[1] Standard for determining whether an executive officer of a financial institution has breached his/her duty of due care as a good manager

[2] In a case where a director of a financial institution expectations that it will be a business interest of the company while making a project financing loan and causes damage to the company by unilaterally performing his/her duties, whether such a director's act is within the discretionary scope of the business judgment permissible (negative)

[3] Whether a director of a stock company is liable for delay from the time of receiving the claim for performance, where the director bears the liability for damages against the company pursuant to Article 399(1) of the Commercial Act (affirmative in principle)

[1] An executive officer of a financial institution has the duty of due care as a good manager with respect to the financial institution under his/her control, and thus faithfully performs his/her duty. Whether an executive officer of a financial institution has neglected his/her duty in breach of the said good manager’s duty should be determined comprehensively in light of various matters, such as compliance with the relevant provisions, the terms and conditions of the loan, the contents and scale of the loan, the repayment plan, the existence and content of the security, the debtor’s property and management status, and growth potential.

[2] The so-called project financing loan is a financial transaction that evaluates the feasibility of a specific project related to real estate development and makes a future cash flow to be generated in the business as the main source of repayment of the principal and interest of the loan. Thus, the determination of the loan repayment ability is mainly dependent on the evaluation of the feasibility of the project. In such a case, a director of a financial institution has sufficiently collected, investigated, and examined necessary information while examining the feasibility of the project, which is the requirements for the loan, and made a reasonable decision in accordance with the trust and good faith and trust in that it accords with the maximum interest of the financial institution, and the contents of the decision are considerably unreasonable and thus is within the scope of ordinarily selected as a director due to a significant unreasonable reason, the director cannot be held liable for damages to the company even if the result was incurred later. However, if a director of the financial institution incurred a loss to the company by performing his/her duties, not by performing his/her duties through this process but by performing his/her duties, by collecting, investigating, and examining the necessary information sufficiently, and on this basis, it cannot be deemed that the director's act is permissible.

[3] In cases where there is no due date for the performance of obligation, the obligor is liable for delay from the time of receipt of the claim for performance (Article 387(2) of the Civil Act). The obligor is liable for delay from the time of receipt of the claim for performance, barring special circumstances, since the damage liability due to nonperformance is a

Pursuant to Article 399(1) of the Commercial Act, a director of a stock company is liable for nonperformance due to delegation relationship. Therefore, where a director of a stock company bears the liability for damages against the company pursuant to the said Article, barring any special circumstance, he/she shall be liable for delay from the time of receipt of the request for performance.

[1] Articles 382(2) and 399 of the Commercial Act, Article 681 of the Civil Act / [2] Articles 382(2) and 399 of the Commercial Act, Article 681 of the Civil Act / [3] Articles 382(2) and 399(1) of the Commercial Act, Articles 387(2), 390 and 681 of the Civil Act

[1] Supreme Court Decision 2001Da52407 Decided June 14, 2002 (Gong2002Ha, 1650), Supreme Court Decision 2006Da33609 Decided July 26, 2007 (Gong2007Ha, 1346) / [2] Supreme Court Decision 2006Da3935 Decided July 10, 2008 (Gong2008Ha, 1125), Supreme Court Decision 2009Da80521 Decided October 13, 201 (Gong201Ha, 2306) / [3] Supreme Court Decision 84Da1954 decided June 25, 198 (Gong1985, 104) / [3] Supreme Court Decision 2006Da53154 decided May 25, 2015

Korea Deposit Insurance Corporation (Law Firm Gappp, Attorneys Song Jin-jin et al., Counsel for the plaintiff-appellant)

Defendant (Attorney Kim Dong-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2017Na2058831 decided August 30, 2018

The part of the lower judgment against the Defendant ordering the payment of the amount calculated at the rate of 5% per annum from August 30, 2006 to November 8, 2016 regarding KRW 841,80,000 among the lower judgment is reversed, and that part of the case is remanded to the Seoul High Court. The remaining appeals are dismissed.

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

1. Basic factual basis

According to the reasoning of the lower judgment, the following facts are revealed.

From February 7, 2004 to September 10, 2007, the Defendant served as the representative director of the Gyeonggi Savings Bank Co., Ltd. (hereinafter “Game Savings Bank”).

