Understanding Name-Lender Liability in Korea

In Korea, it is common for individuals to operate businesses using the brand or trade name of a larger corporation through various agreements. However, if a problem arises—such as a debt that cannot be repaid—the question often becomes: Who is responsible?

The Scenario

A company (Company A) signed a contract with an individual (Person B) to run a local office. Person B was appointed as the 'Branch Manager' and operated under the sign 'Company A Shintanjin Office.' Later, a third party (Person C) lent money to Person B for business purposes. When Person B failed to pay, Person C sought repayment from Company A.

Legal Principle: Article 24 of the Commercial Act

Under the Korean Commercial Act, there is a principle known as 'Liability of a Name-Lender.'

Article 24 (Liability of Name-Lender): A person who has permitted another person to carry on business using his/her surname, given name, trade name, or emblem shall be liable, jointly and severally with such other person, to any third party who has transacted with the latter in the belief that he/she is the proprietor of the business.

Key Findings of the Supreme Court

The court ruled that Company A is liable for the debt. Here are the reasons why:

  • Appearance of Identity: Even if suffixes like 'Branch,' 'Sales Office,' or 'Business Office' are added to the trade name, it is still legally considered the same identity as the original company name.
  • Protection of the Creditor: If a person (the creditor) reasonably believes they are dealing with the actual company because of the name used, the company that allowed the name to be used must take responsibility.
  • Corporate Supervision: By allowing a third party to use its name and appointing them as a manager, the company created an environment where outsiders would naturally trust the business.

What Foreigners in Korea Should Know

  1. Due Diligence: Before lending money or entering into large contracts with a 'Branch Manager' or 'Office Head,' verify if you are dealing with the corporation itself or an independent contractor.
  2. Right to Claim: If you entered into a transaction because you trusted the company's brand name displayed on a sign, you may have the legal right to demand payment from the head office.

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This legal insight is provided for informational purposes only and does not constitute official legal advice. For personalized assistance, please consult with a qualified legal professional via our platform.