“The contract is valid even without the representative’s seal”… Court orders payment to business partners

The court said, “As a matter of practice, the representative’s seal is omitted, and the signature of an internal employee is also effective.”

A payment order was issued to a company that failed to deliver the price of goods while acquiring a supplier through a subsidiary.

On the 6th of last month, the Cheonan branch of the Daejeon District Court ruled in favor of the plaintiff in a lawsuit filed by delivery company A against auto parts sales company B.

Company A, which had been providing goods to Company B for a long time, decided to discontinue business in 2022 due to worsening profitability. A subsidiary of Company B, a product procurement company, made an offer to acquire the company, and Company A responded.

During the acquisition process, the purchasing team leader of Company B wrote a letter of confirmation of payment for goods to Company A. This included a promise to pay for the goods that Company A had been supplying.

Even though the acquisition process was completed, a problem arose when Company B did not pay Company A. Company B denied the fact of the contract with Company A. This is because the company they signed the contract with is a subsidiary and there is no reason to pay for the goods to Company A, which is only in charge of consignment production.

They also denied the validity of the payment confirmation letter. Company B defended, saying, "The document in question was written personally by an internal employee and cannot be considered an official document. Even if it is effective, approximately 19 million won has already been transferred to Company A's corporate bank account, so this part should be deducted."

Company A launched a rebuttal. This is because, in the process of delivering goods over a long period of time, settlement payments have always been received from Company B's purchasing team. The claim surrounding 19 million won was also not accepted. Company A refuted, "At the time Company B remitted the amount, the authority to use the bankbook had already been transferred to the subsidiary that acquired Company A, so the money was never received."

The court ruled in favor of the plaintiff, stating that Company B must pay Company A approximately 61 million won. The court explained, "It is acknowledged that the two companies have maintained a business relationship for a considerable period of time. As a result, the purchasing team leader, not the company representative, set the settlement amount and promised to pay it."

The court said, “Due to this practice, there was no significant objection even if the seal of Company B’s representative was omitted from the confirmation letter,” and added, “It is therefore correct that Company B decided to pay the money.” Regarding the deductible amount, Company B did not accept the claim, saying, “Company B sent money despite knowing that Company A’s bank account was managed by its subsidiary according to the corporate transfer agreement,” and “This cannot be considered fair debt repayment.”

Attorney Ji Min-hee of Daeryun Law Firm (Limited), who represented Company A, said, "In practice, even if the signature is not directly signed by the CEO but by the head of the purchasing team, it is often considered valid based on transaction practices. This ruling appears to be a reasonable ruling that appropriately reflects these commercial practices."

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"The contract is valid even without the representative's seal"... Court orders payment to business partner (Shortcut)