In a case where, for project financing, it is necessary to raise the credit rating of Company B for a short-term loan to Company B at the request of Party B’s branch office Byung, and Party C agreed to provide Party B with a fixed term deposit claim entrusted to Company A in the name of Company B for the repayment of the above loan, the case holding that the above agreement is effective against Company A on the ground that C’s act is an objective and abstract act related to the business of Company A and constitutes within the scope of the manager’s power of representation, who is the manager of Company B.

In a case where Party A was scheduled to conduct project financing for Company B, and Party B was required to increase the credit rating of Company B, and Party B was able to use a short-term loan to Party B as a deposit for Company B, Party B was given a loan to Party B upon Party B’s request from Party B, and Party C’s branch office Byung made a joint consultation to deposit part of the above loan as a term deposit for Company B, use the above deposit, etc. as a security for the loan, and the first loan amount is repaid upon project financing, and Party B concluded an agreement to preferentially repay the loan when the loan is not recovered, the case holding that Party A’s act of providing Party B’s loan to Party B as an agent for the above branch’s business, and it is reasonable to deem that Party B’s act of providing the above loan to Party B’s company under the name of Party B’s agent for the purpose of smooth financing and project financing, and thus, Party C’s act of providing the above loan to Party C’s agent for an objective purpose.

Article 11 of the Commercial Act, Article 390 of the Civil Act

Private Savings Bank (Attorney Han Han-chul, Counsel for the plaintiff-appellant)

Korea Bank (Law Firm LLC, Attorneys Ansan-hwan et al., Counsel for the plaintiff-appellant)

Seoul Central District Court Decision 2009Kahap131684 Decided July 13, 2010

March 31, 2011

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

The defendant shall pay to the plaintiff 1,520,000 won with 6% interest per annum from March 17, 2009 to the delivery date of a copy of the complaint of this case, and 20% interest per annum from the next day to the day of complete payment.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Facts of recognition;

Around November 2006, Nonparty 1, who was a manager, as the head of the Defendant’s Seocho Branch, was expected to visit the Plaintiff’s front point and use the Defendant’s front point as a deposit against the Defendant Company until the Plaintiff’s project financing was occurred, which the Defendant’s Seocho Branch Co., Ltd. (hereinafter “Nonindicted Company”) planned on the land for housing projects (hereinafter “instant project site”) located in the west-gun of Gyeonggi-gu, Seoho-ri 626-3 and 26 lots of land (hereinafter “instant project site”). The project financing method for housing projects without any specific guarantee by financial institutions, such as the FF Bank and Bank, etc., is to receive loans from the project itself as a means of providing funds as a collateral for project feasibility. To this end, the financial institution needs to raise the credit rating of the Nonparty Company, and thus, the Plaintiff intended to temporarily use the Plaintiff’s loan as a deposit against the Defendant Company until the project financing occurred, so the Plaintiff’s request for a short-term loan and a short-term loan in the form of cash financing.

The plaintiff accepted the above request and made a loan of KRW 3 billion to the non-party company on May 22, 2007 (hereinafter "the loan of this case"). In consultation with the non-party 1, the plaintiff deposited KRW 280 million out of the above loan of KRW 3 billion as a term deposit with the defendant, and used the above deposit of KRW 220 million and the existing deposit of the defendant of the non-party company as a security for the loan of this case. The defendant paid the loan of this case to the non-party company in full amount, and if the loan of KRW 250 million is not recovered within 3 months after the loan of this case, the loan of this case was first given to the non-party company, and when the loan of this case was not recovered, the agreement was made and delivered to the plaintiff with the non-party 1's first letter of agreement to preferentially repay the loan of this case (hereinafter "the agreement of this case") by cancelling the term deposit of KRW 2.5 billion to the non-party 2.

Meanwhile, in the instant project site, a mortgage of KRW 3.488 billion in the Defendant’s name and superficies of KRW 2.9 billion in the purchase price of the instant project site were separately established, respectively, as security against the non-party company’s loan of KRW 2.9 billion in the purchase price. However, on the date of the instant loan, the Plaintiff set up a collateral security right of KRW 3.6 billion in the Plaintiff’s name as to the said project site on the date of the instant loan, and on June 29, 2007, the non-party 1 prepared a joint and several surety (Evidence 5) stating that “A personal joint and several surety is provided for the instant loan obligation.”

