Whether executives and employees of a financial institution are liable for damages incurred by a financial institution due to its failure to perform their duties, such as failing to secure sufficient security, while making loans exceeding the limit on loans to the same person in violation of the provisions on credit business (affirmative), and in such cases, the scope of ordinary damages suffered by the financial institution.

Where any executive or employee of a financial institution causes damages to a financial institution which fails to collect loans due to neglecting his/her duties, such as failing to secure sufficient collateral, while lending funds to the same person in violation of the provisions on credit business, such executive or employee shall be liable to compensate for damages suffered by the financial institution. In such cases, the ordinary damages suffered by the financial institution shall be the principal and interest of loans which could have been recovered if the executive or employee acquired adequate collateral and borrowed the loan, and such ordinary damages shall include interest of loans at the agreed rate and interest in arrears at the agreed rate, unless there are special circumstances.

Article 393 of the Civil Act

Supreme Court Decision 2010Da75945 Decided April 12, 2012 (Gong2012Sang, 751) Supreme Court Decision 2013Da57498 Decided November 14, 2013

Co., Ltd. (Law Firm Jeongdong, Attorneys Lee Jong-soo et al., Counsel for the defendant-appellant)

Defendant 1 and three others (Law Firm Barun et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2010Na101563 decided August 17, 2011

All appeals are dismissed. The costs of appeal are assessed against the Defendants.

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

1. As to Defendant 2 and Defendant 3’s ground of appeal on the termination of the right to collateral security

According to the reasoning of the judgment below, after compiling the adopted evidence, the court below acknowledged the facts as stated in the judgment, and determined that the above Defendants are liable for damages suffered by the Plaintiff, with the knowledge that Defendant 3 and Defendant 2, who was the executive director of the Plaintiff’s Federation, who was the chief director of the Plaintiff’s Federation, violated the credit-related provisions, even though they did not fully repay the principal and interest of the loan of Nonparty 1, the termination of the instant secured mortgage and the outstanding principal and interest of the loan, thereby compensating for and reducing both the bad debt and the outstanding principal and interest.

Furthermore, the lower court rejected the allegation by Defendant 2 and Defendant 3, namely, that: (a) established the instant first and second collateral security on each real estate owned by Nonparty 2 and Defendant 1, as Nonparty 1, the head of the Plaintiff’s credit cooperative, was faced with the retirement crisis due to the embezzlement and breach of trust by Nonparty 1, who was the head of the Plaintiff’s credit cooperative; (b) provided the Plaintiff’s credit cooperative formally only until the Plaintiff’s bad debt reserve would be accumulated to the extent that the Plaintiff’s credit cooperative’s loan would be able to compensate for bad debts; (c) the loan of Nonparty 1 is null and void based on a false loan agreement; and (b) the instant first and second collateral security agreement prevents the withdrawal of the Plaintiff’s credit cooperative; and (d) the exemption provision under Article 9(2) of the Plaintiff’s credit cooperative’s credit business regulations ought to be applied, on the grounds that there is insufficient evidence to acknowledge such assertion or that the aforementioned provision is not applied in principle due to lack of evidence or in violation of the credit business regulations.

In light of the relevant legal principles and records, the above fact-finding and determination by the court below are just and acceptable. In so doing, contrary to the logical and empirical rules, the court below did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal principles on false loan contracts, declaration of intention or conditional declaration, interpretation of Article 9(2) of the Credit Business Regulations,

2. As to Defendant 1, Defendant 2, and Defendant 4’s ground of appeal on the excess of the lending limit to the same person

A. In ordinary cases, where an executive officer of a financial institution performs his/her duties in good faith for the maximum interest of the financial institution in accordance with appropriate procedures under the circumstances at the time, and the decision-making process and contents are not considerably unreasonable, his/her act is within the discretionary scope of the permissible business judgment. However, in principle, the principle of business judgment does not apply to an act of an executive officer in violation of the law (see Supreme Court Decision 2006Da33609, Jul. 26, 2007).

