[1] Whether a creditor who did not have a claim falling under the “right arising from a cause arising before the trust” or “right arising from the process of trust affairs” in the procedure of compulsory execution or auction of trust property may receive dividends (negative in principle), and whether the debtor may raise an objection against the amount of dividends and file a lawsuit of demurrer against the creditor against the distribution, by asserting in the distribution procedure that the above creditor’s claim does not fall under the “right arising from a cause arising before the trust or the “right arising from the process of trust affairs” (affirmative)

[2] In a lawsuit of demurrer against distribution, where a debtor asserts that the creditor's claim does not constitute "the right arising in the course of performing trust affairs", whether the creditor bears the responsibility to prove the fact that the claim occurred in the course of performing trust affairs (affirmative)

[3] Whether a trustee in bankruptcy can approve the interruption of prescription for a trustee's obligation related to trust property (negative)

[4] In a case where a new trustee is appointed and replaced by a trustee due to the declaration of bankruptcy of the trustee, whether a third party with a claim arising from the performance of the trust affairs may exercise the right to the total amount of the claim at the time of the declaration of bankruptcy of the former trustee and the new trustee against the former trustee (affirmative)

[1] Article 21(1) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 201; see current Article 22(1)); Articles 151(1) and 154(1) of the Civil Execution Act / [2] Article 21(1) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 201; see current Article 22(1)); Article 288 of the Civil Procedure Act; Articles 151(1) and 154(1) of the Civil Execution Act / [3] Article 11(2) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 201; see current Article 168 of the Civil Act; Article 21(1) and Article 154(1) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 2011);

[1] Supreme Court Decision 2004Da51627 Decided September 22, 2006 (Gong2006Ha, 1785) / [2] Supreme Court Decision 2005Da39617 Decided July 12, 2007 (Gong2007Ha, 1241) / [3] Supreme Court Order 2006Ma272 Decided September 11, 2008 / [4] Supreme Court Decision 2010Da9186 Decided April 14, 201 (Gong2011Sang, 908) (Gong201Da74304 Decided December 24, 2014)

Asian Trust Corporation

Plaintiff’s Intervenor (Attorney Son Ji-yol et al., Counsel for the plaintiff’s intervenor)

Korea Asset Management Corporation (Law Firm LLC, Attorneys Shin Sung-si et al., Counsel for the plaintiff-appellant)

Busan High Court Decision 2012Na5155 decided July 25, 2013

The appeal is dismissed. The costs of appeal are assessed against the defendant, including those resulting from supplementary participation.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Regarding ground of appeal No. 1

A. According to Article 151(1) of the Civil Execution Act, a debtor who appears on the date of distribution may raise an objection against a creditor’s claim or the order of such claim. In the case of an auction to enforce a real estate security right, in order to prevent the distribution of dividends to a mortgagee who does not have the right to receive dividends, the debtor may raise an objection against the amount of dividends distributed by the creditor by asserting substantive reasons, such as the non-existence or invalidation of the relevant right to collateral security and the secured claim, in the distribution procedure, and further file a lawsuit of demurrer against the creditor (see Supreme Court Decision 2004Da51627, Sept. 22, 2006)

Meanwhile, Article 21(1) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 2011; hereinafter the same) provides that “a trust property shall not be subject to compulsory execution or auction with respect to its trust property: Provided, That this shall not apply in cases of the rights arising from the grounds before the trust or the rights arising from the performance of trust affairs.” According to the foregoing provision, the trust property can be subject to compulsory property only for “the rights arising from the grounds before the trust” or “the rights arising from the performance of trust affairs,” barring special circumstances.

In light of the above provisions and legal principles, in a case where a decision of permission for sale to a purchaser is confirmed in a compulsory execution or auction against trust property and a distribution procedure is carried out with respect to the proceeds of sale, no distribution may be made unless a creditor holding a claim corresponding to “right arising from a trust” or “right arising from the performance of trust affairs” is not a creditor who has no right to receive dividends. Therefore, in order to prevent a creditor who has no right to receive dividends from taking place, an obligor may raise an objection against the amount of dividends, and further file a lawsuit of demurrer against a creditor against the distribution.

