had acted to induce the suing party to contract.

Capital Markets Act
The Financial Investment Services and Capital Markets Act (자본시장과 금융투자업에 관한 법률) requires CEO and CFO of the issuing company, who submit the securities registration statement to the Financial Services Commission (FSC), to review and confirm that there is no false statement or omission in the material aspects of such statement, and affix its signature on the statement, respectively. Article 119 (Registration of Public Offering or Sale)
 * (1)-(4), (6) Omitted.
 * (5) In filing a registration statement, the representative director of the issuer and the director responsible for filing the registration (referring to a person in a similar position, if there is no representative director or director responsible for filing the registration) shall review and confirm the matters prescribed by Presidential Decree, such as the fact that there is no false statement or representation of a material fact, nor omission of a material fact in the descriptions of the registration statement, and each of them shall sign the statement.

Article 120 (Effective Date of Registration Statement, etc.)
 * (1) The registration of securities under Article 119 (1) and (2) (hereinafter referred to as “securities registration”) shall be effective on the day after the expiration of the time period prescribed by Ordinance of the Prime Minister, considering the type of securities or the characteristics of the transaction, etc., which shall begin on the day on which the registration statement is submitted and accepted by the Financial Services Commission. 
 * (2) The Financial Services Commission shall not refuse to approve a registration statement, unless it is not prepared in conformity with the prescribed form of the registration statement, there is any false description or representation in the registration statement concerning a material fact, or any description or representation of a material fact is omitted. 
 * (3), (4) Omitted.

Article 122 (Corrective Registration Statement)
 * (1) If a registration statement submitted has not been prepared in conformity with the prescribed form for the statement, there is any false description or representation of a material fact in the registration statement, there is any omission of a material fact, or there is any uncertain description or representation of a material fact in the registration statement which might undermine reasonable investment decision of investors or significantly mislead investors, the Financial Services Commission may demand that the person present the reasons therefor and submit a corrective registration statement (hereafter referred to as “corrective registration statement” in this Chapter) with correct contents of the registration statement no later than the day before the date set for offering to acquire or purchase the securities stated in the registration statement. 
 * (2)-(5) Omitted.

If there were false statements or omissions in the material aspects of the securities registration statement and prospectus, and any investor of securities issued related therewith suffered loss owing to such misrepresentation therein, the below-mentioned persons shall be responsible for compensating such loss:
 * CEO and CFO who submitted the securities registration statements to FSC, or such executive officer as stated in each subparagraph of Article 401-2 (1) of the Commercial Act;
 * Certified public accountant, appraiser or credit rating agency as provided by the Enforcement Decree;
 * Underwriters of such securities; and
 * Producer of prospectuses at issue. Article 125 (Liabilities for Damages Caused by False Statements, etc.)
 * (1) The following persons shall be liable for damages inflicted upon any person as a result of acquiring securities by including a false description or representation of any material fact in a registration statement (including a corrective registration statement and supplements thereto; hereafter the same shall apply in this Article) and an investment prospectus (including a preliminary investment prospectus and a short-form investment prospectus; hereafter the same shall apply in this Article) or omitting a material fact therefrom: Provided, That such person shall not be liable if he/she proves that he/she was unable to discover such inclusion or omission even if he/she exercised reasonable care or that the person who acquired the securities knew the fact at the time when he/she made an offer to acquire them: 
 * 1. The registrant of the relevant registration statement and directors of the issuer at the time of filing the registration (referring to persons in a similar position if there is no director, or promoters if the registration statement was filed before the corporation was incorporated);
 * 2. A person who falls under any of subparagraphs of Article 401-2 (1) of the Commercial Act and who instructed or executed the preparation of the registration statement;
 * 3. A certified public accountant, a certified appraiser, or a specialist in credit rating, who certified with his/her signature that the descriptions of the registration statement or the supplements thereto are true and correct (including an organization to which each of them belongs), as specified further by Presidential Decree;
 * 4. A person who consented to include his/her statement of evaluation, analysis, or verification in the descriptions of the registration statement or the supplements thereto and confirmed such statement therein;
 * 5. A person who executed a contract for underwriting the securities (referring to a person specified by Presidential Decree, if there are two or more persons who signed such underwriting contract);
 * 6. A person who prepared or delivered the investment prospectus; and
 * 7. The holder of the securities for sale at the time the registration statement for sale was filed, if the case involved a sale of securities.
 * (2) If the forecast information is described or indicated in accordance with the following subparagraphs, the persons listed in the subparagraphs of paragraph (1) shall not be liable for any damage incurred therefrom: Provided, That such persons shall be liable, if the person who acquired the securities involved proves that he/she did not know that there was any false description or representation of a material fact in the forecast information or any omission of description or representation of a material fact therein and that there was an intentional or grossly negligent act on the part of the persons listed in the subparagraphs of paragraph (1) in connection with such description or representation:
 * 1.It was clearly stated that the description or representation at issue was a forecast information;
 * 2.The grounds for supposition or judgement related to the forecast or prospect were clearly stated;
 * 3.The description or representation at issue was made in good faith on the basis of a reasonable ground or supposition; and
 * 4.It included a warning clause that the description or representation at issue may differ from other estimates or actual outcomes.
 * (3) Paragraph (2) shall not apply in cases where a registration statement is filed in order for an unlisted corporation to make an initial public offering or sale of stocks.

Any person who offered for sale or sold securities in violation of Article 119 (except Paragraph 5) shall be subject to imprisonment of not more than five years or fine not exceeding 200 million won.

Fairness Acts
The Act on the Fairness of Representation and Advertisement (표시·광고의 공정화에 관한 법률), amended on September 15, 2011 and effective thereafter, calls for the fairness in commercial representation and advertisement, and otherwise the following sanctions will be inflicted on the violator:


 * Corrective action by the Korea Fair Trade Commission (KFTC);
 * Injunction ordered by KFTC;
 * Surcharge imposed by KFTC;
 * Damages to the victims; and
 * Punishment subject to criminal indictment.

The Act on the Fairness of Franchise Transactions (가맹사업거래의 공정화에 관한 법률), amended on August 3, 2007, also calls for the fairness in franchise transactions, and otherwise similar sanctions like surcharge and penal provisions will be imposed on the franchisor.

Misrepresentation as an Event of Default
In general, the loan agreement requires the borrower to represent the following matters: In the event that any representation or statement made by the borrower proves to have been incorrect, the lender may declare the Loan principal, accrued interest thereon immediately due and payable, and the lender may take all such other actions as are permitted by law.
 * that it has full legal power to enter into and perform the Agreement;
 * that it has obtained or will obtain all necessary government approvals, consents and authorizations for execution of the Agreement;
 * the execution, delivery and performance by the borrower of the Agreement have been duly authorized or will be authorized by all appropriate actions of the borrower;
 * that the borrower is not in default under any agreement to which it is a party, a default in respect of which might have a material adverse effect on the borrower; and
 * that the Loan when made will rank at least pari passu with all other present or future indebtedness of the borrower.