[edit] Supreme Court Decision 97Da21604 delivered on January 19, 2001 [Contract Price of Sale]
【Main Issues】
[1] Where there existed no separate agreement as to the scheduled date for completion of construction and delivery of the building at the time of the parcelling-out contract for newly constructed building, the standard for determining whether the time for performance has lapsed
[2] The conditions of piercing the corporate veil and its effects
【Summary of Decision】
[1] Even though there existed no separate agreement between the parties as to the scheduled date for completion of construction and delivery of the building at the time of parcelling-out contract for newly constructed building, in the absence of any special circumstance, the seller has the obligation to complete the construction of the building within a reasonable period of time so that the purchaser can enter the parcelled out building, and such period of time shall be determined taking into consideration all circumstances, including the contents of the parcelling-out contract, the particulars of the execution of the contract, the scheduled date of completion of construction and delivery, the building time estimated by the parties at or about the time of the execution of the contract, the size and purpose of the building, the period of time normally required for the construction of similar building, the occurrence of any unexpected events, if any, and its cause attributable to any party, and the contents of the parcelling-out contract executed with other purchasers.
[2] Where a company maintains the external appearance of a juristic person while it merely takes the form of a juristic person and, in substance, it is equivalent to other person's private enterprise behind the corporate veil or used without justifiable reason in order to circumvent the application of laws against the person behind the corporate veil, the denial of any responsibility of the person behind the corporate veil with respect to an action of the company, based on the ground that such person is a separate entity and the legal effect of such action is attributed only to the company, cannot be permitted. It cannot be allowed in light of justice and equity for the individual to abuse the corporate entity in violation of the principle of trust and good faith. Therefore, the company as well as the person behind the corporate veil must be responsible for the actions of the company.
【Reference Provisions】 [1] Article 387 of the Civil Act / [2] Article 2 of the Civil Act, Paragraph 1 of Article 171 of the Commercial Act
Article 387 of the Civil Act (Time for Performance and Delay of Performance) (1) Where a definite time for the performance of a claim is fixed, the obligor shall be responsible for delay as from the commencement of such time. If an indefinite time for the performance of a claim is fixed, the obligor shall be responsible for any delay as from the time when the obligor has become aware of the arrival of the time for performance.
(2) If a time for the performance of a claim is not fixed, the obligor shall be responsible for the delay as from the time when demand for performance has been made upon him.
Article 2 of the Civil Act (Trust and Good Faith) (1) The exercise of rights and the performance of duties shall be in accordance with the principle of trust and good faith.
(2) No abuse of rights shall be permitted.
Article 171 of the Commercial Act (Company as Juristic Person and Domicile of Company) (1) A company shall be a juristic person.
(2) <omitted>
【Reference Case】 Supreme Court Decision 74Da954 delivered on September 13, 1977 (Gong1977, 10285)
【Plaintiff, Appellee】 Park Byung-il
【Defendant, Appellant】 Lee Jeong-su and 1 other (Attorney Yu Keun-wan, Counsel for defendant-appellant)
【Court of First Instance】 Kimcheon Branch of Daegu District Court Judgment 94 Gadan5355 delivered on November 30, 1995
【Court of Second Instance】 Deagu District Court Judgment 96Na431 delivered on April 18, 1997
【Disposition】 The appeal shall be dismissed. All costs of appeal shall be assessed against the defendants.
【Reasoning】 The grounds for appeal are examined as follows.
1. On the first ground for appeal
A. The court below, based on the evidences adopted by such court, determined the following: the plaintiff purchased, through parcelling-out, room no.2 on the fifth floor of the building from the defendant's company for 423,832,500 won on June 19, 1991 and paid 254,280,000 won which was the aggregate amount of the contract deposit and the 1st and 2nd installments by March 30, 1992; the plaintiff agreed with the defendant company, at the time of the parcelling-out contract, to pay the remainder of 84,972,500 won at the time of entry into the building without separately agreeing as to the scheduled date of completion of construction and delivery; prior to the execution of the said parcelling-out contract, the defendant company executed a construction contract with the non-party Kunyoung Co., Ltd. (hereinafter referred to as the 'non-party company') on June 10, 1991 for the construction of the building in this case on the condition that the construction cost was 16,649,600,000 won, the date of completion of construction was August 10, 1993, and the construction cost was scheduled to be paid upon completion of every 10% of construction; the defendant company originally expected to pay the construction cost with the payment by purchasers after parcelling-out the building in this case but the parcelling-out did not successfully progress as expected, which resulted in a delay of payment of a portion of the construction price; and the non-party company suspended the construction after completing the framework structure from the 5th floor basement through the 7th floor on August 1992 and the construction is currently in a state of suspension. Based on such facts, the court below concluded that the construction contract had been duly cancelled as of May 10, 1996. Plaintiff's brief delivered on May 9, 1996, contained the intention to cancel said construction contract due to the default by the defendant company. The intention was stated at trial or at the latest during the closing argument in the court below.
