[Exclusive] Daemyung Chemical Chairman Kwon Oil Loses Final Supreme Court Battle in 50 Billion Won Put Option Lawsuit [Invest&Law]

Dispute Over Modinochip Former CEO's Put Option Concludes
Supreme Court Dismisses Chairman Kwon's Appeal Without Review
Chairman Kwon Held Personally Liable for Judgment Debt

The legal battle between Kwon Oil, Chairman of Daemyung Chemical, and the former CEO of Modinochip over the execution of a put option worth 50 billion won has ended with a loss for Chairman Kwon. Kwon's side refused to fulfill the put option, citing sales targets and stock price conditions, but the court ruled that obligations cannot be avoided based on conditions not specified in the contract.

According to the legal community on May 18, the First Division of the Supreme Court (Presiding Justice Seo Kyunghwan) recently finalized the loss for Chairman Kwon by dismissing his appeal without a substantive review in the stock purchase payment lawsuit filed by the former CEO of Modinochip, Park, and his brother. A dismissal without substantive review is a system in which the Supreme Court rejects an appeal without a full hearing if there are no significant violations of law or other special reasons in the previous ruling.

According to the appellate court's decision confirmed by the Supreme Court, Chairman Kwon must pay over 42.8 billion won to former CEO Park and 6.5 billion won to Park's younger brother, as well as delayed interest on each amount. With delayed interest accruing at an annual rate of 12% since November 2023, Chairman Kwon's financial burden is estimated to have grown to the mid-60 billion won range.

Put Option Refused Citing "Unmet Sales Target"

This dispute originated from the "Innochip Technology Stock Purchase Agreement" signed in 2016. At the time, the Daemyung Chemical Group was pursuing a merger between Innochip Technology, an electronic components company, and Moda, an outlet operator. Former CEO Park of Innochip Technology initially opposed the merger, fearing a possible decline in the value of his shares, but changed his stance after the stock purchase agreement was signed.

The agreement stated that Park and his side could sell 1,644,232 shares at 30,000 won per share starting three years later, and Chairman Kwon would pay the purchase amount within three months of being notified of the intention to exercise the put option. Afterward, Daemyung Chemical Group expanded its business into fashion, logistics, and other sectors, investing in around 300 companies centered on several intermediate holding companies, including Modinochip.

In 2023, Park and his side exercised the put option, but when Chairman Kwon failed to fulfill his purchase obligation, they filed a lawsuit. Kwon's side argued that the contract was contingent on Modinochip's electronics division achieving 500 billion won in sales. They claimed that because Modinochip's sales had sharply declined and the company posted an operating loss in 2019, the conditions for exercising the put option had not been met.

Court: "No Sales Condition in Written Agreement"...Oral Agreement Rejected

The court of first instance ruled in favor of former CEO Park. The bench determined that the stock purchase agreement was validly formed, and found no sales target condition specified in the contract, nor any such stipulation in either the draft or revised versions of the agreement.

The conditions for exercising the put option were also a central issue in the appeal. Kwon's side claimed, "There was an oral agreement that if Park failed to achieve 500 billion won in sales, he would not exercise the put option, and even if he did not meet the target, the put option could be exercised if the stock price reached at least 30,000 won after March 2019."

However, the appellate court upheld the original ruling. The appeals bench stated, "It is difficult to understand how such an important precondition could be omitted from a written agreement governing a massive transaction nearing 50 billion won." Regarding the mention of the 500 billion won sales target in an email sent by Park to Kwon's side in 2016, the court judged, "The context was a commitment to strive for company growth, and there is nothing to indicate that achieving the sales target was linked to exercising the put option."

Appellate Court Points Out Inconsistency in Kwon's Claims...Final Dismissal Without Review

The appellate court also noted that both the draft and revised agreements contained language stating that the put option would expire if the stock price exceeded 30,000 won. This, the court said, contradicts Kwon's argument that the put option could only be exercised if certain sales or stock price conditions were met. "If the defendant's claim were accepted, the plaintiffs would have acquired a put option that could never be exercised," the bench said.

The court also addressed the nature of the put option. The bench clarified that while stock options incentivize employees by offering benefits if the stock price rises, a put option is a right to sell already-owned shares at a predetermined price in the future, serving as a hedge against the risk of a falling stock price. Thus, it is difficult to view the put option as a means of incentivizing achievement of a sales target.

The bench further pointed out the inconsistency in Kwon's claims. "Initially, the defendant claimed the condition was 'achieving 500 billion won in sales by 2020,' then later argued it was based on company performance and stock price, and finally corrected it to 'achieving a stock price of 30,000 won.' Since the stock price fluctuates constantly, and it is unclear whether this refers to the closing price or an intraday price, or whether it needs to be maintained for a certain period, it is difficult to conclude that any specific condition existed," the court emphasized.

Chairman Kwon appealed the decision, but with the Supreme Court's dismissal of the appeal without review, the original ruling has been finalized.

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