In cases where the representative director of a company knew the other party of the issuance of a promissory note in the name of the company by abusing his/her power of representation or because he/she was unable to know such fact by gross negligence, whether the risk of causing property loss in the crime of breach of trust may be deemed to have occurred to the other party (affirmative in principle) and the standard for determining whether a promissory note

If the representative director of a company issues a promissory note in the name of the company by abusing his/her power of representation, the risk that the company will assume obligations against the holder would have already occurred in the event that a promissory note is distributed to a third party even if the other party knew of the abuse of the promissory note or was gross negligence and the company did not bear obligations against the other party. Thus, barring special circumstances where the promissory note is not distributed to a third party, it is reasonable to deem that the risk of loss in the property of the crime of breach of trust has occurred to the company. Here, whether a promissory note is not distributed to a third party or not should be determined by comprehensively taking into account the specific circumstances before and after the issuance of the promissory note, such as the relationship between the issuer of the note and the other related parties, and whether there exists a duty not to distribute it to the third party, the external elements of the issued note affecting the nature, form, material quality, and other circulation of the bill, and whether other collateral was provided in addition to the promissory note, the type or content of the collateral, and the rights relationship of the parties involved.

Articles 355(2) and 356 of the Criminal Act; Articles 35(1) and 756(1) of the Civil Act; Articles 11(1), 17, and 77(1) of the Bills of Exchange and Promissory Notes Act

Supreme Court Decision 2011Do8110 Decided September 29, 2011 (Gong2013Sang, 285) Supreme Court Decision 2012Do10822 Decided December 27, 2012

Defendant 1 and one other

Defendants and Prosecutor

Attorney Lee Jong-young et al.

Seoul High Court Decision 2011No319 decided July 14, 2011

The guilty portion of the lower judgment against the Defendants and the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) on September 16, 2008 are reversed, and this part of the case is remanded to the Seoul High Court. The remainder of the appeal by the Prosecutor is dismissed.

The grounds of appeal are examined.

1. As to the Defendants’ grounds of appeal

Examining the reasoning of the judgment below in light of the evidence duly admitted by the court below, it is just that the court below found Defendant 2 guilty of violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement), Defendant 1's violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement), Defendant 1's violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement) and non-indicted 1, 2008, except for Defendant 1 billion won on May 9, 2008. In so doing, contrary to what is alleged in the grounds of appeal, the court below did not err by misapprehending the legal principles as to the establishment

2. As to the Prosecutor’s Grounds of Appeal

A. As to the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) due to the guarantee of September 16, 2008 and the issuance and delivery of promissory notes

(1) The crime of breach of trust is established when a person who administers another’s business obtains pecuniary advantage or has a third party acquire it through an act in violation of one’s duty, thereby causing loss to the principal. Here, “the time of causing property loss” includes not only a case where a real loss is inflicted, but also a case where a risk of actual damage to property has been inflicted on the principal. In addition, even if the act of breach of trust is null and void by legal judgment, it should be conducted from an economic point of view without legal judgment in relation to the entire property status of the principal. Thus, even if the act of breach of trust is null and void by legal judgment, it constitutes a crime of breach of trust as it constitutes an act of breach of trust (see Supreme Court Decision 94Do3013, Dec. 22, 195, etc.). In addition, as long as the risk of damage was generated after the occurrence of damage, it does not affect the establishment of the crime of breach of trust even if the damage was recovered after the occurrence of recovery (see Supreme Court Decision 94Do3297, Feb. 17, 1995).

Meanwhile, the issuance of a promissory note in the name of the representative director of a company to secure his/her personal obligation constitutes an abuse of the power of representation, barring any special circumstances. If the other party knew or was negligent in gross negligence, the issuance of a promissory note in the name of the company does not affect the other party. Therefore, the company shall not be liable to the other party for damages under Article 35 (1) of the Civil Act or for employers’ liability under Article 756 (1) of the Civil Act (see, e.g., Supreme Court Decision 2011Do810, Sept. 29, 201). However, in principle, whether a promissory note has been transferred by endorsement (Articles 11 (1) and 77 (1) of the Bills of Exchange and Promissory Notes Act). Since a person who has received a claim for the performance of an obligation under a promissorysory note is not aware of the existence of the obligation under the name of the other party to the issuance or promissory note, it does not constitute an abuse of the other party’s rights against the issuer or the former representative director.