B. The lower court determined as to the legitimacy of the assertion on the premise that the Plaintiff’s assertion that the Defendant’s claim that the claim for indemnity did not constitute “the right arising in the course of performing trust affairs” constitutes legitimate grounds for objection to distribution in the distribution procedure regarding the proceeds of sale of the instant land

Examining the reasoning of the lower judgment in light of the foregoing legal doctrine, the lower court did not err in its judgment by misapprehending the legal doctrine regarding the validity of the right to collateral security established on trust property or the grounds of objection against distribution in the auction procedure based on the

2. Regarding ground of appeal No. 2

A. In a lawsuit of demurrer against distribution, the burden of proof of grounds for objection against distribution shall be in accordance with the principle of distribution of the burden of proof of general civil procedure (see Supreme Court Decision 2005Da39617, Jul. 12, 2007). Article 21(1) of the former Trust Act prohibits in principle compulsory execution or auction against trust property, and exceptionally permits it only based on “the right arising before the trust” or “the right arising in the course of performing trust affairs” as a matter of principle. Therefore, in a case where the Plaintiff asserts that the Defendant’s claim does not fall under “the right arising in the course of performing trust affairs,” the Defendant is liable to prove that such claim occurred

B. In light of such legal principles, the lower court did not err by misapprehending the legal doctrine on the burden of proof as to “the right arising in the course of performing the trust business”, contrary to what is alleged in the grounds of appeal, to the purport that the lower court held that Defendant’s claim for reimbursement constituted the right arising in the course of performing

3. As to grounds of appeal Nos. 3 and 4

A. Even though it is not bound by the facts established in a judgment on other civil cases, etc. in a civil trial, the facts established in the relevant civil case already established are valuable evidence, barring special circumstances, and thus, it cannot be rejected without any reasonable reasoning (see Supreme Court Decision 2008Da92312, 92329, Sept. 24, 2009, etc.).

B. The record reveals the following facts.

1) On October 13, 200, a new U.S. Co., Ltd. (hereinafter “new development”) filed a lawsuit seeking cancellation of the registration of transfer of ownership on the instant land, on the ground that the Defendant, a collateral security right holder of the instant case, entered into a mortgage agreement on the instant land in order to secure his indemnity obligation regardless of the instant trust business, on the grounds that the said agreement was contrary to the former Trust Act or constitutes Article 103 of the Civil Act, etc., and filed a lawsuit seeking cancellation of the registration of transfer of ownership on the instant land against the trustee of the instant land. On March 16, 2001, the same comprehensive financial company (hereinafter “Dong Yang”) was incorporated into the Dongyang Integrated Financial Securities Co., Ltd., Ltd. (hereinafter “Dong Yang”) and entered into a mortgage agreement on the instant land in order to secure his indemnity obligation regardless of the instant trust business.

2) On November 17, 2004, the first instance court rendered a ruling dismissing all the claims for the new development and the same kind of money (Seoul Central District Court Decision 2000 Gahap7545, 2001 Gahap18440). On December 23, 2005, the appellate court dismissed the appeal on the following facts-finding and judgment (Seoul High Court Decision 2005Na15859, 15866). On December 23, 2005, the appellate court dismissed the appeal on the claim for cancellation of the registration of the establishment of the creation of the new and previous kind of money against the Defendant (Seoul High Court Decision 2005Na15859, 15866). The above judgment became final and conclusive without an appeal between the Defendant and the new and previous development (On the other hand, the appellate court dismissed the remaining appeal and the appeal of the same kind of money, which was reversed and remanded due to the appeal of the same kind of money.)

A) Under the Defendant’s payment guarantee, Creret Trust borrowed KRW 61,753,00,000 from the Japanese bank, and used the amount of KRW 6.9 billion for the purpose of redemption and extension of the existing loans paid as advance payment to carry out the instant trust business. The Cret Trust concluded the instant mortgage contract regarding the instant land in order to secure its future indemnity liability against its Defendant.

B) The act of establishing and establishing the instant collateral security on the part of the Defendant, while borrowing new funds for the repayment and extension of the existing funds by borrowing the necessary expenses for the instant trust business, is valid as it was for the purpose of the execution of the instant trust business.

