Article 359 of the Commercial Act, the meaning of “malicious or gross negligence” under the proviso of Article 21 of the Check Act, and the standard time for determining the existence or absence thereof (=the time of acquisition of share certificates) / In a case where the transferor does not conduct an investigation to suspect that the transferor is an unentitled person even though there are circumstances to suspect that the transferor is an unentitled person, whether there is a “serious negligence” under the proviso above to the transferee (affirmative)

The bona fide acquisition of share certificates is a system for protecting a person who trades in trust outside the right of possession of share certificates. The bona fide acquisition of share certificates is not recognized when the acquisition of share certificates was conducted in bad faith or by gross negligence (Article 359 of the Commercial Act and Article 21 of the Check Act). Here, the existence of bad faith or gross negligence must be determined on the basis of the time of the acquisition. The term “ bad faith” refers to the acquisition by the previous holder, who knows that there was a defect in the delivery contract, that is, the former holder is an unentitled person, incompetent person, or lack of power of representation, etc., and gross negligence means a lack of the duty of care required in the transaction. In addition, when considering the common transaction standards as a result of acquisition of share certificates as a transaction basis, if the transferor takes over share certificates, etc. without any reasonable investigation as to whether the transferor is an unentitled person, it shall be deemed that there is a "serious negligence" as referred to in Article 359 of the Commercial

Article 359 of the Commercial Code, Article 21 of the Check Act

Supreme Court Decision 99Da58471 delivered on September 8, 2000 (Gong2000Ha, 2081) Supreme Court Decision 2006Da58684 Delivered on November 9, 2006

Poyman Co., Ltd. (Law Firm two others et al., Counsel for the defendant-appellant)

Seoul Economic Examination Co., Ltd. (Law Firm Mapyeong, Attorneys Masung-si et al., Counsel for the defendant-appellant)

Korea General Media Co., Ltd. (Law Firm Barun, Attorneys Park Il-hwan et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2015Na2019726 decided October 30, 2015

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

The grounds of appeal are examined.

1. The bona fide acquisition of stock certificates is a system for protecting a person who trades with a trust outside the right of possession of stock certificates. The bona fide acquisition of stock certificates is not recognized when the acquisition of stock certificates was conducted in bad faith or by gross negligence (Article 359 of the Commercial Act, Article 21 of the Check Act). The issue of whether the acquisition was made in bad faith or by gross negligence must be determined on the basis of the time of the acquisition. The term "faith" means that the previous holder knowingly acquired a defect in the delivery contract, such as where the former holder is an unentitled person, incompetent person, or lack of power of representation. The gross negligence refers to the lack of the duty of care required in the transaction (see Supreme Court Decision 9Da58471 delivered on September 8, 200). In addition, the acquisition of stock certificates is determined on the basis of ordinary transaction standards, and in cases where the transferor takes over stock certificates without any investigation as to the existence of an unentitled person, the transferee should be deemed to have been "the fault" under Article 359 of the Commercial Act and Article 21 of the Check Act.

2. A. Review of the reasoning of the lower judgment and the evidence admitted by the lower court reveals the following facts.

(1) On December 31, 2012, when Nonparty 1 worked as the president of the Korea Youth Corporation, Nonparty 1 purchased 60,000 shares registered ordinary shares (hereinafter “instant shares”) with the Defendant’s face value of 10,000 from the Defendant’s Intervenor, who is an affiliate company of the said company, as Nonparty 2. On January 25, 2013, Nonparty 1 entered into a title trust agreement with Nonparty 2 on a title trust (hereinafter “instant title trust agreement”) with Nonparty 2 with the content of title trust with Nonparty 2, and Nonparty 2 paid KRW 600,000 of the instant shares purchase price to the Defendant’s Intervenor.

(2) On August 28, 2013, the Plaintiff: (a) met Nonparty 3 and Nonparty 4, a partner of Nonparty 1; (b) concluded a corporate acquisition agreement with Nonparty 295,000 shares out of the total number of shares issued by the Defendant (120,00 shares in the name of Nonparty 1; (c) 90,00 shares in the name of Nonparty 3; (d) 25,000 shares in the name of Han Cement Co., Ltd.; and (e) 60,00 shares in the instant case (hereinafter “instant acquisition agreement”); and (e) at the time, the Plaintiff presented the price of KRW 21 billion to the Plaintiff, but did not reach an agreement.

(3) Meanwhile, on August 5, 2013, prior to the undertaking negotiation of the instant case, Nonparty 2 deposited KRW 600 million in the bank account designated by Nonparty 1’s request. On September 24, 2013, in order to release the seizure of the instant shares by the National Tax Service, Nonparty 2 paid KRW 256,986,100 to Nonparty 1 in arrears, and on October 25, 2013, paid KRW 100 million to Nonparty 1.

