The Supreme Court has ruled that if, during bankruptcy proceedings, only the registration of a real estate ownership transfer is voided while the underlying donation contract remains valid, any profits gained from possessing or using the property before the registration is nullified cannot be considered unjust enrichment.
The Civil Division 1 of the Supreme Court (Presiding Justice Noh Taeak) on September 11 dismissed the appeal and upheld the lower court's ruling against the plaintiff in a lawsuit filed by bankruptcy trustee Mr. B of Company A against Foundation C, seeking the return of unjust enrichment (Case No. 2022Da283633).
[Facts]
In August 2008, Company A agreed to donate the real estate in question to the newly established Foundation C and completed the ownership transfer registration in favor of Foundation C in November 2009.
Company A was declared bankrupt in October 2010. Mr. B, appointed as the bankruptcy trustee, filed a lawsuit to void the registration, arguing that the act of registration was detrimental to creditors. The court accepted this claim and issued a ruling voiding the registration. In July 2018, the registration under Foundation C’s name was ultimately canceled.
Mr. B subsequently filed a lawsuit, claiming that the approximately 7 billion won in profits, such as rental income, earned by Foundation C from possessing and using the real estate from November 2009 to July 2018 (about 8 years and 8 months) constituted unjust enrichment without legal grounds, and demanded its return.
[Lower Court Rulings]
Both the first and second instance courts ruled in favor of the defendant. The lower courts held that "what was voided in the relevant lawsuit was only the act of registration of the ownership transfer, not the underlying donation act, which remains valid. Just as a land purchaser has the right to possess and use the land as an effect of the contract upon delivery, the defendant also possessed and used the real estate based on the valid donation act, which constitutes a legal ground."
[Supreme Court Ruling]
The Supreme Court concurred. The Court stated, "Even if the act constituting the requirement for the change of rights (registration) is voided under the Debtor Rehabilitation and Bankruptcy Act, the validity of the underlying act (donation) that causes the change of rights is not extinguished." The Court further explained, "Even if the registration act is voided, as long as the underlying donation act is not voided, the defendant retains the right to demand the process of ownership transfer registration and, having received delivery of the real estate through the performance of the donation act, still has the right to possess and use it." The Supreme Court concluded, "The lower court did not misunderstand the legal principles regarding the purpose of the avoidance system in a way that affected the judgment," and dismissed the appeal.
An Jaemyoung, Law Times Reporter
※This article is based on content supplied by Law Times.
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