Plaintiff (Law Firm Rate, Attorneys Kim Jong-soo et al., Counsel for the plaintiff-appellant)

The bankrupt Korea Real Estate Trust Co., Ltd., the taking over of the lawsuit against the Korea Real Estate Trust Co., Ltd., and one other (Law Firm Ratee, Attorneys Jin-jin et al.,

November 9, 2004

Suwon District Court Decision 2002Gahap10946 Delivered on July 1, 2003

1.The judgment of the first instance shall be modified as follows:

The Defendants shall implement the procedure for cancellation registration on July 25, 2002 with respect to the registration of each transfer of ownership, which was completed by the Hongcheon District Court, Hongcheon Registry, 12943 of August 4, 1997, with respect to each land listed in the separate sheet of land attached to the Plaintiff.

2. The plaintiff's claim added in the trial is dismissed.

3. Of the costs of lawsuit, the part arising from the claim for cancellation of the Plaintiff’s ownership transfer registration is assessed against the Defendants at both the first and second instances, and the costs of lawsuit relating to the Plaintiff’s claim added in the trial shall be assessed against the Plaintiff.

1. Purport of claim

A. Selectively, with respect to each of the lands listed in the separate sheet of land, the Defendants perform each of the registration procedures for cancellation on July 25, 2002 (or on August 25, 2002) with respect to the registration of ownership transfer completed by Hongcheon District Court, Hongcheon District Court No. 12943 on August 4, 1997 as to each of the lands listed in the separate sheet of land (or on August 25, 2002). However, the Defendants implement each of the registration procedures for ownership transfer on each of the above lands to the Plaintiff on July 25, 2002 (or on August 2, 2002) by reason of termination of the trust agreement (or on August 2, 2002).

B. The Defendants, on October 6, 1997, implement the procedure to change the name of the owner under the Building Permission (Permission Number No. 97-2) granted by Hongcheon-gun to the Plaintiff on the building listed in the annexed building list, and deliver the building under construction permission to the Plaintiff, and according to the above construction permission, the Defendant delivered the building under way (the Plaintiff added the claim stated in paragraph (b) to the trial).

2. Purport of appeal

The plaintiff is entitled to revoke the part against the plaintiff from among the judgment of the first instance, and seek the same judgment as the judgment of the first instance.

The Defendants: The judgment of the first instance court against the Defendants is revoked, and the plaintiff's claim corresponding to that part is dismissed.

1. Basic facts

The following facts may be acknowledged by comprehensively taking into account the descriptions of Gap evidence 1 through 12, Gap evidence 25, 26, 33, 37, 39, 41, and 47, Eul evidence 2 (the same shall apply to Eul evidence 8), Eul evidence 3 and 9 (including each number), and some testimony of non-party 1 as a witness of the trial court, the whole purport of the pleadings:

A. On the ground of each land listed in the separate sheet of land (hereinafter “each land of this case”), the Plaintiff newly constructed a building listed in the annexed sheet of the building (hereinafter “the building of this case”) on the ground of each land listed in the separate sheet of land (hereinafter “each land of this case”): to promote real estate trust business with the aim of selling it in lots and obtaining profits therefrom, the Plaintiff was declared bankrupt by the Suwon District Court on June 7, 1997, and took over the lawsuit at the first instance on June 2, 2003, when the Defendants were appointed as bankruptcy trustee. The Plaintiff concluded a trust agreement between the Korea Real Estate Trust Co., Ltd. of this case before bankruptcy and the non-party 2, including the three underground floors including neighborhood living facilities, business facilities, apartment houses, and auxiliary facilities, and about 3,850 square meters of the total floor area (the title of the building of this case is omitted) and the Plaintiff signed a trust agreement with the company of this case before bankruptcy and the company of this case to the non-party 2, who signed the trust agreement of this case.

(1) The Plaintiff purchased each of the lands listed in attached Tables 5 and 6, which were not owned by the Plaintiff up to the time among each of the lands of this case for the trust business, and transferred the ownership of each of the lands of this case to the company prior to bankruptcy, including that, but not limited to all of the lands of this case to the trustee. On the other hand, the Plaintiff secured a complete ownership by cancelling all limited real rights on each

(2) Nonparty 2 shall fix the interest rate of KRW 920,00,000 per annum as 12% per annum for the expenses for purchase of the above land, for cancellation of restricted real rights, and for the neighboring countermeasures (Article 5(1) and (2)), and the interest on the loan shall be paid to the Plaintiff at the time of termination of the trust business, respectively (Article 5(2) and (3).

