Court: "No Obligation to Disclose Fair Market Price When Selling Stocks in Over-the-Counter Transactions"

"Unlisted Stock Value... Contracting Parties Must Judge Themselves"

Seoul Central District Court, Seocho-gu, Seoul. / Photo by Moon Honam munonam@

[Asia Economy Reporter Kim Daehyun] The court ruled that in over-the-counter stock transactions, the seller is not obligated to disclose the fair market price to the buyer. Unless the buyer was falsely informed about facts that form the basis for determining the purchase price, the responsibility for price evaluation lies with the contracting parties themselves.

According to the court on the 2nd, the Seoul Central District Court Civil Division 26 (Presiding Judge Heo Myeongsan) ruled against Mr. Lee in a lawsuit he filed against Corporation A, seeking invalidation of a stock purchase agreement worth approximately 1.16 billion KRW.

Earlier, in April 2019, Mr. Lee agreed to sell 12,000 shares of Corporation A he owned at 20,000 KRW per share, totaling 240 million KRW, and received the promised payment from Corporation A. The shares were to be transferred to Corporation A after about one month.

However, Corporation A requested, in essence, "to split the shares into lots of 3,000 and sell them to four different individuals, and once the payments are received, to return the money to the company." In August of the same year, Mr. Lee received 60 million KRW from each of these four individuals, transferred the shares, and then paid 240 million KRW to Corporation A.

Subsequently, Mr. B, who was the representative of Corporation A, purchased shares from shareholders including those to whom Mr. Lee had transferred shares, and on January 31, 2020, sold a total of 125,460 shares for 22.3 billion KRW.

Mr. Lee then filed a lawsuit demanding the return of the shares, claiming the contract was invalid. He argued, "At the time of the contract, the market price of Corporation A's issued shares was 170,000 to 180,000 KRW per share, but the payment was set too low, losing fairness." He further claimed, "Mr. B knowingly purchased at a low price and then resold at a huge profit, and Corporation A was aware but neglected the situation."

He also preliminarily argued that "Mr. B did not disclose the market price and deceived by pretending to purchase shares at market price to gain excessive profits, so Corporation A, which he represented, should compensate for damages."

The first trial court dismissed all of Mr. Lee's claims, stating, "It cannot be concluded that the plaintiff was in a state of distress, recklessness, or inexperience at the time of the contract, and there is no evidence to consider that Corporation A acted with malicious intent for excessive profit."

The court also rejected the preliminary claim. It ruled, "In the over-the-counter market where transactions occur directly between parties without going through securities company counters, the seller does not bear buyer protection duties such as those of securities company employees," and "unless there is illegal conduct such as deceit by grossly false disclosure violating the principle of good faith, tort liability cannot be established."

The court added, "The value of unlisted shares cannot be assumed to have a clear market price, so the contracting parties must judge for themselves based on various materials such as audit reports and financial statements," and "even if Mr. B's appraisal result was the market price at the time of the contract, the plaintiff could have verified it through the electronic disclosure system." Mr. Lee appealed the first trial court's decision.

This content was produced with the assistance of AI translation services.