In case where share certificates have been re-issued upon a nullification judgment invalidating existing share certificates, but a lawsuit of objection against a nullification judgment has been filed and the judgment revoking the nullification judgment has become final and conclusive, whether the holder of the re-issued share certificates may bona fide acquire them thereafter (negative)

Article 360(1) of the Commercial Act provides that “share certificates may be invalidated by the procedure of a public summons.” Article 360(2) of the same Act provides that “The person who has lost stock certificates shall not demand re-issuance of the stock certificates to the company unless the judgment of nullification has been obtained.” This means that since stock certificates are securities representing stocks, it is impossible to issue another stock certificates representing the same stocks without the invalidation judgment in violation of the provisions above. Meanwhile, the effect of a judgment of nullification which declared the invalidity of securities or certificates is to restore the same status as those in possession of such securities or certificates to the applicant of the public summons, and it does not mean that the applicant becomes the de facto holder of the public summons. Therefore, even if there exists a judgment of nullification, the legitimate holder of the securities or certificates is not de facto loss of rights even if the securities or certificates were invalidated by the judgment of nullification, and thus, it is also impossible to exercise the rights based on such a judgment of nullification retroactively before the judgment of nullification becomes null and void, as well as even if the judgment of nullification becomes null and void by the judgment of judgment of nullification becomes void.

Articles 359, 360 of the Commercial Act; Article 21 of the Check Act; Articles 490, 491, 496, and 497 of the Civil Procedure Act

Supreme Court Decision 67Da1731 Decided September 26, 1967 (No. 15-3, 157)

K&C Co., Ltd. (Law Firm Yangyang, Attorneys Kim Mine-hun et al., Counsel for the plaintiff-appellant)

Samsan Development Co., Ltd. (Law Firm Han River, Attorney Dok-sub, Counsel for the defendant-appellant)

Concom System, Inc.

Seoul High Court Decision 201Na51535, 53876 decided November 30, 201

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1 and 2

A. Article 360(1) of the Commercial Act provides that “The share certificates may be invalidated by the procedure of a public summons,” and Article 360(2) of the same Act provides that “A person who has lost the share certificates shall not demand re-issuance of the share certificates to the company unless he/she obtains a judgment of nullification.” This means that since the share certificates are securities representing stocks, it is impossible to issue another share certificates representing the same stocks without invalidation of the existing share certificates. Thus, the share certificates re-issued without a judgment of nullification against the above provision shall be null and void.

Meanwhile, the validity of a judgment of nullification which made a declaration of invalidity of securities or deeds is limited to restoring the same status as that in possession of such securities or deeds to the applicant of the public summons, and it does not mean that the applicant of the public summons is the actual holder of the public summons. Therefore, the legitimate holder of the securities or deeds does not lose the substantive right even if the judgment of nullification exists, but it is merely impossible to exercise the rights based on such securities or deeds because the securities or deeds become null and void due to the nullification of the judgment of nullification (see Supreme Court Decision 67Da1731, Sept. 26, 1967, etc.). Furthermore, when a lawsuit against objection to the judgment of nullification is instituted and the judgment of cancellation becomes final and conclusive pursuant to Articles 490 and 491 of the Civil Procedure Act, the judgment of nullification becomes retroactively null and void, and the securities or deeds possessed by the legitimate holder are also retroactively restored.

However, even in cases where a nullification judgment is revoked as above, if stock certificates re-issued based on the nullification judgment prior to such revocation still become effective and thus bona fide acquisition thereof can be established, a legitimate right holder may lose or be unable to exercise his/her right. This is not only a loss of stock certificates, but also a harsh result in the legitimate right holder who actively filed a lawsuit of objection against the nullification judgment made by illegal means, and where a legitimate right holder has obtained the nullification judgment by fraudulent or other illegal means for the purpose of protecting the legitimate right holder, this goes against the legislative intent of the Civil Procedure Act, which provides for the revocation of the nullification judgment through a lawsuit of objection against the nullification judgment. In addition, the Civil Procedure Act or the Commercial Act does not have any provision restricting the effect of the judgment revoking the nullification judgment.

Therefore, even if share certificates have been re-issued upon a judgment of nullification which invalidates existing share certificates, if a lawsuit of objection against a judgment of nullification is filed and the judgment revoking a judgment of nullification becomes final and conclusive, the re-issued share certificates shall become retroactively null and void, and the holder may not bona fide acquire them thereafter.

The lower court determined that, inasmuch as a judgment cancelling a nullification judgment becomes final and conclusive, the nullification judgment becomes retroactively null and void, and thus its re-issued share certificates based on the nullification judgment are null and void in itself, and thus, even if an independent party intervenor acquired the re-issued share certificates, the lower court did not bona fide acquire them.

Examining the records in light of the above legal principles, the above determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors in the misapprehension of legal principles as to the validity of the nullification judgment and bona fide acquisition of re-issued share certificates.

B. Meanwhile, insofar as the independent party intervenor's bona fide acquisition of the re-issued share certificates cannot be recognized as above, the argument in the grounds of appeal that the status of the independent party intervenor who bona fide acquired the re-issued share certificates takes precedence over the status of the plaintiff who is merely a mortgagee is without merit without further review.

2. Regarding ground of appeal No. 3

The court below determined that since the decision to set the purchase price of the stock of this case as KRW 3,116,380 per share in the case of application for the determination of purchase price of the stock has become final and conclusive, the defendant could no longer dispute that the purchase price of the stock is excessive.

Examining the records in light of the relevant legal principles, the above determination by the court below is acceptable, and contrary to the allegations in the grounds of appeal, there were no errors in the misapprehension of legal principles as to stock purchase price by exercising appraisal rights.

3. Conclusion

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 Ko Young-han (Presiding Justice)