[1] The meaning of the principle of equality of shareholders and the validity of an agreement under which a company grants superior rights or interests only to certain shareholders in violation of such principle (negative in principle)

[2] The case holding that in a case where Gap corporation and its management and employee stock ownership association entered into an agreement with Eul and Eul to purchase part of the shares issued by Gap company owned by members of the employee stock ownership association in par value and pay them to Gap company, separately lend a certain amount of funds to Gap company, and have the right to recommend one executive officer of Eul company, and subsequently Gap company entered into an agreement with Eul to the effect that " Eul shall pay Eul an agreed amount to Eul and its wife in lieu of exercising the above right to recommend executive officer Eul", and Eul paid the agreed amount to Eul company, etc., and Eul suspended the payment of the agreed amount and sought a return of unjust enrichment by asserting that the above agreed amount payment agreement is null and void in violation of the principle of shareholder equality, the payment agreement was suspended and sought for the return of unjust enrichment, even though Eul et al. received the payment from Gap company for the whole amount of the shares raised by the management fund from Gap company and lost its status as the creditor of Eul company, and only it was a violation of the principle of shareholder equality that Gap company grants superior rights to other shareholders

[1] The principle of the equality of shareholders means that a shareholder ought to be treated equally according to the number of shares he/she owns in a legal relationship with the company. An agreement that a company grants superior rights or interests only to certain shareholders in violation of this principle is null and void, barring any special circumstance.

[2] In a case where Gap corporation and its management and employee stock ownership association entered into an agreement to purchase part of the shares issued by Eul company owned by members of the employee stock ownership association to purchase them at par value and pay them to Gap company, separately from lending a certain amount of funds to Gap company, and subsequently Gap company entered into an agreement with Eul to the effect that " Eul shall have the right to recommend one executive officer of Eul" and " Eul shall pay Eul an agreed amount to Eul and its wife, instead of exercising the above right to recommend executive officer," and the above agreement to suspend the payment of the agreed amount and seek the return of unjust enrichment by asserting that the above agreement to pay Eul was null and void in violation of the principle of shareholder equality, the case holding that Eul's right to recommend executive officer is a violation of the principle of share purchase agreement to pay Gap company's shares to Gap company's shareholders, and thus, it can be viewed that the above agreement to pay Gap company's shares to Gap company's shareholders instead of the right to recommend executive officer Eul is also a violation of the principle of equity, and that Gap company's right to pay Gap's shares as a special shareholder.

[1] Article 105 of the Civil Act, Articles 369(1), 464, and 538 of the Commercial Act / [2] Article 105 of the Civil Act, Articles 369(1), 464, and 538 of the Commercial Act

Manam Automobile Co., Ltd. (Attorney Choi Jae-soo, Counsel for the plaintiff-appellant)

Defendant Counterclaim Plaintiff and one other (Attorneys Lee B-hee et al., Counsel for the plaintiff-appellant)

Supreme Court Decision 2015Da68355, 68362 Decided January 12, 2017

Daegu High Court Decision 2017Na71, 88 decided December 13, 2017

The part of the lower judgment against the Plaintiff (Counterclaim Defendant) shall be reversed, and that part of the case shall be remanded to the Daegu High Court.

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

1. Judgment on the first ground for appeal

A. The principle of the equality of shareholders means that in a legal relationship with a company, a shareholder ought to be treated equally in accordance with the number of shares he/she owns. An agreement that a company grants superior rights or interests only to certain shareholders in violation of this principle is null and void unless there are special circumstances.

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

(1) Around 2005, the Plaintiff (Counterclaim Defendant; hereinafter “Plaintiff”) entered into the instant share trading agreement with Defendant 1 to raise operating funds from Defendant 1 (Counterclaim Plaintiff; hereinafter “Defendant”). The main contents are as follows.

① Defendant 1 shall purchase KRW 40,00 per share with face value of KRW 5,00 per share among the shares owned by members of the employee stock ownership association and pay KRW 200 million to the Plaintiff by July 14, 2005 (paragraphs 1 and 2).

② Defendant 1 shall lend the Plaintiff KRW 100 million up to July 28, 2005, KRW 100 million up to September 14, 2005, KRW 100 million up to October 14, 2005, KRW 100 million up to November 14, 2005, and KRW 400 million up to November 14, 2005 (paragraph 4).

③ Defendant 1 has the right to preferentially purchase the shares owned by the employee stock ownership association if he/she lends the total amount of KRW 400 million to the Plaintiff (paragraph (3)).

④ Defendant 1 has the right to recommend one executive officer of the Plaintiff (hereinafter “the right to recommend an executive officer”), and the Plaintiff shall pay remuneration equivalent to that of a full-time executive officer to the executive officer recommended by Defendant 1 (paragraph (5)).

