[1] Requirements for establishing tort liability where an officer or employee of a securities company solicits investment in a manner that violates the Securities and Exchange Act

[2] Whether a securities company bears the duty to conduct the counter-sale for the disposal of securities in relation to the customer when the maturity of credit loans is due (negative)

[3] The case holding that a securities company shall not be held liable for damages caused by a tort in the event that a securities company arbitrarily extends the credit lending period without the consent of a customer when the credit lending period becomes due to the maturity of the credit lending period and the damage occurred after

[4] Whether an employee of a securities company constitutes a tort in the event of failure to execute customer orders (affirmative)

[5] In a case where an employer assumes an employer's liability due to an intentional tort committed by an employee, whether such liability may be limited in consideration of the victim's negligence (affirmative)

[6] The agreement on guaranteeing investment returns on stock transactions in violation of Article 52 subparagraph 1 of the Securities and Exchange Act, Article 52 subparagraph 3 of the former Securities and Exchange Act, and Article 13 subparagraph 2 of the former Enforcement Rule of the Securities and Exchange Act, and the validity of the promise to compensate for losses or the act of compensating for losses related to

[7] The case holding that the agreement is null and void because it violates Article 52 subparagraph 3 of the former Securities and Exchange Act and Article 13-3 subparagraph 2 of the Enforcement Rule of the former Securities and Exchange Act, although it is difficult to view that the agreement is subject to Article 52 subparagraph 1 of the former Securities and Exchange Act and Article 13-3 subparagraph 2 of the former Enforcement Rule of the Securities and Exchange Act, where an employee of a securities company is responsible for and responsible for the loss

[1] Where an officer or employee of a securities company solicits an investment in a manner in violation of the Securities and Exchange Act in order to establish tort liability for an investment loss, it is necessary to consider the transactional act and transaction method, customer investment situation, transaction risk, and the degree of explanation thereof, and then make it possible to evaluate the act as an act of violation of Article 52 subparag. 3 of the former Securities and Exchange Act (amended by Act No. 5539 of May 25, 1998) and Article 13-3 subparag. 13 of the former Enforcement Decree of the Securities and Exchange Act (amended by Ordinance of the Ministry of Finance and Economy No. 38 of Oct. 10, 1998) and Article 13-3 subparag. 1 of the former Enforcement Decree of the Securities and Exchange Act (amended by Presidential Decree No. 13638 of Aug. 13, 1998).

[2] Article 49 (1) of the former Securities and Exchange Act (amended by Act No. 5498 of Jan. 8, 1998) provides that "Regulations on Credit Extension of Securities Companies established pursuant to Article 49 (3) of the former Securities and Exchange Act shall require a securities company to repay to customers prior to the due date of redemption, and if a securities company fails to repay its bonds within the due date, it shall dispose of securities in the manner provided for in subparagraph 7 of the Credit Accounts Establishment Agreement on the following day and appropriate such bonds for recovery of claims." Article 7 of the Credit Accounts Establishment Agreement provides that "the securities company shall dispose of the bonds to which it is difficult for its customers to dispose of the bonds without due to its own disposal of the securities transaction by taking into account the price fluctuation in the securities market on the securities market, it shall be deemed that it is difficult for the securities company to dispose of the bonds immediately after the due date of its own disposal of the securities transaction to satisfy the requirements of the securities company's credit transaction with its own redemption order."

[3] The case holding that a securities company shall not be liable for damages caused by a tort in the event that a securities company arbitrarily extends the credit lending period without the consent of a customer when the credit lending period becomes due to the maturity of the credit lending period and the damage occurred after the opposite

[4] As long as an entrustment contract for specific securities transaction is concluded along with a contract to establish a basic contract which is a basic contract to be applied to continuous transaction relationship between a customer and a securities company, employees of a securities company are obligated to faithfully perform the customer's order in accordance with the terms and conditions of the above entrustment contract. If the customer's order is not executed in violation of such contract, it constitutes tort.