According to the reasoning of the judgment below, after compiling the adopted evidence, the court below acknowledged the facts as stated in its reasoning, and determined that the act of lending more than the lending limit to 32 persons, including Defendant 1, Defendant 2, and Defendant 4, on 144 occasions, violates Article 23 of the former Enforcement Decree of the Community Credit Cooperatives Act (amended by Presidential Decree No. 19114 of Nov. 4, 2005) concerning the restriction on the lending limit to the same person, and that it is difficult to view that the principle of business judgment is not applied since it neglected the duty of due care or good faith of a good manager due to intentional or gross negligence and obtained prior approval from the National Federation of Korea concerning loans exceeding the lending limit to the same person.

In light of the above legal principles and records, the above fact-finding and judgment of the court below are just and acceptable. Contrary to the allegations in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal principles on the business judgment rule,

B. (1) Where an executive officer or employee of a financial institution causes damages to a financial institution due to neglecting his/her duties, such as lending funds in excess of the lending limit to the same person and failing to secure sufficient security, etc. In such a case, the ordinary damages suffered by the financial institution shall be deemed the principal and interest of outstanding loans which could have been recovered if the said executive or employee acquired an adequate security in compliance with the above provision, and the scope of ordinary damages shall include interest of loans at the agreed rate and interest in arrears at the agreed interest rate (see Supreme Court Decisions 2010Da75945, Apr. 12, 2012; 2013Da57498, Nov. 14, 2013).

On the other hand, the facts acknowledged in the judgment of the relevant criminal case are important evidence in the civil trial unless there are special circumstances, but it may be rejected in a case where it is deemed difficult to adopt a factual judgment of the criminal trial in light of other evidence submitted in the civil trial. Furthermore, the conviction in the criminal trial means that there is a proof that the judge has a conviction to the extent that he/she would exclude a reasonable doubt from a reasonable doubt based on the evidentiary evidence regarding the facts charged, while the judgment of innocence means that there is no such proof, and it does not mean that there is no proof of the absence of facts charged (see, e.g., Supreme Court Decision 2012Da99112, Mar. 27, 2014).

(2) According to the reasoning of the judgment below, the court below acknowledged the following facts as follows: (a) comprehensively based on the adopted evidence, Defendant 1, Defendant 2, and Defendant 4 extended loans to 32, including Nonparty 3, etc. over 144 times in excess of the lending limit to the same person; (b) they violated the credit business regulations of the Plaintiff’s credit cooperative; (c) thereby, the Plaintiff’s credit cooperative violated its credit business regulations, such as not securing sufficient collateral as stated in its reasoning, appraisal of collateral, or not credit assessment of companies; and (d) the amount of outstanding principal and interest as stated in [Attachment Table 1-1] of the judgment below, which exceeded the lending limit to the same person, as stated in [Attachment Table 1-1], the court below recognized that the Plaintiff was liable for damages equivalent to 2,321,521,048 won (However, the amount of damages corresponding to the loans borne by Defendant 4 is 348,854 won, normal interest, 229,782,52 won, interest interest rate of the same person.

In light of the above legal principles and records, the above fact-finding and judgment of the court below are just and acceptable. Contrary to the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal principles on loans exceeding the limit of loans to the same person and the probative value of the relevant criminal judgment

3. As to Defendant 2’s ground of appeal on a secured loan without collateral or without appraisal of collateral

According to the reasoning of the judgment below, the court below acknowledged that Defendant 1 and Defendant 2 provided a secured loan to 12 persons, including Nonparty 5, without acquiring a security, and without appraising a security, as shown in attached Table 2 of the judgment below, and that the Plaintiff’s credit cooperative suffered a considerable loss, such as the outstanding principal and interest of the loan, etc., and determined that the above Defendants are liable to compensate the Plaintiff for the said loss.

In light of the relevant legal principles and records, the above fact-finding and determination by the court below are just and acceptable. Contrary to the allegations in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal principles as to damages in the

4. As to Defendant 2’s ground of appeal on the improper operation of surplus funds

According to the reasoning of the judgment below, the court below acknowledged the fact that Defendant 1 and Defendant 2 invested the surplus funds of the Plaintiff’s safe in futures option, thereby incurring substantial loss of principal, and rejected the above Defendants’ assertion on Defendant 1 and Defendant 2, which the board of directors of the Plaintiff’s credit cooperative, exempted the Defendants from liability for damages, on the ground that the Plaintiff’s credit cooperative board of directors did not have the authority to exempt the Defendants from liability for damages, and that it is difficult to view that there was a resolution of the board of directors

