[edit] Supreme Court Decision 2000Da28506, 28513 delivered on October 10, 2000 [Assignment of Claims - Consolidated Actions]

【Main Issues】

[1] The method of disposal or alteration of partnership property as an execution of special affairs of the partnership, where there are several executive partners

[2] The case where a transfer of claim is deemed a valid execution of partnership affairs, where a claim which is partnership property is transferred to a third party pursuant to a resolution adopted by a majority of the officers' committee, on the grounds that such officers were executive partners of the partnership and the transfer of the claim was a disposal of partnership property as part of the special affairs of the partnership

【Summary of Decision】

[1] An act of disposal or alteration of partnership property is part of the special affairs of the partnership absent special circumstance, and if there are several executive partners, the execution of special affairs, which are not within the scope of ordinary affairs of the partnership, should in principle be decided by a majority vote of the executive partners in accordance with Article 706, Paragraph 2 of the Civil Code.

[2] The case where a transfer of claim is deemed a valid execution of partnership affairs, where a claim which is partnership property is transferred to a third party pursuant to a resolution adopted by a majority of the officers' committee, on the grounds that such officers were executive partners of the partnership and the transfer of the claim was a disposal of partnership property as part of the special affairs of the partnership.

【Reference Provisions】 [1] Article 272 and Article 706, Paragraph 2 of the Civil Code / [2] Article 272 and Article 706, Paragraph 2 of the Civil Code

Article 272 of the Civil Code (Disposal, Alteration and Preservation of Partnership Property) Consent of all partners shall be required for disposal or alteration of partnership property, provided that an act of preservation may be performed by individual partners.

Article 706 of the Civil Code (Method of Execution of Partnership Affairs) (1) <omitted>

(2) The execution of a partnership affair shall be decided by a majority vote of the partners. If there are several executive partners, then the decision shall be made by a majority vote of the executive partners.

(3) <omitted>

【Reference Case】 [1] Supreme Court Decision 95Da30345 delivered on March 13, 1998 (Gong1998Sang, 996)

【Plaintiff, Appellant】 Samwon Consulting Co., Ltd.

【Defendant, Appellee】 Lee Byung-eui and 1 other (Attorneys Yoo Kil-sun and 1 other, Counsel for defendant-appellee)

【The Judgment of the Court Below】 Seoul High Court Judgment 99Na65235, 65242 delivered on May 3, 2000

【Disposition】 Out of the judgment of the court below, the decision as to defendant Lee Byung-eui shall be reversed and remanded to Seoul High Court. The appeal of the plaintiff against defendant Lee Hun-sang shall be dismissed. As between the plaintiff and defendant Lee Hun-sang, all costs of appeal are assessed against the plaintiff.

【Reasoning】 1. As to the part of the appeal against defendant Lee Byung-eui

The court below recognized the fact that Samwon Shopping Center Partnership (hereinafter referred to as the subject partnership) was formed through an inaugural general meeting held on March 26, 1994; that the purpose thereof was to purchase land located within the Hwajung Housing Development Area at Hwajung-dong Dukyang-gu Goyang-si from the Korea Land Development Corporation (the name was subsequently changed to Korea Land Corporation), and then to construct a 2-story below ground and 7-story above ground shopping center building (hereinafter referred to as the subject shopping center), for sale and lease of the units thereof; that the subject partnership held a meeting of the officers' committee on November 12, 1999 while the litigation herein was in progress, and adopted a resolution for transfer to the plaintiff of the claim for the balance of sale price in the amount of 85,900,441 won (hereinafter referred to as the subject claim) due from defendant Lee Byung-eui, who was a partner who purchased units 106 and 107 of the subject shopping center; and that the subject partnership sent to the said defendant a notice of the said assignment of claim on March 20, 2000. Nevertheless, the court below concluded that the transfer of the subject claim pursuant to the resolution of the officers' committee of the subject partnership was null and void because the consent of all members of the partnership, or at least a resolution of the general meeting of the partnership, was required for the transfer by the subject partnership to the plaintiff of the subject claim, which was a partnership property, but there was no such consent of all partners or resolution of the general meeting of the partnership. This conclusion was based on the fact that the subject partnership comprised of members that entered into a partnership agreement in order to conduct the said partnership business, whereby funds would be contributed and the profits and losses would be distributed in accordance with each member's share, and all members of the partnership were named as parties to the contract for construction of the subject shopping center, the sale and purchase contract with individual members of the partnership, and the agency contract with the plaintiff; and that under Article 14 of the articles of association of the subject partnership, it was mandatory for the distribution of costs among the partners and the method of collection thereof, as well as the plan and method of the construction of the shopping center and the distribution and disposal thereof, to be decided by resolution of the general meeting of the partnership. The court below further pointed out that the purpose of Article 6 of the partnership agreement of the subject partnership, which provides that "the right to supervise the business and to make decisions shall be vested in the officers' committee" and thus could be interpreted as if to mean that the officers' committee of the subject partnership has the authority to approve the transfer of the subject claim, is no more than to delegate to the officers' committee the authority with respect to construction of the subject shopping center and preliminary decision-making authority related thereto. In addition, the court below pointed out, that provision cannot be deemed to appoint the officers of the subject partnership as executive partners or to allow disposal or alteration of partnership property by a resolution of the officers' committee, considering the fact that all major matters relating to the business of the subject partnership, including selection of the land for the business of the subject partnership, payment of the purchase price for the land, change in members of the partnership, the construction contract, the unit sale contracts, the agency contract, and settlement of construction costs, were in fact decided upon through resolution of the general meeting of the partnership. The court below then concluded that if the partnership agreement were not interpreted in the above manner, then the partnership agreement would fundamentally change the relationships of rights and duties of the subject partnership and accordingly would in effect change the terms of the articles of association, and if so, the partnership agreement would be null and void since it was entered into without resolution of the general meeting of the partnership, in violation of the articles of association which requires a resolution of the general meeting of the partnership for an amendment thereof.