[5] Like the case where an employer assumes an employer’s liability due to a tort committed by an employee’s negligence, if the victim was negligent in contributing to the occurrence and expansion of the damage, then the scope of the employer’s liability may be limited by taking into account such negligence of the victim in determining the scope of the employer’s liability.

[6] Article 52 subparagraph 1 of the Securities and Exchange Act provides that "an act of soliciting customers to pay all or part of loss incurred from the transaction of securities with respect to an unfair solicitation prohibited by a securities company or its officers or employees" under Article 52 subparagraph 3 of the former Securities and Exchange Act (amended by Act No. 5539 of May 25, 1998) provides that "an act of undermining the protection of investors or the fairness of transaction or undermining the credibility of securities business in connection with the issuance and sale or other transaction of securities" and Article 13-3 of the former Enforcement Decree of the Securities and Exchange Act (amended by Ordinance of the Prime Minister No. 623 of Apr. 1, 1997) provides that "an act of securing investment profits arising from an unfair solicitation of securities by a securities company or its officers or employees against the principle of fair and orderly trading of securities" shall be deemed as an act of violation of Article 52 subparagraph 1 of the former Securities and Exchange Act and thus, it shall be deemed that an act of securing investment profits arising from the securities company's and interests arising from an unfair trading.

[7] The case holding that the agreement is null and void because it violates Article 52 subparagraph 3 of the former Securities and Exchange Act (amended by Act No. 5539 of May 25, 1998) and Article 13-3 subparagraph 2 of the former Enforcement Rule of the Securities and Exchange Act (amended by Ordinance of the Ministry of Finance and Economy No. 38 of August 10, 1998), where a securities company employees are responsible for and manage accounts until a specific date to compensate for losses caused by the transaction of stocks, and if it does not so, it is difficult to view that the agreement is subject to Article 52 subparagraph 1 of the Securities and Exchange Act

[1] Article 750 of the Civil Act, Article 52 subparagraph 1 of the Securities and Exchange Act, Article 52 subparagraph 3 of the former Securities and Exchange Act (amended by Act No. 5539 of May 25, 1998), Article 13-3 subparagraph 1 of the former Enforcement Decree of the Securities and Exchange Act (amended by Ordinance of the Ministry of Finance and Economy No. 38 of August 10, 1998) / [2] Article 750 of the Civil Act, Article 49 (1) of the Securities and Exchange Act, Article 17 (1) of the former Securities and Exchange Act (amended by Ordinance of the Ministry of Finance and Economy No. 5498 of January 8, 1998), Article 39 of the former Enforcement Decree of the Securities and Exchange Act (amended by Ordinance of the Ministry of Finance and Economy No. 5498 of May 3, 198), Article 50 of the former Enforcement Decree of the Securities and Exchange Act (amended by Ordinance of the Ministry of Finance and Economy) / [365] Article 97

[1] Supreme Court Decision 9Da4458 delivered on August 23, 1996 (Gong1996Ha, 2800), Supreme Court Decision 9Da2000Da28537, 28544 delivered on October 12, 2001 (Gong2001Ha, 2452)/ [2] Supreme Court Decision 92Da642, 62599 delivered on July 10, 199 (Gong1992, 23649 delivered on July 14, 1992), Supreme Court Decision 92Da92946 delivered on July 14, 1992 (Gong92, 2364 delivered on July 14, 209), Supreme Court Decision 200Da949499 delivered on July 14, 209, Supreme Court Decision 209Da539798 delivered on May 29, 2992

Plaintiff (Law Firm Sejong, Attorneys Lee Dong-ju et al., Counsel for the plaintiff-appellant)

Hyundai Securities Co., Ltd and one other (Attorneys Lee Ho-ho et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 99Na5028 delivered on September 19, 2000

The part of the lower judgment against the Defendants ordering the compensation for damages due to the extension of maturity of a credit loan, is reversed, and this part of the case is remanded to the Seoul High Court. The Plaintiff’s appeal and the remaining appeals by Defendant Hyundai Securities Company are dismissed.

