Contracts and formal notices often use "rescission" (해제, haeje) and "termination" (해지, haeji) interchangeably. In everyday Korean, both just mean "ending the contract," but legally the effects are quite different.
The short version
Rescission unwinds the contract as if it never existed; termination ends it only going forward. So if you rescind, both sides have to return what they've already exchanged (restitution), while if you terminate, what's already been performed stays as is and only the obligations going forward disappear. Continuing contracts like services, subscriptions, and leases are usually terminated; contracts that are completed in one go, like a sale, are usually rescinded.
Rescission vs. termination: what's the difference?
| Rescission | Termination | |
|---|---|---|
| Effect | Retroactive: as if it never existed | Prospective: ends only going forward |
| What's already been exchanged | Returned to each other (restitution, Civil Act Art. 548) | Left as is (Civil Act Art. 550) |
| Typical contracts | Contracts performed in one go, like a sale | Continuing contracts like services, leases, employment, subscriptions |
| Damages | Can be claimed separately (Civil Act Art. 551) | Can be claimed separately (Civil Act Art. 551) |
| How | Declaration of intent to the other party (Civil Act Art. 543) | Declaration of intent to the other party (Civil Act Art. 543) |
Termination "extinguishes the contract only going forward," while rescission "unwinds the contract as if it had never existed" (korea.legal, termination).
3 things that trip people up in practice
① Ending a service contract midway. If you end a six-month service contract in month three, the natural approach is to settle up for the three months already performed and end only the remaining period. That's termination. If the notice says "rescind," it can be read as demanding a refund of payments already made, which leads to disputes.
② When you've prepaid. If you paid a year's subscription up front and terminated after six months, the prepayment covering the period after termination has to be settled separately. Writing the settlement method into the contract, like "upon termination, fees for the unused period are refunded on a pro rata daily basis," cuts down on disputes.
③ Can you terminate and still claim damages? Yes. If you terminated because of the other party's breach, you can claim damages separately from the termination (korea.legal, termination).
Checklist for drafting contracts
- For a continuing contract (services, subscription, lease, maintenance), it's written as a "termination" clause
- The grounds for termination are stated (breach, bankruptcy, early termination by notice, etc.)
- A notice period for early termination is set (e.g., 30 days' written notice)
- The settlement method for already-performed work and prepayments upon termination is stated
- The clauses that survive termination (confidentiality, damages, jurisdiction) are specified
When sending a termination notice
- State precisely in the subject line and body whether it's a "rescission" or a "termination."
- Include the governing clause (Article ○, Paragraph ○), the grounds, and the effective date of termination.
- Send it in the manner the contract specifies (in writing, by content-certified mail, by email, etc.) and keep a record of sending.
- For an auto-renewing contract, check the notice deadline first. The calculation is covered in implied renewal.
To send a termination notice, you need to be able to find the original contract's termination clause, notice method, and any amendment agreements all in one place. For a company with many contracts, a contract lifecycle management (CLM) system that bundles this information by contract helps. According to public sources, PRIX offers history tracking and renewal reminders (VentureSquare).
Alpaca's takeaway
"Rescission" and "termination" are one character apart in Korean, but they decide whether money already exchanged has to be returned or not. Just remember this much: when ending a continuing contract, it's termination, and write down the settlement method with it. That alone avoids most disputes.
🦙 That's it for Researcher Alpaca's research notes. This post is a general overview, not legal advice on any specific matter. If anything's wrong or you have more questions, let me know through "Contact Josh" below.
Related posts
- Implied renewal: what to check before a vendor contract rolls over for another year
- 10 essential clauses in a service contract: what you'll fight over if it's missing
Sources
- Termination (korea.legal) — prospective effect, continuing contracts, damages
- Rescission (korea.legal) — retroactive effect, restitution
- PRIX, AI-powered CLM (VentureSquare) — history tracking, renewal reminders
