Where a pledge is created for the purpose of a nominative claim, the scope of the grounds for setting up a pledge that could not be set up against the pledgee, and the grounds for setting up a pledge have occurred after the establishment of the pledge, but the obligor was aware at the time of the consent to setting the pledge, that there was a possibility that the grounds for setting up the pledge could be set up in the near future, and, if the obligor did not withhold an objection at the time of consent, whether the obligor may assert such grounds against the pledgee (negative) / Whether the obligor may assert such grounds (negative)

Articles 349(2) and 451(1) of the Civil Act

Supreme Court Decision 96Da22648 Decided May 30, 1997 (Gong1997Ha, 200) Supreme Court Decision 200Da13887 Decided March 29, 2002 (Gong2002Sang, 972) Supreme Court Decision 2002Da25464 Decided October 25, 2002

Nong Bank Co., Ltd. (Law Firm Sejong, Attorneys Cho Jong-tae et al., Counsel for the defendant-appellant)

Republic of Korea (Law Firm Pyeongtaekan, Attorneys Ahn Dai-hee et al., Counsel for the defendant-appellant)

Busan National University Dental Association (Law Firm and other 1 other, Counsel for the plaintiff-appellant)

Busan High Court Decision 2015Na50897 decided December 9, 2015

The part of the lower judgment against the Defendant against the Republic of Korea is reversed, and that part of the case is remanded to Busan High Court. The Plaintiff’s appeal is dismissed. The Plaintiff’s appeal is assessed against the Plaintiff

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

1. Plaintiff’s ground of appeal

For the reasons indicated in its holding, the lower court determined that the president of the Busan National University was not liable for damages based on Article 35 or 756 of the Civil Act, on behalf of the head of the Busan National University, on the ground that he/she agreed to pay the termination payment to be borne by the Republic of Korea on behalf of the head of the Busan National University, and that the Plaintiff was aware of such agreement, and thus, the agreement was null and void. Accordingly, the lower court dismissed the Plaintiff’s primary claim on the Plaintiff’s establishment of the Busan National University, based on the foregoing agreement. In addition, the lower court determined that the president of the Busan National University cannot be held liable for damages based on Article 35 or 756 of the Civil Act, on the ground that he/she knew of, or was unable to know due to, the Plaintiff’s gross negligence. Accordingly, the Plaintiff

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 misapprehending the legal doctrine as to the act of acting in breach of trust and the other party’s bad faith and negligence under Article 35 or 756 of the Civil Act, contrary

2. As to Defendant Republic of Korea’s ground of appeal

A. Whether the jurisdiction has been violated

In other words, as the concession agreement between Defendant Republic of Korea and Korea and Korea (hereinafter “C&C”), the Plaintiff is obligated to pay the termination payment upon termination upon the termination of the concession agreement, the Plaintiff is obligated to pay the termination payment upon the termination payment upon the Plaintiff’s primary claim against the Defendant Republic of Korea. As the Plaintiff created a pledge on the above payment claim, the Defendant Republic of Korea is obligated to pay the termination payment upon the termination payment upon the Defendant’s primary claim. In addition, in light of the relationship between the Parties related to the termination payment, the interests of the concessionaire who intends to protect the termination payment through the payment upon the termination payment, and the nature of the termination payment upon the termination payment, the lower court did not err by misapprehending the legal doctrine on the jurisdiction of the trial, etc., contrary to what is alleged in the grounds of appeal.

B. Whether Defendant Republic of Korea’s obligation to pay the payment upon termination is established

1) The record reveals the following facts.

A) Conduct of the Busan University Private Investment Project

(1) On December 7, 2005, the president of the Busan National University was designated by the former Ministry of Education and Human Resources Development as the competent authority in charge of the affairs of the profit-making private investment facility project (hereinafter “instant project”).

(2) On December 21, 2005, the president of the Busan National University established and publicly announced the master plan for public-private partnership projects in accordance with the Act on Public-Private Partnerships in Infrastructure (hereinafter “Private Investment Act”) with respect to the construction, maintenance, and operation of the Filiwon Cultural Center by investing financial resources by private enterprises.