(2) Defendant 1 paid KRW 200 million to the Plaintiff’s common share price in accordance with the instant share purchase agreement, and acquired KRW 40,000 in the Plaintiff’s common share price held by the members of the employee stock ownership association under the Defendants’ name. The Plaintiff immediately borrowed and used KRW 200 million from the members of the employee stock ownership association who were paid the said share purchase price. In addition, Defendant 1 lent KRW 400 million to the Plaintiff pursuant to paragraph (4) of the instant

(3) After the conclusion of the instant share purchase agreement, the Plaintiff and Defendant 1 entered into the instant payment agreement with Defendant 1, instead of exercising the recommendation right under the instant share purchase agreement, to pay KRW 2 million per month to the Defendants. Accordingly, on July 31, 2005, the Plaintiff paid KRW 2 million per month to the Defendants by April 12, 2013, and the Plaintiff paid KRW 2.5 million per month from May 11, 2013 to July 11, 2013. The Plaintiff discontinued the payment of KRW 201,500,000 per month to the Defendants pursuant to the instant payment agreement. Of them, the amount paid to the Defendants under the instant payment agreement up to September 208, 2008 is the aggregate of KRW 201,50,000,000,000 per month, and the amount paid up to September 2008, 2008.

(4) Meanwhile, from July 2005 to September 2008, the Plaintiff paid KRW 87,670,547 to Defendant 1 or Defendant 2 a total of KRW 87,670,547, including the repayment of KRW 400 million to Defendant 1 in sequence, and payment of KRW 830,000 over 105 times for 39 months from around July 2005 to around September 2008.

C. Based on the above facts, the lower court determined as follows.

It is difficult to readily conclude that the instant payment agreement constitutes either a monetary loan for consumption or an individual transaction relationship, which provides a sum of KRW 600 million to the Plaintiff faced with a financial shortage by the Defendants, or an individual transaction relationship between the shareholders and the company. Therefore, it is difficult to readily conclude that the instant payment agreement violates the principle of shareholder equality.

D. However, the lower court’s determination is difficult to accept for the following reasons.

(1) In lieu of Defendant 1’s exercise of the recommendation right as stipulated under the instant share purchase agreement, the Plaintiff should pay KRW 2 million per month to the Defendants. Defendant 1’s exercise of the recommendation right is a consideration for raising the operating capital of KRW 200 million and KRW 400 million in total, and KRW 600 million in accordance with the instant share purchase agreement. As such, the instant payment agreement that the Defendants paid KRW 2 million per month to the Plaintiff, instead of the recommendation right, may be deemed as the consideration for raising the operating capital (see Supreme Court Decision 2015Da68355, Jan. 12, 2017, Supreme Court Decision 2015Da68362, Jan. 12, 2017).

(2) As such, the Defendants’ right to receive a monthly fixed amount from the Plaintiff based on the instant payment agreement is a special contractual right in the position of shareholders and creditors. On the other hand, from the time the Defendants paid KRW 200 million to the Plaintiff and purchased shares of KRW 40,000 to the date of purchase, the Defendants are the Plaintiff’s shareholders, and there is no change in the rights of shareholders so long as they do not transfer the above 40,000 shares. Therefore, when the Defendants received from the Plaintiff the full payment from the Plaintiff for the amount of KRW 60,000 operating capital, the Defendants lose their status as the Plaintiff’s creditor and are merely holding their status as a shareholder of KRW 40,00. If the Plaintiff continues to pay money under the instant payment agreement to the Defendants, which were only shareholders, due to the Plaintiff’s loss of creditor status, this would be contrary to the principle of shareholder equality.

(3) Furthermore, in full view of the following circumstances revealed by the records, including the relationship between the Plaintiff and the Defendants, it is reasonable to view that the Defendants’ act of receiving full payments from the Plaintiff for raising operating capital of KRW 600 million and losing the Plaintiff’s status as the Plaintiff’s creditor does not simply mean when the principal and interest of KRW 400 million was repaid under the pretext, but thereafter, based on the parties’ specific assertion and proof, and does not exceed the amount equivalent to the financial interest that the Defendants procured.

① The instant share purchase agreement between the Plaintiff and the Defendants provides that the Defendants purchase KRW 40,000 of the Plaintiff’s shares; the purchase price is set at KRW 200 million based on face value; the Defendants lend operating funds of KRW 400 million to the Plaintiff; and Defendant 1, who has the right to recommend executives, shall not be separately discussed. The same applies to the instant payment agreement that stipulates that the Defendants pay a monthly fixed amount instead of exercising the right to recommend executives.

