[1] Meaning of “the time of commencement of performance” as stipulated in Article 565(1) of the Civil Code, and whether a seller may be deemed to have commenced performance only by filing a lawsuit demanding a buyer to perform a sales contract and claiming payment of the balance (negative)

[2] The time of "the commencement of performance" in trading shares before the issuance of share certificates

[1] Under Article 565(1) of the Civil Act, the buyer may waive the down payment and rescind the contract until the buyer or seller commences the performance of the contract. The commencement of performance here refers to a case where the buyer performs part of the performance of the obligation to the extent objectively recognizable from the outside or performs a premised act necessary for the performance of the obligation, and the mere preparation for the performance is insufficient, and it does not necessarily lead to the extent of the provision of performance consistent with the terms and conditions of the contract. However, even though the seller does not have to reach the extent of the provision of performance consistent with the terms and conditions of the contract, the buyer’s filing a lawsuit demanding the payment of the remainder

[2] The transfer of shares prior to the issuance of share certificates takes effect only with the declaration of intention by the parties concerned, and the transferee of shares prior to the issuance of share certificates may, except in extenuating circumstances, unilaterally prove that he/she has acquired shares by transfer and, in order to oppose the transfer to a third party other than a company, request the company to change the transfer of shares: Provided, That in light of the fact that the transferor must have given notice or approval by the certificate with a fixed date corresponding to the transfer of nominative claim, the transferor shall be obliged to give notice of the transfer to the company so that the transferee can satisfy the requisite for setting up against the third party. In the sale of shares prior to the issuance of share certificates, the buyer may waive the down payment and cancel the sales contract until he/she starts the sale of shares prior to the issuance of share certificates by himself/herself,

[1] Article 565 (1) of the Civil Act / [2] Article 335 (3) of the Commercial Act, Articles 450 and 565 (1) of the Civil Act

[1] Supreme Court Decision 93Da1114 delivered on May 25, 1993 (Gong1993Ha, 1854) Supreme Court Decision 94Da52904 delivered on May 23, 1995, Supreme Court Decision 2004Da52392 Delivered on February 25, 2005 / [2] Supreme Court Decision 2005Da45537 Delivered on September 14, 2006 (Gong2006Ha, 1726)

Plaintiff (Law Firm Seol, Attorneys Song Jae-in, Counsel for the plaintiff-appellant)

Defendant Co., Ltd. (Attorney Lee Jae-sub et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2006Na60696, 60702 decided September 18, 2007 (Counterclaim)

The appeal is dismissed. The costs of appeal are assessed against the Defendant (Counterclaim Plaintiff).

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

Pursuant to Article 565(1) of the Civil Act, the buyer may waive the contract deposit and rescind the contract until the buyer or the seller commences the performance. Here, the commencement of performance refers to a case where the buyer performs part of the performance of obligation or performs a premised act necessary for the performance to an extent objectively recognizable from the outside, and it is not sufficient to prepare the performance merely, but it does not necessarily lead to the extent of offering the performance consistent with the terms and conditions of the contract (see Supreme Court Decision 2004Da52392, Feb. 25, 2005, etc.). However, the seller’s demanding the performance of the contract to the buyer and filing a lawsuit seeking the payment of the balance cannot be deemed to have commenced the performance (see Supreme Court Decision 94Da52904, May 23, 1995, etc.).

On the other hand, the transfer of shares prior to the issuance of share certificates takes effect only with the declaration of intention of the parties, and the transferee of shares prior to the issuance of share certificates can independently request the company to change the transfer by proving that he/she acquired shares without any need for cooperation by the transferor, except in extenuating circumstances, but considering that the transferor, in order to oppose the transfer to a third party other than the company, must have the notification or consent by the certificate with a fixed date in accordance with the transfer of nominative claim, in order to set up against the transfer of nominative claim, the transferor is obligated to give the transferee a notice of such transfer to the company so that he/she can satisfy the requisite for setting up against the third party (see Supreme Court Decision 2005Da45537, Sept. 14, 206, etc.). In the sale of shares prior to the issuance of share certificates, the buyer may waive the down payment and cancel the sales contract until he/she starts to perform by himself/herself,

According to the reasoning of the judgment below, on March 31, 2004, the court below: (a) compiled the adopted evidence and concluded a contract with the Defendant (Counterclaim Plaintiff; hereinafter “Defendant”) to purchase KRW 11,600 shares of the non-party corporation from KRW 174,00,000; and (b) decided to pay KRW 50,000 to the Defendant on April 1, 2004; (c) the remaining 124,00,000 won to the Defendant by November 1, 204; (d) the Plaintiff failed to pay the remainder to the Defendant 50,000,000 won to the Plaintiff on April 1, 2004; and (e) the Plaintiff sought the return of the down payment on the ground that the contract was revoked or cancelled; and (e) the Plaintiff sought the return of the down payment on the ground that it had already been declared that the contract was revoked; and (e) the Plaintiff sought the repayment of the down payment by the non-party 16 of the judgment.

The above determination by the court below is correct in accordance with the above legal principles, and there is no error in the misapprehension of legal principles as alleged in the grounds of appeal.

2. Regarding ground of appeal No. 2

The argument in the grounds of appeal purporting that the Plaintiff cannot rescind the instant sales contract even if he/she waives the down payment, as long as the Plaintiff itself starts to perform its duties, such as exercising the rights as a shareholder based on the instant sales contract, does not constitute a legitimate ground of appeal.

3. As to the third ground for appeal

Since the Plaintiff’s exercise of its right of rescission pursuant to Article 565(1) of the Civil Act cannot be deemed as contrary to the good faith principle (see Supreme Court Decision 97Da9383, Jun. 27, 1997, etc.). Therefore, the allegation in the grounds of appeal on this part is without merit.

4. Therefore, the appeal is 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 Kim Young-ran (Presiding Justice)