[1] The meaning of "business" that is subject to transfer under Article 41 (1) of the Commercial Act and the meaning of "business of the same kind" that is subject to prohibition of competitive business

[2] Whether the same area or neighboring area as a non-competitive area under Article 41(1) of the Commercial Act should be determined based on the area where a transferor’s ordinary business activities were conducted (affirmative); and the standard for determining whether a transferor is an ordinary business activity

[1] Article 41(1) of the Commercial Act provides that a transferor shall not engage in the same type of business as that transferred by the same Special Metropolitan City, Metropolitan City, Si, Gun, and adjacent Special Metropolitan City, Metropolitan City, Si, or Gun for ten years, unless otherwise agreed by the parties. The provisions of the above Article stipulate that the business subject to transfer refers to the entire body of assets organized and functioned as an organic whole in accordance with a certain business purpose, including tangible and intangible property. If a transferor transfers the same type of business even if he transfers the same business, the Commercial Act provides for the duty of prohibition of competitive business of a transferor in order to protect the transferee of the business. Considering the purport of the above Commercial Act, the same type of business subject to prohibition of competitive business refers to a business that may occur in relation to the transferred business, in comprehensive consideration of various circumstances, such as the content, size, method, and scope of the business.

[2] Article 41(1) of the Commercial Act provides for the duty not to engage in the competitive business of a transferor, and provides for a zone where the competitive business is prohibited as the same Special Metropolitan City, Metropolitan City, Si, Gun, and adjacent Special Metropolitan City, Metropolitan City, Si, and Gun. In light of the fact that the business subject to transfer refers to the total body of the property which is organized and functions as an organic integration according to a certain business purpose, and that the Commercial Act provides for the duty not to engage in the competitive business for the purpose of protecting the transferee of the business, it shall be determined not by the standard for the area where the transferor of the business was engaged in ordinary business activities, but by the standard for the area where the transferor of the business, not by the area where the transferred material facilities were installed in the same or adjacent area as the non-ordinary business area. Whether it is an ordinary business activity ought to

[1] Article 41 (1) of the Commercial Act / [2] Article 41 (1) of the Commercial Act

[1] Supreme Court Order 2009Ma1136 dated September 14, 2009 (Gong2009Ha, 1645)

Pampa Co., Ltd. (LLC LLC, Attorneys Kim Nung-hwan et al., Counsel for the plaintiff-appellant)

rink Co., Ltd. (LLC et al., Counsel for the plaintiff-appellant-appellant)

rink Seoul and 3 others (Law Firm Han-gu et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Na9559 decided October 23, 2014

All appeals are dismissed. The costs of appeal are assessed against each party, while the remainder between the Plaintiff and the Defendants are assessed against the Plaintiff.

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

1. Plaintiff’s ground of appeal

A. Regarding ground of appeal No. 1

With respect to the subject matter of the transfer of the instant business, the lower court determined that the business in the “small and medium-sized factory, its related assets, liabilities, trademark rights, customer, etc.” as the subject matter of the transfer in the contract refers to the business related to the medium-sized factory, that is, the purchase for slaughter and processing of domestically small and medium-sized cattle and pigs, the slaughter and processing of domestic cattle and pigs purchased as above, and the distribution and sale of cattle and pigs slaughtered and processed as above, throughout the country, do not include the business related to the distribution and sale of cattle and pigs supplied and processed cattle and pigs, which were already slaughtered or processed by the third company.

In light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on the interpretation of disposal documents or by failing to exhaust all necessary deliberations, contrary to what is alleged in the grounds of appeal

B. Regarding ground of appeal No. 2

1) The court below rejected the plaintiff's assertion that the act of distributing and selling the Korean cattle and pigs by the third company (hereinafter "the defendant crate") by being supplied with the Korean cattle and pigs from the third company is the same as the small and medium factory business subject to the transfer of business, and the defendant crate bears the duty to refrain from engaging in competitive business against the electronic business. The court below rejected the plaintiff's assertion that the small and medium factory business purchased the Korean cattle and pigs at a place equipped with the comprehensive livestock products processing facility, and distributed and sold them after slaughter and processing the purchased cattle and pigs, which is merely a business of distributing and selling them after being supplied with the Korean cattle and pigs from the third company, and simply distributing and selling them by being supplied with the Korean cattle and pigs from the third company.

