Whether it constitutes a fraudulent act where a debtor in excess of his/her obligation, who is the sole property of the creditor, provides the claim to any one of the creditors as security for claims (affirmative)

Unless there are other special circumstances, it is reasonable to deem that an act by a debtor, who is already missing in excess of his/her obligation, provides real estate, the only property of which is his/her creditor, as collateral, to any one of the creditors, constitutes a fraudulent act subject to creditor's right of revocation in relation to other creditors, barring any other special circumstances. The same shall also apply where the debtor, who is already missing in excess of his/her obligation, provides

Article 406(1) of the Civil Act

Supreme Court Decision 86Da83 Decided September 23, 1986 (Gong1986, 2945) Supreme Court Decision 88Da23186 Decided September 12, 1989 (Gong1989, 1462) Supreme Court Decision 2006Da5710 Decided April 14, 2006 (Gong2006Sang, 807)

East Asia Pharmaceutical Co., Ltd. (Law Firm Cheongro, Attorneys Kim Jae-sik et al., Counsel for the defendant-appellant)

Closing LLC Co., Ltd.

Seoul High Court Decision 2005Na93187 decided June 23, 2006

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

We examine the grounds of appeal.

Unless there are other special circumstances, it is reasonable to view that an act by a debtor, who has already been absent from the status of excess of his/her obligation, provides real estate to any one of his/her creditors as a claim security, constitutes a fraudulent act subject to creditor's right of revocation in relation to other creditors (see, e.g., Supreme Court Decisions 86Meu83, Sept. 23, 1986; 2006Da5710, Apr. 14, 2006). The same applies to cases where a debtor, who has already been absent from the status of excess of his/her obligation, provides his/her claim to any of his/her creditors, the sole property of which is a claim security,

Nevertheless, the court below, on the contrary of its view, found the transfer of the claim of this case to the defendant in order to secure the obligation against the defendant under excess of the obligation, while recognizing the transfer of the claim of this case to the defendant in order to secure the obligation against the defendant, on the ground that the debtor cannot be deemed to have reduced more than the debtor's assets in the case of repayment of other monetary claims in lieu of repayment or repayment of the existing monetary obligation, in principle, unless the transfer of other monetary claims in lieu of repayment or repayment of the existing monetary obligation does not constitute fraudulent act. The court below erred in the misapprehension of legal principles as to the establishment of fraudulent act in the case of offering the claim as collateral, and the illegality affected the conclusion of the judgment. The ground of appeal pointing this out has merit.

Therefore, without examining the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Yong-dam (Presiding Justice)