[1] Whether a director's breach of duty of loyalty and duty of care constitutes an act of neglect of duty under Article 401 (1) of the Commercial Code (affirmative)

[2] The case holding that there is room for recognizing liability for damages to a third party by a director of a stock company under Article 401 (1) of the Commercial Code

[1] The liability for damages to a third party by a director of a stock company under Article 401 (1) of the Commercial Act is a requirement for the director to neglect his/her duties due to bad faith or gross negligence. Thus, the failure to perform the company's obligations due to ordinary transactions cannot be deemed to have neglected his/her duties in bad faith or gross negligence. However, where a director's act of loyalty and breach of duty of care is illegal, it constitutes a case where he/she neglected his/her duties

[2] The case holding that the representative director of a stock company, which is a real estate purchaser, agreed to pay the balance due to the offering of purchased real estate as security to a financial institution by means of payment of purchase balance between the seller and the seller, but only a part of the loan is paid as purchase balance and the remainder is used for other purposes after the loan was made, and the remainder is used as security payment, and the real estate seller suffers loss due to a successful bid in the auction procedure due to the failure to pay the remainder, it shall be deemed that the representative director of the stock company has neglected his duties

[1] Article 401 (1) of the Commercial Act / [2] Article 401 (1) of the Commercial Act

[1] Supreme Court Decision 84Meu2490 decided Nov. 12, 1985 (Gong1986, 18)

Lee Young-deok et al. (Attorney Lee Chang-soo, Counsel for the defendant-appellant)

Defendant (Attorney Gyeong-sik et al., Counsel for defendant-appellant)

Seoul High Court Decision 2000Na6379 delivered on July 18, 2000

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. The court below proposed that the above real estate loan amount of KRW 4,850,00,00 among the remainder 2,910,000 was paid to the above joint defendant 1 of the court of first instance (hereinafter referred to as "stock company 1"), and that the defendant, the representative director of the above corporation, provided the above real estate as security to the plaintiffs, and would have been paid the remaining amount of the loan under the name of joint defendant 2 of the court of first instance (hereinafter referred to as "stock company 2"), which is the representative director, for the above real estate and the above real estate amount of KRW 9,70,00,000,000, which was executed by the above joint defendant 1 of the court of first instance. The defendant would not be paid the above loan amount of KRW 9,700,000,000,000,000,0000,000,000 won, which was 197,000,0000,000 won.

2. According to the records, the plaintiffs' assertion in this case includes the defendant's liability as a director under Article 401 (1) of the Commercial Act based on the fact that he was in the position of representative director such as the above corporation 1, etc., and the liability for damages to a third party of a director of a corporation under Article 401 (1) of the Commercial Act is a requirement that the director neglected his duties due to bad faith or gross negligence. Thus, the failure of the director to perform his liability due to ordinary transaction does not constitute a failure to perform his duties in bad faith or gross negligence. However, if a director's act of violating good faith and duty of care is illegal, it shall be deemed that the act constitutes a failure to perform his duties in bad faith or gross negligence (see Supreme Court Decision 84Meu2490, Nov. 12, 1985).

However, as recognized by the court below, if the defendant, holding the above corporation 1 and 2's representative director, offered real estate owned by the above corporation 1 and 2 as collateral for the loan and offered real estate owned by the plaintiffs 1 as collateral for the loan, and accordingly, borrowed a total of KRW 2,892,750,000 from the Industrial Bank of Korea on three occasions in the name of the above corporation 2, but paid only KRW 1.7 billion to the plaintiffs as part of the remaining part of the loan, and used it for other purposes and did not repay the above loan, the above loan shall not be deemed to fall under the case where the defendant, who held the above corporation 1 and 2's representative director as to KRW 1,192,750,00, which is the difference which the plaintiffs did not pay to the plaintiffs, did not intend to pay it to the plaintiffs as the balance of the loan, but it shall be deemed that the defendant's failure to pay it as a bad faith or negligence of each company.

Therefore, the court below should further examine in detail the reasons why the defendant made an agreement with the plaintiff as the representative director of the corporation 1, etc., and did not pay 1,192,750,000 won out of the above loans to the plaintiff as the reasons why he did not pay them to the plaintiff, where the court below used the money for the use of the use of the money, the reasons why the above loans were used, and the reasons why the above loans were not repaid, and then determine whether the defendant has been liable for damages. Thus, the court below dismissed the plaintiffs' claim of this case on the grounds that it did not reach this decision and did not err in the misapprehension of legal principles as to the directors' liability for damages to the third party or in the incomplete hearing

3. Therefore, without examining the remaining grounds of appeal by the plaintiffs, the judgment of the court below is reversed, and 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.

Justices Cho Cho-Un (Presiding Justice)