[Summary] A Study on Redefining the Classification of Ownership-Trust on Real Estate Transaction

English Summary

Ever since 1995, when the「Act on Registration of Real Estate under Actual Titleholder's Name」(hereinafter RRES) have been promulgated, the Supreme Court's jurisdiction theory had to face a wave of challenges. Because the Supreme Court's traditional ownership-trust-theory was based on the premise that the agreement between TRUSTOR and TRUSTEE was undoubtedly valid, and there was no restriction on recovering the ownership right in TRUSTOR's position. That is to say, the conventional theory was designed to explain both fronts of the ownership right ; while the ownership right belongs to TRUSTOR between TRUSTOR and TRUSTEE relation(=inward ownership right), TRUSTEE is thought to have that right among others(=outward ownership right). Chances are TRUSTEE might borrow money by providing the trusted asset as collateral to financial institution, e.g. commercial banks or mutual savings banks, however, once TRUSTOR risks the embezzlement by TRUSTEE, he could enjoy the full ownership right, ranging all the way from using and benefiting of that property and recovering the holder's name whenever he wanted, to disposing of it at his own discretion.

Admittedly, it was not so rare case that ownership-trust was misused to evade taxation, to speculate in real estate property, to conceal slush funds, or to avoid creditors' enforcement of judicial compulsory execution. As a matter of fact, there have been growing public consensus to crack down on illegal or inappropriate abuse of ownership-trust, and it was inevitable, along with the enforcement of reform bill on financial transaction at that time, to reflect public opinion that the government should lay the foundation of fair and transparent economy to join the ranks of advanced nations.

Under these circumstances, RRES have brought forward and enacted as of 1995. 7. 1., the gist of which is nullifying the ownership-trust agreement and its transfer effect altogether, and treating the previously-existed ownership-trust(hereinafter pre-ownership-trust) equally with the come-to-exist ownership-trust(hereinafter post-ownership-trust) in an effort to promote the effectiveness of the regulation.

And yet, reflecting back on it now, despite the legislation of RRES was bound to bring about tectonic shifts in the Supreme Court's theory that stretches back as far as the 1920s, it seems there wasn't sufficient research or careful consideration.

In the early stages of RRES there were huge disruption in interpretation of RRES, and accordingly relevant parties had to go through a wide array of trials and errors due to the lack of solid precedent Supreme Court ruling. Anyway, as various kinds of ownership-trust cases being tried, and diverse Supreme Court decisions in different types of them being accumulated, we may say that those uncertainties of early stage have cleared up over time.

Nonetheless, some of the Supreme Court's theory can't be understood easily, and is not compatible with the Civil Code Article 211. This paper suspects that there's a significant loophole or fatal defect in the Supreme Court's legal reasoning, the ramification of which is enormous and far-reaching. One of the typical example of it is to do with contract-ownership-trust, which is the most highly controversial topic among critics and the epicenter of all the puzzling interpretation. As a case in point, with respect to the restoring accountability of TRUSTEE in a pre-contract-ownership-trust, the Supreme Court explains as follows. ① TRUSTOR has always been able to retrieve his ownership right from TRUSTEE before the phase-in period is over. ② The moment the phase-in period passed over, the ownership-trust agreement became void, and at the same time TRUSTEE acquired a full and complete ownership right. ③ By the way, Article 4 does not prevent TRUSTOR from retrieving his ownership right, therefore TRUSTEE is obliged to return the whole property to TRUSTOR. Much to my regret and to the dismay of many, that reasoning is not acceptable in any way, shape, or form, and their explanation is very elusive that falls far short of our expectation, considering our civilized judiciary system and its staggering impact, both the reasoning and the outcome is truly outrageous and deeply preposterous. And it's no surprise that the derivative reasoning doesn't make sense either, e.g. whether the TRUSTOR's retrieving right is under the application of extinctive prescription clause. Those 'plow-through' of logic based on false conception is, not mince words, sheer nonsense, meaning the Supreme Court's way of thinking might be egregiously misleading, while providing no clue to see through the situation. Worse yet, we can find no one who calls the Supreme Court's understanding into question or voices concerns about the interpretation, and it seems even some of the most prestigious experts are at a loss to articulate their arguments.