In light of the records, the judgment of the court below as to the authority of the board of directors of the plaintiff's credit cooperative is just and acceptable, and the remaining grounds for appeal are merely erroneous in the selection of evidence and fact-finding which belong to the exclusive authority of the fact-finding court, and they cannot

5. As to Defendant 1, Defendant 2, and Defendant 4’s ground of appeal on the improper execution of budget

According to the reasoning of the judgment below, the court below acknowledged that Defendant 1 did not purchase and use merchandise coupons worth KRW 10,460,000 as the budget of the Plaintiff’s Treasury and did not disclose the place of use, thereby causing damage equivalent to the same amount to the Plaintiff’s Treasury, and that Defendant 1, Defendant 2, and Defendant 4 used KRW 11,945,709 in aggregate as the fuel expense for personal vehicles from the Plaintiff’s Treasury’s budget as the fuel expense for the Plaintiff’s vehicles, thereby causing damage equivalent to the same amount to the Plaintiff’s Treasury. The above Defendants

This part of the grounds of appeal is merely an error in the selection of evidence and fact-finding which belong to the exclusive authority of the fact-finding court, and cannot be deemed a legitimate ground of appeal.

6. As to Defendant 1 and Defendant 4’s ground of appeal on the omission of judgment

Even if a court ruling does not state a specific and direct judgment on the matters alleged as the grounds of appeal, if it is possible to find out that a party has cited or rejected such claim in light of the overall purport of the reasons of the judgment, it cannot be deemed an omission of judgment. Even if a court ruling was not actually rendered, if it is obvious that such assertion would be rejected, it cannot be deemed that there was an omission of judgment due to the lack of influence on the conclusion of the judgment (see Supreme Court Decision 2006Da218, Jul. 10, 2008,

As seen earlier, the lower court determined that the Defendants are liable to compensate for damages equivalent to the amount of the loan that the Plaintiff suffered, on the ground that the Defendants breached their duty of care and good faith required for the executives and employees of the Plaintiff’s credit cooperative, and caused considerable damages to the Plaintiff’s credit cooperative, such as the outstanding principal and interest of loan payments, by neglecting the relevant provisions or making a defective loan and executing the budget unjustly

The judgment below contains a meaningful judgment rejecting the claim that the plaintiff's assets increased due to the defendants' active business activities should be reflected in the calculation of each amount of damages. Therefore, the judgment below did not err by omitting judgment as otherwise alleged in the ground of appeal.

7. As to the grounds of appeal by Defendant 2 on the resolution of each exemption at the General Meeting of Representatives

Examining the reasoning of the judgment below in light of the relevant legal principles and records, the court below’s rejection of Defendant 2’s assertion that Defendant 2, etc.’s liability for damages was exempted by the resolution of the General Assembly of Representatives on February 5, 2005 by the Plaintiff’s Federation’s exemption from liability for damages. In so doing, the court below did not err by misapprehending the legal principles on the resolution of the General Assembly of Community Credit Cooperatives or the exemption from liability for damages as otherwise alleged in the

8. As to the defendants' grounds of appeal as to each limited liability ratio

In a case where a director or an auditor is liable for damages to a company by committing an act in violation of Acts and subordinate statutes or the articles of incorporation or neglecting his duties, the scope of compensation for damages may be limited in light of the principle of fair compensation for damages, taking into account all the circumstances such as the contents and nature of the pertinent business, the background leading up to the pertinent director or auditor’s breach of duties and the manner leading up to such violation, objective circumstances or degree involved in the occurrence and expansion of damages to the company, contribution to the relevant director or auditor, the pertinent director or auditor’s profit from such a violation, the existence of the pertinent director or auditor’s profit from such a violation, the existence of a company’s organizational structure, and the establishment of a risk management system, and further determination of fact-finding or ratio on the grounds for mitigation of liability belongs to the exclusive authority of the fact-finding court unless it is deemed clearly unreasonable in light of the principle of equity (see Supreme Court Decision 2006Da19

In light of the above legal principles and records, the court below's fact-finding or the judgment of the court below on the defendants' liability mitigation ratio cannot be deemed to be considerably unreasonable in light of the principle of equity. Thus, the court below did not err by misapprehending the legal principles on the limitation of liability ratio, etc. as otherwise

9. Conclusion

Therefore, all appeals are 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 Park Sang-ok (Presiding Justice)