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Decision on whether or not Mobile Phone Agency has a duty to pay the purchase price for unsold mobile phone handsets

2010.09.15

[Supreme Court Case No. 2009Da105253 for the case reversed and remanded on July 29, 2010] 
 
A Mobile Phone Agency ("Agency") which had entered into the Consignment Agency Agreement ("Agreement") with Mobile Phone Carrier A ("Mobile Phone Carrier") refused to pay the purchase price for one hundred thirty seven (137) units of mobile phone handsets (worth fifty-three million Korean Won (KRW 53,000,000)) provided by Mobile Phone Carrier during the agreed term. Agency refused to pay the purchase price in the belief that they did not owe any obligation to pay for the unsold handsets. The court of first instance upheld the Mobile Phone Carrier. However, the court of appeal reversed the decision of the court of first instance. 
 
The court of first instance ruled on the basis of the following considerations 1) the fact that main duty of Agency is to recruit subscribers, and sales of mobile phone handsets is incidental to their main duty of subscriber recruitment, ② the fact that Mobile Phone Carrier A has accepted mobile phone handset inventory from other mobile phone agencies whose consignment agreements with the Moile Phone Carrier were cancelled, ③ the fact that even though the Agreement requires that Mobile Phone Carrier and Agency decide the supply price of mobile phone handsets upon mutual consultation, no agreement as to the price was reached by plaintiff of the first instance and defendant of the first instance, and ④ the fact that according to marketing policy, Mobile Phone Carrier may adjust price of mobile phone handsets by providing sales subsidies in addition to commission at times of frequent fluctuation of mobile phone handset price. The judge provided that "Taking all these facts into consideration, it is reasonable to conclude that the Plaintiff and the Defendant agreed that the Plaintiff pays the price for mobile phone handsets upon consultation with the Defendant especially considering the fact that sales subsidies were provided by the Mobile Phone Carrier only when the mobile phone handset was actually sold to the subscribers." 
 
The ground of appeal and the reasons for the original decision to be annulled were of my biggest concerns when I was appointed as a legal representative of the Mobile Phone Carrier. The increasing dismissal rate of appeal to the Supreme Court requires just one or two effective and reasonable grounds for appeal rather than a number of stereotypical grounds for appeal such as insufficient examination or violation of rule of evidence or violation of rule of thumb. Citing several grounds for appeal as a fishing expedition is the shortcut to a dismissal of appeal to the Supreme Court. 
 
My ground of appeal for this case was to argue error in legal principle in interpreting the legal document which proves the performance of the legal acts between the Plaintiff and the Defendant. The legal principle established by the Supreme Court is that when the authenticity of such legal document is admitted in evidence and accepted by the court, the court must rule on the details and the intentions of the relevant parties as shown in and proven by the legal document and such details and intentions are not to be excluded in deliberation of the court's judgment without reasonable grounds. The Agreement sets forth that "Upon delivery of the goods, Agency shall pay the whole price for goods in cash." There is no room for other interpretation. Nevertheless, the court of first instance presented the aforementioned reasons and delivered that Agency was only to bear payment liability when actual sales occurred. 
 
In efforts to confute such judgment of the court of first instance, I focused on the fact that the Agreement had special legal value and characteristic which was different from those of other ordinary legal documents defining legal relationship between plaintiffs and defendants. The Agreement was signed by Mobile Phone Carrier and Agency who are both merchants. Also it is specially prepared for Mobile Phone Carrier to manage contractual relationship with one thousand or more mobile phone agencies around the country. I highlighted that the Agreement is of significant importance to the Mobile Phone Carrier from economic point of view as it deals with transactions of about thirty to forty- thousand (30,000~40,000) units of mobile phone handsets worth fifteen to twenty billion Korean Won (KRW 15,000,000,000~20,000,000,000) per month. I further pointed out that for commercial transactions in which more than one thousand contracting parties are involved and whose trade volume reaches tens of billions of Korean Won, special clauses not stipulated in legal documents which attest the legal acts and relationship between parties shall not be admitted. In addition to these grounds of appeal, I noted that the social and economic effects of the decision of the court of first instance must be fully considered. The Supreme Court conducts judicial review and therefore it gives careful consideration to the matters which have huge social and economic effect. So I needed to persuade the court that the case brought to the Supreme Court has effect not only on the law but also on many market players. I insisted that if the decision of court of first instance is maintained, mobile phone agencies may deploy undue and unjust business practice where they receive mobile phone handsets as many as possible from Mobile Phone Carrier and then return unsold and stocked handsets causing unreasonable cost to Mobile Phone Carrier. 
 
The Supreme Court considered the grounds of appeal mentioned above, and reversed the decision of court of first instance and remanded it to the lower court. The Supreme Court confirmed that existence of indication of intent and the contents written in the Agreement shall be upheld unless contrary intent clearly appears in the Agreement and such intention and contents of the Agreement should not be denied for reasons considered and accepted by court of first instance. 
 
In my opinion, one of the main reasons for the court of first instance to have reached what I consider to be an incorrect conclusion is that the court failed to fully understand the essence of the trade relations between Mobile Phone Carrier and Agency. The responsibility to explain the real facts to the court is the job of a lawyer, in other words, it is a lawyer's duty to bring not only legal aspect of a case in dispute but also its inherent implications for the concerned trade relationships as well.

News Jisung Horizon comes 10th in M&A Legal Advice in 3rd Quarter of 2010 2010.10.04

News Update Decision on whether or not Mobile Phone Agency has a duty to pay the purchase price for unsold mobile phone handsets 2010.09.15

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Won JEONG
+82-2-6200-1750 wjeong@jipyong.com

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