3) On the other hand, on March 20, 201, Cret Trust filed a lawsuit against the Defendant seeking the cancellation, etc. of the registration of the establishment of the mortgage of this case on the ground that Cret Trust was guaranteed by the Defendant to borrow its existing loan repayment funds and the establishment of the mortgage of this case was contrary to the fiduciary’s duty to loyalty, etc.

4) On June 27, 2002, the first instance court rendered a judgment against the same kind of paper (Seoul Central District Court 2001Kahap18853). On January 13, 2004, with respect to an appeal against the same kind of paper, the appellate court dismissed the appeal under the fact-finding and judgment as follows (Seoul High Court 2002Na39656). On July 22, 2004, with respect to the appeal against the same kind of paper, the Supreme Court affirmed it on the grounds that the fact-finding and judgment by the appellate court are justifiable (Supreme Court 2004Da74399).

A) There is no evidence to deem that the instant act of creating a collateral security was conducted by the Defendant to obtain a payment guarantee from the Defendant to borrow a new loan for the repayment of its existing loan from the Cret Trust. Rather, Cret Trust borrowed KRW 61,753,00,000 from the Japan Bank, and used it for the purpose of repayment and extension of the existing loan disbursed as advance payment for the execution of the instant trust business.

B) The Plaintiff’s assertion that Cret Trust, the trustee, was against the duty of loyalty on the premise that it was guaranteed by the Defendant for a new loan to repay its existing loan, and that it was against the duty of loyalty is without merit.

C. In this case, the Defendant asserted that Creret Trust used part of the Japanese bank loan in order to pay the amount borrowed from the general financial company for the purpose of preparing advance payment for treatment for the instant trust business. For this reason, the lower court determined that the Defendant’s claim for indemnity against the Plaintiff cannot be the secured debt of the instant right to collateral security on the ground that the Defendant’s claim for indemnity against the Plaintiff was not proved for the following reasons. In other words, the phrase “the secured debt for the instant business shall be appropriated as a substitute for a part of the Japanese bank loan for the instant future Mret Apartment apartment business as the secured debt amount for the instant trust business,” which is indicated in the inside draft of the Defendant's claim for indemnity against Cret Trust in the process of securing the right to indemnity against the Defendant’s claim, stating that it is clear that the KRW 6.9 billion stated as the secured debt amount for the instant trust business is not related to the instant trust business, but is related to the instant trust business, and that it cannot be said that the Defendant’s determination of the use of the relevant final judgment and loan can be proven.

D. However, in light of the aforementioned legal principles and records, unlike the judgment of the court below, the phrase of the above internal draft site can be understood to the purport that part of the Japanese bank loan, which was expected to be distributed to the gold village future apartment business, is changed to the distribution business place, and is used for the Incheon Yandong business place or the instant trust business. Therefore, the circumstances cited by the court below as stated in its reasoning cannot be deemed to constitute a circumstance that rejected the facts acknowledged in the final civil case.

Nevertheless, the lower court determined that, unlike the facts recognized in the relevant civil case which became final and conclusive without a reasonable reasoning, the Cret Trust did not recognize that part of the Lret Trust was used in repaying the borrowed money in order to provide advance payment for treatment of the Co., Ltd.

In so determining, the lower court erred by misapprehending the legal doctrine on the probative value of the facts recognized in the relevant civil judgment which became final and conclusive in a civil trial.

E. However, even if the claim for indemnity of this case is included in the secured claim of this case, the court below determined that the claim for indemnity of this case had already been extinguished due to the completion of prescription, and rejected the defendant's defense that had been suspended, and thus, it should be further decided on the grounds of appeal disputing the propriety of the judgment.

4. As to the fifth ground for appeal

A. The claim to approve the debt of the Comart trust;

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err in its judgment that rejected the Defendant’s assertion that the extinctive prescription had been interrupted by the acceptance of debt obligations for the Koreree Trust, by misapprehending the legal doctrine on the acceptance of debt

(b) Claim for the acceptance of debt by the trustee in bankruptcy of the Komart Trust;

1) Article 11(1) and (2) of the former Trust Act provides that where a trustee is declared bankrupt and the trustee completes his/her duties, the trustee in bankruptcy shall keep the trust property and perform an act necessary for the transfer of the trust affairs until the new trustee becomes able to perform the trust affairs. The above provision merely imposes a temporary measure following the completion of the trustee’s duties, on the trustee in bankruptcy an obligation to conduct temporary administrative affairs of the trust property (see Supreme Court Order 2006Ma272, Sept. 11, 2008). Therefore, the trustee in bankruptcy cannot be deemed to have the effect of interrupting the extinctive prescription as to the obligation of the trust

2) The lower court determined that the interruption of extinctive prescription cannot be granted on such reply, even if the trustee in bankruptcy of the Crerererereret Trust replies to the Defendant that the sale of the instant land through public sale was favorable to the recovery of claims.

