[edit] Supreme Court Decision 99Da23901 delivered on February 8, 2002 [Return of Unjust Enrichment]
【Main Issues】
[1] Whether or not the successful bidder may exercise a claim for substitute compensation with respect to a compensation for losses paid to the owner of the land, if it became impossible for the owner to perform the obligation to effect registration of title transfer to the successful bidder, because the land which is the object of tender was incorporated into a river area subsequent to the award of successful bid. (affirmative)
[2] The starting point in calculating the prescription period with respect to a claim for substitute compensation
[3] Whether or not creditor may be deemed to be unjustly enriched in relation to an debtor, by reason of receiving in its own name compensation that is subject of the claim for substitute compensation (negative)
【Summary of Decision】
[1] Even though the Civil Code does not separately provide for a claim for substitute compensation other than the creditor's claim for compensatory damages and right to terminate the agreement, as the effect of impossibility of performance, there is no basis for an interpretation that a claim for substitute compensation should be denied. If it became impossible for an owner of land to perform the obligation to effect registration of title transfer to the successful bidder, because the land which is the object of auction sale, which is a form of purchase and sale, was incorporated into a river area subsequent to the award of successful bid, the successful bidder may exercise a claim for substitute compensation with respect to the compensation for losses paid to the owner due to such incorporation into a river area.
[2] Absent special circumstances, a claim for substitute compensation should be deemed to be exercisable by the purchaser where it becomes impossible for the seller to perform the obligation to effect registration of title transfer due to an expropriation or nationalization of the object of purchase and sale, and therefore that in principle, the prescription runs from such time. However, in case where there were no methods or procedures to claim the compensation for a considerable period of time, due to the peculiarity if the reasons of nationalization and lack of legislative basis, until the methods and procedures for claiming the compensation were made available, it had been impossible for the holder of the claim for substitute compensation to exercise the claim before such methods were made available. Accordingly, in such case, it would be reasonable to consider that the prescription period runs from the time when the methods of claim were made available. An interpretation that the prescription period begins to run only because an abstract right of claim for substitute claim has arisen, even though there is no method for the holder of the claim to seek compensation, would be too harsh to the claim holder as to be contrary to social justice and equity, and would not be in accord with the reason for existence of the prescription system.
[3] If the creditor holds a claim for substitute compensation with respect to compensation to be received by the debtor or his right of claim therefor, the creditor would have to claim for return of the compensation received by the debtor or receive the compensation by obtaining assignment of the debtor's claim for compensation. However, even if the creditor has directly received the compensation subject to the claim for substitute compensation in his own name for any reason, that should not be considered an unjust enrichment in relation to the debtor.
【Reference Provisions】 [1] Article 390 of the Civil Code / [2] Articles 166 and 390 of the Civil Code, Article 2, Paragraph (1), Item 2, Item (a) of the former Rivers Act (amended by Law No. 2292, January 19, 1971) and Article 2 of the Addenda to the former Rivers Act (amended by Law No. 3782, December 31, 1984) / [3] Articles 390 and 741 of the Civil Code
Article 2 the Former Rivers Act (amended by Law No. 2292 of January 19, 1971) (Definitions) (1) Definitions of terms used in this Act are as follows:
1. <omitted>
2. The term "river area" means:
(a) Land and topography on which water is flowing steadily, or an area of land which has traces of a river flow having reached the area, including a flow at substantial speed at least once a year, by the appearance of plant growth and other conditions on such area of land (excluding land having traces of such conditions temporarily due to a great flood or other extraordinary natural phenomena).
(b)~(c) <omitted>
3.~4. <omitted>
(2) <omitted>
Article 2 of Addenda to the Former Rivers Act (December 31, 1984) (Measures with Respect to Excluded Area, etc.) (1) If any land becomes part of a river area under Article 2, Paragraph (1), Item 2, Item (a) before this Act comes into effect, or a land within the excluded area becomes nationalized due to the enforcement of Law No. 2292 promulgated on January 19, 1971, the controlling government agency shall compensate any losses arising therefrom.
(2) The prescription period for a claim for compensation pursuant to Paragraph (1) above shall be determined in accordance with the provisions of Article 71 of the Budget and Accounts Act and Article 53 of the Local Finance Act, commencing on the effective date of this Act.
(3) The controlling government agency under Paragraph (1) above shall reflect at least a certain percentage of the rivers revenue as determined by the Enforcement Decree in its budget, as resource for compensation; provided, however, that the State may pay from the National Treasury or subsidize a part of the expenses for compensation.
(4) The procedures of claim, base date for calculation, criteria, and other necessary matters in relation to the compensation pursuant to Paragraph (1) above shall be determined by the Enforcement Decree.
