Supreme Court: "Dual Mortgage on Real Estate Does Not Constitute Breach of Trust"

[Asia Economy Reporter Kang Nahum] The Supreme Court has ruled that even if a person violates a contract by allowing another party to establish a mortgage after promising to set a mortgage on real estate, they cannot be punished for breach of trust.

On the 18th, the Supreme Court en banc announced that it overturned the lower court's guilty verdict in the appeal trial of Mr. A, who was charged with violating the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (breach of trust), and remanded the case to the Seoul High Court.

In June 2016, Mr. A borrowed 1.8 billion KRW and promised to set a fourth-priority mortgage on an apartment he owned as collateral for the creditor. However, citing "business judgment," Mr. A granted a fourth-priority mortgage on the same apartment under a different name and was prosecuted for breach of trust and other charges.

Breach of trust occurs when a person handling another's affairs neglects their duty and commits an illegal act causing financial damage. For breach of trust to be established, the contract between Mr. A and the creditor must be based on a "fiduciary relationship" that goes beyond ordinary interests to protect and manage the other party's property.

The first trial court recognized a fiduciary relationship formed through the contract between Mr. A and the creditor and sentenced him to 1 year and 6 months in prison for breach of trust. The second trial court also found Mr. A's actions constituted breach of trust but increased the sentence to 2 years and 6 months, considering the damage was greater than initially calculated.

However, the Supreme Court ruled that the contract between Mr. A and the creditor only stipulated the performance of obligations and could not be regarded as based on a fiduciary relationship. By the same logic, even if Mr. A failed to keep his promise to set the mortgage and disposed of the collateral to another person, breach of trust cannot be applied.

This overturns previous precedents that recognized breach of trust when a person promised to set a mortgage with a third party and disposed of the collateral at will. A Supreme Court official stated, "The significance of this ruling lies in reaffirming the principle of strict interpretation of criminal laws to prevent infringement on private autonomy by the state's criminal authority."

This content was produced with the assistance of AI translation services.