Supreme Court: "Selling Collateralized Movable Property Is Not Breach of Trust"... Preservation of Collateral Is 'One's Own Affairs'

Chief Justice Kim Myeong-su delivering a verdict at the Supreme Court Grand Bench. / Photo by the Supreme Court

[Asia Economy Reporter Choi Seok-jin] The Supreme Court's en banc ruling has determined that even if a debtor disposes of movable property provided as collateral to others without the creditor's knowledge, it cannot be punished as breach of trust.

Although protecting the collateral value of the secured property may be seen as benefiting the creditor who is a third party, the nature of such affairs is considered to be the debtor's own affairs, not the affairs of others based on a fiduciary relationship with the creditor.

On the 27th, the Supreme Court en banc overturned the lower court's ruling that found Mr. A guilty of breach of trust in the appeal trial where he was indicted for breach of trust and other charges, and remanded the case to the Seoul High Court.

The court stated, "The lower court assumed that the defendant was a 'person handling the affairs of others' as defined in the breach of trust crime and found the breach of trust charges guilty. However, this ruling contains an error in misunderstanding the legal meaning of 'a person handling the affairs of others.'

Mr. A, the CEO of a mobile phone parts company, signed a contract in September 2013 to borrow 1 billion KRW from Bank B, providing movable property such as company-owned machinery as collateral.

However, when the business situation worsened in October 2015, he transferred the machinery held as collateral to a third party, a Chinese corporation, without the creditor's permission and was indicted for breach of trust.

The first trial court found Mr. A to be a 'person handling the affairs of others,' the subject of breach of trust, and judged the breach of trust charges as guilty.

It regarded the safekeeping of the machinery, which was collateral for the creditor bank, as the affairs of the creditor, who is a third party.

In addition, Mr. A was found guilty of embezzling 14.8 billion KRW of company funds under the pretext of investing in real estate in Vietnam and was sentenced to six years in prison.

The second trial court upheld the first trial's ruling. Mr. A appealed the breach of trust charges but did not appeal the embezzlement charges, which became final.

However, the Supreme Court's judgment was different.

The obligation to maintain and preserve the collateral value of movable property subject to a debtor's movable property security right is an obligation under the movable property security contract. Even if fulfilling this obligation benefits the creditor, the nature of the affairs is the debtor's own affairs, not the affairs of others, the Supreme Court concluded.

The Supreme Court stated, "This ruling reaffirms the principle of strict interpretation of penal laws through the interpretation of 'affairs of others' and has significance in preventing infringement on private autonomy caused by excessive intervention of state criminal power in the realm of private law."

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