[1] Whether Article 395 of the Commercial Code shall apply to a case where a proxy director acted in the name of the representative director (affirmative), and the standard for determining whether the other party's bad faith or gross negligence exists

[2] The case holding that in a case where Party A’s check representative director Eul, on behalf of the representative director, prepared a loan certificate on behalf of the representative director Byung, Eul’s check representative director Eul cannot be easily recognized as Eul’s bad faith or gross negligence merely because Eul knew that the representative director of Party A was not the Eul, or Eul did not confirm Eul’s authority to prepare the loan certificate on behalf of the representative director Eul

[1] Article 395 of the Commercial Act, which provides for the liability of a stock company due to the act of the arbitr representative director, applies not only to cases where the arbitr representative director acts in his/her name but also to cases where he/she acts in the name of the representative director. In this case, the other party's bad faith or gross negligence is not to be the representative director, but to

[2] The case holding that, in case where Eul company Gap's check representative director Eul prepared a loan certificate on behalf of Eul on behalf of the representative director, since Byung's bad faith or gross negligence is not the representative director of Eul but the other party Byung's right to pay debts by preparing the above loan certificate on behalf of the representative director, even if Byung knew that Eul is not the representative director of Eul company Eul, it cannot be a meaningful circumstance to determine Byung's bad faith or gross negligence, and in light of the purpose of Article 395 of the Commercial Act and the meaning of the above gross negligence or the criteria for determination, unless there are objective circumstances that it is doubtful that Eul is authorized to prepare the above loan certificate on behalf of the representative director, it cannot be easily recognized Byung's bad faith or gross negligence merely because Eul did not confirm whether Eul is authorized to prepare the above loan certificate on behalf of the representative director

[1] Article 395 of the Commercial Act / [2] Article 395 of the Commercial Act

[1] Supreme Court Decision 77Da2436 delivered on February 13, 1979 (Gong1979, 11790), Supreme Court Decision 97Da34709 delivered on March 27, 1998 (Gong1998Sang, 1176), Supreme Court Decision 2002Da40432 delivered on July 22, 2003 (Gong2003Ha, 1765)

Plaintiff (Law Firm Barun, Attorneys Park Jae-sik et al., Counsel for the plaintiff-appellant)

Lee Pus Smart Co., Ltd. (Law Firm Lee & Lee, Attorneys Kang Jin-jin, Counsel for the defendant-appellant)

Seoul High Court Decision 2010Na57628 decided November 4, 2010

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

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

1. Article 395 of the Commercial Act provides for the liability of a stock company due to the act of the arbitrative representative director. The liability of a stock company under the above provision of the Commercial Act does not occur if the other party to the act is malicious or bona fide, and even if bona fide, there is gross negligence. The term “serious negligence” in this context refers to a situation in which it is deemed reasonable to deem that there is no need to protect the other party from the perspective of fairness by neglecting the duty of care required under the transaction norms by failing to know that the arbitr representative director would have been aware that the other party would act without the authority to represent the company if the arbitr representative was acting in his own name (see Supreme Court Decisions 9Da19797, Nov. 12, 199; 2002Da40432, Jul. 22, 2003, etc.).

Meanwhile, the above provisions of the Commercial Act shall apply not only to cases where the acting representative director acts in his/her name, but also to cases where he/she acts in the name of the representative director (see Supreme Court Decision 77Da2436, Feb. 13, 1979, etc.). In such cases, whether the other party's bad faith or gross negligence has the authority to act in behalf of the representative director, not to the representative director's authority (see Supreme Court Decision 2002Da40432, Jul. 22, 2003).

2. The facts established by the lower judgment are as follows.

On September 12, 2008, Nonparty 1: (a) purchased the Pakistan 19-dong, Songpa-gu, Songpa-gu, Seoul (hereinafter “instant store”); (b) KRW 3.1220 million, and (c) borrowed KRW 1.50 million from the Plaintiff on the pretext that it is necessary for the payment of the intermediate payment on October 8, 2008.

