[1] The meaning and standard of determining the transfer of business

[2] The meaning of "mutual use" under Article 42 (1) of the Commercial Act

[3] In a case where the liability of the transferee of business who belongs to the trade name is at issue, whether the obligee is liable to assert and prove the bad faith of the obligee as to the absence of the succession of obligation (=business transferee)

[1] The transfer of business under the Commercial Act refers to the transfer of human and material organizations, i.e., an enterprise organized for a certain business purpose, to a whole, while maintaining its identity, and whether the transfer of business is conducted is not determined by which business property is transferred to a certain extent, but by which the organization can function as a whole or an important part of the business organization because it is determined by the existing business organization. Thus, even if the business facility is transferred without reserving the part of the business, it can be viewed as a transfer of business if it is acknowledged in light of the social concept that the previous organization is maintained even if it was transferred without reserving the part of the business, and such transfer of business does not necessarily require an explicit contract between the parties to the transfer of business, and it is possible by implied contract.

[2] In light of the purport of Article 42(1) of the Commercial Act, which provides for the liability of a transferee of business who employs a trade name, there is no need to place restrictions on what constitutes the cause of mutual continuity in order to hold the transferee of business liable for the liability of the transferee of business who employs the trade name liable, and there is sufficient fact that it is the mutual continuity. Accordingly, it is also included in the mutual continuity of Article 42(1) of the Commercial Act in the case where the agreement on the transfer or use of a trade name is invalidated or cancelled as well as in the case where the agreement on the transfer or use of the trade name is invalidated or cancelled, or where the transferor of business uses the trade name without permission. Furthermore, the trade name of the transferor of business at the same time has been used as its own name or its business name as its own name or its business mark. If the transferor of business employs the trade name of the transferor of business as its own trade name as its own business name or its business mark, it is difficult for the transferee of business to easily identify the replacement of the main body of business or succession to obligations.

[3] The liability of a transferee of a business who uses a trade name is to protect the external trust of creditors who deprived of an opportunity to enforce his/her claim through a transfer of business without any succession. Thus, unless the creditor is a malicious creditor who knows that there was no fact of succession of obligation despite the transfer of business, etc., even if the creditor knew that the transfer of business was done, such circumstance alone cannot be deemed to lack the protection. In this case, the obligee’s claim and burden of proof as to the fact that the transfer of business was done in bad faith is against the transferee of a business who seeks to be exempted from liability under Article 42(1) of the Commercial Act.

[1] Article 42 of the Commercial Act / [2] Article 42 of the Commercial Act / [3] Article 42 of the Commercial Act

[1] Supreme Court Decision 96Da2644 delivered on June 24, 1997 (Gong1997Ha, 2263), Supreme Court Decision 2005Da5812, 5829, 5836 delivered on June 1, 2007 (Gong2007Ha, 972) / [2] Supreme Court Decision 88Da10128 delivered on December 26, 198 (Gong190, 354), Supreme Court Decision 96Da826 delivered on April 14, 1998 (Gong198Sang, 1315)

Plaintiff, Ltd.

Defendant Co., Ltd. (Law Firm Rogo, Attorneys Kim-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2006Na28777, 2006Na28784 decided January 23, 2007

The appeal is dismissed. The costs of appeal are assessed against the defendant.

1. Regarding ground of appeal No. 1

A. The transfer of business under the Commercial Act refers to the transfer of human and material organization, i.e., an enterprise organized for a certain business purpose, while maintaining its identity, and whether the transfer of business has been made is not determined by what kind of business property has been transferred, but by which the organization can function as a whole or an important part of its business organization. Thus, even if the business facility has been transferred without reserving the part of its business, it can be viewed as a transfer of business if it is acknowledged in light of social norms that the previous organization has been maintained even though it has been transferred without reserving the part of its business, and such transfer of business does not necessarily mean that the specific contract between the parties to the transfer of business has to be concluded, and it is possible by implied contract (see, e.g., Supreme Court Decisions 96Da2644, Jun. 24, 1997; 2005Da5812, 5829, Jun. 1, 2007; 205Da583636, Jun. 1, 2007).

B. According to the reasoning of the judgment below, the court below acknowledged the facts as stated in its reasoning after compiling the evidence, and found the defendant's employee as the representative of the non-party 1 corporation and the defendant's representative director, directors, auditors, shareholders, etc. as well as the non-party 2's parents, leakage, and their spouses. The defendant continues to conduct business activities such as packaging, etc. on the basis of the above company's existing transaction partners at the same business place as the place of the non-party 1 corporation, and each agreement between the non-party 1 corporation and the defendant on the use and management of the leased object between the non-party 1 corporation and the defendant was made. The defendant's employee stated that the company's trade name was changed from the defendant's Internet homepage to the non-party 1 corporation and the defendant's employee was also the same as the defendant's employee's whole branch of the non-party 1 corporation, and the defendant's trade name and the non-party 1's service mark "the non-party 1's business title" and the defendant's business title "the defendant 1's business title".

