In a case where Company A: (a) at the same time, Company B was the purchaser of Company B in the transaction where Company B supplied goods to Company C in connection with a special sales business, such as points driving business; (b) was entrusted with purchasing business and sales business by Company C; and (c) was engaged in the transaction with Company C as an independent purchaser or sales office separately; (b) Company A was the actual operator of Company C; (c) made circular transactions in which Company B was supplied to Company B ? C; and (d) Company B was supplied to Company B by means of a credit card company’s normal order from a customer company, such as a credit card company, with the concealment of circular trading structure; and (c) Company B was paid the price of goods by Company B by pretending that Company B was supplied goods to the customer company, the case holding that Company C was not liable to pay the goods to Company B, but is liable to compensate for damages arising from the processing transaction pursuant to Article 756 of the Civil Act.

In a case where Company A: (a) was the purchaser of Company B at the same time when Company B supplied Company B with goods to Company C; (b) was entrusted with purchasing and sales business by Company C; (c) was engaged in the transaction as an independent purchaser or sales office; (d) was the actual operator of Company B; (c) was engaged in circular transactions in which Company B was supplied to Company C; and (d) was supplied to Company C; and (e) was made by Company B under normal orders from Customer B, such as credit card companies, with the concealment of circular trading structure; and (e) Company B was paid the price of goods by Company B under the misrepresentation of the supply of goods to Company B; and (e) there was no gross negligence on the part of Company B’s order for the supply of goods to Company C; (b) Company C did not have an obligation to pay goods to Company C; and (c) Company C did not have an objective duty to provide Company C with equipment such as providing Company C’s operating equipment, such as providing Company C’s operating equipment, to the extent that Company C did not know D’s operating equipment and material equipment.

Article 756 of the Civil Act

Gaspa et al. (Law Firm LLC et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 200Na14484 delivered on August 1, 200

Seoul High Court Decision 2012Na102621 decided August 21, 2013

The part of the judgment of the court below regarding the conjunctive claim is reversed, and that part of the case is remanded to the Seoul High Court. The plaintiff's primary claim and the appeal on the conjunctive claim 1 through 3 are dismissed.

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

1. As to the ground of appeal on the claim for the price of goods

A. The interpretation of a juristic act is objectively established by the parties’ objective determination of the meaning that the parties gave to an act of expression. In the event of a conflict of opinion regarding the interpretation of a contract between the parties, where the interpretation of the parties’ intent expressed in the contract document is at issue, it shall be reasonably interpreted in accordance with logical and empirical rules, comprehensively taking into account the contents of the text, the motive and background leading up to the juristic act, the purpose and genuine intent to be achieved by the said juristic act by the parties, and transaction practices (see, e.g., Supreme Court Decisions 2007Da7603, Mar. 13, 2008; 2009Da67313, Oct. 14,

B. The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following.

(1) The Plaintiff is a company engaged in the general distribution business and franchise store business. The Defendant is a company established for the purpose of supporting the market of products of small and medium enterprises, and is engaged in the department store business, mail order business, and electronic commerce transaction business. On the other hand, the Defendant is a company engaged in the distribution business related to the so-called special sales business, such as the branch store business, and the third party operator is the Nonparty.

(2) On October 2005, the Defendant entered into a contract with the third party to purchase goods to carry out the Defendant’s point driving business, such as the Defendant’s point driving business, and continued to renew the contract to the third party. On November 2009, the Defendant entered into the same contract between the Defendant and the third party on the same terms and conditions (hereinafter “instant contract”). According to the instant contract on entrustment of business, according to the instant contract on entrustment of business, ① points driving business and other businesses (e.g., welfare loss, etc.) are entrusted, ② the third party purchases goods in its name and supplies them to the Defendant’s customer company, such as credit card company, etc. by proxy, and supply them to the third party with the third party’s sales office through the third party’s purchase of goods on behalf of the Defendant, and ③ the third party obtains prior approval from the Defendant, and ④ the Defendant provided the third party with office space and communications expenses, etc.