(3) On June 1, 2006, the president of the Busan National University concluded a concession agreement with a potential concessionaire selected on the basis of the instruction for proposal for private investment. The president of the Busan National University commenced the instant project and obtained approval for the use of the instant building on February 5, 2009 (hereinafter “instant building”). After obtaining the right to manage and operate the instant building in accordance with the concession agreement, the president of the Busan National University was granted the right to manage and operate the instant building.

B) Conclusion of a secondary supplementary agreement with the President of Busan National University, the President of KNWC and the Plaintiff, and establishment of the Plaintiff’s pledge rights.

(1) F&C failed to fully repay the money borrowed from one Capital Co., Ltd. for the implementation of the instant project, and the Plaintiff became a new creditor on October 14, 2010 by lending 40 billion won to the F&C and allowing the Plaintiff to repay the existing loan to one Capital.

(2) On October 14, 2010, the president of the Busan National University and the President of the N&C may enter into an agreement with the lender on the amendment of the provisions of Articles 46, 54, and 55 of the concession agreement. On the same day, the second supplementary agreement was concluded between the Plaintiff, the president of the Busan National University, and the president of the K&C.

(3) The main contents of the second supplementary arrangement are as follows.

If F&C fails to pay a loan to the Plaintiff, the president of the Busan National University may terminate the concession agreement if the Plaintiff notifies the president of the relevant university in writing. If the president of the Busan National University does not terminate the concession agreement and a certain period expires without cancelling the concession agreement, the president of the Busan National University shall be deemed to have terminated the concession agreement. In such cases, the president of the Busan National University shall pay the Plaintiff the principal and interest of F&C loans to the Plaintiff within the limit of the amount payable upon termination of the concession agreement, and shall not offset the lessee of the instant building by the lease deposit, etc.: Provided, That the president of the Busan National University or F&C shall present the plan to repay the principal and interest of the loan to the Plaintiff, and if the Plaintiff

(4) On October 14, 2010, the Plaintiff: (a) on October 14, 2010, in order to secure the claim for loans to F&C; (b) upon the termination of a concession agreement, K&C created a pledge on the claim for the termination of a contract against the Defendant Republic of Korea; and (c) at the time, the Defendant Republic of Korea accepted the claim without reservation of objection.

C) Default in payment of F&C loans

(1) On April 16, 2012, K&C paid only a part of the agreed parties to the Plaintiff, and the Plaintiff notified K&C to Busan University that E&C did not pay its loan due to default on payment of the loan, based on the second supplementary agreement, etc.

(2) On June 20, 2012, the president of Busan National University presented to the Plaintiff a plan to resolve the nonperformance of F&C, but the Plaintiff did not consent thereto.

2) The lower court determined as follows based on the foregoing factual basis.

(A) The amended Convention and the second supplementary arrangement are effective as a contract duly concluded between the Parties.

B) It is difficult to readily conclude that the act of the president of Busan National University entered into the second supplementary agreement is an act of breach of trust against Defendant Republic of Korea. Even so, the evidence submitted by Defendant Republic of Korea alone is insufficient to recognize that the Plaintiff actively participated in the act of breach of trust

C) Therefore, on the basis of the second supplementary agreement, the Plaintiff notified the president of Busan National University of the nonperformance of F&C, and the concession agreement was lawfully terminated according to the period for which the Plaintiff did not consent to the resolution presented by the president of Busan National University. As such, the Defendant Republic of Korea is obligated to pay the Plaintiff, a neighboring pledgee, an amount equivalent to the amount of outstanding principal and interest of the loan out of the amount of termination.

3) Examining the relevant legal principles and records, the lower court did not err in its judgment by misapprehending the legal principles as to the concession agreement and amendment agreement, the nature and effect of the second supplementary agreement, the termination time payment and the nature of the instruction for proposal, the provisions of the Private Investment Act and the National Finance Act, the abuse of power of representation or the act of acting in breach of trust,

C. Whether to recognize concurrent performance defense right

1) The lower court rejected the Defendant’s assertion that, although the Defendant’s obligation to pay the termination price upon termination and the obligation to deliver the instant building of F&C is concurrently performed, the Plaintiff could not be paid the termination price until F&C delivered the instant building on the following grounds.