In light of the above legal principles and records, the above fact-finding and judgment of the court below are justified.

The court below did not err in the misapprehension of legal principles as to the transfer of business under Article 42 (1) of the Commercial Act, as otherwise alleged in the ground of appeal. In addition, the court below did not err in violation of logical and empirical rules in selecting evidence and comparing and evaluating the probative value of evidence. Thus, the ground of appeal disputing the recognition of facts belonging to the exclusive authority of the fact-finding court cannot be a legitimate ground of appeal.

2. Regarding ground of appeal No. 2

A. Article 42(1) of the Commercial Act, which provides for the liability of a transferee of a business who uses a trade name, provides for the obligor’s credit to a business obligee, is generally interpreted as a provision established to assume liability for performance even to the transferee, in cases where: (a) the business obligee’s credit to the obligor is mostly substantially secured by the obligor’s business property; (b) where the succession to an obligation is excluded from the process of real business transfer; (c) the business obligee’s credit is separated from the obligor’s business property; and (d) the business obligee’s credit would cause damage to the obligee; (d) the method of transfer of business, i.e., loss of the obligee’s opportunity to exercise claims; and (e) the method of transfer of business, even if the business obligee did not succeed to an obligation even if it is difficult to prove externally due to the existence of the trade name; or (e) the method, etc. where the obligor’s failure to succeed to an obligation is employed, even if the transferee is liable for performance (see, e.g., Supreme Court Decisions 88Da826Da

In light of the purport of the above provision, it is not necessary to place restrictions on what is the cause of mutual continuity in order to hold a transferee of a business who belongs to the trade name liable for the liability, and there is sufficient fact-finding that is mutual continuity. Accordingly, it shall be included not only in the case of mutual transfer or permission, but also in the case of nullification or cancellation of mutual agreement, or in the case of use of trade name without permission. Furthermore, the transferor of a business has used his trade name at the same time as the name or the business sign of the business itself. In addition, if the transferor of a business possesses and uses his trade name as its own trade name and belongs to its own trade name or the trade name of the transferor as its own trade name or the business sign, it shall not be known that the business transferee's creditor is not different from the case of general mutual continuity, and such case shall also be included in the case of mutual continuity under Article 42 (1) of the Commercial Act.

On the other hand, the liability of the transferee of a business who uses the trade name is to protect the external trust of creditors who deprived of the opportunity to enforce his/her claim by transfer of business without any succession. Thus, unless the obligee is a malicious creditor who knows that there is no fact of the succession of obligation despite the transfer of business, etc., even if the obligee knew that the transfer of business was made, it cannot be said that such circumstance alone does not constitute the eligibility for protection (see Supreme Court Decision 88Meu10128, Dec. 26, 1989). In this case, the obligee’s assertion and burden of proof as to the bad faith of the obligee is deemed to be the transferee of the business who intends to be exempted from the liability under Article 42(1) of the Commercial Act.

B. According to the facts established by the court below, the non-party 1 corporation, the trade name of which is the " non-party 1 corporation," refers to the non-party 1 corporation, which used its trade name or its abbreviation as a business mark, such as completing the registration of service mark with respect to the name of "Sek-gu," and the name of "Seng-gu," so that the business of the non-party 1 corporation is distinguishable from that of another person. The defendant's trade name is "Defendant corporation" but the defendant used the telephone guide or Internet homepage for the trade name or its abbreviation, "Se-gu," "Se-gu," "Se-gu," "Se-gu," and "Se-gu," and the defendant's employees sent the phone reply to the purport that the defendant and the non-party 1 corporation are practically the same corporation, or advertised externally to appear as the defendant to change only the trade name of the non-party 1 corporation, in light of the legal principles as seen above, it is reasonable to view the defendant's trade name or its abbreviation to use the defendant's business title.

Meanwhile, according to the facts established by the court below, the plaintiff, who was aware of the name of the defendant company from the previous time, could have known the fact that the defendant was a juristic person separate from the non-party 1 corporation. However, in light of the above fact that the defendant externally advertised the non-party 1 corporation as if it were actually the same as the non-party 1 corporation, such circumstance alone cannot be readily concluded that the defendant was aware of the non-party 1 corporation's business obligation, and therefore, it cannot be said that the plaintiff is a malicious creditor who cannot be protected under Article 42 (1) of the Commercial Act.

Although there are some deficiencies in the reasoning of the court below, the conclusion that the defendant belongs to the trade name of the non-party 1 corporation is justifiable.

The court below did not err in the misapprehension of legal principles as to the interpretation and application of Article 42 (1) of the Commercial Act, as otherwise alleged in the ground of appeal.

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Cha Han-sung (Presiding Justice)