After the conclusion of the instant entrustment contract, the Defendant provided a third party with collection services, such as part of the office of the Defendant’s head office and telephone and facsimile, and provided convenience, such as parking space and staff restaurant. On the part of the Defendant’s representative telephone, the Defendant connected the third party’s office to the Defendant’s office if he was suffering from the phone of the third party employee, and the Defendant’s representative telephone connected the third party employee with the office of the Defendant, and carried out the business, such as obtaining approval of the transaction by the Defendant’s officer. In addition, the third party employee was able to use the name of the Defendant with the Defendant’s permission, and displayed the e-mail at the time of sending the e-mail to the customer, and the Defendant’s other party to the transaction, including the Plaintiff, was engaged in all transactions after consultation with the third party employee, including the Nonparty, etc., except in cases where the early director of the Plaintiff, etc. agreed to start the transaction with the Nonparty, etc. as if the Defendant’s special sales department actually was the Defendant’s department.

(3) Meanwhile, the Plaintiff had been running a special sales business in which the Plaintiff received delivery from the first day, etc., and delivered the goods to credit card companies, etc.; however, at the time of concluding a contract on business entrustment between the Defendant and the Defendant, the Defendant agreed with each other to receive the goods supplied to the Defendant, and entered into an agreement on business partnership with providing the other party an opportunity to supply the goods in the supply transaction received each contract. Thereafter, the Plaintiff was supplied with the goods from the Defendant in the supply transaction such as the points so received, and the Defendant was supplied with the goods from the Plaintiff in the supply transaction such as the points so received.

(4) From the time when the Plaintiff, the Defendant, and the third party maintained their respective trade relations, around July 2006, the first day requested the Plaintiff to designate the date of the transaction that the Plaintiff supplied to the Defendant as a purchaser, and the Plaintiff received it, thereby forming a trade structure in which the Plaintiff supplied to the Defendant. Such trade structure was commonly applied to the Plaintiff and the third party. In addition, the third party requested the Plaintiff to pay the price immediately upon completion of delivery on the ground that the delivery takes a considerable period of time since the price was paid in sequence in the reverse order of the flow of the goods, and the delivery takes considerable time to receive the price after delivery. Accordingly, the Plaintiff requested the Plaintiff to pay the price immediately when the delivery is completed for the purpose of smooth procurement of the goods. When the Plaintiff completed the supply of the goods to the Plaintiff for smooth procurement, it was paid first to the third party on the first day and then received the price from the Defendant later.

In the above transaction structure, the third company directly grasped the current status of orders issued by the defendant by the customer company, and the third company of the third company of the defendant, as the defendant's business trustee, ordered the plaintiff and was in the position of receiving orders from the plaintiff as the purchaser, and thus, the defendant's actual orders issued to the plaintiff and the actual orders issued to the third company of the plaintiff on the third company of the plaintiff were omitted (the third company of the third company, at the same time, issued the settlement data stating the details of the goods as the plaintiff, and delivered them to the plaintiff). The third company of the first company directly performed the delivery of the goods to the customer company, and the third company of the third company filed a claim for the payment to the plaintiff by delivering the settlement data stating the tax invoice, the type, quantity, and price of the goods, the amount claimed by the plaintiff by the plaintiff, the amount claimed by the plaintiff to the plaintiff, and the plaintiff filed a claim for the payment with the defendant along with the transaction statement stating

(5) In order to raise funds for the repayment of obligations arising from the investment in the home shopping business, the Nonparty: (a) obtained a third party’s entrustment of purchase and sales business from the Defendant; and (b) made circular transactions in which delivery was made to the Defendant “Defendant ? third company”; and (c) made circular transactions in which delivery was made to the Defendant ? third company; (d) from August 2007 to the Plaintiff under normal orders from the customer companies, such as credit card companies, etc., by concealing the circulation transaction structure; and (e) made the Plaintiff’s normal orders from around August 2007, the Nonparty paid part of the goods to the Plaintiff and paid the remainder to the Defendant for the payment of its obligations; and (e) expanding the size of circular transactions thereafter, some of the amount paid from the circulation transaction to the Defendant’s independent sales office was paid to the Defendant; and (e) made a processed transaction in which the remainder was paid to the Plaintiff by the previous circular transaction (hereinafter “instant circular transaction”).

