[1] Whether the right to claim reimbursement of expenses for a trust extended by the trustee's negligence in the trust contract is recognized (negative)

[2] In a case where the trustee suspended the project due to unexpected changes in the economic situation in which the trustee performed the real estate trust business, whether the truster may limit the trustee’s right to claim reimbursement of expenses (affirmative)

[3] Where a trustee of a trust contract paid excessive expenses, whether the portion exceeding the legitimate expenses is losses of the beneficiary, etc. (negative)

[4] Whether the duty to pay trust expenses, the duty to pay trust fees, and the duty to transfer the trust property to the trustee at the time of termination of the trust under the trust contract is concurrently performed (affirmative)

[1] Articles 1, 28, 38, 42, and 44 of the Trust Act / [2] Article 42 of the Trust Act; Article 2 of the Civil Act / [3] Articles 1, 28, 38, 42, and 44 of the Trust Act / [4] Articles 1, 28, 38, 42, and 44 of the Trust Act; Article 536 of the Civil Act

[1] [2] [4] Supreme Court Decision 2004Da24557 decided Jun. 9, 2006 (Gong2006Ha, 1253)

New and American Development Co., Ltd.

The bankruptcy trustee in bankruptcy of Cret Trust Co., Ltd., a bankrupt corporation, the taking over of the lawsuit for Cret Trust (Law Firm Roon, Attorney Kang Young-chul, Counsel for defendant-appellant)

Suwon Construction Co., Ltd. (Law Firm Lee & Lee, Attorneys Lee Young-soo et al., Counsel for the defendant-appellant)

Dongyang Total Financial Securities Co., Ltd. (Law Firm Namsan & one other, Counsel for the plaintiff-appellant)

Seoul High Court Decision 2005Na15859, 2005Na15866 Decided December 23, 2005

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. As to the calculation of trust expense

A. According to Articles 1 and 28 of the Trust Act, the trust is a legal relation that manages and disposes of the property right transferred from the truster for the benefit of the beneficiary or for a specific purpose, and the trustee shall manage or dispose of the trust property with the care of a good manager according to the principal place of the trust. According to Article 42 of the Trust Act, the trustee may claim compensation from the trust property or the beneficiary for any damage incurred without any expense or negligence that the trustee bears in the course of performing the trust affairs. Under Articles 44 and 38 of the Trust Act, where the trustee is unable to properly manage the trust property and causes loss, reduction, or other damage to the trust property, the trustee is obligated to compensate the truster, etc., and the truster shall exercise the right to claim reimbursement of expenses against the truster, etc. only after performing the duty to compensate for losses. According to the purport of the above provision, where the trustee has properly disbursed or borne the trust expenses in the course of performing the trust business in accordance with the principal place of the trust. However, where the trustee has paid the trust expenses due to a good manager’s negligence, it cannot be deemed reasonable.

However, in the case of land development trust, it is difficult to undertake a project over a long period and predict the real estate competition, and thus, a large-scale loss may occur depending on the circumstances. If a trustee is paid a fee as an expert who runs the real estate trust business, and the trust business is performed with discretion based on expertise and discretion, and the trust contract is terminated in advance without achieving the purpose of the trust business due to unexpected changes in economic conditions, and the truster is recognized as having suffered a loss due to this reason, the truster may limit the trustee’s exercise of the right to claim reimbursement of expenses to the extent deemed reasonable from the point of view of the good faith principle and the sharing of damages, taking into account the negligence of the trustee as well as the negligence of the trustee in the disbursement or bearing of the trust expenses (see Supreme Court Decision 2004Da24557, Jun. 9, 2006).

B. Based on the adopted evidence, the court below acknowledged the following facts: (a) under the premise that the beneficiary bears the trust expenses of this case as indicated in its reasoning, the trust expenses of this case; (b) the trustee of this case was paid KRW 4,323,100,730 for the trust business of this case; (c) the trustee of this case was paid KRW 33,163,562,51 on the following grounds: (a) the trustee of this case was to borrow KRW 33,163,783,150,863 on November 29, 195 to October 14, 1999; and (d) the rental and construction expenses of multi-unit construction expenses, design expenses, supervision expenses, geological research and survey expenses, taxes, insurance premiums, local government bonds purchase prices, stamp fees, advertising and sale planning expenses; and (e) the trustee was paid KRW 12,783,562,51 on the above expenses and the advance payment of the construction works.

C. However, the lower court’s determination is difficult to accept for the following reasons in light of the aforementioned legal doctrine.