We examine the grounds of appeal.

1. As to the Plaintiff’s ground of appeal relating to the claim for damages caused by the voluntary sale by Defendant 2

According to the reasoning of the judgment below, the court below, based on its adopted evidence, found that the plaintiff purchased shares from around 1991 to October 30 of the same year with the defendant Hyundai Securities Co., Ltd. (hereinafter referred to as the "Defendant Co., Ltd.") and traded shares, and transferred the previous account to the above branch upon introduction by Nonparty 1, who is the plaintiff's relative and employee of the defendant Co., Ltd., and introduced the defendant Co., Ltd. to the above branch. After again opening a new account in the name of his wife Nonparty 2 and wife Nonparty 3, he requested the above defendant to manage the above three accounts until May 1998. However, the court below rejected the plaintiff's assertion that the above shares were purchased from the above account under the name of the plaintiff Co., Ltd. (hereinafter referred to as "the defendant Co., Ltd.") and purchased shares on several occasions, such as the instant white paper, on the ground that the plaintiff's purchase of shares was without any delegation from the plaintiff Co., Ltd., Ltd.

Examining the judgment below in light of the records, we affirm the above fact-finding and judgment of the court below, and there is no error in the misapprehension of legal principles as to the misconception of facts or ratification due to the violation of the rules of evidence and the waiver of the claim for damages.

2. As to the Plaintiff’s ground of appeal related to the claim for damages caused by Defendant 2’s improper solicitation

In order to establish tort liability for investments in cases where executive officers and employees of a securities company recommended investment in a manner in violation of the Securities and Exchange Act; however, in order to establish tort liability for investments, such solicitation shall be deemed as an act that interferes with the formation of a proper awareness of risks inevitably accompanying transactions with ordinary investors, or actively solicits transactions with excessive risks in light of the customer’s investment situation, and ultimately, it shall be deemed as an act that lacks the duty to protect the customer (see Supreme Court Decisions 94Da38199, Aug. 23, 1996; 9Da4588, Dec. 24, 1999). This legal principle shall apply not only to cases where investment is recommended by the method of guaranteeing investment returns in violation of Article 52 subparag. 1 of the Securities and Exchange Act, but also to cases where investment is recommended by the method of guaranteeing investment returns in violation of Article 52 subparag. 2 of the former Enforcement Decree of the Securities and Exchange Act (amended by Act No. 5381, May 25, 1998).

According to the records, such as the results of the personal examination at the court below against Defendant 2, it is acknowledged that the plaintiff resisted against the above defendant's purchase of shares, and the above shares that the above defendant purchased by the above defendant were an item of operations. However, such circumstance alone is insufficient to conclude that the above defendant's act of improper solicitation interferes with the formation of a correct awareness about the plaintiff's investment, or that the above defendant's act constitutes an active solicitation of transactions involving excessive risk in light of the plaintiff's investment situation, and there is no other evidence to prove otherwise. Thus, the above defendant's investment recommendation cannot be evaluated as a tort with illegality by neglecting the duty to protect the customer.

Therefore, although the court below's explanation of its reason is insufficient, it is justified in its conclusion that denying the establishment of tort liability by Defendant 2 for the same purport, and it cannot be said that there is an error of mistake or misunderstanding of legal principles that affected the conclusion of the judgment as alleged in the judgment below.

3. As to the grounds of appeal by the plaintiff and the defendants related to the claim for damages caused by the extension of the maturity of the credit loan by defendant 2

A. The judgment of the court below

According to the reasoning of the judgment below, the court below, based on its adopted evidence, held that the plaintiff purchased 25 million shares of Samyang on March 19, 1997 and raised 83 million won out of the purchase price as a credit loan of the defendant company on August 19, 1997. Since the loan was not deposited by the due date, the defendant 2 applied for the extension of maturity to the defendant company at will without the plaintiff's delegation, and the credit loan maturity was extended on May 2, 1998 by the defendant company approved it and extended on May 2, 1998 (the court below's " May 2, 1997" seems to be a clerical error of the court below's order of May 2, 1998. Thus, since the extended maturity did not pay the loan to the plaintiff at his own discretion, it was possible for the defendants to have extended the credit loan amount to 7,490 won per share of the 3rd shares at the plaintiff's account for the above 190-year period.

