The case holding that a fraudulent act is committed in relation to other creditors where the debtor provided security to one obligee to be deferred from the performance of the existing obligation without a new financing

The case holding that the debtor's act of offering security to one of the creditors for the repayment of the existing obligation without new financing constitutes a fraudulent act in relation to other creditors even though it was derived from the intent of rehabilitation or continuous promotion of the business.

Article 406 of the Civil Act

Credit Guarantee Fund

National Bank of Korea (Law Firm Shin, Attorney Lee Jae-soo, Counsel for defendant-appellant)

Seoul High Court Decision 2007Na94146 decided March 14, 2008

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

The grounds of appeal are examined.

1. According to the reasoning of the judgment below, the court below acknowledged the plaintiff's provision of credit guarantee to the non-party 1 corporation as well as the contents of the non-party 2 (the co-defendant at the court of first instance)'s joint and several liability, the plaintiff's subrogation due to the occurrence of a guarantee accident against the non-party 1 corporation and the scope of the plaintiff's liability for indemnity, the contents of the contract to establish a mortgage with the defendant as to the forest of this case and its registration process. The plaintiff's assertion, that is, the non-party 2 entered into a mortgage contract with the defendant on July 5, 2006 that it was difficult for the non-party 1 to recognize the non-party 2 to continue to perform the business of this case as a fraudulent act because it was difficult for the non-party 1 to recognize the non-party 2 to continue to perform the business of this case's loan as its own guarantee obligation in light of the situation where the non-party 1 corporation was established with its own guarantee obligation and its execution of the business of this case's loan.

2. However, we cannot agree with the above determination by the court below for the following reasons.

In a debtor who has already been in excess of his/her obligation, business promotion difficulties arising from compulsory execution, provisional seizure, etc. by the creditor to recover the claim may occur in the same way regardless of the creditor’s claim amount or the due date for repayment. Furthermore, it is difficult to conduct discriminatory evaluation as to the necessity of preferential security among creditors solely on the ground that a specific creditor, as at the time, actively presented such claims collection measures against the debtor. Furthermore, the inflow of new funds that the debtor may actually utilize in business activities, and the extension of the due date for repayment of existing obligations, or the postponement of claims collection measures, are the same as economic significance that the debtor has for the rehabilitation or continuous implementation

Therefore, even if the right to collateral security was created in the intent of rehabilitation or continuous promotion of business as stated in the judgment of the court below, the act of Nonparty 2 to offer collateral to the defendant, who is one of his creditors, to be deferred from the performance of the existing obligation without financing new funds, shall be deemed as a fraudulent act in relation to other creditors, including the plaintiff, unless there are other special circumstances.

Nevertheless, the lower court rejected the Plaintiff’s claim on the ground that the instant act of establishing the right to collateral security against the Defendant does not constitute a fraudulent act solely for the reasons indicated in its reasoning. In so determining, the lower court erred by misapprehending the legal doctrine as to the establishment of a fraudulent act in relation to the provision of security for rehabilitation, and thereby adversely affected the conclusion of the judgment. The allegation contained in the grounds of appeal

3. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Ji-hyung (Presiding Justice)