Startup Law | A Case of Assisting a Startup Sued for Service Fees, Leading to Dismissal of the Claim

The core of this service fee litigation was the consulting contract said to have been prepared in the names of the plaintiff and the client.

The problem, however, was that the person appearing as the party who concluded this contract was not the client but a third party, Mr. A.

Mr. A was not an employee of the client's company but an external advisor who had indirect dealings in some business.

Mr. A affixed a seal in the client's name to prepare the contract, and as a result the service fee payment litigation was filed.

Startups frequently experience complex contract structures and agency relationships in the course of rapid growth and collaboration with external experts.

In this process, a startup may come to bear unnecessary legal liability due to a contract concluded by a third party other than the representative, and civil lawsuits in which whether authority of representation was granted and whether apparent authority is established become matters in dispute are frequent in particular.

The client in this case also had to prove that the client was not a party to the conclusion of the contract and that the requirements for the grant of authority of representation and the establishment of apparent authority were not satisfied.

The main types of litigation that startups frequently experience are as follows.

▶Equity dispute litigation
▶Litigation related to investment agreements
▶Intellectual property infringement litigation
▶Labor and employment litigation
▶Contract dispute litigation

The startup attorney pointed out that it was unclear whether a contract had actually been concluded between A and the plaintiff, and that even if a document existed, its content was not based on the client's intent.

This is because A was not an executive or employee of the client's company and had not been delegated any authority to conclude a contract by the client.

The startup attorney argued that even if the client's seal was affixed to the contract, if there is no reasonable explanation of its circumstances or legitimacy, the very formation of the contract cannot but be doubted.

In addition, the attorney pointed out that the consulting contract in this case was a copy and that, although the client disputed the existence of the original and the authenticity of its formation, the plaintiff was not submitting the original.

The startup attorney argued that the client had never delegated to A the authority to conclude a contract, and that this consulting contract was no more than a unilateral act of A, unrelated to the client.

In addition, with respect to apparent authority liability, the attorney emphasized that, unless the possibility of the existence of basic authority is presupposed, having the principal bear legal liability based solely on a third party's mistaken belief does not satisfy the requirements for the establishment of apparent authority under the Civil Act.