B. (1) Even though there existed no separate agreement between the parties as to the scheduled date for completion of construction and delivery of the building at the time of parcelling-out contract for newly constructed building, in the absence of any special circumstance, the seller has the obligation to complete the construction of the building within a reasonable period of time so that the purchaser can enter the parcelled out building, and such period of time shall be determined taking into consideration all circumstances including the contents of the parcelling-out contract, the particulars of the execution of the contract, the scheduled date of completion of construction of and delivery, the building time estimated by the parties at or about the time of the execution of the contract, the size and purpose of the building, the period of time normally required for the construction of similar building, the occurrence of any unexpected events, if any, and its cause attributable to any party, and the contents of the parcelling-out contract executed with other purchasers.
According to the records, the following facts can be acknowledged: when the plaintiff requested the non-party, Lee Soo-han, the person in charge of parcelling-out for the defendant company, to confirm the scheduled date of completion of the construction and delivery of the building on March 30, 1992 on which the plaintiff paid the 2nd installment. Lee Soo-han filled in the scheduled date of delivery as July 10, 1993 in the parcelling-out contract; as a result, the plaintiff believed that he could enter the building around that date; the defendant company executed a parcelling-out contract with the non-party, Shinhan Bank, with respect to 1st and 2nd floors of the building in this case on July 19, 1991, which was around the time of the execution of the parcelling-out contract in this case with plaintiff, on the condition that construction of the building will be completed by December 31, 1993 so that the bank could enter the building; and the defendant company agreed with the non-party company to resume the construction on January 31, 1995 after 2 years and 5 months from the suspension of construction and at that time, the non-party company agreed to complete the construction of the building by March 30, 1996. In addition, as examined above, while the defendant company agreed to complete the construction by August 10, 1993, which was 2 years after the date of execution of the construction contract, when it executed the construction contract with the non-party company, the construction had been suspended since August 1992 due to the default of the defendant company in paying the construction cost. Considering the above, even if the circumstances such as the size and purpose of the building in this case or the temporary suspension of construction due to the delay in payment of construction costs are taken into account, it shall be proper to consider that the defendant company should have completed the construction of the building so that the plaintiff could enter the building in this case within approximately 5 years from the time of execution of the parcelling-out contract in May 1996 when the plaintiff expressed his intention to cancel the contract. Thus, the parcelling-out contract in this case has been duly cancelled since the time for performance had already lapsed at the time of expression of an intention to cancel the contract by the plaintiff.
The judgment of the court below to the same effect shall be justified and there is no reversible error in matters of law by misinterpreting the parcelling-out contract (plaintiff exhibit 1), which is the document of disposition, or misinterpreting the legal principle on the default of obligations or good faith.
(2) Not only can it be seen that the suspension of the construction of the building in this case by the non-party company was due to the delay in payment of the construction cost by the defendant company, but also it cannot be deemed that the suspension was only an internal matter between the defendant company and the non-party company and, thus, the defendant company was not responsible for the delay in the completion of the construction in relation to the plaintiff.
The judgment of the court below to the same effect shall be justified and there is no reversible error in matters of law as to the alleged violation of the rules of evidence or by misinterpreting the legal principle on the interpretation of construction contracts (defendant exhibit 9-1, 2).
(3) In the case of a bilateral contract, when the opposing party expressed its intention of non-performance of its obligations in advance or it is evident that the opposing party will not perform its obligations even though one party offers to perform its obligations, the contract may be cancelled by one party without offering to perform its obligations. In addition, when it is evident that the opposing party is not able to perform its obligations even though one party notifies the opposing party of the performance of its obligations within a reasonable period of time, the contract may be cancelled by one party without offering to perform its obligations.
According to the facts duly acknowledged by the court below, when the plaintiff expressed his intention of cancelling the said contract, the defendant company neglected to construct for several years since August 1992, having completed the framework construction from the 5th floor basement to 7th floor for a building with fifteen floors above and five below ground. Considering the degree of the completion of construction until the cancellation of the contract, even though the plaintiff performed his obligations and notified the defendant company that it should perform its obligations within a reasonable period of time, it is evident that the defendant company was unable to complete the construction within such period of time. Therefore, the plaintiff could cancel the contract without performing his obligations or notifying the defendant company to perform its obligations.
Although the judgment of the court below insufficiently described the reason for judgment to some extent, its conclusion rejecting the assertions of the defendants is correct and there is no reversible error in matters of law by breach of the rules of evidences as alleged by the ground for appeal or by misinterpreting the legal principle on the cancellation of contract due to default in performance obligations.