Examining the reasoning of the lower judgment in light of the foregoing legal doctrine, the lower court did not err in its judgment by misapprehending the legal doctrine on the scope of trustee’s authority or extinctive prescription.

(c) Claim for interruption of extinctive prescription due to participation in bankruptcy proceedings;

1) Where the trustee completes the duties of the trustee pursuant to Articles 11 and 17 of the former Trust Act after having been declared bankrupt, and the new trustee is appointed and replaced, a third party who holds a claim that occurred in the course of performing the trust affairs may exercise his/her right as a bankruptcy creditor against the former trustee’s bankrupt estate with respect to the total amount of the claim that had already occurred prior to the replacement of the trustee. In addition, the third party may exercise his/her right against a new trustee who comprehensively succeeds to the status of the former trustee within the scope of trust property pursuant to Article 48(3) of the former Trust Act (see, e.g., Supreme Court Decision 2012Da74304, Dec. 24, 2014).

At this time, the former trustee and the new trustee have the same economic purpose with respect to a third party’s obligation overlappingly borne by the former trustee and the new trustee. In the event one of the parties’ obligation becomes extinguished due to repayment, etc., the other party’s obligation is also extinguished, but it is difficult to view that there is a subjective joint relationship between the former trustee and the new trustee with respect to the liability. However, in the quasi-joint and several liability, the ground for interruption of extinctive prescription against one of the obligors does not extend to the other debtor (see, e.g., Supreme Court Decision 2010Da91886, Apr. 14, 201). Therefore, even if a third party participates in the bankruptcy proceeding against the former trustee, the interruption of prescription

This legal doctrine is reasonable to deem that a third party’s participation in the bankruptcy procedure against a former trustee before the appointment of a new trustee and the grounds for interruption of the extinctive prescription arise. The reasons are as follows. Article 11(1) of the former Trust Act provides that where a trustee is declared bankrupt, his/her duties shall be terminated, and Article 236 of the Civil Procedure Act provides that a new trustee shall take over the proceedings at the time when the trustee’s duties are terminated, and Article 22 of the former Trust Act provides that the trust property does not constitute the trustee’s bankrupt estate. In light of the purport of the provisions, where the trustee is declared bankrupt, the legal relationship on the claims already incurred due to the performance of the trust affairs shall be deemed as directly related to the trust property and the property other than the trust property, and the modified legal relationship shall be deemed as succeeded to the new trustee appointed thereafter. Accordingly, even if the grounds for interruption of the extinctive prescription have arisen due to the third party’s participation in the bankruptcy procedure, this does not affect the subsequent appointment of the new trustee.

2) The lower court determined that the Defendant’s extinctive prescription of the instant claim for reimbursement against the Plaintiff cannot be deemed to have been interrupted solely on the ground that the Defendant participated in the bankruptcy proceedings against the Komart Trust. Examining the reasoning of the lower judgment in light of the legal doctrine as seen earlier, the lower court did not err by misapprehending the legal doctrine on the interruption of extinctive prescription due to participation in bankruptcy proceedings, contrary to what is alleged in the grounds of appeal.

D. Appropriateness of the lower judgment

The lower court determined that the claim for indemnity of this case had expired due to the completion of extinctive prescription, and the Defendant’s ground for suspending extinctive prescription is not acknowledged. Accordingly, even if the lower court erred by misapprehending the legal doctrine on probative value of the facts recognized in the relevant civil judgment in a civil trial, it is justifiable in its conclusion that the lower court corrected the distribution schedule on the grounds that the claim for indemnity of this case cannot be distributed at the auction procedure based on the right to collateral security

5. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party, including the part arising from the participation in the appeal. It is so decided as per Disposition by the assent of all participating Justices.

Justices Park Jung-hwa (Presiding Justice)