(3) Construction costs for a trust project shall be KRW 2,350,000 (excluding value-added tax) per square, and shall be determined by mutual agreement between the company prior to the bankruptcy and the non-party 2 company. The construction period shall be 21 months from the date of commencement (Article VII(2) and (6)).

(4) Before bankruptcy, the Company shall pay the cost (amount) for the completed portion of the construction works conducted by Nonparty 2 every three months (Article 10(1)).

B. On May 16, 1997, the Plaintiff borrowed KRW 920,00,00 from Nonparty 2, pursuant to Article 3 of the instant trust agreement, and purchased KRW 400,000,00 ( KRW 250,000 to Nonparty 3 + KRW 150,000,000 on May 30, 1997, under the name of return of lease deposit, facility cost, compensation for business loss, etc., from Nonparty 5 and 6, each of the land listed in the separate sheet of land from KRW 510,00,00,00 from Nonparty 5 and 6 around July 1, 1997.

C. After that, on August 2, 1997, the Plaintiff entered into a trust agreement on the rights and obligations of both parties in accordance with the above trust business (hereinafter “instant agreement”) with the trustor and the company prior to the bankruptcy as the trustee between the Plaintiff and the company prior to the bankruptcy. The main contents of the instant agreement are as follows.

(1) After entering into the instant contract, the Plaintiff shall complete the registration of ownership transfer based on each of the instant land in the future of the company prior to bankruptcy, which is the trustee (Article 2).

(2) Before bankruptcy, the company must perform the construction work of the building, the sale, management and operation of real estate held in trust, and other trust affairs with due care as a good manager (Article 9).

(3) The beneficiary of this trust shall be the Plaintiff (Article 12), and the beneficiary shall receive the trust proceeds which the former company made the final settlement of accounts pursuant to Article 18 of the contract at the time of termination or termination of the trust contract (Article 13).

(4) The company before bankruptcy shall pay from the trust property taxes, public charges and registration expenses, design and supervision expenses, construction cost, borrowings, and other expenses incurred in the performance of trust affairs, and where the company before bankruptcy is unable to pay from the trust property the expenses incurred in the performance of trust affairs, it may claim and receive them from the beneficiary (Article 17(1)).

(5) The date of calculation for trust property and trust earnings shall be the end of December of each year and the date of termination of the trust. Before the bankruptcy, the company shall prepare a statement of account for the pertinent period of calculation and submit it to the beneficiary. In calculating these amounts, the remaining portion of the trust proceeds less the expenses prescribed in Article 17 and the trust fees prescribed in Article 19 from the trust property prescribed in Article 11 of the contract shall be the trust proceeds, and if the trust losses have occurred on the last date of calculation, the company prior to the bankruptcy may sell all or part of the trust property and appropriate for the losses (Article 18).

(6) The trust period shall not exceed five years from the date of conclusion of the trust contract (Article 20), the trust contract shall be terminated if the trust period expires (Article 22), and the trustee shall deliver the certificate of beneficial interest and the trust proceeds prescribed in Article 18 to the trustee in the manner prescribed by the trustee (Article 23) after obtaining approval from the beneficiary with respect to the final settlement (Article 23).

(7) The Plaintiff shall deposit the value-added tax refund accrued in relation to the trust business into the passbook account opened by the company prior to bankruptcy to proceed with the trust business (Article 28(1)).

D. Under the instant contract, on August 4, 1997, the Plaintiff completed each of the registration of ownership transfer in the name of the company prior to the bankruptcy regarding each of the instant land (hereinafter “each of the instant registrations”) in the name of the company prior to the bankruptcy.

E. On August 14, 1997, the company prior to bankruptcy entered into a construction contract with Nonparty 2 to newly construct the instant building in the amount of KRW 9,80,000,000 between the non-party company and the non-party 2 pursuant to the instant trust agreement. On October 6, 1997, the company obtained a building permit with the name of the owner of the said building as the company prior to bankruptcy. During the process of the new construction of the non-party 2, the company was unable to borrow funds necessary for the execution of the original trust project due to the aggravation of its management within the company prior to bankruptcy and the financial crisis at the time of the bankruptcy. Accordingly, the company failed to pay to the non-party 2 the most part of the construction price under the instant trust agreement.

F. Accordingly, during the period from March 198 to October 1998, the non-party 2 was urged the company before the bankruptcy to pay the completed construction cost for the new construction of the building of this case, and on October 1, 1998, the non-party 2 notified that the construction should be suspended if the completed construction cost has not been paid by the 10th of the same month. However, on November 9, 1998, the construction of this case was not paid even after the expiration of the period. On January 21, 1999, the non-party 2 suspended the construction of this case on the 12th of the same month, and notified the company before the bankruptcy, and on January 21, 199, the non-party 2 reached an agreement on the construction contract between the company before the bankruptcy and the company before the bankruptcy to settle the completed construction cost at 27.23% of the entire process and the construction cost at 2,68,59,100 won.