On August 30, 2006, the Gyeonggi Savings Bank loaned KRW 5 billion to Etain Entertainment Co., Ltd. (hereinafter “Icktain”) (hereinafter “the instant loan”), and the Defendant approved the instant loan as the representative director. The instant loan is a so-called project financing loan that is received for the purchase of land, etc. while promoting the construction of a main complex apartment in Daegu-gu Development Group ( Address omitted).

On July 1, 2013, the Gyeonggi Savings Bank was declared bankrupt by the Seoul Central District Court 2013Hahap88, and the Plaintiff was appointed as a trustee in bankruptcy. From January 21, 2013 to April 26, 2013, the Plaintiff investigated whether the Gyeonggi Savings Bank violated the Mutual Savings Banks Act and the standard loan regulations for mutual savings banks, etc., and determined that the instant loan constitutes an insolvent and unfair loan.

2. Whether the fiduciary duty was violated (Ground of appeal Nos. 1 to 4)

A. An executive officer of a financial institution has fulfilled his/her duty as a good manager with respect to the financial institution to which he/she belongs. Whether an executive officer of a financial institution has neglected his/her duty in breach of the said good manager’s duty should be determined comprehensively in light of the following: (a) whether the executive officer of a financial institution has been in breach of the said good manager’s duty; (b) whether the loan was erroneous as an executive officer in charge of the loan; (c) the terms and conditions of the loan; (d) details and scale of the loan; (e) repayment plan; (e) whether the loan was secured and details; (e) the debtor’s property and management situation; and (e) the growth potential (see Supreme Court Decisions 2001Da52407, Jun. 14, 2002;

The so-called project financing loan is a financial transaction that evaluates the feasibility of a specific project related to real estate development and makes the future cash flow to be generated in the business as the main source of repayment of the principal and interest of the loan. Thus, the determination of the loan repayment ability is dependent mainly on the evaluation of the feasibility of the project. In such a case, a director of a financial institution has sufficiently collected, investigated, and examined necessary information while examining the feasibility of the project, which is the requirements for the loan, and made a reasonable decision in accordance with the trust and good faith of the financial institution on the basis of such procedures that it conforms with the maximum interest of the financial institution. If the contents of the loan are considerably unreasonable and it is within the scope of ordinary selection as a director due to a significant unreasonable reason, the director cannot be held liable for damages to the company even if the result that the company suffers losses is generated. However, if a director of a financial institution did not perform his/her duties through this process but merely performs his/her duties and causes losses to the company by unilaterally performing his/her duties, it cannot be deemed that it conforms with the maximum interest of the company, and reasonable business judgment based thereon.

B. The lower court recognized the Defendant’s liability for damages as follows.

(1) Even if the instant loan constitutes a so-called “Brige Loan” to lend initial funds of the project, it is an important factor to determine whether to grant a loan, such as the feasibility or profitability of the project, the adequacy of the parcelling-out price, the possibility of completion of parcelling-out, and the estimated size of sales revenue.

(2) It is difficult to deem the Defendant to have taken measures to recover claims.

Around April 2005, Scen Entertainment was a juristic person established at KRW 53,00,000 in capital and did not have the ability to repay obligations, such as having no sales revenue. Preferred rights established by Scen Entertainment in the project site are limited to KRW 743,00,000 in the appraised value of the collateral, and preferential rights to benefit are determined depending on the failure of the project, so it is difficult to see that the value of the collateral is substantially high. The Defendant received formal guarantee without investigating the income or property status, etc. of the representative director, director, related company, etc. of Ecen Entertainment, a joint and several surety, and related company. The Defendant received formal guarantee without examining the data on the current status of the income or property, etc. The stocks provided by Ecen Entertainment, the business license agreement, the waiver of the enforcement rights, and the written consent of change in the name of the business entity, etc.

(3) The Defendant appears to have provided the instant loan on the sole ground that the Defendant did not take specific measures against liquidity risks in which the debt repayment capacity is uncertain, and did not properly examine the feasibility of the project, etc., but rather did not expect that the loans with high profitability will serve as a business interest for the company.