(6) The instant processing transaction has been continued for more than three years while expanding its size. On November 201, 2010, it was no longer possible to continue the instant processing transaction. The Plaintiff paid KRW 15,58,826,690 on four occasions from October 20, 2010 to November 22, 2010 to the third party, as in the previous case, to the third party, for a total of KRW 15,558,826,690, and then filed a claim against the Defendant for payment of KRW 16,272,064,160, adding the Plaintiff’s profit to the above amount. However, while the third party failed to pay the amount to the Defendant, the Defendant confirmed the fact of the instant processing transaction and refused to pay the said amount to the Plaintiff.

C. Examining the following circumstances revealed from the above facts in light of the legal principles as seen earlier, the instant transaction is related to the supply of goods between the Defendant and the Plaintiff and the supply of goods between the Plaintiff and the third party, and the Defendant’s actual order to the Plaintiff and the Plaintiff’s third party is omitted, and the third party’s direct supply of goods to the Defendant’s customer company, such as the Plaintiff’s credit card company, thereby omitting the process of the third party’s supply of goods to the Plaintiff and the Plaintiff’s supply of goods to the Defendant. It is reasonable to view that the nature of the instant transaction is ordinary goods supply transaction.

(1) The instant transaction was concluded between the Plaintiff and the Defendant to enter into an agreement on business cooperation for the expansion of mutual sales, and the Plaintiff designated the third third party in the supply transaction against the Defendant as the purchasing agency in order to ensure the convenience of the Plaintiff’s goods procurement and the third party sales, and was established by paying the price early. The purpose of the instant transaction is to expand the sales of the Defendant, the Plaintiff, and the third party and to facilitate the procurement of goods for this purpose.

(2) While the instant transaction was conducted, the Plaintiff also confirmed whether goods were goods to the Logistics Center through its employees. The Defendant claimed for the price of goods against the Defendant who did not pay the price of goods, and sent an official document on the premise that the instant transaction was ordinary goods supply transaction to the Defendant. In this regard, the Plaintiff seems to have recognized the instant transaction as ordinary goods supply transaction.

(3) In the instant transaction, there is no practical order by the Defendant against the Plaintiff and any actual delivery of goods to the Plaintiff. However, the former is due to the fact that the third party concurrently held the Defendant’s business trustee status and the Plaintiff’s purchasing place, and the latter was omitted from the actual act of ordering. The latter is due to the fact that the subordinate distributor, such as the third party company, directly supplies goods to the customer company, such as credit card company, in the instant transaction.

(4) The third party company filed a claim for the payment by delivering the tax invoice and the settlement data stating the detailed details of the goods supplied to the Plaintiff. The Plaintiff filed a claim for the payment by issuing a transaction statement stating the tax invoice and the detailed details of the goods supplied to the Defendant. This is based on the premise that the instant transaction is a commodity supply transaction between the Defendant and the Plaintiff and the third party.

D. As such, insofar as the instant transaction falls under a usual commodity supply transaction, the Defendant cannot be deemed liable for the payment of the price for the instant processed transaction in which there is no order issued by the Defendant according to the Defendant’s will and no Plaintiff’s supply of goods. Moreover, even upon examining the record, there is no special agreement between the Plaintiff and the Defendant that the Defendant is liable for the payment of the price to the Plaintiff solely based on the confirmation of the supply of the first third company goods.

E. We affirm the lower court’s rejection of the Plaintiff’s claim for the price of goods. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the interpretation of legal act or by omitting judgment on the liability

2. As to the ground of appeal on the claim for damages

A. The employer relationship under Article 756 of the Civil Act is a relationship in which a person conducts affairs on behalf of another person under the direction and supervision of the person, and is usually based on the employment relationship, but it is sufficient that there is a substantial command and supervision relationship in terms of delegation, partnership, contract, and any other relationship. Such direction and supervision relationship is not determined by the actual direction and supervision relationship, but by the objective direction and supervision relationship (see Supreme Court Decisions 95Da50462 delivered on May 10, 1996; 97Da13702 delivered on August 21, 1998, etc.).