Even according to the facts acknowledged by the court below, the direct provision of the instant project out of the expenses paid by the coconte trust, which is the trustee, is KRW 4,323,100,730, and KRW 400,000. The above KRW 33,163,562,551, and KRW 12,783,150,863, which is close to eight times to cover the expenses. Thus, barring any special circumstance, it cannot be readily concluded that the share of the loan and interest was for the instant project, and that the share of the trust expenses is reasonable in view of the reason or purpose of borrowing a considerable amount of loan compared to the expenses actually paid by the coconte trust as above, or the specific purpose of the loan. Furthermore, the court below should have determined the amount of trust expenses to be paid to the Intervenor as the independent beneficiary’s business based on the principle of trust and good faith, even if it is acknowledged that the amount of trust expenses should be paid to the Intervenor’s independent trust expenses.

Nevertheless, the court below, without examining and determining the above point, recognized the whole of the expenses paid by the Co Co Co Co Co Co Co Co Co Co Co Co Co Co Cote as the amount of trust expense of this case. Thus, the court below erred by misapprehending the legal principles on the trustee's right to claim reimbursement of expenses, which affected the conclusion of the judgment, by failing to exhaust all necessary deliberations.

2. As to the liability for damages as the trustee

A trustee shall manage or dispose of the trust property with the care of a good manager in accordance with the principal place of the trust, and where the trustee fails to properly manage the trust property, causes loss or reduction of the trust property, or causes other damage, or disposes of the trust property in violation of the principal place of the trust, the beneficiary, etc. may claim damages if he/she disposes of the trust property. However, where the trustee has paid excessive expenses, only the recognition of the amount of expenses to recognize any of the expenses as legitimate expenses and to recognize the obligation to reimburse to the beneficiary, etc. within the scope of one of the expenses pursuant to the legal principles as seen earlier,

Although the reasoning of the lower judgment is somewhat inappropriate, the conclusion that rejected the Intervenor’s claim on this part is justifiable, and thus, the allegation in the grounds of appeal on this point is without merit.

3. As to the legal relationship upon termination of the trust

In light of the duty to pay trust expenses and the duty to pay trust fees and the duty to transfer the trust property to the beneficiary who is the right holder to whom the trust property belongs or the truster, etc. at the time of termination of the trust, all obligations arising from the trust relationship. Before the termination of the trust, the trustee may sell the trust property with respect to the expenses and the right to claim remuneration under Articles 42(1) and 43 of the Trust Act, and appropriate the proceeds from the sale of the trust property for payment in preference to other rights holders. Even after the trust property belongs to the beneficiary, etc. after the termination of the trust, the trust expenses and the duty to pay the trust fees can be enforced against the trust property or auction upon the right to claim for expenses or the right to claim remuneration under Articles 62 and 49 of the Trust Act, and the obligation to pay the trust fees can be kept up to the time of returning the trust property liquidated at least until the trust relationship is repaid, the duty to pay the trust expenses and the obligation to transfer the trust property to the beneficiary who is the right holder to whom the trust property belongs, or the truster, etc.

According to the records, Article 18 of the Trust Contract of October 24, 1994 of this case provides that the beneficiary shall pay the above expenses from the trust property, and if it is impossible to pay them to the beneficiary, the beneficiary shall be entitled to claim, receive and pay them. Article 7 of the Special Clause of the Trust Contract of this case changed from November 25, 1995 provides that the trust principal and the profit of the beneficiary shall be settled in order of the total project cost, the beneficiary's profit amount, the balance of construction cost, the second beneficiary and the beneficiary's profit. However, Article 63 of the Trust Act provides that "where the trust is terminated, the trustee shall obtain the approval of the beneficiary by calculating the final amount of the trust affairs." Article 7 of the Special Clause provides that "Where the trust is terminated, the trustee shall obtain the approval of the beneficiary by calculating the trust affairs." Article 18 of the Trust Contract of this case provides that the trustee shall not be deemed to have any other provision of the trust contract of this case or the beneficiary's right to claim the return of the trust property of this case.

Nevertheless, the court below held that, in case where the total project cost of the Crete Trust to be settled by the intervenor exceeds the value of the trust property of this case, the Crete Trust does not have any obligation to transfer the right to the beneficiary to the trust property. The judgment below is erroneous in the misapprehension of legal principles as to the trustee's right to claim remuneration when the trust is terminated and the beneficiary's right to claim transfer of the trust property, or by misunderstanding facts against the rules of evidence, which affected the conclusion of the judgment

4. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Si-hwan (Presiding Justice)