The global appraisal corporation, one of the corporations, has prepared a report on feasibility review before the instant loan. The report had no feasibility feasibility, such as the fact that the purchase cost of the project site is excessively high, the number of unsold real estate in lots in the Seodaemun-gu, Daegu, and that the sale price offered by the Anntaind Scs is too high, and there is no possibility of harming the sale in lots.

The Defendant conducted the instant loan without further reviewing or preparing supplementary measures therefor. The Defendant did not properly examine the performance records of the project implementation, authorization and permission matters, possibility of sale, etc. of the Human Entertainment, and conducted a review on the outline of business, etc. based on only the business plan presented by the Human Entertainment. The instant project was virtually suspended without obtaining business authorization from the competent administrative agency until six months have not passed since the date the instant loan was granted.

It is difficult to view that the Defendant sufficiently reviewed the feasibility of the project solely on the ground that the accessibility of the project site or traffic conditions is good, and the abstract judgment or the fact that the exchange company was scheduled to participate in the project.

C. Examining the reasoning of the lower judgment in light of the foregoing legal doctrine, the lower judgment did not err by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules without exhaust all necessary deliberations, or by misapprehending the legal doctrine on the principle of pleading and evidence trial, liability for nonperformance, and duty of care of officers of financial institutions, or by failing to exhaust all necessary deliberations,

3. Date of calculation of damages for delay (Ground of appeal No. 5)

A. The obligor is liable for delay from the time of receipt of the claim for performance of the obligation (Article 387(2) of the Civil Act). The obligor is liable for delay from the time of receipt of the claim for performance of the obligation (see Supreme Court Decision 2015Da22496, May 31, 2017). Inasmuch as the obligation for compensation of damages due to nonperformance is a non-fixed obligation, barring special circumstances, the obligor is liable for delay from

Pursuant to Article 399(1) of the Commercial Act, a director of a stock company is liable for nonperformance due to delegation relationship (see Supreme Court Decisions 84Meu1954, Jun. 25, 1985; 2005Da51471, Dec. 11, 2008). Therefore, where a director of a stock company bears a liability for damages to the company, barring any special circumstance, he/she shall be liable for delay from the time when he/she is requested to discharge the liability, barring special circumstances.

B. According to the reasoning of the lower judgment and the record, the following facts are revealed.

The Plaintiff asserted in the complaint that the Defendant is liable for damages in accordance with Article 399(1) of the Commercial Act. The Plaintiff asserted in the first instance court that, since the Plaintiff’s damage claim against the Defendant’s assertion of extinctive prescription is based on Article 399(1) of the Commercial Act, the extinctive prescription period of ten years is ten years and that the short-term extinctive prescription period of Article 766(1) of the

The lower court, citing the judgment of the first instance, recognized the Defendant’s liability for damages, thereby limiting the Defendant’s liability to KRW 841,80,000, which is 30% of the amount of damages, and held that the Defendant is obliged to pay damages for delay calculated at the rate of 5% per annum prescribed by the Civil Act from August 30, 2006, which is the date of the instant loan to November 8, 2016, and 15% per annum prescribed by the Act on Special Cases concerning Expedition, etc. of Legal Proceedings from the following day to the date of full payment.

C. Examining these facts in light of the legal principles as seen earlier, the following conclusion is derived.

The Plaintiff may be deemed to have asserted against the Defendant for the liability of damages against the director of the company in accordance with Article 399(1) of the Commercial Act. This is a liability for damages caused by nonperformance of obligation, barring any special circumstance, and thus, the Defendant is liable for delay from the time of receiving the claim for performance.

Nevertheless, the lower court upheld the first instance judgment that held that the Defendant is liable to pay damages for delay calculated at the rate of 5% per annum as prescribed by the Civil Act from August 30, 2006, which was the date of the instant loan, to November 8, 2016, the delivery date of a copy of the complaint, without deliberating upon the Defendant’s request for performance. The lower court erred by failing to exhaust all necessary deliberations or by misapprehending the legal doctrine on the time when damages for delay occurred, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

4. Conclusion

Of the lower judgment, the part against the Defendant ordering payment of the amount calculated by the rate of 5% per annum from August 30, 2006 to November 8, 2016 regarding KRW 841,80,000 among the lower judgment is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. The remaining appeals are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Dong-won (Presiding Justice)