In addition, the "business execution", which is an element for the employer's liability, is deemed to be an act of performing the business without considering subjective circumstances, when it appears that an employee's unlawful act objectively appears to be an employee's business activity, an act of performing the business, or an act related thereto. Here, the issue of whether it is objectively related to the business performance of the employee's own duties and illegal acts should be determined in consideration of the degree of the employee's inherent duties and the degree of the employee's responsibility for causing risks to damages and lack of preventive measures (see Supreme Court Decision 200Da6119, Mar. 9, 200, etc.).

B. We examine the above facts in light of the above legal principles.

(1) According to the instant entrustment contract, the third party company shall perform the entrusted project with the approval of the defendant, and the approval here means the approval for each individual transaction, so the right to decide on the size, period, price conditions, etc. of each individual transaction is reserved to the defendant.

However, without separately employing the department in charge of special sales and employees, the Defendant provided the third party company with physical facilities such as office space and office fixtures, and provided the parking space and office convenience, such as employees restaurant, etc. The Defendant’s representative telephone linked the third party employees of the third party company with the letter of contract, and allowed the third party employees to use the name of the Defendant’s name, and thereby, approved or impliedly allowed the third party employees to act as the Defendant’s employee. Accordingly, the Defendant’s transaction partner, including the Plaintiff, etc., was engaged in all transactions with the Defendant by designating the third party employees of the third party company including the Nonparty, etc. as the Defendant’s counterpart. As such, since the Defendant completed the third party company’s work with its officers and employees including the third party company and the non-party, using the department in charge of special sales or as if they were the employees in charge of it, it should be directed and supervised that the non-party, etc. was equivalent to the extension of its activities.

In full view of these circumstances, even if the non-party is merely the actual operator of the third party who is entering into the instant entrustment contract with the defendant, and does not enter into an employment contract with the defendant, the defendant is objectively in the position to command and supervise the non-party to the extent similar to that of the defendant's employees in relation to the execution of the instant entrustment contract.

(2) Meanwhile, the Nonparty, using the circular transaction structure of the instant processed transaction, concealed the fact of circular transaction with respect to the Plaintiff. In fact, the third party ordered the Defendant to make a false order, and accordingly, the Defendant’s order against the Plaintiff is bound to be a false order. Although the third party did not supply any goods, the Defendant, such as a credit card company, issued a normal order to the Plaintiff and the third party who received an order from the Plaintiff, deceiving the Plaintiff as if he supplied goods to the customer company, thereby deceiving the Plaintiff as if he had the third party who received an order from the Plaintiff supplied goods to the customer company.

Of these deceptive acts, the part concerning the supply of goods by the Nonparty, as the operator of the third company of the third company that purchased the Plaintiff, was deceiving the Plaintiff on the status of executing the business of the third company of the third company, but the part concerning the receipt of orders by the Defendant and the part concerning the order by the Defendant against the Plaintiff are deceiving the Plaintiff on the status of performing duties as the operator of the third company of the third company, who is the business trustee of the Defendant, under the instant contract on entrustment of business. Since the act performed in the latter position is an act of performing the Defendant’s business objectively, it shall be deemed that the act of acquiring the Nonparty’s

(3) Therefore, the Defendant is liable to compensate the Plaintiff for damages arising from the instant processing transaction pursuant to Article 756 of the Civil Act, unless there exist special circumstances, such as that the Plaintiff was grossly negligent in not knowing the instant processing transaction.

C. Nevertheless, the lower court determined that the tort committed by the Nonparty was not related to the Defendant’s business or affairs, and rejected the Plaintiff’s claim for damages based on Article 756 of the Civil Act. In so doing, it erred by misapprehending the legal doctrine of employer liability, thereby affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on this point

3. Conclusion

Therefore, the part of the judgment of the court below regarding the 4 preliminary claim is reversed, and that part of the case is remanded to the court below for a new trial and determination. The plaintiff's primary claim and the appeal concerning the 1 through 3 preliminary claim is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kwon Soon-il (Presiding Justice)