It goes without saying that the right to use and receive profits from the fruits of the property is intrinsic, inalienable characteristics of ownership right. Whereas in the Wonderland of Supreme Court theory, TRUSTEE not just acquires "a full and complete ownership right" as the phase-in period passes over - TRUSTEE is obliged to return the whole property. This convoluted logic gives rise to the searching question : 'To whom in the world the right to use belongs?'

It would be hard-pressed from the Supreme Court's perspective to answer that question ; if they say that the right belongs to TRUSTOR, then “the full and complete ownership right” that TRUSTEE has gotten is 'a veneer of ownership right', which in fact is not deserved to be called as ownership right ; or otherwise if they say that the right belongs to TRUSTEE, then it would take a heavy toll on TRUSTOR, and will end up forfeiting the TRUSTOR's property without due process or proper compensation. It reflects a total failure to recognize and appreciate the basic concept of the ownership right.

The Supreme Court's contradiction clearly stands out when it comes to the criminal liability. The Supreme Court repeatedly rendered verdicts that TRUSTEE is not in a position to take care of TRUSTOR's property, and in turn TRUSTEE is not guilty even if he has disposed of trusted asset. But this attitude, this paper believes, is not compatible with ownership-trust of other kind, and this paper contends TRUSTEE is guilty for the evident fact that he is at least obligated to pay the buying money in restitution.

The Supreme Court's reasoning is weird and crooked as well on the other category of ownership-trust. For example, in case of register-ownership-trust, the Supreme Court found that the ownership right of the trusted property returned to FORMER with the termination of phase-in period, and FORMER does not suffer losses from TRUSTEE's betrayal. As this paper sees it, these conclusions speak volumes about the fact that FORMER, in reality, is not interested in the whereabout of the ownership right, and furthermore FORMER, actually, is not a proprietor of the trusted property.

This paper did extensive research on a series of the Supreme Court's rulings, and came to the conclusion that ownership-trust must be classified by the sequence of the incident : the move to segregate the pre-ownership-trust from the post-ownership-trust is a basic step forward to understand RRES. In addition, the recognition of FORMER should not be regarded as a definitive determinant of the classification, and to place too much emphasis on FORMER's recognition is by all means inappropriate.

The main reason that this paper covers pre-ownership-trust differently from post-ownership-trust is, to interpret otherwise will be an retrospective legislation, and will result in imposing a repeated fulfillment of obligation on FORMER. For this paper contends that there is no reason to make a distinction according to FORMER's recognition, and contends RRES Article 4, Clause 2 is unconstitutional due to the fact that it discriminates TRUSTOR in an absurd way, especially in regard to contract-ownership-trust there is no ground that TRUSTEE has gotten what they termed “the full and complete ownership right”.

In the final analysis, this paper understands RRES's prohibition reaches only as far as imposing a fine on the violator, and does not reaches to denying the acquisition of ownership right of the violator, nor to the fact that the violator can never be able to attain an ownership right in the first place or under any circumstances.

Bottom line, it's high time that we should cogitate on the legitimacy of the Supreme Court's ruling, and we need to make sure there's any contradiction with the Civil Code or in light of traditional ownership right theory. Some lessons may come at a heavy price, and the Supreme Court might as well think twice before making further decisions based on their previous - arguably fraught with errors - theory. Given that the ownership-trust theory is closely related to the belonging of ownership right, its features, and that the ownership right accounts for the most part of the constitutional guarantee of property rights, and that in turn the importance of real estate in daily life to every individuals or to the nation as a whole, it cannot be overemphasized that we set up a right viewpoint on ownership-trust.

That means, among other things, to set up a theory grappling with the currently wide spread 'transactions by a borrowed(or false) name'. We should take a cautious approach in interpreting RRES, make a strenuous effort to fend TRUSTOR off from being deprived of his property unreasonably. Wrapping things up, we should lay down a principle that nobody can make illegal or unfair profits from 'transactions by a borrowed(or false) name', and these efforts should be made consistently, according to social change or supplementary legislation.