② The Plaintiff’s shares that were to be acquired by the Defendants were owned by the members of the employee stock ownership association. At the time of the instant stock purchase agreement, the Plaintiff planned to use the amount equivalent to the purchase price of the shares. In fact, the Plaintiff used KRW 200 million from the members of the employee stock ownership association in the form of immediately borrowing the shares.

③ In light of the Plaintiff’s financial structure, aggravated management status, etc., it is difficult to view that the Plaintiff’s 40,000 shares purchased by the Defendants were worth KRW 200 million paid as the actual share purchase price. However, the amount of share purchase price was set based on convenience value, and the Defendants, including KRW 400,00,000, expected the benefits to be earned as a shareholder if the value of the shares increases in the future instead of providing the Plaintiff with financial benefits of raising operating funds through the instant share purchase agreement.

④ The Plaintiff actually paid the agreed amount to the Defendants each month in accordance with the instant payment agreement, separate from paying the principal and interest of KRW 400 million, and such payment was continued after September 2008, when the Plaintiff fully repaid the principal and interest of KRW 400 million to the Defendants. Under the instant payment agreement, the sum of the money that the Plaintiff paid to the Defendants is KRW 201,50,000,000, which is calculated as the share purchase price, exceeds the amount of KRW 200,000.

E. Nevertheless, based on its stated reasoning, the lower court determined that the instant payment agreement did not violate the principle of the equality of shareholders. In so determining, the lower court erred by misapprehending the legal doctrine on the principle of the equality of shareholders, thereby failing to exhaust all necessary deliberations as to the point at which the status of the remaining Defendants as creditors is extinguished, thereby adversely affecting the conclusion of the judgment.

2. Judgment on the second ground for appeal

A. According to the reasoning of the lower judgment, the lower court determined as follows.

The share purchase and sale agreement of this case cannot be deemed as the contents that an executive recommended by Defendant 1 is immediately appointed as a director without going through the resolution of the general meeting of shareholders, or that the specific amount of remuneration to be paid to the executive recommended by Defendant 1 is determined. Therefore, the payment agreement of this case does not violate Article 382(1) of the Commercial Act that provides for the authority to appoint directors of the general meeting of shareholders or Article 388 of the Commercial Act that

B. In light of the record, the lower court did not err by misapprehending the legal doctrine on the organization of a corporation, contrary to what is alleged in the grounds of appeal.

Furthermore, the Plaintiff asserts that the Defendants’ involvement in the appointment of a director as a creditor is null and void. However, since the Plaintiff’s management and employee stock ownership association appoint one of the candidates for executives recommended by Defendant 1 as the Plaintiff’s executive officer in accordance with the procedures prescribed by the Commercial Act, such as the resolution of the board of directors and the general meeting of shareholders, it is difficult to conclude that Defendant 1’s recommendation right violates the Commercial Act with regard to the organization of the corporation. In addition, as seen earlier, insofar as the Defendants agreed to pay a monthly fixed amount in lieu of exercising the recommendation right as stipulated in the share purchase agreement, so long as the Defendants agreed to pay a monthly fixed amount, it is reasonable to deem that the Defendants’ recommendation right of executive officers

3. Judgment on the third ground for appeal

The allegation in this part of the grounds of appeal is clear that the plaintiff did not appear to have asserted in the original judgment for a new reason only that was raised in the final appeal, and therefore, it cannot be a legitimate ground of appeal

4. Judgment on the fourth ground for appeal

A. Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err by exceeding the bounds of the principle of logic and experience and the free evaluation of evidence, or by misapprehending the legal doctrine on the interpretation of an agreement and the prohibition of offering profits to shareholders, contrary to what is alleged in the grounds of appeal, in rejecting the Plaintiff’s assertion that the payment of a monthly fixed amount based on the instant payment agreement does not go against Article 467-2 of the Commercial Act and thus

B. Meanwhile, the Plaintiff asserts that the instant payment agreement is not only a consideration that does not exercise the right to recommend executives, but also a consideration that does not exercise the entire shareholder's right, and thus, at least that portion of the subsequent consideration is contrary to Article 467-2 of the Commercial Act. However, it cannot be a legitimate ground of appeal as it was asserted only in the final appeal. Moreover, the monthly fixed amount based on the instant payment agreement is the amount that the Plaintiff pays to the Defendants instead of exercising the right to recommend executives under the instant stock transaction agreement. The allegation in the grounds of appeal on this part is unacceptable.

5. Conclusion

Without further proceeding to decide on the remaining grounds of appeal, the part against the Plaintiff among the judgment below is reversed, and that part of 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 on the bench.

Justices Cho Jae-hun (Presiding Justice)