On the other hand, around February 18, 2009, Nonparty 1, Nonparty 2, Nonparty 3, Nonparty 4, and Nonparty 5 acquired the entire shares of the Defendant Company (hereinafter “Japan Investment Finance”) from Nonparty 6, etc., and subsequently, Nonparty 1 and Nonparty 5 changed the name of the Company as at present, and Nonparty 5 were outside directors, Nonparty 2 and Nonparty 3 were the representative director, and Nonparty 4 was the auditor, respectively. On May 22, 2009, the Defendant registered the instant store as the place of business, and operated the Smarket at the instant store thereafter.

On July 2009, the Plaintiff demanded the Defendant Company to bear the above loan obligation against Nonparty 1. Accordingly, Nonparty 1 prepared, as of October 7, 2008, a loan certificate stating, “the borrowed amount of KRW 150 million, interest rate of KRW 40 million, and February 8, 2009 (hereinafter “the loan certificate of this case”) in the name of Nonparty 3, the Plaintiff, “Nonindicted 3, the representative of the Defendant Company,” stating, “the borrowed amount of KRW 150 million, interest rate of KRW 40 million, and due date of payment,” to the Plaintiff.

3. The court below acknowledged the non-party 1 as the representative director of the defendant company, but on the following grounds, determined that "the plaintiff was grossly negligent in believing that the non-party 1 was aware of, or was authorized to, the fact that the preparation of the loan certificate in this case by the non-party 1 was not due to the power of representation, or that the non-party 1 was not authorized to act on behalf of the representative director." At the time of the preparation of the loan certificate in this case, the plaintiff confirmed that the non-party 1 was not the representative director of the defendant company, and that the non-party 1 was not authorized to prepare the loan certificate in the name of the defendant company.

4. However, we cannot accept the above judgment of the court below.

First of all, the non-party 1 prepared the loan certificate of this case on behalf of the representative director of the defendant company, not by his own name as seen above (the plaintiff does not dispute the facts). Accordingly, whether the plaintiff, who is the other party, has acted in bad faith or gross negligence in accordance with the legal principles as seen earlier, should be determined not by the non-party 1, but by the non-party 1, whether he has the authority to prepare the loan certificate of this case on behalf of the representative director of the defendant company and bear the obligation. Thus, even if the non-party 1 knew that he is not the representative director of the defendant company, it cannot be said that there is a significant reason

Furthermore, the purport of Article 395 of the Commercial Act is to promote the trust and safety in commercial transactions by protecting the trading counterpart who believed the external appearance in cases where a person who is not the representative director of a corporation, but is deemed to have authority to represent the representative director, committed an act in trade by using a name that may be recognized as having authority to represent the company, and there is any reason to assume the company responsible for the occurrence or maintenance of such external appearance, and in light of the meaning of and criteria for judgment on gross negligence as seen earlier, unless there are objective circumstances where Nonparty 1 is doubtful as to whether he/she has authority to represent the company as long as he/she falls under the representative director of the defendant company, it cannot be readily recognized that the defendant company did not confirm whether he/she has authority to prepare the loan certificate of this case on behalf of the representative director.

Rather, in full view of the following circumstances acknowledged by the lower court or the record, it is difficult to view that Nonparty 1 was negligent in believing that the Plaintiff had the authority to assume debt obligations based on the preparation of the loan certificate under the name of the representative director of the Defendant company. In other words, Nonparty 1 purchased the instant store by selling it in lots. ② Nonparty 1 was the largest shareholder holding 45% of the shares of the Defendant company, and played a leading role in opening and operating the instant store by taking office as outside directors of the Defendant company. ③ Nonparty 4, Nonparty 3, and Nonparty 5, who are three of the four remaining officers of the Defendant company as seen above, were all officers of advanced DNA weather companies with which Nonparty 1 was the representative director at the time. ④ Nonparty 1, after purchasing the instant store, had used the name of Nonparty 1 as the president of the Defendant company until preparing the instant loan certificate and issued it to Nonparty 1’s representative director on July 209, 209.

Therefore, the above judgment of the court below is erroneous in the misapprehension of the legal principles of Article 395 of the Commercial Act concerning the liability of a stock company due to the act of the counter-representative director, or by failing to exhaust all necessary deliberations, which affected the conclusion of the judgment. The ground of appeal No. 2

5. Therefore, without examining the remaining grounds of appeal, we reverse the judgment of the court below and remand the case to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Ji-hyung (Presiding Justice)