2) Article 41(1) of the Commercial Act provides, unless otherwise agreed by the transferor, that the transferor shall not engage in the same kind of business as that transferred by the same Special Metropolitan City, Metropolitan City, Si, Gun, and neighboring Special Metropolitan City, Metropolitan Cities, Sis, and Guns for ten years. The provisions of the above Article stipulate that the business subject to transfer refers to the total body of assets organized and systematically integrated according to certain business purposes (see Supreme Court Order 2009Ma1136, Sept. 14, 2009, etc.). This includes tangible and intangible assets (see, e.g., Supreme Court Order 2009Ma136, Sept. 14, 2009). If the transferor transfers the same business and engages in the same kind of business, the Commercial Act provides for the duty not to engage in the competitive business to protect the transferee. Considering the purport of the above Commercial Act. In light of the purport of the Commercial Act, the same type of business subject to prohibition of competitive business refers to a business relationship that may occur with the transferred business.

3) Although the business of Defendant KK supplied with and distributes and sells Korean pet and pigs from a third party company, there is no difference between the small and medium factory business subject to transfer, such as the process of purchasing and slaughter cattle and pigs, but there is no difference in that it distributes and sells the Korean pet and pigs, the former business is a business that may be competitively related to the small and medium factory business subject to transfer, and thus, it is deemed as the business that is identical to the small and medium factory business. Considering that Defendant KK is operated with a nationwide business network, it cannot be deemed that there was no competitive relationship with the small and medium factory business after the transfer on the ground that the former business was lower in proportion to the total business at the time of the transfer of this case. Nevertheless, the lower court erred by misapprehending the legal doctrine on the scope of the same kind of business, which is prohibited from competitive business.

4) As to the foregoing, Defendant KK’s assertion that there was an agreement to exclude Defendant KK from the obligation to refrain from engaging in the competitive business at the time of the instant contract. As seen earlier, it is difficult to view that Defendant KK’s agreement was concluded at the time of the instant contract. However, Defendant KK’s implied agreement was concluded to exclude from the obligation to refrain from the competitive business with respect to the business supplied, distributing, and selling, and selling, domestically produced cattle and pigs from a third party company, other than the secondary factory at the time of the transfer of the business. In short, Defendant KK was engaged in the business of receiving, distributing, and selling domestically produced cattle and pigs from the third party company at the time of the transfer of the business, and as seen earlier, only secondary factory was included in the subject of transfer. Furthermore, it should be viewed that Defendant KK’s mutual agreement to use “○○” for two years at the time of the instant contract, based on the premise that Defendant KK’s agreement to continue the business other than the secondary factory.

5) As can be seen, Defendant case’s business to be supplied with and distribute and sell Korean cattle and pigs from a third-party company pursuant to the agreement to partially exclude the foregoing competitive business. Therefore, the lower court’s conclusion that rejected the Plaintiff’s claim against the prohibition of competitive business regarding the foregoing business is justifiable. Therefore, the lower court’s error did not affect the conclusion of the judgment, and thus, the Plaintiff’s ground of appeal cannot be accepted.

C. Regarding ground of appeal No. 3

The court below rejected the Plaintiff’s assertion that the remaining Defendants, except Defendant K, are legal entities separate from Defendant K, and thus evading the duty of prohibition of competition would abuse legal personality, and the remaining Defendants also bear the duty of prohibition of competition. However, the court below rejected the Plaintiff’s assertion on the ground that the remaining Defendants cannot be deemed to have abused their legal personality.