In other words, at the time when the Plaintiff established a pledge right on the claim for the amount payable upon termination, the Defendant Republic of Korea consented without reservation, and each of the above obligations cannot be deemed to have been known to the Plaintiff or was unaware of it due to gross negligence. In addition, even if the Plaintiff's bad faith or gross negligence is recognized, it is reasonable to view that the Defendant Republic of Korea has waived the right of simultaneous performance.

2) However, we cannot accept the above judgment of the court below as it is.

A) Where a pledge is created for the purpose of a nominative claim, if the obligor has consented without reservation, it cannot be set up against the pledgee on the ground that it can be set up against the pledger (Article 349(2) and Article 451(1) of the Civil Act). In this case, the ground that can not be set up against the pledgee on the ground that the pledgee could not set up against the pledger is not limited to the right of defense for consultation, but includes the ground that the claim cannot be set up, continued to exist, exercised, or rejected (see Supreme Court Decision 96Da22648 delivered on May 30, 197). Even if the ground that set up against the pledger occurred only after the establishment of the pledge, even if the obligor was aware that at the time of the consent of the establishment of the pledge, the obligor was likely to set up in the near future as at the time of the consent of the establishment of the pledge, and if the obligor did not withhold the objection, the obligor cannot assert such ground (see Supreme Court Decision 2002Da25464 delivered on October 25, 2002).

However, Article 451(1) of the Civil Act, the purport of limiting the grounds for defense against the consent that did not withhold an objection is to protect the pledgee's trust by providing public confidence in the fact that the pledgee's consent was not attached to a claim, and to protect the pledgee's trust and to ensure the safety of transaction, such as the establishment of a pledge. Thus, even if the pledgee consented without reserving an objection to the establishment of a pledge right for a nominative claim, unless the pledgee's consent is bad faith or gross negligence, it can be asserted against the pledgee even if the ground for defense against the pledgee occurred even at the time when the pledgee's consent was obtained (see Supreme Court Decisions 200Da1387, Mar. 29, 2002; 2009Da8971, Apr. 15, 2010).

B) We examine the following circumstances revealed by the record in light of the aforementioned legal principles. In the concession agreement, if the concession agreement is terminated in the future, the right of F&C to the instant building shall be extinguished, and F&C shall deliver the instant building to the Defendant. In other words, in the event that the concession agreement is terminated, the Defendant Republic of Korea bears the obligation to pay F&C termination payment to F&C, and F&C bears the obligation to deliver the instant building to the Defendant Republic of Korea, and both are in a simultaneous performance relationship based on performance checks.

From the time of loan, the Plaintiff appears to have been well aware of the contents of the concession agreement, which stipulates that E&C shall deliver the instant building to the Defendant in the event of the termination of the concession agreement, and at the time of establishment of the pledge right, the Plaintiff agreed to exclude the set-off right of the lease deposit against the instant building, but did not agree on the simultaneous performance defense right. Therefore, at the time when the Plaintiff established the pledge right on the lease deposit against the instant building, it can be anticipated that the obligation to deliver the instant building, which is related to the performance, would have occurred when the obligation to pay the deposit upon termination, was created, and it is reasonable to view that the said obligation to deliver the instant building was known or could have been known that the said payment upon termination was related to the delivery of the instant building. Furthermore, it is difficult to readily conclude that the Defendant Republic of Korea renounced the simultaneous performance defense right

3) Nevertheless, the lower court’s rejection of Defendant Korea’s simultaneous performance defense on the grounds as indicated in its holding, erred by misapprehending the legal doctrine regarding the acceptance of the concurrent performance defense and the establishment of pledge rights, thereby adversely affecting the conclusion of the judgment. The Defendant’s ground of appeal assigning this error is with merit.

3. Conclusion

Therefore, the part of the lower judgment against the Defendant Republic of Korea is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. The Plaintiff’s appeal is dismissed. The costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices

Justices Park Jung-hwa (Presiding Justice)