G. As above, as the non-party 2 discontinued construction around November 1998, the company prior to bankruptcy presented to the plaintiff the following measures: (a) as countermeasures following the discontinuance of construction; (b) as a countermeasure against the suspension of construction, the company prior to bankruptcy took place with the non-party 2 and re-electing the construction work; (c) as a way to stop construction; and (d) a way to carry out construction until the economic conditions are improved; and (e) a way to transfer the business rights; and (e) the plaintiff presented a reply to the decision that it is appropriate among the three measures presented by the company

H. On June 25, 1999 for the continuation of the construction, the company before the bankruptcy had Nonparty 7 carry out the remaining construction in the construction cost of KRW 6,539,158,002 (the contract amount of KRW 6,066,921,783 + value-added tax of KRW 472,236,219). However, upon Non-Party 7’s bankruptcy on October 18, 199, it could no longer proceed with the construction even after the completion of the steel-frame construction of the second floor of the building in this case, the company before the bankruptcy was settled at KRW 68,68,70,82 of the total process, and the construction cost was settled at KRW 474,70,822 of the construction cost, which was being constructed by Non-Party 7’s renunciation of construction, and it did not prevent the removal of soil at present due to being abandoned.

I. Meanwhile, the company prior to the bankruptcy agreed to receive 1/10 of the amount of the construction contract as a contract deposit in the construction contract between the non-party 7 company. However, due to the decline in the credit rating of the company prior to the bankruptcy, the construction mutual aid association, which is the issuing authority, was bound to avoid issuing a letter of guarantee to the non-party 7 company, and thus, it was inevitable to receive the said performance guarantee as a promissory note of the non-party 7 company, the contractor, and the payment of the said promissory note received from the non-party 7

2. Judgment on the Plaintiff’s claim for cancellation of each of the registrations of this case

A. According to the above facts, although the company prior to the bankruptcy, which is the trustee of the contract of this case, has a duty to make efforts to achieve the purpose of the trust business with the care of a good manager pursuant to Article 9 of the contract of this case, it is acknowledged that it failed to perform its duty of care as a good manager pursuant to the contract of this case due to the internal circumstances of the defendant or the failure in financing due to the failure of financial crisis (Article 4 of the contract of this case, the company prior to the bankruptcy, as a trust property, provided each of the land of this case as a security of the trust property, and agreed to establish a mortgage or collateral security right and to cover the expenses in trust property, but did not take measures such as borrowing funds as security of each of the land of this case).

B. The plaintiff submitted a complaint of this case to the effect that the original purpose of the trust business was cancelled due to the above causes attributable to the company prior to the bankruptcy, and the copy of the complaint was served on the company prior to the bankruptcy on July 25, 2002. In full view of the provisions of Articles 15 and 55 of the Trust Act, if the purpose of the trust is not achieved, the trust is absolutely terminated, but if the purpose of the trust is not achieved, it can only be able to dismiss the trustee or claim damages against the trustee at the request of the truster, etc., and the trust contract cannot be terminated on the grounds of the impossibility of performance (see Supreme Court Decision 2000Da25989, Mar. 26, 2002). Thus, the plaintiff cannot terminate the contract of this case due to the causes attributable to the company prior to the bankruptcy due to the impossibility of performance due to the causes attributable to the company prior to the bankruptcy.

However, according to Article 56 of the Trust Act, "a truster who accepts all trust benefits may terminate at any time." Since the instant trust is a self-profit trust that the plaintiff receives all trust benefits, the instant contract is terminated by the plaintiff's declaration of intent to terminate the trust on July 25, 2002, which is the date on which the copy of the complaint is served, pursuant to Article 56 of the said Act." [This case did not argue explicitly that the plaintiff exercises the right to terminate the trust under Article 56 of the said Act, but it is not necessary to establish other requirements when the truster expresses his intention to terminate the trust contract in full in light of the provisions of Article 56 of the said Act. Thus, if the plaintiff clearly expresses his intention to terminate the trust without any other reason, it shall be deemed that the instant trust contract is terminated by Article 56 of the said Act (Article 218 of the Trust Act). However, according to the provisions of Article 56 of the said Act, it shall not be deemed that the trust contract is terminated by the agreement to terminate the trust contract without any special reason for termination.

In addition, the trust term in the instant contract shall not exceed five years from August 2, 1997, which is the date when the trust contract was concluded, and the fact that the trust contract was terminated when the trust term expires is seen above. Thus, the instant contract is concluded as of August 2, 2002 due to the expiration of the said trust term as of August 2, 2002.