Since then, the Plaintiff extended the maturity of the instant loan more than ten times, and the final maturity of the instant loan was extended on March 2, 2009. Nonparty Company failed to repay the principal amounting to KRW 1.52 billion and interest accrued therefrom on March 17, 2009. Accordingly, the Plaintiff requested the Defendant to pay the instant loan to the fixed deposit amounting to KRW 2.5 billion in the name of Nonparty Company in accordance with the instant agreement, and the Defendant had already settled the loan amounting to KRW 1.85 billion against Nonparty Company, which was implemented as security, and refused the Plaintiff’s request.

On July 21, 2009, the Plaintiff applied for a voluntary auction as a mortgagee with regard to the instant project site, and the auction procedure was in progress as of July 21, 2009, Suwon District Court Branch Decision 2009Ma8777, and the auction procedure was in progress. As of June 18, 2010, the minimum sale price of the instant project site was KRW 6.75,430,000.

[Reasons for Recognition] Facts without dispute, Gap evidence 1 through 3-2, Gap evidence 6 through 7-4, Gap evidence 10, 11, Eul evidence 4 and 6, and the purport of the whole pleadings

2. The parties' assertion and judgment

A. Whether Nonparty 1 entered into the instant agreement as the Defendant’s manager

The Plaintiff asserted that the Defendant should compensate the Plaintiff for damages arising from nonperformance as above, since the Defendant did not perform the contract despite having agreed to cancel the time deposit of the non-party company and repay the loan of this case to the Plaintiff according to the agreement of this case. The Defendant asserted that the agreement of this case was invalid because the non-party 1 was not the Defendant’s manager but the non-party 1 concluded the contract as an individual qualification

In full view of the following facts: (a) Nonparty 1, as the manager of the Defendant’s early branch, concluded the instant loan agreement with the Plaintiff at the time of the execution of the instant loan; (b) signed the instant loan agreement with the Plaintiff; and (c) attached the official seal of the first branch to the Defendant’s name; and (d) Nonparty 2 (Defendant’s undertaking), Nonparty 7-3 [the official seal of the Defendant’s request for withdrawal of deposits], evidence 8-1 through 6 (each request for extension of the period of loan, evidence 1-2], and the overall purport of oral argument, Nonparty 1’s official seal of each of the above documents, which is the Defendant’s name and seal of the Defendant’s first branch; and (b) Nonparty 1’s official seal of the Defendant’s name and seal of the Defendant’s second branch; and (c) Nonparty 5’s each of the above documents is insufficient to acknowledge the loan’s original name and seal of the Defendant’s first branch to the Plaintiff; and (d) Nonparty 1’s written request for extension of the loan to Nonparty 1 to the Plaintiff’s address.

In full view of the facts acknowledged in the above facts as above 1., it is reasonable to view that Nonparty 1 was the Defendant’s manager and entered into the instant agreement with the Plaintiff on behalf of the Defendant.

Therefore, the instant agreement that Nonparty 1, who is the Defendant’s manager, concluded on behalf of the Defendant, is effective as against the Defendant, unless there are special circumstances.

B. Whether the conclusion of the instant agreement pertains to the Defendant’s business

The defendant asserts that the act of a financial institution to prepare and deliver a written undertaking like Gap evidence 2 is prohibited by the provisions of the Act on the Inspection and Sanctions of Financial Institutions, and that the defendant's delivery of a term deposit in the name of the non-party company to the plaintiff without permission of the non-party company violates the Act on Real Name Financial Transactions and Confidentiality. Thus, the non-party 1's conclusion of the contract in this case is not a business relation

