Civil Damages | Supreme Court, Tort Arising From a Procedural Violation in Contracting, Whether Compensation for Mental Suffering May Be Claimed

This was a case in which the issue was whether compensation could be claimed for mental suffering arising from a tort that consisted of neglecting the procedures necessary for a contract to take effect, within the context of civil damages.

The plaintiffs, who worked at the company where the defendant served as representative director, entered into a stock option grant agreement with a third-party company.

In the course of concluding the above agreement, the defendant forged the minutes of the extraordinary general meeting of shareholders, a procedure required for the agreement, and in the lawsuit the plaintiffs brought against the third-party company seeking delivery of the share certificates, the above agreement was held to be void with finality.

Accordingly, the plaintiffs, as their primary claim, sought civil damages based on tort.

Civil Damages The Supreme Court stated that it was difficult to accept the lower court's determination for the following reasons.

The Supreme Court stated that it was clear that the defendant's act of omitting, at the extraordinary general meeting of shareholders, the agenda item to add a stock option provision to the articles of incorporation and of forging the minutes of the extraordinary general meeting of shareholders was an act of neglecting the procedures necessary for the contract to take effect.

The stock option system is a performance-based compensation system intended to induce officers and employees who have contributed, or can contribute, to the establishment and management of the company and to technological innovation, among other things, to devote themselves to their duties, using the prospective gain from purchasing shares as an incentive.

The Supreme Court determined that the plaintiffs' shares were not a small number, and that it could not be denied that this contract served as an incentive that led the plaintiffs to decide to join the company and work there, and that it also became a motive for them to give up moving to another workplace and to devote themselves to their duties.

The Supreme Court stated that, considering comprehensively the relationship between the plaintiffs and the defendant, the nature of the stock option system, the number of shares allotted, and the circumstances of concluding this contract, there was room to find that the plaintiffs' right to self-determination to choose for themselves whether to work had been infringed.

On this basis, since such an interest is a personality-based interest worthy of protection, the Supreme Court stated that the defendant was obligated to pay consolation money for the mental suffering caused by its infringement, and it reversed and remanded the lower court's determination on civil damages.

This civil damages lawsuit was a case in which, in light of the principle of good faith, the conduct could be regarded as an unlawful act exceeding the limits of the principle of freedom of contract and thus constituting a tort.

This is because one party, at the negotiation stage, gave the other a legitimate expectation or trust that the contract would certainly be concluded, and although the other party acted in reliance on that trust, the first party, without substantial reason, refused to conclude the contract or neglected the procedures necessary for the contract to take effect, thereby causing loss.

Depending on the type of the infringing act and the harmed legal interest, where it is recognized that a tort arising from the breakdown of contract negotiations or from a procedural violation infringed a personality-based legal interest and caused the other party mental suffering, separate compensation may be sought for that loss.

The 🔗General Litigation and Arbitration Group of Daeryun Law Firm provides clients with tailored litigation strategies based on its experience handling a variety of damages lawsuits.

In addition, through coordination with the Labor and Industrial Accident Group and the Corporate Legal Affairs Group, tailored legal advice across various fields is available.