Therefore, for the purpose of restoring trust property upon the termination of the contract of this case (the termination of the internal trust), the defendants, who are the parties taking over the lawsuit of the company prior to bankruptcy, are obligated to implement the procedure for the cancellation of each registration of this case, which was completed on each land of this case to the plaintiff.

C. As to this, the Defendants agreed to receive the amount equivalent to 5% of the total construction cost of the instant construction project as remuneration for development activities (Article 19). The Defendants agreed to pay the company prior to the bankruptcy the amount equivalent to 5% of the total construction cost of the instant construction project to the company prior to the bankruptcy. ② The Plaintiff agreed to bear all the expenses related to the instant construction project, such as the construction cost. As of December 31, 2002, the expenses (including financial interest) incurred by the company prior to the bankruptcy borrowed from the financial institution for the instant construction project were to be KRW 5,402,449,259, and among them, the amount of construction cost was to be paid in KRW 3,143,259,92 for the instant construction project. In order to receive the trust fees or interest paid by the company prior to the bankruptcy (Article 19), the Defendants sold the instant contract(Article 18(3) of the Trust Act, Article 42(1) of the Trust Act, and each of the instant claims for the cancellation of the Plaintiff’s trust affairs.

As alleged by the Defendants, the issue is whether the company prior to the bankruptcy has the right to claim remuneration equivalent to the amount of the construction cost under the instant contract and the right to claim payment of other expenses and interest paid by the company prior to the bankruptcy due to the termination of the instant trust, and this issue is disputed by the Plaintiff. Furthermore, the Plaintiff also sustained the following damages, and thus, even if the company prior to the bankruptcy has the said right, the company prior to the bankruptcy or the Defendants, which are the parties to the lawsuit, are unable to comply with the said payment before the Plaintiff completes the final settlement upon the termination of the trust.

(1) First, at the estimated sale price of KRW 17,425,227,00, the expected sale price of April 1999, which is the scheduled date of completion according to the project plan, which is the basic content of the instant contract, deducted the estimated construction cost of KRW 10,045,50,500 from the estimated sale price of KRW 7,379,721,000 and the estimated profit of KRW 330,700,00, which is the total of KRW 330,000,000, which is the amount equivalent to the lease profit of each of the instant land during the period from August 2, 2997, the damage was incurred due to the Defendant’s nonperformance.

(2) In addition, due to the Plaintiff’s breach of the duty of due care as a good manager of the company prior to the bankruptcy or the business conduct outside of the trust contract, the Plaintiff incurred damages equivalent to KRW 1,433,663,274, including not only the Plaintiff paid money for the repayment of the principal and interest of the loan to Nonparty 2, but also the transfer of ownership of any more expensive real estate in lieu of the repayment of the remaining debts

(3) Since the Plaintiff agreed to deposit the value-added tax refund accrued in connection with the trust business in the instant contract into the company’s deposit account before bankruptcy, the Plaintiff deposited KRW 228,458,200 in the company’s account from the amount of national tax refund paid from Hongcheon Tax Office in 197 to the year 2002 (value-added Tax) (i.e., evidence No. 21-7) and the said value-added tax refund should be paid to the Plaintiff as the principal truster, but the Plaintiff paid to the company before bankruptcy in accordance with the above agreement, reliance on the achievement of the purpose of promoting the trust business of the company before bankruptcy. Thus, the Plaintiff suffered damages equivalent to the above amount of KRW 228,458,200.

(4) Finally, as set forth in Section 1-B(b) above, the Plaintiff agreed to cancel the restricted real right on each of the instant lands at the time of the instant trust agreement and to secure full ownership to the company before the bankruptcy by resolving the neighboring measures, etc., and to cancel the lease contract with Nonparty 3 and 4, which was the previous lessee of each of the instant lands, and to pay the Plaintiff KRW 400,000,000 as compensation for the return of the lease deposit, facility cost, and operating loss. From that amount, the Plaintiff paid KRW 370,00,000 ( KRW 40,000,000 - KRW 20,000,000 - KRW 10,000,000 - KRW 10,000,000 as compensation for operating loss, etc. due to the termination of the instant trust agreement.

(5) Other losses incurred by the company prior to the bankruptcy due to the failure to receive the contract deposit under the construction contract from the non-party 2 company and the non-party 7 company, and the waiver of the claim for compensation for delay to be paid by each of the above companies constitute the plaintiff's damages caused by the failure of duty of the company prior to the bankruptcy.