Article 5 of the Regulations on the Inspection and Sanctions of Financial Institutions provides that "where a financial institution or its executives or employees have committed acts falling under any of the following subparagraphs, it shall be subject to sanctions: 1. Violation of finance-related Acts and subordinate statutes or neglect of its implementation; 2. Embezzlement, breach of trust, theft, and receipt of money or valuables related to business; 3. In a case where the management of a financial institution is impaired or the interest of the financial institution or the financial institution is harmed by doing an act impeding the sound management or business of the financial institution; 4. In a case where a financial accident, etc. causes a loss of public trust or social property of the financial institution or causes a loss on purpose or by negligence; 5. In a case where the financial institution intentionally or negligently neglects its supervision as a supervisor; 7. Other cases where it disturbs the order of credit transaction of the financial institution or conducts an unfair or unsound business or business operations; 7. Article 26 of the said Regulations provides that "credit extended by arbitrarily raising credit rating or preparing and handling false documents" in [Attachment 1].

However, a manager may conduct all judicial or extra-judicial acts on behalf of a business owner, and a manager's right of representation cannot be set up against a bona fide third party (Article 11 (1) and (3) of the Commercial Act). Here, whether a manager's act is about the business of a business owner or not must be determined abstractly according to the objective nature of the act regardless of the manager's subjective intent at the time of the act (see Supreme Court Decision 96Da36753 delivered on August 26, 1997).

As acknowledged in the above 1. As the defendant's manager, it is reasonable to view that the non-party 1 was the defendant's manager and was authorized to act comprehensively as an agent for the business of the Seocho Branch, and the business of the project financing is included in the business conducted by the bank like the defendant and constitutes the business of the above branch. Thus, in order to smoothly carry out the project financing business of the defendant Seocho Branch, it is reasonable to view that the non-party 1 arranged a loan to the non-party company, the business entity, and agreed to provide the defendant with the claim for the term deposit deposited in the name of the non-party company as a security to the plaintiff as an objective and abstract act concerning the defendant's business and falls under the scope of the representative authority

In addition, the entries in the evidence Nos. 7-1 through 10 alone are insufficient to recognize the above act of Nonparty 1 as a credit business which arbitrarily raises the credit rating subject to sanctions in relation to the credit business of financial institutions as stipulated in the regulations on the examination and sanctions of financial institutions, and there is no other evidence to acknowledge it. Meanwhile, in full view of the purport of the entire argument in the statement No. 1, the non-party company can recognize the fact that it consented to the agreement in this case on November 22, 2006. Thus, the defendant did not cancel the term deposit deposited in the name of the non-party company and deliver it to the plaintiff without permission of the non-party company, and it does not violate the Act

Ultimately, since the agreement of this case is effective for the defendant, the defendant is obligated to cancel the term deposit of the non-party company in accordance with the agreement of this case and pay the loan of this case to the plaintiff, and thus, the plaintiff refused to pay the loan of this case, thereby causing damage equivalent to the outstanding amount of the principal and interest of this case to the plaintiff.

C. Judgment on the defendant's other arguments

(1) The defendant asserts that the contract of this case is null and void as a false declaration of intention or a false declaration of intention in collusion, because the non-party 1 merely prepared the letter of promise of this case according to the plaintiff's words that he would use for internal resolution, and even if the loan is not recovered within three months after the loan, the non-party 1 did not intend to cancel the term deposit amounting to 2.5 billion won in the name of the non-party company and have no intention to repay the loan of this case to the plaintiff first.

However, as shown in the above argument, it is difficult to believe it as it is merely a unilateral statement made by Nonparty 1 in the course of investigation and trial, and there is no other evidence to acknowledge it. Thus, the above argument by the defendant is without merit.

(2) The defendant asserts that the agreement of this case is null and void in violation of Article 103 of the Civil Code, since the motive of entering into the agreement of this case is aimed at deceiving the defendant and illegally obtaining a loan by manipulating the credit rating of the non-party company, the motive of the legal act is contrary to social order and its motive is indicated to the other party.