However, the articles of association of the subject partnership also provides for the types, number, procedure for appointment, and the rights and obligations of officers: the president represents the partnership in supervising its business, presides over the general meeting, exercises the right to select and propose the land to be purchased and to enter into the purchase contract, exercises and performs all rights and obligations arising out of execution of the land purchase contract including payment of the purchase price for the land and obtaining approval for use of the land, exercises the right to apply for the construction permit and the application for change in members of the partnership, and performs other duties as provided for in the execution terms under the articles of association (Article 10, Paragraph 1 of the articles of association); the directors and executive secretary perform affairs of the partnership as provided in the execution terms under the articles of association (Article 10, Paragraph 3 of the articles of association); and the officers' committee comprised of officers appointed at the general meeting is authorized to exercise the rights of the general meeting on its behalf, except for matters relating to the appointment and replacement of officers, promulgation and modification of the articles of association, decision on costs to be borne by the partners and method of collection thereof, decision on change in the business implementation plans, decision, when necessary, to have all or part of the construction cost be paid by the project implementation agent or the construction company subject to repayment of such cost with a part of the shopping center when completed, decision on the plan for construction, allocation and disposal of the shopping center, and decision for expulsion of a partner (Article 16 of the articles of association). Accordingly, the officers appointed at the general meeting should be deemed executive partners of the subject partnership in view of the said provisions of the articles of association, whether or not the said partnership agreement is valid. In addition, an act of disposal or alteration of partnership property is part of the special affairs of the partnership absent special circumstance, and if there are several executive partners, the execution of special affairs, which are not within the scope of ordinary affairs of the partnership, should in principle be decided by a majority vote of the executive partners in accordance with Article 706, Paragraph 2 of the Civil Code. (See Supreme Court Decision 95Da30345 delivered on March 13, 1998.) Accordingly, the transfer of the claim in this case, which was effected pursuant to a resolution by a majority vote at a meeting of the officers' committee, which was the decision-making body of the executive partners of the subject partnership as discussed above, should be deemed a valid execution of affairs absent special circumstances. (Of course, the above Civil Code provisions on the method of execution of partnership affairs are non-mandatory provisions, and accordingly the parties may decide otherwise with respect to execution of partnership affairs through an agreement, for instance to require consent of all partners or a resolution of the general meeting of the partnership. However, even under Article 14 of the articles of association of the subject partnership, relied on by the court below, which requires resolution of the general meeting of the partnership for a decision on costs to be borne by the partners and method of collection thereof, decision on the plan for construction, allocation and disposal of the shopping center, etc., the transfer of the subject claim will not result in any change in the cots to be borne by the partners and methods of collection thereof, which have already been decided upon, or affect the plan or method for construction, allocation and disposal of the shopping center in any way. Accordingly, the above provision cannot be interpreted to require a resolution of the general meeting of the partnership, contrary to the general principles in relation to the method of execution of partnership affairs with respect to transfer of the subject claim. The reason why all members of the partnership were named as parties to the contract for construction of the subject shopping center, the sale and purchase contract with individual members of the partnership, and the agency contract with the plaintiff was because the partnership was not recognized as a legal entity).

Nevertheless, the court below concluded to the contrary, that consent of all members of the partnership or at least a resolution of the general meeting of the partnership was required for transfer to the plaintiff of the subject claim, which was a partnership property, and that the transfer of the subject claim based only on a resolution of the officers' committee, rather than in compliance with the above requirement, was null and void. As such, it is hereby recognized that the court below's decision was invalid as affected by a violation of the rules of evidence or misunderstanding of the legal principles on execution of partnership affairs. Accordingly, the ground for appeal that disputes this point has merit.

2. As to the part of the appeal against defendant Lee Hun-sang

The court below recognized the fact that defendant Lee Hun-sang obtained transfer of units 601 through 604 of the subject shopping center in lieu of his claim for construction costs in the amount of 518,453,000 won against the subject partnership, and then effected registration of title transfer in his name. The court below then rejected the plaintiff's argument that the subject partnership's transfer of the said units was not made as payment in-kind of the said defendant's claim for construction cost, but rather, the said defendant agreed to acquire the said units at the sale price of 587,456,000 won, and to subsequently settle 69,003,000 won, representing the difference between the said sale price and the said construction cost. Upon review, the said findings of the court below were proper, and there was no violation of the rules of evidence as alleged in the grounds for appeal. Accordingly, the grounds for appeal are not accepted.

3. Conclusion

Accordingly, the judgment of the court below with respect to defendant Lee Byung-eui shall be reversed and the case shall be remanded to the court below; the appeal of the plaintiff against defendant Lee Hun-sang shall be dismissed; and as between the plaintiff and defendant Lee Hun-sang, all costs of appeal are assessed against the losing party, as per the Disposition.

Justices Bae Ki-won (Presiding Justice)

Suh Sung (Justice in charge)

Yoo Ji-dam

Park Jae-yoon

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