(4) On March 5, 2014, at an open general meeting of shareholders held on March 5, 2014, Nonparty 2 taken out the share certificates issued (hereinafter “instant share certificates”) with respect to the instant shares kept in custody of the Defendant’s treasury.

(5) On April 10, 2014, the Plaintiff entered into a share purchase agreement with Nonparty 2 to purchase the instant shares of KRW 1.05 billion (hereinafter “instant share purchase agreement”), and paid KRW 1.05 million to Nonparty 2 on the same day, Nonparty 2 was handed over the instant share certificates from Nonparty 2, and held the instant shares until now. At that time, Nonparty 2 said that Nonparty 2 spent KRW 956,986,100 as indicated in the foregoing paragraph (3) and acquired the instant shares from Nonparty 1, but did not present to the Plaintiff any material related to the fact that the Plaintiff paid the instant shares as well as the relevant disposal documents, such as the share transfer agreement, but did not ask Nonparty 2 to or confirm whether there was such material.

B. The lower court determined as follows based on the above facts found.

(1) Since Nonparty 2 merely lent the name of the shareholder of the instant shares to Nonparty 1, Nonparty 2 is an unentitled person, even if the Plaintiff acquired the instant shares from Nonparty 2, an unentitled person, it cannot be lawfully acquired unless there are special circumstances such as bona fide acquisition.

(2) Comprehensively taking account of Nonparty 2 and the Plaintiff’s attitude, etc. in the process of acquiring the instant shares, the Plaintiff appears to have been aware of the fact that Nonparty 2 concluded the instant title trust agreement with Nonparty 1 at the time of concluding the instant share purchase agreement. However, Nonparty 2 transferred each of KRW 60 million and KRW 100 million to Nonparty 1 on August 5, 2013 and October 25, 2013, and paid each of KRW 256,986,100 to Nonparty 1 on September 24, 2013, the Plaintiff acquired the ownership of the instant shares by substitute payment of KRW 256,986,100, the Plaintiff’s president, and Nonparty 5, Nonparty 2, as seen above, did not have any significant grounds for deeming that the instant shares were lawfully acquired by paying the instant shares to Nonparty 1 or paying the instant shares on behalf of Nonparty 1 on behalf of the Plaintiff.

3. However, it is difficult to accept such determination by the lower court for the following reasons.

In addition to the process of the acquisition negotiation of this case as admitted by the court below, it is highly probable that the plaintiff non-party 5, who led the acquisition negotiation of this case and the conclusion of the share purchase contract of this case, is an expert in the acquisition and merger of the company. Since the share transfer price agreed at the time of the acquisition negotiation of this case reaches a total of 21 billion won, the plaintiff would have made a considerable investigation into the defendant's shareholder composition, etc., and even non-party 3, etc. would have expressed that the plaintiff was about 20.3% of the shares subject to sale to sell the defendant company during the above negotiation process, the non-party 1 was the non-party 1, at the time of the acquisition negotiation of this case.

However, Nonparty 2 asserted that Nonparty 1 transferred the instant shares to Nonparty 1 and did not present any material on the part of the Plaintiff at the time of the conclusion of the share purchase agreement. Even according to the reasoning of the lower judgment, at the time of the conclusion of the share purchase agreement, Nonparty 2 paid KRW 600 million to Nonparty 1 on August 5, 2013, the transfer of the instant shares to Nonparty 2. This circumstance appears to be sufficient reason to raise doubt as to whether Nonparty 2 was a legitimate holder of the instant share ownership on the premise that Nonparty 2 was the title trustee of the instant shares. Furthermore, the Plaintiff could easily verify whether Nonparty 1 transferred the instant shares to Nonparty 2 by means of questioning Nonparty 3, who was the other party to the instant share purchase agreement, etc., without investigating whether Nonparty 2 was a legitimate holder of the instant share ownership. Nevertheless, the Plaintiff concluded the share purchase agreement without any investigation as to whether Nonparty 2 was a legitimate holder of the instant shares.

In light of the general standard of transaction, even if there were circumstances to suspect that Nonparty 2 was an unentitled person at the time of the conclusion of the share purchase contract, the Plaintiff entered into the share purchase contract of this case without any investigation as to the fact that Nonparty 2 was an unentitled person. Thus, even if Nonparty 2 was unaware of the fact that he was an unentitled person, it is reasonable to view that the Plaintiff was due to gross negligence of gross negligence, which lacks the duty of care required in the transaction. Nevertheless, the lower court determined that the Plaintiff was not guilty of bad faith or gross negligence. In so determining, the lower court erred by misapprehending the legal doctrine on bona fide acquisition of share certificates, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment

4. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, 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

Justices Ko Young-han (Presiding Justice)