Facts

B, the representative director of A Company, Inc., acting as the representative of A Company, purchased steel materials from X and, in order to pay for those materials, issued a promissory note in the name of Y, director/president of A Company. Y was elected representative director of A Company because the company's business results were in a slump and it needed to use Y's social status and credit rating to rebuild. Since Y was Very busy with his work, he placed in B's custody the president's seal and a rubber stamp bearing his own name and gave B the authority to issue notes as well as responsibility for all other business matters. The above promissory note was dishonored and , because X could not recover the cost of the steel materials, he brought this action based on the first portion of old Commercial Code Art. 266-3, Para. 1 (present Commercial Code Art. 266-3, Para. 1) seeking indemnification for damages. Both the courts of first and second instance affirmed damage indemnification by Y and, recognizing some set-off for negligence, allowed a portion of X's claim. Y brought this jokoku appeal.

Gist

Jokoku appeal dismissed.

"The law has given careful consideration to the fact that stock companies have very important economic status in society and that the actions of a stock company depend on the performance by directors, the organs of the company, of their duties. From the perspective of protecting third parties, then, when directors violates those duties (the duty of due care and the duty of loyalty) with malicious intent or gross negligence, causing injury to a third party, insofar as there is a cause and effect relationship between the injury to the third party and the director's action in neglect of his duties, even if it is the case that the company has been damaged and that damage has ibn turn caused damage to a third party, the law provides that the directors should assume direct responsibility for compensating the third party's damage, regardless of whether the damage to the third party was direct or not. ....[W]hen it is the case that the third party's damage was increased by intent of negligence on the part of a director in performing his duties, the provisions of general or law do not obstruct the damage indemnification duty owed by the director."

"A representative director represents the company as against all others and, because it is a job which also carries the authority to oversee the internal performance of general business matters, it goes without saying that the representative owes the duties of loyal performances of his duties with the carer of a good manager and of being mindful of all general business matters of the company. Accordingly, where a representative director has left to another representative director or another person all of the business matters of the company and has not paid any attention to how those matters are performed, ultimately closing his eyes to the malfeasance of neglect of responsibility of that person, at the very least it is proper to consider that action itself to be malicious intent or gross negligence."

(Dissenting opinion filed)

(translation by Vicki L. Beyer)

Temple University Japan