(2) The lower court acknowledged the Defendants’ act of violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) as stated in its reasoning on September 16, 2008, and determined as follows: (a) the Defendants conspired in violation of their occupational duties and thus, that Nonindicted Co. 3 (hereinafter “Nonindicted Co. 3”) of Nonindicted Co. 2 Co. 3 (hereinafter “Nonindicted Co. 4”) made a guarantee for the Defendant’s obligation to return KRW 5 billion stock acquisition deposit to Nonindicted Co. 5 (hereinafter “victim Co. 3”) for Nonindicted Co. 4 (the representative director Nonindicted Co. 4); and (b) as security, it was difficult to view that the Defendants made an agreement with Nonindicted Co. 3 Co. 3 on September 16, 2008 to jointly issue and deliver a promissory note with the victim’s name at KRW 5 billion at the time of the issuance of the promissory note or its delivery to Nonindicted Co. 3 Co. 3, Ltd. on the ground that the Defendants did not exercise any risk of issuing and delivering the Promissory Notes Co. 16.

(3) However, in light of the above legal principles, we cannot accept the judgment of the court below for the following reasons.

First of all, even according to the reasoning of the judgment below, the Promissory Notes in this case was issued upon the victim company’s affirmative request for the purpose of securing the victim company’s guaranteed liability (the guaranteed obligation itself is due to the exercise of the Defendants’ right of representation in breach of trust) against the non-indicted 3’s obligation to refund deposit money of the non-indicted 2. Thus, it is reasonable to view that the non-indicted 3 was likely to endorse and transfer the Promissory Notes in this case to a third party at any time in order to secure realizing the above obligation to return deposit money. In addition, according to the records, the non-indicted 3 was able to know the fact that it was based on the Notarial Deed in lieu of the instant Promissory Notes in lieu of the money loan contract after the issuance of the Promissory Notes in this case, and it is difficult to deny the circulation possibility of the Promissory Notes in this case, solely on the basis of cooperative relations between the non-indicted 3 and the victim company at the time of the issuance of the instant Promissory Notes in this case. The circumstance that the non-indicted 3 did not receive the Promissory Notes in this case’s in this case from the Defendant.

Nevertheless, the lower court rendered a judgment not guilty on the sole basis of the circumstances indicated in its holding, based on the following: (a) there was a special circumstance not to distribute the Promissory Notes to a third party; or (b) it was difficult to deem that the Defendants dolusently perceived such risk. In so doing, the lower court erred by misapprehending the legal doctrine on the risks of actual

B. As to Defendant 1’s fraud against Nonindicted 6 and Defendant 1’s violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement) for KRW 1 billion on May 9, 2008

Examining the reasoning of the judgment below in light of the records, it is justifiable for the court below to have acquitted the Defendants of all of the charges of this case on the grounds that there was no proof of each crime on the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement) against Defendant 1 on May 9, 2008. Contrary to the allegations in the grounds of appeal, the court below did not err by misapprehending facts contrary to logical and empirical rules or by misapprehending the legal principles on the establishment of a crime of occupational breach of trust and an occupational embezzlement.

C. As to the guilty part

On the other hand, the prosecutor appealed against the guilty portion of the judgment below, but there is no indication of the grounds for appeal in the petition of appeal and there is no statement of the grounds for appeal in the appellate brief.

3. Scope of reversal

In a case where the appellate court rendered a judgment of conviction against a part of several criminal facts, and both the defendant and the prosecutor filed a final appeal against the judgment, but the defendant's final appeal against the part of conviction was without merit and only the prosecutor's final appeal against the part of innocence was justified, if the crime of conviction and the crime of not guilty are concurrent crimes under the former part of Article 37 of the Criminal Act, the part of conviction in the appellate court shall also be reversed together with the part of not guilty (see Supreme Court Decision 2009Do1166, Dec. 10, 2009).

According to these legal principles, among the convictions and the acquittals of the judgment of the court below, the part which was reversed by the prosecutor's appeal of Sep. 16, 2008, and the part which was reversed by the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation of trust) is concurrent crimes under the former part of Article 37 of the Criminal Act, and a single sentence should be sentenced to the whole of the judgment below. Therefore, the part of the judgment of the court below's convictions against the defendant and the part which was acquitted of the violation of the Act on the Aggravated Punishment,

4. Conclusion

Therefore, among the judgment below, the guilty portion of the judgment of the court below and the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) as of September 16, 2008 are reversed, and this part of the case is remanded to the court below for a new trial and determination, and the prosecutor's remaining appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices.

Justices Ko Young-han (Presiding Justice)