[1] The validity of a transaction between trust property and proprietary property conducted in violation of Article 31(1) of the former Trust Act (negative)

[2] In a case where a trust contract and a business agreement incidental thereto set forth conditions such as the size, interest rate, etc. of a loan and thereafter transfers funds from the trust company’s own account when necessary, whether a monetary loan contract is concluded under a trust contract and a business agreement, and subsequent transfer of funds shall be deemed to have been performed according to a monetary loan contract (affirmative), and whether it can be deemed as valid a monetary loan concluded prior to the enforcement of the above Act pursuant to Articles 105(2) and 103(1)5 of the Financial Investment Services and Capital Markets Act, enacted by Act No. 8635 of August 3, 207 (negative in principle)

[3] In a case where a trustee keeps funds previously raised in his/her own account and adds interest to a lender while lending funds to a trust account, whether the additional interest portion constitutes the expenses or interest actually paid or borne by him/her for the performance of trust affairs (negative)

[4] In a case where Gap corporation, a trust company, borrowed expected funds in advance and borrowed them to its own account and received interest rate and additional interest rate as interest on loans, the case affirming the judgment below holding that the interest on substitute payment under a trust contract is null and void in violation of Article 31 (1) of the former Trust Act, and it is reasonable to view that Gap corporation cannot receive additional interest by claiming the reimbursement of expenses, since it refers to the interest on substitute payment under a trust contract which is equivalent to the interest on substitute payment

[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 31(1) (see current Article 34(1) and (2)) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 201); Articles 102, 103(1)5, and 105(2) of the Financial Investment Services and Capital Markets Act / [3] Article 42(1) (see current Article 46(1) and (2) and (3) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 201); Article 42(1) (see current Article 46(1) and (4) of the former Trust Act); Article 31(1) (2) of the former Trust Act (wholly amended by Act No. 10924(3) of the former Trust Act) / [2012(see current Article 4(14) of the Trust Act)

[1] [3] Supreme Court Decision 201Da18482 Decided June 10, 201 / [1] Supreme Court Decision 2006Da62461 Decided January 30, 2009 (Gong2009Sang, 224) / [2] Supreme Court Decision 90Da15488 Decided July 26, 1991 (Gong191, 2237)

Kuho Industrial Development Co., Ltd. (Law Firm UBS, Attorney Kim Jin-si, Counsel for the plaintiff-appellant)

Korea Land Trust Co., Ltd. (Law Firm Sejong, Attorneys Kang Shin-op et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2015Na2017179, 2057186 decided June 14, 2016

The appeal is dismissed. The costs of appeal are assessed against the Defendant (Counterclaim Plaintiff).

The grounds of appeal are examined.

1. Based on its stated reasoning, the lower court affirmed the judgment of the first instance court which accepted the Plaintiff’s claim for return of unjust enrichment equivalent to the interest of this case (the Plaintiff’s counterclaim) on the ground that: (a) the Defendant (Counterclaim Plaintiff; hereinafter “the Defendant”) borrowed expected funds in advance and kept them in its own account for a period from September 9, 2008 to August 24, 201; and (b) borrowed the funds to the trust account for the period from September 2008 to the trust account; and (c) received the interest interest and additional interest as interest on the said loan in violation of Article 31(1) of the former Trust Act (wholly amended by Act No. 10924, Jul. 25, 2011). However, even if the instant loan may be damaged by advance payment under Article 17(1) of the instant Trust Contract, it is reasonable to view that the interest on substitute payment under Article 17(4) of the instant Trust Contract is equivalent to the interest on the instant loan.

2. A. According to the main sentence of Article 31(1) of the former Trust Act, the trustee is not allowed to acquire the trust property as its proprietary property or its rights, regardless of whose name the trustee is, so it is not allowed to acquire the trust property, and the transaction made in violation of the above provision shall be deemed null and void (see Supreme Court Decision 2006Da62461, Jan. 30, 2009).

In addition, if funds are transferred from the trust account of the trust company to the trust account when necessary after setting the scale, interest rate, etc. of the loans under the instant trust contract and the business agreement incidental thereto, it is reasonable to deem that the cash loan contract was concluded under the instant trust contract and the business agreement and the transfer of funds thereafter is performed under the cash loan contract. Thus, if the trust company is entrusted only with real estate under Articles 105(2) and 103(1)5 of the former Financial Investment Services and Capital Markets Act (amended by Act No. 8635 of Aug. 3, 2007 and enforced February 4, 2009), it is allowed to borrow money from the trust company's proprietary property on the trust account even if it is allowed to borrow money from the trust company's own property (in this case, even if the trust company is subject to restrictions under the fiduciary duty, and it cannot be deemed that the money loan of this case concluded before the enforcement of the said Act, unless there are special circumstances such as the new trust contract concluded (see, e.g., Supreme Court Decision 98Da.

B. Article 42(1) of the former Trust Act provides that taxes, public charges, and other expenses and interest borne by a trustee in connection with trust property, or losses incurred to him/her in order to conduct trust affairs, may be repaid from the trust property. However, where a trustee previously raised funds in his/her own account is kept in the trust account and interest is added to the procurement interest while lending the funds to the trust account, the additional interest rate cannot be deemed to constitute expenses or interest actually paid or borne for the performance of trust affairs (see Supreme Court Decision 2011Da18482, Jun. 10, 201). Thus, the instant trust agreement cannot be deemed as subject to a claim for reimbursement of expenses under Article 17(4) of the instant trust agreement.

C. Examining the relevant legal principles and records, the lower court’s aforementioned determination is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, exceeding the bounds of statutory application, scope of the right to claim

3. 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 Kim Jae-hyung (Presiding Justice)