【Reference Cases】 [1] Supreme Court Decision 92Da4581, 4598, May 12, 1992 (Gong1992, 1849), Supreme Court Decision 94Da27113, February 3, 1995 (Gong1995Sang, 1150), Supreme Court Decision 95Da38080, December 22, 1995 (Gong1996Sang, 504), Supreme Court Decision 94Da43825, December 10, 1996 (Gong1997Sang, 286)
【Plaintiff, Appellant and Appellee】 Jeon Chan-kook (Attorney Kim Jin-woo, Counsel for plaintiff, appellant and appellee)
【Defendant, Appellee and Appellant】 Hanvit Bank Co., Ltd., successor in litigation of Hanil Bank Co., Ltd. (Attorneys Shim Hoon-jong and 6 others, Counsel for defendant, appellee and appellant)
【Court of First Instance】 Seoul District Court Judgment 98Gahap9569 delivered on November 6, 1998
【Court of Second Instance】 Seoul High Court Judgment 98Na63713 delivered on April 2, 1999
【Disposition】 The part of the decision of the court below against the defendant shall be reversed and remanded to the Seoul High Court. The appeal by the plaintiff shall be dismissed.
【Reasoning】 1. The decision of the court below
A. The court below adopted the following facts upon full consideration of the evidence presented:
(1) On November 17, 1968, the defendant (during the court below proceeding, on January 6, 1999, the defendant acquired Hanil Bank Co., Ltd., thereby succeeding Hanil Bank Co., Ltd.) made a loan of 36 million won to the plaintiff and effected registration of mortgage on a real estate jointly owned by the plaintiff and Yoon Soon-do (the Real Estate) to secure the loan, in which the defendant was creditor and mortgagee, the plaintiff and Yoon Soon-do were mortgagors, and the ceiling amount of mortgage was 70 million won. Plaintiff failed to pay the loan of 36 million won and interest thereon of 33,660,000 won to the defendant, and the defendant applied for auction sale by foreclosure of the mortgage, claiming the above amount. In the auction procedure, the defendant itself became the successful bidder on May 10, 1971 by bidding the amount of 39 million won, and the award of successful bid was confirmed. Then, on July 28, 1971 which was the designated date for payment and distribution, the defendant paid the price of the successful bid in full by way of setting off a portion of the principal and interest of the loan against the above bid amount, and thus in effect, the defendant received 38,699,161 won excluding execution costs in the distribution procedure. Meanwhile, on September 15, 1971, the defendant effected the registration of title transfer in its name.
(2) The Real Estate had originally been located at the northern coast of the main stream of the Han River and the southern end of the Nanji Island. The waterway in the vicinity of the Real Estate had been gradually transformed due to excessive quarrying of stone, sand and clay by quarries, and as a result, in or around April 1971, the Real Estate already had plant growth and other conditions indicating traces of flow of the municipally controlled Han River reaching it at least once a year. Consequently, as the former Rivers Act (amended by Law No. 2292 delivered on January 19, 1971) came into effect on July 19, 1971, a few days before the payment date of the bid amount in the above auction procedure, the Real Estate became nationalized on the same date on which the Rivers Act came into effect, because it fell under the definition of river area under Article 2, Paragraph 1, Item 2, Item (a) of the Rivers Act.
(3) On August 1, 1981, the plaintiff obtained assignment of the ownership share of the Real Estate held by Yoon Soon-do, as well as any and all claims arising out of incorporation of the Real Estate into the river area, including the claim for compensation of loss. Then, on May 6, 1991, the plaintiff initiated a lawsuit under Article 2 of the Addenda to the former Rivers Act (amended by Law No. 3782 of December 31, 1984), which provides that if any land becomes part of a river area under Article 2, Paragraph (1), Item 2, Item (a) of the Rivers Act before December 31, 1984, or if any land within the excluded area which was privately owned prior to July 18, 1971 becomes nationalized by enforcement of Law No. 2292, the original owner or his successor at the time of the incorporation into the river area may claim for compensation for losses arising therefrom, and the Regulations on Compensation for Land Incorporated into River Area under the provisions of Article 2 of the Addenda to the Rivers Act amended by Law No. 3782 (Enforcement Decree No. 11919 delivered on June 12, 1986), against the Seoul Metropolitan Government, seeking a declaratory judgment that the plaintiff has a right of claim for compensation of losses. On April 27, 1993, the Supreme Court rendered a decision in that action in favor of the plaintiff (the defendant participated in the lawsuit as a third party intervener on behalf of the Seoul Metropolitan Government), on grounds that the owners of the Real Estate at the time of its incorporation into the river area were the plaintiff and Yoon Soon-do (Supreme Court Decision 93Da3134).
