[1] Whether a transaction between the trust property and proprietary property conducted in violation of Article 31(1) of the former Trust Act can be deemed as a valid transaction solely on the ground that the transaction between the trust property and proprietary property is beneficial to the beneficiary

[2] In a case where a trust company is keeping funds in its own own account which it has raised in advance and added interest to the lender while lending the funds to the trust account, whether the additional interest constitutes the expenses or interest actually paid or borne for the performance of trust affairs (negative), and the requirements for a trust company to claim compensation for expenses arising therefrom where the trust company lends its funds to its own trust account (negative)

[1] Article 31(1) (see current Article 34(1) and (2) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 201); / [2] Article 42(1) (see current Article 46(1), (2), and (3) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 201); Article 288 of the Civil Procedure Act

[1] [2] Supreme Court Decision 201Da18482 Decided June 10, 201 / [1] Supreme Court Decision 2006Da62461 Decided January 30, 2009 (Gong2009Sang, 224) / [2] Supreme Court Decision 2016Da230317, 230324 Decided June 8, 201

Modern Development Industry Co., Ltd. (Law Firm Barun, Attorneys Lee Im-soo et al., Counsel for the defendant-appellant)

Korea Land Trust Co., Ltd. (Bae & Yang LLC, Attorneys Kang Shin-op et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2013Na5579 decided January 12, 2017

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. As to the ground of appeal on the interest on construction funds

A. The lower court determined as follows.

1) The Defendant asserts that the interest rate on construction funds calculated by applying the additional interest rate considering the average procurement interest rate from external financial institutions pursuant to Article 5(4) of the instant trust agreement, which is a interest agreement, in relation to the transaction (hereinafter “money transaction in this case”) that was loaned to the instant trust account and kept in custody in its own account by raising expected funds in advance and lending them to the instant trust account, the Defendant is obligated to reimburse the Plaintiff as an interest rate on the expenses or expenses the Defendant

2) However, the instant monetary transaction is a loan agreement for consumption with interest, which is null and void in violation of Article 31(1) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 201; hereinafter the same), and the interest agreement thereon is null and void. Therefore, it cannot be deemed that the agreement calculated based on the loan claim actually occurred.

3) Even in cases where the instant monetary transaction is deemed as the substitute payment under Article 18(1) of the instant trust agreement, there is no ground to calculate the interest on the substitute payment repaid by the Defendant from trust property pursuant to Article 18(4) of the instant trust agreement. Therefore, only the interest calculated by the legal interest rate on the expenses actually borne by the Defendant or the substitute payment constitutes the interest on the expenses or expenses that the Plaintiff is liable to reimburse.

4) In determining the scope of the right to claim reimbursement of expenses claimed by the Defendant, it is necessary to separate the source of funds for the instant monetary transactions into outside loans and its own funds. The remaining amount shall be calculated by assuming that the source of funds for the instant monetary transactions was preferentially invested in the general trust account in the ratio of general loans to the general trust account, and the remaining amount shall be calculated by assuming that

5) In the event the source of funds is an external loan, the Plaintiff is not liable to reimburse the Plaintiff with respect to the equity capital cost of its own funds calculated in accordance with the capital and asset pricing model where the source of the funds exceeds the interest expense calculated by applying the weighted average loan interest rate and the source of the funds is its own funds.

B. The transaction between trust property and proprietary property conducted by a trust company in violation of Article 31(1) of the former Trust Act shall be deemed null and void. The mere fact that the transaction is beneficial to the beneficiary does not necessarily mean that such transaction is valid (see Supreme Court Decision 2006Da62461, Jan. 30, 2009). However, even if the loan arising from the instant monetary transaction can be deemed as substitute payment under Article 18(1) of the instant trust agreement, where the Defendant is holding the funds raised in advance in his/her own account, and the funds raised in advance are added to the lender’s interest while lending the money to the trust account, the additional interest cannot be deemed as constituting expenses or interest actually paid or borne for the performance of trust affairs (see, e.g., Supreme Court Decision 2016Da230317, 230324, Jun. 8, 2017).

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and the record, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on the conversion of invalidation and the trustee’s right to demand reimbursement of expenses

2. As to the grounds of appeal on legal advice fees and appraisal fees

For reasons indicated in its holding, the lower court determined that the Defendant was not obligated to reimburse the expenses, on the ground that legal advice fees of June 23, 2004, legal advice fees of KRW 11,676,500 on December 3, 2008, KRW 5,500,000 on May 13, 2009, and KRW 24,443,100 on April 4, 201, on the ground that the Defendant’s legal consultation fees of KRW 11,67,50 on December 3, 2008, and KRW 5,500,000 on response to the law of △△△△△△△△△, Busan, Busan, did not properly have been paid

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 by exceeding the bounds of the principle of free evaluation of evidence.

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Dong-gu (Presiding Justice)