Deceptive Practices Under Korean Commercial Code

This article appeared in the Korea Times on Feb. 15, 2008.

Deceptive Practices Under Commercial Code

Dear Professor Sean Hayes:

I lent my name to an ex-friend so he could open up a bar in Seoul. My friend is a non-Korean and I am Korean. I met this man when I was an exchange student. He thought it would be easier for him to open the business under my name. However, the business failed and now he owes a sizable amount of money to food, spirits, beer and other vendors. A food vendor has already sued me and I expect to be sued by others. My ex-friend is nowhere to be found and it seems that when he knew he was going to go under he ordered a large amount of products from multiple vendors and skipped town. Am I responsible for the debt? What can I do? Potentially Broke in Seoul.

Dear Potentially Broke:

Article 23 of the Korean Commercial Code considers allowing one to use another name to open a business as a practice considered to be engaged in for an unfair business practice.

Thus, Article 24 of the Korean Commercial Act provides protection for those that have been deceived by the Act. Article 24 states that: “A person, who has allowed another person to carry on business using his name or trade name, shall be liable jointly and severally with such other person to effect performance in respect of any obligation arising from a transaction in favor of a third person who has effected such transaction in the belief that such other person was the proprietor of the business.”

Thus, the creditors of the business have a right to make a claim against you for unpaid debts.

However, the Supreme Court (91 Da 18309 ) ruled that the Article 24 was intended to impose liability on name lenders only in order to protect innocent third parties who effected the transaction because of the deception.

The Supreme Court (2000 Da 10512), however, noted that it is the burden of the lender of the name to affirmatively prove that the creditor knew that the name was lent or the creditor was reckless in not knowing that the name was lent.

Thus, if you can prove that the creditors actually knew or were reckless in not knowing that you lent your name, then you will not be held responsible to pay the debt. However, if you fail to prove the aforementioned then the creditors will likely prevail in the suit.


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