Act on the Registration of Real Estate under Actual Titleholder's Name Case

[13-1 KCCR 1017, 99Hun-Ka18, etc.,(consolidated), May 31, 2001]

In this case, the Constitutional Court found nonconforming to theConstitution the provisions of the Act on the Registration of RealEstate under Actual Titleholder's Name, because penalty imposed topersons violating the statutes of the Act was too excessive and in-discriminate.

A. Background of the Case

According to the Civil Act, one can exercise a real right over real estate against a third party only after registration of the right.However, the Supreme Court, through its precedents dating back de-cades, has allowed registration of real estate under the title of aperson who does not have actual rights of the estate, and the so-called "title trust agreement" has been widely used by the generalpublic. Under a title trust agreement, a real right is registered underthe title trustee's name, and externally, or in matters concerningpeople other than title trustor and title trustee, the title trustee isthe person who can make legal claims based on the registered right.Between the title trustee and the title trustor, however, the titletrustor retains the actual rights to the real estate. The title trustagreements, however, have widely been used for speculation, evasionof taxes and other means of circumventing the laws, and the NationalAssembly enacted the Act on the Registration of Real Estate underActual Titleholder's Name in 1995 to regulate such abuse of the titletrust agreements. According to the Act, registration of real right toreal estate under the name of the title trustee under the title trustagreement is prohibited (this is called "obligation to register in nameof person having actual right"), and when a creditor has a real rightto any real estate transferred to secure a performance of an obliga-tion (hereinafter called "security right by means of transfer"), thecreditor is required to submit an application for registration to a pub-lic official in charge of the registration along with a document spec-ifying the obligor, amount of credit, and the fact that it is a securityfor the performance of an obligation. Also, the Act provides that apenalty equivalent to 30/100 of the value of the real estate can beimposed upon ① a person who violated the real name registrationrequirement after the Act came into force or who, being classified asan existing title trustor, failed to make an actual name registration

during the grace period of one year from the enforcement date of theAct; ② a person who acquired a real right of real estate but did notapply for an actual name registration within three years from certaindays that the Act prescribes; and ③ a creditor who has a real right to real estate transferred to secure the performance of an obligation,but failed to submit documents specified under the Act within thegrace period of one year from the enforcement date of the Act.

Petitioners who were penalized under the provisions of the Actfiled for a judicial review of administrative actions objecting to im-position of the penalties. The ordinary courtsua sponterequestedthe constitutional review of the provisions of the Act regardingpenalties.

B. Summary of the Decision

(1) Majority Opinion

The Constitutional Court issued a decision of nonconformity, pro-hibiting the provisions from being applied in any manner by courts,other state agencies, and local governments and ordering the legisla-ture to revise the Act by June 30, 2002, after which the provisionswould become void as of July 1, 2002, on a majority vote of eightJustices, as follows:

(A) Penalty Provision against Title Trustor

The instant provision uniformly imposes a penalty equivalent to30/100 of the value of the real estate upon a person who became atitle trustor after the Act entered into force or a person who becamea title trustor before enforcement of the Act but failed to make anactual name registration within the grace period provided by the Act.The magnitude of the penalty was decided with due consideration torates of the transfer profits tax and gift tax to render such regula-tion effective. While the penalty rate is at a level similar to thetransfer profits tax and gift tax, the actual penalty amount levied bythe Act is much larger than that collected through these taxes be-cause the transfer tax is levied on capital gains from property trans-fer and the gift tax is levied on a tax basis after the deduction ofcertain expenses. Moreover, additional charges for compliances canbe imposed upon the individual when he or she is penalized underthe Act but continues to delay the registration of the real right to thereal estate concerned under his or her name. Based on such facts,it can be concluded that the penalty rate in the instant case, namely30/100 of the value of the concerned real estate, is too excessiveeven when we consider the legislative purposes.

The instant provisions of the Act impose a uniform amount ofpenalty without an exception, and this may result in excessive punish-ment in

certain cases. The provisions provide no room for consid-eration of the underlying intent of the title trust agreement, and dif-ferentiations in penalty amounts for different types of violation arenot possible. And also, the provisions take no heed or provide noconsideration for special circumstances necessitating the use of the title trust agreement. Because the Supreme Court had declared thetitle trust agreement legitimate through its many precedents, manypeople must have used the title trust agreement for mere conveni- ence before it was made illegal through legislation of the Act. Inthis light, it is very likely that the provisions of the Act are againstthe principle of proportionality and the right to equality, if they donot allow the administrative authorities to impose different penaltyamounts for different cases after considering such factors as the un-derlying purpose of the use of the title trust agreement, the amountof profits from transactions, if any, and the period of delay beforeapplying for an actual name registration.

(B) Penalty Provision against Title Trustor Making No

Registration for a Long Period of Time

A person who has signed a title trust agreement to actively hidehis or her real rights to real estate is very likely to have illegiti-mate or antisocial intent in doing so. However, a person who has notapplied for the registration of the real right to the real estate con-cerned under his or her name for a long period is more likely to have delayed the registration for other reasons: he or she may be ignorantof the new legislation; he or she may find it too troublesome tochange the registration; or he or she may not have enough resourcesto pay for the expense of registration.

Delay in the registration is fundamentally inaction, and failure tomake a registration for transfer of the real right to real estate is aviolation of a duty imposed for administrative reasons. In this light, to impose a uniform penalty amount equivalent to 30/100 of the valueof the real estate upon individuals without such antisocial intent as tax evasion or circumvention of legal regulations would fail the bal-ance of interests test, and therefore is against the rule againstexcessive restriction. Furthermore, to punish such individual with apenalty equivalent to that imposed on people who actively violatedthe Act by signing a title trust agreement is against the principle of equality.

(C) Penalty Provision against Holder of Security Right by

Means of Transfer

A security right by means of transfer, a legal act, is granted to ensure the performance of an obligation, and granting security rightdoes not have any antisocial nature in itself. A special act has beenlegislated to regulate the practice of granting security rights by meansof transfer, and a relatively light administrative penalty is imposedupon an individual

violating the provisions under other laws regardingthe duty to report. Considering these facts, imposing a penaltyamount equivalent to 30/100 of the value of real estate upon an forfailure to submit required documents, even in the case when it is clearthat the individual is a legitimate creditor entitled to a security rightby means of transfer, is excessive and violates the principle of pro-portionality. Also, to punish such individual with a penalty equiv- alent to that imposed on people who knowingly violated the Act onthe Registration of Real Estate under Actual Titleholder's Name afterit entered into force is against the principle of equality.

(2) Dissenting Opinion

The statutory provision declaring all title trust agreements nulland void is unconstitutional because it fails the balance of intereststest. It excessively restricts the exercise of the property right and violates the principle of private autonomy. All statutory provisionsof the Act regulating title trust agreement based on the premise thatall title trust agreements are null and void are also unconstitutional.