In light of the relevant legal principles and records, the lower court did not err in its judgment by misapprehending the legal principles on the succession to the duty not to engage in competitive business or the abuse of corporate personality, contrary to what is alleged in the grounds of appeal. Supreme Court Decision 96Da37985 Decided December 23, 1996, which is cited in the grounds of appeal, does not mean that a third party who is not the transferor of business may seek the prohibition of competitive business against the third party. Therefore, the legal principles of the above judgment cannot be the grounds for the Plaintiff’s claim against

D. Regarding ground of appeal No. 4

The court below rejected the Plaintiff’s claim against Defendant KK and Puju Co., Ltd. for the prohibition of collective meal service business on the ground that collective meal service business is merely a form of distributing domestic and imported meat, and it cannot be viewed as an object of the instant business transfer.

Examining the relevant legal principles and records, the lower court did not err by misapprehending the legal principles on the transfer of business, or by misapprehending the reasoning for the judgment, contrary to what is alleged in the grounds of appeal.

2. As to the ground of appeal by Defendant Kitch

A. Regarding ground of appeal No. 1

The court below rejected the above assertion on the assertion by the defendant case that there was an agreement to exclude the duty of the prohibition of one's own competitive business at the time of the contract of this case, on the ground that the contract of this case only stipulates the duty of the prohibition of the transferee's imported meat business, but does not stipulate the duty of the transferor's prohibition of the competitive business, it cannot be interpreted that the transferor's duty of the prohibition of the competitive business under the Commercial Act is excluded, and there is no other evidence to support the exclusion of the defendant

As seen earlier, the lower court erred by misapprehending the legal doctrine on the existence of an obligation not to engage in competitive business within the scope of the agreement on the prohibition of competitive business, on the grounds that Defendant K case’s provision of Korean cattle and pigs and distributed and sold by the third company. However, as seen earlier, the lower court rejected Defendant K’s obligation not to engage in competitive business for any other reason. As such, the lower court’s error did not affect the conclusion of the judgment.

On the other hand, in light of the relevant legal principles and records, the part of the judgment below's denying the existence of an agreement to exclude the duty of non-commercial license in relation to the secondary factory business, i.e., the existence of an agreement to exclude the duty of non-commercial license, and contrary to the allegations in the grounds of appeal, the court below did not err by misapprehending

B. Regarding ground of appeal No. 2

1) The lower court rejected the allegation by the Defendant K-U.S. on the ground that the scope of the non-business territory of the non-business territory should be limited to the Chungcheongbuk-gun, which is the location of a middle-sized factory, and the adjacent group, on the ground that the business territory of a middle-sized factory is for the purpose of nationwide distribution and sale of processed meat, and thus, it cannot be deemed that the business territory is limited to the middle-sized factory territory and the adjacent group.

2) Article 41(1) of the Commercial Act provides for the duty not to engage in the competitive business of a transferor, and stipulates that the area where the competitive business is prohibited is the same Special Metropolitan City, Metropolitan City, Si, Gun, and adjacent Special Metropolitan City, Metropolitan City, Si, and Gun. As seen earlier, the purport of the provision of the said Article is that the business subject to transfer refers to the total body of the property that is organized and functioned as an organic integration according to a certain business purpose, and that the Commercial Act provides for the duty not to engage in the competitive business for the purpose of protecting the transferee of the business. In light of the purport of the provision of the Commercial Act, it shall be determined on the basis of the area where the transferor of the business was engaged in ordinary business activities rather than on the basis of the area where the transferred material facilities were installed. Whether the business is ordinary business activities should be determined by comprehensively taking into account various circumstances

3) Although the reasoning of the lower judgment on this part is somewhat insufficient, the lower court determined as above after recognizing the fact that a secondary factory had distributed and sold the domestic land throughout the country at the time of the transfer of business, the lower court determined that the area subject to prohibition of competition was an area subject to prohibition of competition based on the fact that the ordinary business activities of a secondary factory have been conducted nationwide. In light of the aforementioned legal principles and the records, the lower court’s aforementioned determination is acceptable, and contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the regional scope of the duty of prohibition of competition

3. Conclusion

Therefore, all appeals are 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 on the bench.

Justices Min Il-young (Presiding Justice)