[2] Where an auditor of a corporation fails to discover false financial statements, etc. while conducting settlement of accounts, the standard for determining whether gross negligence exists, which is the elements for establishing liability for damages against a third party

[3] The extinctive prescription period for the director's liability for damages to a third party under Article 401 of the Commercial Code (=10 years), and whether the short-term extinctive prescription under the Act on External Audit of Stock Companies applies (negative)

[2] Where an auditor of a corporation does not know that the financial statements, etc. were false as an auditor, but did not know the fact that the accounting statements, etc. were falsely recorded, it can be easily discovered that the auditor of the corporation in question, and thus, the director could find out the false financial statements, etc. and prevented the director from obtaining approval at the general meeting of shareholders. Thus, the auditor can be held liable for damages to a third party only if the circumstances were acknowledged, such as finding out the false financial statements, etc., and the fact that the window dressing settlement was systematically disturbed by other executives and employees of the company, and thus, the auditor could not be held liable for damages suffered by a third party due to the window dressing settlement. In a case where the auditor could not easily find out the window dressing settlement, the mere fact that the auditor did not discover the window dressing settlement.

[3] Considering that the liability of a director for damages against a third party under Article 401 of the Commercial Act is a special liability recognized by the Commercial Act to protect the third party, there is no room to apply Article 766(1) of the Civil Act that provides for the short-term extinctive prescription of a general tort liability. Under Article 162(1) of the Civil Act, the extinctive prescription period of a general claim is ten years, and there is no room to apply the short-term extinctive prescription under Article 17(7) of the Act on External Audit of Stock Companies in a lawsuit claiming damages against a third party only based on Article 401 of the Commercial Act.

1. As to Defendant 1’s ground of appeal

A. Examining the reasoning of the judgment below in light of the records, it is just that the court below recognized that the plaintiff provided a payment guarantee against the company bond 188 times in trust and reliance on the financial statements for the fiscal year 1996, which was settled in installments as stated in the judgment of the court below based on the employed evidence. There is no error in the misapprehension of legal principles as to the violation of the rules of evidence, the incomplete hearing or the judgment on causation between the window dressing settlement and the

B. Except in cases where an audit committee is established as prescribed by the articles of incorporation, an auditor has the authority to audit the director’s performance of duties as a necessary permanent institution for the company and to request the director to report on the business or investigate the company’s property status at any time for the audit of business (Article 412 of the Commercial Act). In particular, with respect to the settlement of accounts, an auditor is obligated to submit financial statements and business reports within a statutory period for the settlement of accounts from the director and prepare audit reports thereon within the statutory period (Article 447-3, 4 of the Commercial Act). Therefore, even without any intention to perform duties as an auditor, an auditor merely lends his/her name in the manner of entrusting the director with his/her seal without any interference or supervision, and then makes false statements on the company’s financial statements, etc., and then the auditor was liable for damages incurred by a third party due to his/her failure to perform his/her duties in bad faith or gross negligence. However, if the auditor did not know the fact that he/she was not aware of the fact that he/she was not aware of the settlement of accounts.

In light of the records, Defendant 1 did not comply with the statutory deadline (six weeks) at the lower court and did not dispute that there was gross negligence by asserting to the effect that Defendant 1 prepared and submitted an audit report by referring to the audit report of an external auditor with which an adequate opinion was stated (see, e.g., a preparatory document of 1076 pages). If so, the lower court should have deliberated first on whether Defendant 1 performed his duties as an actual auditor in relation to the settlement of accounts for the fiscal year 1996 agreement, and then determined whether it was easy to discover the settlement of accounts by referring to the fact that he neglected his duties due to gross negligence.

Nevertheless, the court below held that Defendant 1 did not perform his duties as an auditor in relation to the preparation of a window dressing accounting for the fiscal year 1996 of the high agreement and the preparation of a false financial statement, and held that Defendant 1 neglected to perform his duties as an auditor in the course of preparing and disclosing false financial statements for the fiscal year 1996 as stated in its holding. Thus, the court below erred in the misapprehension of legal principles as to the determination of gross negligence as an auditor's liability requirement, which affected the conclusion of the judgment, by misunderstanding the legal principles as to the determination of gross negligence as an auditor's liability requirement. The ground of appeal pointing this out is with merit.

