Interpretation of Article 3 of the Act on Similar Receipt Activities Divides Lower Courts
Similar Receipt Contracts Themselves Are 'Valid' Regardless of Criminal Punishment
The Supreme Court has ruled that the prohibition on quasi-collecting acts is a regulatory provision rather than a validity provision, meaning that regardless of whether a person who engaged in quasi-collecting acts is criminally punished, the civil validity of contracts concluded through such quasi-collecting acts remains effective.
According to the legal community on the 27th, the Supreme Court's 2nd Division (Presiding Justice Kwon Young-jun) upheld the lower court's ruling that dismissed the claim filed by the rehabilitation manager of lending company A against Mr. B for the return of unjust enrichment.
The court stated, "Article 3 of the Act on the Regulation of Quasi-Collecting Acts is not a mandatory provision but merely a regulatory provision, and thus does not affect the civil validity of contracts. The investment contract in question was not deemed to be contrary to good morals or other social order. Therefore, the first-instance ruling dismissing the plaintiff's claim and the appellate court's decision upholding it are justified and acceptable. There is no error in the interpretation of the regulatory provision or in the legal reasoning regarding the violation of Article 103 of the Civil Act that affected the judgment," and dismissed the appeal.
Company A, presenting itself as a real estate investment firm, illegally collected investment funds without authorization and operated an illegal business by paying returns in a "Ponzi scheme" manner. In June 2018, Mr. B entered into an investment contract with Company A, paying 30 million KRW as a contract deposit and receiving dividends of 6 million KRW at a 20% interest rate. One year later, he received a total of 35.8 million KRW, including the principal of 30 million KRW and dividends of 5.8 million KRW.
Following the exposure of this illegal operation, the couple running Company A were prosecuted for violating the Act on the Regulation of Quasi-Collecting Acts and were each sentenced to 25 years and 20 years imprisonment respectively by the Supreme Court in March. Company A has been undergoing rehabilitation procedures since August 2021.
The rehabilitation manager of Company A filed a lawsuit in September 2022 against Mr. B, demanding the return of 4.29 million KRW as unjust enrichment, excluding the principal of 30 million KRW and statutory interest of 1.508 million KRW calculated at an annual rate of 5%. The claim was based on the argument that since quasi-collecting acts are illegal, the investment agreement is void, and therefore the dividends obtained under the agreement must also be returned.
In court, the plaintiff argued that Article 3 of the Act on the Regulation of Quasi-Collecting Acts, which stipulates that "no one shall engage in quasi-collecting acts," is a validity provision. They contended that the investment contract between Mr. B and Company A was void, and thus the dividends received should be returned as unjust enrichment.
However, the first-instance court ruled in favor of Mr. B, dismissing the plaintiff's claim.
The court judged that Article 3 of the Act on the Regulation of Quasi-Collecting Acts cannot be regarded as a validity provision.
As grounds for this judgment, the court cited the following: ▲ The Act on the Regulation of Quasi-Collecting Acts was enacted to prevent the establishment of irregular financial companies not subject to the Banking Act, Securities Exchange Act, or Act on Comprehensive Financial Companies. Considering this legislative purpose, it is difficult to view quasi-collecting acts as having such a markedly antisocial nature that their civil validity must be denied ▲ The provisions of the Act prohibit quasi-collecting acts and punish those who engage in them, but do not punish the counterparties to such acts, making it difficult to conclude that the Act aims to prevent the attribution of goods or economic benefits resulting from quasi-collecting acts ▲ The social ethical condemnation of quasi-collecting acts is not so strong as to deem them inherently antisocial ▲ If Company A's corporate purpose included related business, the defendant (Mr. B) invested with the understanding that Company A would purchase assets and distribute profits, and it is unlikely that he recognized or could have recognized that such investment constituted a quasi-collecting act.
The rehabilitation manager of Company A appealed, but the appellate court reached the same conclusion.
In the appellate court, the plaintiff also argued that "even if Article 3 of the Act on the Regulation of Quasi-Collecting Acts is a mere regulatory provision and does not affect the civil validity of the investment contract between Company A and Mr. B, quasi-collecting acts themselves are antisocial, and the 20% annual dividend rate is extraordinarily high compared to prevailing interest rates at the time. This results in an unfair outcome where early investors like Mr. B enjoy profits while subsequent investors suffer losses. Therefore, the portion of dividends calculated at a rate exceeding the statutory interest rate of 5% is contrary to good morals and other social order and void under Article 103 of the Civil Act." However, this argument was not accepted.
The rehabilitation manager of Company A then filed an appeal to the Supreme Court.
Although damages from illegal financial businesses have been increasing recently, lower courts have continued to diverge in their interpretations of Article 3 of the Act on the Regulation of Quasi-Collecting Acts. This is the first time the Supreme Court has explicitly clarified its interpretation.
Although the case involved a small claim of less than 5 million KRW, the Supreme Court provided a detailed ruling to unify the interpretation of the law and explained the specific reasons for dismissing the appeal.
The court stated, "This case concerns whether an agreement violating Article 3 of the Act on the Regulation of Quasi-Collecting Acts has civil validity. This is an issue regarding the interpretation and application of Article 3 of the Act, for which there is no precedent from the Supreme Court, and lower courts have issued conflicting rulings."
The court then cited previous Supreme Court precedents, stating, "When a law imposes certain obligations on parties to contracts or prohibits certain acts but does not clearly specify the effect of violating such provisions on the validity of legal acts, the validity must be determined comprehensively considering the legislative background and purpose, protected interests and regulatory targets, seriousness of the violation, whether the parties intended to violate the law, the impact of the violation on the parties or third parties, social, economic, and ethical evaluations of the violation, and the legal stance on similar or closely related acts."
The court concluded, "Article 3 of the Act on the Regulation of Quasi-Collecting Acts is not a validity provision or a mandatory provision but merely a regulatory provision. Therefore, contracts concluded through quasi-collecting acts generally have civil validity unless special circumstances exist."
The court further reasoned: ▲ The legislative purpose of regulating unauthorized quasi-collecting acts to protect good-faith traders and establish sound financial order can be achieved through administrative regulation or criminal punishment ▲ If contracts concluded through quasi-collecting acts were void, the counterparties could not demand performance or damages from the quasi-collecting actors, and if they received money under the contract, they would have to return it as unjust enrichment regardless of their awareness of the quasi-collecting nature or illegality. Viewing Article 3 as a validity provision and uniformly invalidating such contracts would disadvantage good-faith counterparties ▲ Since acts permitted upon obtaining authorization or approval under relevant laws cannot be deemed inherently antisocial or immoral based solely on their content ▲ The question of whether to recognize the civil validity of the contract itself is distinct from whether acts mediated by the contract are subject to criminal punishment. Therefore, the fact that quasi-collecting acts are criminal offenses does not automatically negate the validity of contracts concluded through such acts ▲ Violations of the Act on the Regulation of Quasi-Collecting Acts often accompany fraudulent acts, which are also criminal offenses with harsher penalties. However, contracts concluded through fraudulent acts are not void but subject to rescission.
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