B. The judgment of this Court

Article 49 (1) of the Securities and Exchange Act and Article 49 (3) of the former Securities and Exchange Act (amended by Act No. 5498 of Jan. 8, 1998) provides that "any securities company shall demand reimbursement to its customers prior to the due date of credit extension transaction or credit transaction, and if it has not been repaid within the due date, it shall be appropriated for recovery of claims by means of the method as stipulated in subparagraph 7 of the Agreement on Establishment of Credit Accounts on the following day." Article 17 (1) of the Regulations on Credit Guarantee of Securities and Exchange (amended by Act No. 5498 of Jan. 8, 1998) provides that "No more than 9 of the Rules on Credit Guarantee of Securities and Exchange (amended by Act No. 5497 of Jan. 2, 1998) shall be established for the first time to determine whether the above regulations on credit trading are able to be met by the securities company's inherent disposal of credit guarantee money or collateral instruments and other securities transactions in order of the market price."

As to this case, the extension of the maturity of credit loans by Defendant 2 without the consent of the plaintiff who is a party to the credit loan contract as acknowledged by the court below can be deemed to have expressed the plaintiff's intent not to trade the collateral stocks by the specific time. Barring any other special circumstance, the defendant company cannot be deemed to bear the obligation to trade the collateral stocks at the maturity of the credit loan prior to the extension. Thus, the defendant company's extended maturity due to the decline in the share price and resulting in the loss of the plaintiff due to the decline in the share price, even if the damage was caused to the plaintiff, the defendant company shall not be held liable to compensate for such damage.

Therefore, the judgment of the court below on the premise that the defendant company had a duty of counter-trade prior to the extension of the credit loan maturity of this case is erroneous in the misapprehension of legal principles as to whether the company had a duty of care, such as counter-trade of securities company at the maturity of the credit loan. Therefore, the defendants' ground of appeal pointing this out is with merit. Therefore, the part against the defendants in this part of the judgment below which falls under this part is reversed without further need to be determined as to the plaintiff's ground

4. As to the grounds of appeal by the plaintiff and the defendant related to the claim for damages caused by the non-performance of the sales order by the non-party

According to the reasoning of the judgment below, on October 13, 1997, the court below entered 1,960 U.S. shares in the Plaintiff’s account under the Plaintiff’s name and 5,000 shares of the same company. On the same day, the Plaintiff requested the non-party 4 who managed the Plaintiff’s account as the vice head of the U.S. company’s sericultural branch to sell the above shares at the market price. However, the non-party 4 did not comply therewith. The Plaintiff again requested the Dong on the 27th of the same month to sell the above shares, but the non-party 4 did not pay the above sales order at his own discretion. The Plaintiff did not receive the above U.S. shares at the time of the above 40th and 30th of the same month and did not sell the shares to the non-party 29,300 or 27,000 won shares at his own discretion, and the Plaintiff did not sell the above shares at the time of the above 40th of the Plaintiff’s shares.

As long as an entrustment contract on the sale and purchase of stocks has been concluded with a contract to establish a basic contract which is a basic contract applicable to continuous transaction between a customer and a securities company, employees of a securities company shall be bound to faithfully perform the customer's order according to the terms and conditions of such entrustment contract, and if the customer's order is not executed in violation of such contract, it constitutes a tort. Examining the judgment of the court below in light of the records, the above decision of the court below is just, and there is no error of law as alleged by

In addition, as the case where an employer is liable for an employer due to an employee's negligent tort, if the victim was negligent in contributing to the occurrence and expansion of the damage, the scope of the employer's liability may be limited by considering the victim's negligence (see, e.g., Supreme Court Decisions 93Da53696, Feb. 22, 1994; 98Da55529, Feb. 26, 1999; 9Da30367, Oct. 8, 199; 2002Da32110, Sept. 24, 2002). Thus, the court below's decision on the recognition of the victim's negligence in a claim for damages lawsuit and on the appropriateness of the ratio of the damages shall be deemed to fall under the sole authority of the fact-finding court, barring any special circumstances. Thus, the court below's decision on the reasonableness of the amount of the plaintiff's liability for damages, as otherwise alleged in the ground of appeal by the plaintiff, cannot be justified.