Therefore, when the trust contract of this case is terminated, the trustee shall obtain the approval of the beneficiary with respect to the final settlement, and the trustee agreed to deliver the trust proceeds under Article 18 of the contract in the manner prescribed by the trustee (Article 23 of the Evidence A), and Article 63 of the Trust Act provides that "where the trust is terminated, the trustee shall make the final settlement of the trust affairs and obtain the approval of the beneficiary." Thus, in this case, there is no evidence to acknowledge that the defendants, the transferee of this case, after the termination of the trust of this case or the expiration of the trust period under the contract of this case due to the termination of the trust of this case or the termination of the trust period under the contract of this case, have gone through the settlement procedure to obtain the approval of the plaintiff, the beneficiary, by making the final settlement of the trust affairs in accordance with the above agreement and the legal regulations. Thus, the defendants cannot reject the plaintiff's claim of this case seeking the recovery of trust property by asserting the payment of the above remuneration or expenses

In addition, according to Article 18(3) of the instant contract and Articles 42(1) and 43 of the Trust Act, a company prior to bankruptcy may sell trust property and exercise its right in preference to other rights-holders in receiving compensation for trust fees or expenses incurred in relation to trust property. However, according to Article 44 of the said Act, “the rights of the trustee prescribed in Article 42 of the said Act may not be exercised unless the trustee has performed the duty to compensate for losses and recover trust property under Article 38 (Article 38, where the trustee is unable to properly manage the trust property, and the truster is able to claim the recovery of the trust property or the trust property, if there is no evidence to acknowledge that there is no special agreement to exclude the application of Article 44 of the said Trust Act, and if there is any loss incurred by the Plaintiff, the truster, who is the truster, who is the right of preferential reimbursement, to recover the trust property, the right of preferential reimbursement should also be exercised first of all, if any, by compulsory execution (see Article 38).

Ultimately, the company before bankruptcy or the Defendants did not go through the procedure for the settlement of accounts approved by the Plaintiff by calculating their own expenses, etc. and the damages suffered by the Plaintiffs, as well as the Plaintiff cannot refuse the Plaintiff’s claim of this case seeking restitution of trust property on the ground of the Plaintiff’s claim, such as the company’s expenses, etc. before bankruptcy until compensating the Plaintiff for considerable damages incurred by the Plaintiff in connection with the trust of this case (Therefore, the period and height ratio of the building of this case under new construction is too long, whether the Defendants have the right to demand reimbursement of remuneration or expenses, etc. due to the legitimate weather, and the settlement of the amount of damages suffered by the Plaintiff should be based on the final calculation and approval, and if not, it is inevitable to confirm

4. Determination as to the plaintiff's claim added in the trial room

In addition, the plaintiff asserts that the defendants are obligated to change the name of the owner of the building permit on the building of this case received from the non-party Hongcheon-gun on October 6, 1997 from the plaintiff to the name of the plaintiff before the bankruptcy, and to deliver the building of this case which the company had been newly built before the bankruptcy.

Therefore, although the instant trust contract is a special contract under the Special Act, it is deemed to be a mixed contract between the contracting party and the delegation. Even if the instant building cannot be deemed as being a newly built building that was currently being constructed by the company prior to the bankruptcy after obtaining a building permit under its own name and having it executed to the non-party 2, the contractor, etc., in accordance with the instant contract, unless otherwise stipulated in the instant contract, the ownership of the building permit or the structure itself in the name of the company prior to the bankruptcy shall be deemed to have been acquired first due to the first time by the company prior to the bankruptcy, unless otherwise stipulated in the instant contract. In addition, although the instant trust contract is not only the instant land transferred to the company prior to the bankruptcy, but also the instant building is a trust property, the trustee under the instant contract, without delay after the completion inspection of the building and making the registration of preservation of ownership and trust (Article 7 of the instant contract), the Plaintiff is in the status of receiving profits from the new building as a beneficiary, and the Plaintiff is not entitled to seek new construction and new construction of each of the instant building before the completion of the construction.

5. Conclusion

Therefore, the part of the plaintiff's claim seeking the implementation of the procedure for cancellation registration of each of the registrations of this case, which was completed on each of the lands of this case to the defendants, shall be cited on the ground of the whole grounds. Thus, the plaintiff's appeal against the judgment of the court of first instance, which has different conclusions, is reasonable, and the appeal by the defendants is dismissed for lack of grounds. Thus, the judgment of the court of first instance ordering the plaintiff to repay to the plaintiff shall be modified to order the defendant to cancel each of the registrations of this case without conditions, and the plaintiff's claim for change of the name of the owner and the delivery of the newly constructed building shall

[Attachment]

Judges Kim Jong-dae (Presiding Judge)