(4) Meanwhile, under the provisions of each Rivers Act which imposes the obligation for compensation of loss, the Seoul Metropolitan Government paid a total of 515,341,470 won (213,147,800 won on September 23, 1987, 44,025,720 won on September 30, 1987, 1,886,500 won on December 30, 1987, 13,989,350 won on September 8, 1988, 1,864,000 won on November 2, 1990, and 240,428,100 won on December 31, 1990) as compensations for losses due to the incorporation of the Real Estate into the river area to the defendant, the title holder under the register at that time. However, as stated above, upon confirmation of the judgment that the plaintiff is entitled to the claim for compensation for losses, the defendant paid Plaintiff 445,341,470 won after deducting 70 million won from the above amount received, on January 17, 1998.
B. Based on the above adopted facts, the court below partially upheld the arguments of the defendant on prescription period, principle of good faith and principle against abuse of authority, on the following grounds: Although the plaintiff and Yoon Soon-do, who were the owners of the Real Estate at the time of the incorporation of the Real Estate into the river area, were entitled to the claim for the compensation for losses due to the incorporation, the defendant as registered title holder received the above compensation for losses. Thus, it can be said that the defendant obtained the compensation for losses without any legal basis. Accordingly, the defendant is obligated to return to the plaintiff the amount which has not yet been returned, out of the principal and interest amounts of the above compensation for losses.
On this premise, the court below reasoned as follows: 1) The defendant asserts that it should deduct the principal and interest of the loan from the amount to be returned, on the assumption that the defendant's loan claims against the plaintiff still exist (this assertion apparently includes an argument to the effect that since the defendant could not acquire title to the Real Estate due to the nationalization thereof, the plaintiff is obligated to return the bid amount, and therefore that such amount should be deducted). Since the defendant received 38,699,161 won in the above auction procedure, the loan claim was extinguished to the extent of the amount equivalent to that amount, and the remaining loan claim remain in effect as ordinary claim without security. However, since it is evident that ten years have passed since the above auction procedure was completed, the defendant's remaining claim against the plaintiff were extinguished by expiration of the prescription period. Accordingly, the plaintiff's argument on prescription period is upheld. 2) Although the defendant as the successful bidder paid the bid amount of 39 million won, the defendant could not acquire title to the Real Estate because it was nationalized before the bid amount was paid in full. Consequently, the defendant acquired a claim against the plaintiff for return of unjust enrichment in the said amount of 39 million won, under the legal principles on risk allocation (the result would be the same even if a guarantee liability under Article 578 of the Civil Code is recognized), or a claim for substitute compensation due to impossibility of performance. These rights of claim could have been exercised when the Real Estate was nationalized, and it is clear from a reverse calculation that ten years have passed since then, and therefore it can be said that such claims were extinguished due to the expiration of the prescription period. However, plaintiff became entitled to a claim for compensation for losses against the Seoul Metropolitan Government, and the defendant became entitled to a claim for return of the bid amount pursuant to the legal principles of risk allocation, due fortuitous and identical circumstances, namely incorporation of the Real Estate into the river area. Moreover, before the Supreme Court's decision was rendered, that the Real Estate is a part that the flow of the municipally controlled Han River reached, and that the time when it showed traces of water flow at least once a year was April 1971, the objecting timing thereof could not be objectively recognized. Accordingly, in considering the scope of unjust enrichment to be returned by the defendant, who acquired apparent title to the Real Estate by paying the bid amount, the bid amount and the amount equivalent to interest thereon at the statutory rate should be deducted from the compensation for losses.
2. Determination on the defendant's grounds for appeal
A. However, among the determinations of the court below, we cannot agree with the determination that although the defendant acquired a claim for substitute compensation in relation to the compensation for losses to be paid to the plaintiff and Yoon Soon-do (hereinafter referred to as the plaintiff et al.) since it became impossible for them to perform the obligation to effect registration of title transfer with respect to the Real Estate due to the nationalization thereof, the defendant was obligated to return the compensation for losses that it received to the plaintiff as unjust enrichment, since the claim for substitute compensation was extinguished due to the expiration of the prescription period. The reasons are as follows:
B. Even though the Civil Code does not separately provide for a claim for substitute compensation other than the creditor's claim for compensatory damages and right to terminate the agreement, as the effect of impossibility of performance, there is no basis for an interpretation that a claim for substitute compensation should be denied. If it became impossible for an owner of land to perform the obligation to effect registration of title transfer to the successful bidder, because the land which is the object of auction sale, which is a form of purchase and sale, was incorporated into a river area subsequent to the award of successful bid, the successful bidder may exercise a claim for substitute compensation with respect to the compensation for losses paid to the owner due to such incorporation into a river area.