2. As to the grounds of appeal by Defendant 2, 3, and 4

A. Examining the reasoning of the judgment below in light of the records, it is just that the court below acknowledged the fact that the above Defendants were involved in the settlement of the window dressing accounts while serving as a high-level agreement director during the period of its determination based on the evidence employed, and there is no violation of the rules of evidence

B. The company’s financial statements and audit report stating the result of the company’s audit is the most objective data revealing the company’s accurate financial status through the Korea Stock Exchange, etc., and the company’s credit rating assessment of corporate bonds and corporate bills issued by the company and the financial institution’s decision on whether to provide credit is important. Therefore, in a case where an executive officer or employee, etc. of a company takes part in large-scale window dressing accounting or an auditor of a company failed or neglected to perform important audit procedures related to the company’s audit of financial statements in a large scale, it is reasonable to deem that the company’s corporate bonds, etc. issued by the company obtained adequate credit rating from the credit assessment institution and accordingly, the financial institution provided credit by guaranteeing or purchasing corporate bonds, etc. (see, e.g., Supreme Court Decision 2005Da28082, Jan. 11, 207).

In light of the above legal principles and the records, it is reasonable that the court below recognized that the plaintiff provided a payment guarantee against the company's bonds with the trust of the financial statements settled in installments as stated in its reasoning, and there is no error in the misapprehension of legal principles as to the causation between window dressing settlement and payment guarantee, as alleged in the grounds of appeal.

C. Considering that the liability of a director for damages against a third party under Article 401 of the Commercial Act is a special liability recognized by the Commercial Act to protect the third party, there is no room to apply Article 766(1) of the Civil Act that provides for the short-term extinctive prescription period of general tort liability, and as a general claim, the extinctive prescription period is ten years pursuant to Article 162(1) of the Civil Act (see Supreme Court Decision 2004Da63354, Dec. 22, 2006) and there is no room to apply the short-term extinctive prescription period under Article 17(7) of the Act on External Audit of Stock Companies in a lawsuit seeking damages against a third party only for the liability of a director for damages against a third party under Article 401 of the Commercial Act. The judgment of the court below that the prescription period of the Plaintiff’s damage claim of this case is ten years in accordance with the above legal principles, and there is no error

D. Property damage caused by an illegal act is a disadvantage in property caused by an illegal act, i.e., the property condition that existed without the illegal act and the current property status of the company caused by such an illegal act. If an enterprise, which was faced with financial difficulties, is unable to repay the previous corporate bonds itself with money for repayment, issues new corporate bonds in order to raise the repayment fund, the financial institution which paid the previous corporate bonds re-guarantees new corporate bonds to the new company at the time of issuance of the new corporate bonds, and the old corporate bonds are extinguished with funds raised by the issuance of new corporate bonds, the financial institution was placed in the situation where the payment guarantee liability for the old corporate bonds is realized due to the lack of the company's ability to repay the old corporate bonds, and the payment guarantee liability for the new corporate bonds is extinguished with the funds raised by the issuance of new corporate bonds, and the payment guarantee liability for the new corporate bonds is not guaranteed within the extent of 200,000 after the issuance of the new corporate bonds (see, e.g., Supreme Court Decision 206 after the issuance of new corporate bonds.

In light of the records, the company bonds of the 185th and 188th and the 135th and the 137th and the 137th and the 137th and the 137th and the 188th 137th 137th of the 135th of the 135th and the 137th 137th of the 137th and the 135th 137th of the 135th and the 137th 137th of the 135th 137 207, which were issued by the plaintiff, can be viewed as having been a new loss to the plaintiff due to the payment guarantee used for the redemption of the company bonds.

Nevertheless, the court below determined that the payment guarantee for the issuance of corporate bonds 185 and 188 as to the above 185 and 188 without examining the circumstances of the agreed funds at the time of the issuance of corporate bonds from other standpoint, caused damages to the plaintiff as a result of the payment guarantee for the issuance of corporate bonds 185 and 188. Thus, the court below erred in the misapprehension of legal principles as to the payment guarantee for the refund corporate bonds and the causation between the occurrence of damages, which affected the conclusion of the judgment. The ground of appeal on this part is with merit.

3. Therefore, without examining the remaining grounds of appeal, the part of the judgment below against the Defendants is reversed, and that part of the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Hwang-sik (Presiding Justice)