2015Da1871 Delivery of Share Certificates

A Stock Company

1. B

2. K LLC;

Seoul High Court Decision 2014Na20068 Decided November 28, 2014

July 23, 2015

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the grounds of appeal Nos. 1 through 3, and 5, the lower court, on the grounds as stated in its reasoning, determined that the instant share transfer contract constitutes a self-transaction between the Plaintiff and its director, and that there was no approval of the Plaintiff’s board of directors as stipulated in the first sentence of Article 398 of the former Commercial Act (amended by Act No. 10660, Apr. 14, 201; hereinafter the same) with respect to the instant share transfer contract, and thus, it was null and void, and that the Defendant B knew or did not know it by gross negligence. Furthermore, the lower court rejected the Defendants’ assertion that the Plaintiff’s board of directors confirmed the instant share transfer contract after the fact, or that the Plaintiff’s assertion that the instant share transfer contract was null and void by violating the principle of good faith. Examining the records in light of the relevant legal principles, the lower court is justifiable, and contrary to what is alleged in the grounds of appeal, it did not err by exceeding the bounds of the principle of free evaluation of

2. Regarding ground of appeal No. 4

A. Based on its reasoning, the lower court determined that Defendant B returned the instant share certificates to the Plaintiff, and that Defendant C was obligated to implement the transfer procedure for the said share certificates; and that Defendant B cannot respond to the Plaintiff’s claim for the delivery of the instant share certificates until the refund of the share transfer price, etc. was made by the Plaintiff; on the ground that Defendant B’s claim that the claim for the return of the instant share transfer price was extinguished by the statute of limitations on November 29, 2008, and (2) on the ground that Defendant K cannot respond to the Plaintiff’s claim for the transfer of ownership until the Plaintiff was transferred possession of the instant share certificates, it rejected this on the ground that the Plaintiff’s claim for the transfer of ownership was the owner of the instant share certificates, and that the Plaintiff’s claim for the transfer of ownership was not necessarily necessary to present the share certificates.

B. The extinctive prescription refers to the occurrence of an objective right and the process from the time when the right can be exercised, and the period during which the right can not be exercised. The term “non-exercise of the right” refers to the occurrence of a disability under the law in relation to the exercise of the right, for example, the non-performance of the term or condition, etc. (see Supreme Court Decision 2008Da15865, Sept. 9, 2010).

However, Article 398 of the former Commercial Act provides that a director shall obtain the approval of the board of directors in connection with a transaction between a director and a third party by taking advantage of his/her position and preventing a director from seeking his/her own interest and causing damage to the company and a shareholder by doing a transaction between the company and a third party for his/her own interest (see, e.g., Supreme Court Decisions 73Da954, Oct. 31, 1973; 2007Da71271, Mar. 11, 2010). In light of the purport of the provision, a person who can assert that a transaction between a director and a company violates Article 398 of the former Commercial Act shall be limited to the company, and barring any special circumstance, the counterparty or the third party of the transaction shall not be allowed to assert that the transaction is void on the ground of the violation of the provision (see, e.g., Supreme Court Decision 201Da6751, Dec. 27, 2012).

Upon examining the reasoning and records of the judgment below in light of the above legal principles, since the contract of stock transfer in this case constitutes a company's own transaction as seen earlier but is null and void without the approval of the board of directors, the plaintiff is obligated to return the stock transfer price in this case to AW. However, barring any special circumstance, AW, the counterpart of the transaction, cannot assert the invalidity of the transaction on the ground that the contract of stock transfer in this case was in violation of Article 398 of the former Commercial Act. Thus, AW cannot be deemed to have exercised the claim for the return of the stock transfer price in this case from the time when the contract of stock transfer in this case was paid to the plaintiff, and BW cannot be deemed to have exercised the claim for the return of the stock transfer price in this case on the ground that the plaintiff violated Article 389 of the former Commercial Act, and even before B

Nevertheless, the lower court rejected Defendant B’s claim based on the claim to return the share transfer price of this case on November 29, 2008 on the ground that the claim to return the share transfer price was able to have been exercised from the time of payment, and that the statute of limitations expired on November 29, 2008. However, the lower court erred by misapprehending the legal doctrine on the starting point of the extinctive prescription period, thereby adversely affecting

C. In order for a person who acquired registered shares to be recognized as a shareholder to be a company as a shareholder, the register of shareholders shall state the name and address of the person who acquired the shares in the register of shareholders, and if the acquisitor requests a change of ownership, he/she shall present the share certificates so acquired to the company, barring any special circumstances (see Supreme Court Decision 94Da25735, Jul. 28, 1995). The same applies where the transferor claims a change of ownership against the company to restore the name of the shareholder in the register of shareholders to the original name of the transferor.

Upon examining the reasoning and records of the judgment below in light of the above legal principles, since the share transfer contract of this case is null and void, even if Defendant B is required to return the share certificates of this case to the Plaintiff, the Plaintiff did not return the share certificates of this case from Defendant B, and as long as Defendant K did not present the share certificates of this case, Defendant C is not obligated to respond to the Plaintiff’s transfer request

Nevertheless, the court below rejected Defendant K’s above assertion and accepted the Plaintiff’s transfer claim on the ground that the transfer claim does not necessarily require the presentation of share certificates. In so doing, the court below erred by misapprehending the legal principles on the transfer of ownership, thereby adversely affecting the conclusion of the judgment.

3. Conclusion

Therefore, the judgment of the court below is reversed and 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 Park Young-young

Justices Min Il-young

Justices Kim Jae-han

Chief Justice Kim Jong-il