2. On the second ground for appeal
A company is a corporate entity separate from its constituencies even though one person owns the company.
However, where a company maintains the external appearance of a juristic person while it merely takes the form of a juristic person and, in substance, it is equivalent to other person's private enterprise behind the corporate veil or used without justifiable reason in order to circumvent the application of laws against the person behind the corporate veil, the denial of any responsibility of the person behind the corporate veil with respect to an action of the company, based on the ground that such person is a separate entity and the legal effect of such action should be attributed only to the company cannot be permitted. It cannot be allowed in light of the justice and equity for the individual to abuse corporate entity in violation of the principle of the trust and good faith. Therefore, the company as well as the person behind the corporate veil must be responsible for the actions of the company.
According to the records, the following facts can be acknowledged: Lee Jeong-su practically controlled various companies such as Wook-il Palace Distribution Co. Ltd. and Joun-il Industrial Corporation and conducted the business of parcelling-out the office buildings either in the name of such companies or in his own name; as part of such business, the defendant Lee Jeong-su purchased shares of the defendant company from the non-party, Choi Il-hyung, the former representative director of the defendant company on May 3, 1991 and took the office of representative director of the defendant company; the number of issued shares of the defendant company is currently 5,000 shares, which are owned by 4 shareholders including the defendant Lee Jeong-su, but the defendant Lee Jeong-su actually owns most of such shares and all the decisions regarding the management of the company have been made at the discretion of the defendant Lee Jeong-su without due process of resolutions at meetings of shareholders or the board of directors which were merely adopted to disguise itself as a company; the office of the defendant company is currently closed and there are currently no employees at the office and the assets of the defendant company and those of the defendant, Lee Jeong-su are co-mingled in that the defendant Lee Jeong-su who arbitrarily used approximately 3 billion won out of approximately 7.8 billion won received by the defendant company as the purchase price from the purchasers to purchase the site of the building from said Choi Il-hyung in his own name and completed the provisional registration over the said site in order to prevent the compulsory execution by the creditors of the company, which was subsequently cancelled; the construction work in this case being performed by the defendant company is a large scale construction with the construction costs amounting to about 16.6 billion won and the sales price for the building in this case amounts to tens of billion won while the defendant company had the capital in the amount of only 50 million won which was merely nominal and, further, the site in question purchased with the money received as the sales price was registered in the name of the defendant, Lee Jeong-su and the remaining money received as the sales price was all spent without a clear purpose of use, as a result of which the defendant company had almost no assets in reality.
Considering such circumstances including the particulars of the purchase of the shares of the defendant company by the defendant Lee Jeong-su, the form and degree of control over the defendant company by the defendant Lee Jeong-su, the degree of co-mingling of business and assets of the defendant Lee Jeong-su and the defendant company, the business condition of the defendant company and the use of the sales price, and the size of the construction and parcelling-out of the office building by the defendant company and the circumstances of the assets and the ability to pay of the defendant company, even though the defendant company maintained the external appearance of a juristic person, it merely took the form of a juristic person and, in substance, it was a private enterprise of the defendant Lee Jeong-su attempting to hide behind the corporate veil. Therefore, even though the defendant company became the party who parcelled out the building in this case, it was nothing more than just an external appearance and, in substance, the parcelling-out business was conducted by the defendant Lee Jeong-su as his private business.
However, it is evident that the defendant Lee Jeong-su, claiming that the defendant company was a corporate entity separate from himself, attributed all responsibility relating to the parcelling-out business in this case to the defendant company and denied any responsibility on his own while he had the ability to pay to some extent. Such claim cannot be permitted in light of the justice and equity. The abuse of the corporate entity is in violation of the principle of trust and good faith. Therefore, the plaintiff who purchased the office in this case from the defendant company shall be entitled to request the return of the purchase price as a result of the cancellation of the parcelling-out contract not only against the defendant company but also the defendant Lee Jeong-su, who was behind the corporate veil of the defendant company as the substantial controller of the defendant company.
The fact finding and judgment of the court below to the same effect shall be justified in light of the above legal principle and there is no reversible error in matters of law by wrongfully determining the facts against the rules of evidence or misinterpreting the legal principle.
3. Therefore, all appeals shall be dismissed and all costs of appeal shall be assessed against the losing party with the assent of all Justices who reviewed the appeal as ordered per Disposition.
Justices Song Jin-hun (Presiding Justice)
Yoon Jae-sik
Lee Kyu-hong (Justice in charge)
Son Ji-yol
- This is a legal document in the public domain according to Korean Copyright Law.