However, it is difficult to view that the enhancement of credit rating by depositing and keeping the money borrowed from other financial institutions for a certain period of time constitutes a manipulation of credit rating (no express provision prohibiting this). Even if such a method falls under the law, it is difficult to view that the project strike is an important variable that is not the credit rating at the time of the event of the project feasibility, and such circumstance alone is difficult to see that the motive of the instant agreement is contrary to social order, and therefore, the Defendant’s above assertion is without merit.

(3) The defendant, in collusion with the non-party 1 and the non-party 2, who is the manager of the plaintiff, set the credit rating of the non-party company by obtaining a loan from the plaintiff and depositing it as a fixed deposit to the defendant, and the contract was concluded by the non-party 1 with the purport of promoting the interest of the non-party company itself or the third party against the defendant's interest and will that the non-party 1 would have obtained a loan from the defendant as if the adjusted credit rating was actual credit rating of the non-party company. The plaintiff knew of the intention of the non-party 1, and therefore, the defendant is not liable for the non-party 1's act under an analogical interpretation of Article 107 (1) of the Civil Act

However, as seen earlier, it is difficult to see that it is difficult to increase credit rating by depositing the money borrowed from other financial institutions for a certain period of time, and it is also difficult to recognize that the defendant already implemented a loan for the purchase of land for housing projects to the non-party company. In light of the fact that the agreement of this case appears to have been made on the premise that project financing was normally promoted, it is difficult to recognize that the non-party 1 entered into the agreement of this case for the purpose of promoting the interest of himself or the non-party 1 against the defendant's interest and intention, or that the non-party 1 knew or was unable to know by gross negligence, and there is no other evidence to acknowledge this otherwise, the defendant's allegation is without merit.

(4) The defendant asserts that the agreement of this case is null and void as it violates Article 78 (1) 2 and 3 of the Regulation on Supervision of Banking Business.

On the other hand, Article 78(1) of the Regulation on Supervision of Banking Business provides that "the financial institution shall endeavor to secure the soundness of credit as listed below in managing credit." 2. A reasonable credit supply through comprehensive review and analysis on the borrower's purpose of borrowing, size of funds, period required for financing, etc. is to be prevented from misappropriation for purposes other than through the thorough management of credit funds after the loan is implemented." However, considering that the Defendant granted the non-party company a loan of KRW 1.85 billion to the non-party company as security of the term deposit in this case, it cannot be deemed that the agreement in this case is a violation of the Regulation on Banking Business, and since the act of violating the Regulation on Banking is not immediately null and void, the Defendant's assertion is without merit.

(5) Furthermore, the Defendant asserts that the Defendant should consider the Plaintiff’s liability for damages on account of the negligence on the part of the Plaintiff, but the Defendant had already implemented a loan for the purchase of land for housing projects with the Nonparty Company, which appears to have been made on the premise that the instant agreement was normally promoted. In light of the fact that the Defendant extended the instant term deposit to the Nonparty Company as security, but the Defendant recovered all of the said term deposit against the said deposit, it is difficult to view that there was a negligence to consider the amount of damages that the Defendant should compensate for to the Plaintiff, and the above argument by the Defendant is without merit.

(6) Lastly, the defendant is undergoing the auction procedure that the plaintiff applied as a mortgagee for the business site of this case. Even if the secured value of the above site is excluded from senior collateral security, it cannot be viewed that the plaintiff suffered loss because it is sufficient to satisfy the plaintiff's claim against the non-party company. However, the plaintiff has separately secured physical collateral and is not exempt from the defendant's liability for damages due to the non-performance of the contract of this case. Thus, the defendant's assertion is

D. Sub-committee

Therefore, the defendant is obligated to pay damages incurred as a result of the non-party company's failure to perform the agreement of this case, which is calculated by applying the ratio of 1.52 billion won to the loan of this case, and 6% per annum as stipulated in the Commercial Act from March 17, 2009 to December 1, 2009, the delivery date of a copy of the complaint of this case from March 17, 2009 to December 1, 209, and 20% per annum as stipulated in the Act on Special Cases concerning the Promotion, etc. of Legal Proceedings from the next day to the day of full payment.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed as it is without merit. It is so decided as per Disposition.

Judges Maximum Full-time (Presiding Judge)