5. As to the Plaintiff’s ground of appeal on the conjunctive claim

Article 52 subparagraph 1 of the Securities and Exchange Act (amended by Act No. 5539 of May 25, 1998) provides that "an act of soliciting a customer by promising the customer to bear all or part of the loss incurred from the transaction in question" and Article 52 subparagraph 3 of the former Securities and Exchange Act (amended by Act No. 5539 of May 25, 1998) provides that "an act of impeding the protection of investors or the fairness of the transaction in connection with the issuance, sale or other transaction of securities or undermining the credibility of the securities business, which is prescribed by the Ordinance of the Prime Minister" and Article 13-3 of the former Enforcement Decree of the Securities and Exchange Act (amended by Ordinance of the Prime Minister No. 623 of Apr. 1, 1997) provides that "an act of offering or compensating for all or part of the loss incurred from the transaction in question to the customer without any justifiable reason under Article 36 subparagraph 2 of the current Enforcement Decree of the Securities and Exchange Act."

As above, Article 52 subparagraph 1 of the Securities and Exchange Act prohibiting unfair solicitation by a securities company or its executives or employees is a mandatory law enacted to secure a fair order in securities transactions. The agreement is null and void, and so long as the guarantee of investment profits is null and void due to a violation of the mandatory law, the agreement is still null and void (see Supreme Court Decision 94Da38199 delivered on August 23, 1996). As prescribed by Article 52 subparagraph 3 of the former Securities and Exchange Act and subparagraph 2 of Article 13-3 of the former Enforcement Rule of the Securities and Exchange Act, the promise or compensation for losses to compensate the customers for the losses arising in connection with the securities transactions or the promise or compensation for losses that the securities company, etc. would impair the essence of the securities market promoting economic activities through the risk management and disrupt the fairness of the formation of the price by causing investment decisions, and thus, the agreement is also null and void due to the violation of the principle of self-responsibility in securities investment.

According to the records and reasoning of the judgment below, on April 7, 1997, Defendant 2 managed the Plaintiff’s account on August 199 and Nonparty 2 and Nonparty 3’s account. The total amount of investment (cash and securities: Samsung Heavy Industries: 2,800 shares) was considered to have a big investment loss for about 60 million won. It is thought that customers will suffer property loss and mental damage, and it is difficult to preserve the Plaintiff’s losses immediately. Thus, it would be restored to the Plaintiff’s own responsibility under the Securities and Exchange Act by August 30, 1997, and it is difficult to preserve the Plaintiff’s securities transaction, which is contrary to the above-mentioned Securities and Exchange Act’s enforcement rules, and thus, it is difficult to consider that the Defendant’s agreement was invalid for each of the above reasons and thus, it is difficult to consider that the Defendant’s agreement was invalid for each of the above reasons to hold the Plaintiff liable to compensate for the total amount of the investment capital if the agreement was not implemented by the above date.

Therefore, the judgment of the court below which denied the validity of each of the above contracts against all the defendants is justified in its conclusion, although it is inadequate in its reasoning, and there is no error of law such as the interpretation of the above agreement and the misapprehension of the legal principles under the Securities and Exchange Act which affected the conclusion of the judgment.

6. Conclusion

Therefore, the part of the judgment below against the defendants ordering compensation for damages due to the extension of maturity of a credit loan shall be reversed, and this part of the case shall be remanded to the court below for a new trial and determination. The plaintiff's appeal and the remaining appeal by the defendant company shall be dismissed, respectively. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Jae-in (Presiding Justice)