Absent special circumstances, such claim for substitute compensation should be deemed to be exercisable by the purchaser where it becomes impossible for the seller to perform the obligation to effect registration of title transfer due to an expropriation or nationalization of the object of purchase and sale, and therefore that in principle, the prescription runs from such time. However, in case where there were no methods or procedures to claim the compensation for a considerable period of time, due to the peculiarity if the reasons of nationalization and lack of legislative basis, until the methods and procedures for claiming the compensation were made available, it had been impossible for the holder of the claim for substitute compensation to exercise the claim before such methods were made available. Accordingly, in such case, it would be reasonable to consider that the prescription period runs from the time when the methods of claim were made available. An interpretation that the prescription period begins to run only because an abstract right of claim for substitute claim has arisen, even though there is no method for the holder of the claim to seek compensation, would be too harsh to the claim holder as to be contrary to social justice and equity, and would not be in accord with the reason for existence of the prescription system.
Further, if the creditor holds a claim for substitute compensation with respect to compensation to be received by the debtor or his right of claim therefor, the creditor would have to claim for return of the compensation received by the debtor or receive the compensation by obtaining assignment of the debtor's claim for compensation. However, even if the creditor has directly received the compensation subject to the claim for substitute compensation in his own name for any reason, that should not be considered an unjust enrichment in relation to the debtor.
C. According to the above facts adopted by the court below and the records, the following can be recognized: The defendant effected registration of title transfer with respect to the Real Estate in its name based on the successful bid on September 15, 1971, although the registration became void ab initio due to the incorporation into river area on July 19, 1971. Before December 31, 1984, when the Rivers Act amended by Act No. 3782 came into effect, there had not been any provision for compensation for incorporation into a river area, in a case such as the Real Estate. Then, with the said amendment, Article 2, Paragraph (1) of the Addenda to the amended Rivers Act provided: If any land becomes part of a river area under Article 2, Paragraph (1), Item 2, Item (a) before this Act comes into effect, or a land within the excluded area becomes nationalized due to the enforcement of Law No. 2292 promulgated on January 19, 1971, the controlling government agency shall compensate any losses arising therefrom; and Paragraph (2) of the same Article provided: The prescription period for a claim for compensation pursuant to Paragraph (1) above shall be determined in accordance with the provisions of Article 71 of the Budget and Accounts Act and Article 53 of the Local Finance Act, commencing on the effective date of this Act. (the Regulations on Compensation for the Land Incorporated into River Area under the Provisions of Article 2 of the Addenda to the Rivers Act as Amended by Law No. 3782 was promulgated as Enforcement Decree No. 11919 on June 12, 1986 under the above Act.) At that time, the defendant, who registered itself as owner in the register, believed that it was the rightful holder of the claim for compensation for losses and received compensations from the Seoul Metropolitan Government over several installments from September 23, 1987 to December 31, 1990. Thereafter, when the plaintiff as rightful holder of the claim for compensation for losses filed a lawsuit against the Seoul Metropolitan Government to confirm the claim for compensation for losses on May 6, 1991, the defendant participated in the lawsuit as the supplementary participant on behalf of the Seoul Metropolitan Government.
In light of the foregoing, it can be said that the civil claim for compensation for losses arising from the incorporation of the Real Estate into the river area could effectively have been exercised from December 31, 1984, when the amended Rivers Act came into effect, and that the prescription period for the defendant's claim for substitute compensation with respect to the plaintiff's claim for compensation for losses began to run from the above date. Meanwhile, insofar as the defendant exercised its claim for substitute compensation by directly receiving compensation from September 23, 1987 to December 31, 1990, a claim that is subject to the prescription period no longer existed. Furthermore, according to the legal principles stated above, the defendant's receipt of compensations under the above circumstances cannot be deemed an unjust enrichment in relation to the plaintiff et al. Clearly, the defendant's arguments contesting the legal principles regarding the holder of the claim for compensation for losses, unjust enrichment and prescription period, include arguments to the above effect, and the defendant's argument on appeal raising these points is valid.
3. Determination on the plaintiff's grounds for appeal
The plaintiff's grounds for appeal dispute the court below's decisions on the scope of return of unjust enrichment, prescription period and set-off, on the premise that the defendant's receipt of compensation for losses was without legal basis in relation to the plaintiff, and therefore that the plaintiff may claim for return thereof. However, insofar as the decision of the court below shall be reversed on grounds that it was incorrect to find that the compensation for losses received by the defendant is unjust enrichment in relation to the plaintiff, the plaintiff's grounds for appeal founded on a contrary premise are not acceptable without need for further deliberation.
4. Accordingly, without addressing the defendant's other grounds for appeal, the part of the decision of the court below against the defendant shall be reversed and remanded to the lower court for trial and determination, and the appeal of the plaintiff shall be dismissed as groundless. It is therefore decided as per Disposition. This decision is delivered with the assent of all Justices who reviewed the appeal.
Justices Yoo Ji-dam (Presiding Justice)
Cho Moo-jeh
Kang Shin-wook
Son Ji-yol (Justice in charge)
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