Supreme Court: "20 Billion Inheritance to Extramarital Child" Private Gift Can Be Revoked Like a Will... First Ruling

Supreme Court building in Seocho-dong, Seoul.

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has ruled that a private gift contract, in which the donor promises to give certain property to the donee (the person receiving the gift) upon the donor's death, can be revoked by the donor at any time, just like a legacy.

The Civil Act applies the provisions related to legacies to private gifts but does not specify the exact scope of application. This has led to controversy over whether the donor can unilaterally revoke the contract as in the case of a legacy, which is a unilateral act. This is the first Supreme Court ruling explicitly recognizing that Article 1108, Paragraph 1 of the Civil Act, concerning the revocation of legacies, also applies to private gifts.

The Supreme Court's Third Division (Presiding Justice Ahn Cheol-sang) announced on the 17th that it upheld the lower court's ruling in favor of the plaintiff in the appeal case where Mr. A filed a lawsuit against Ms. B to cancel a mortgage lien.

The court stated, "A private gift is a gratuitous act that takes effect upon the donor's death, and its practical function is no different from that of a legacy. Therefore, it is necessary to respect the donor's final intention regarding the disposition of property after death, just as with legacies. It is reasonable to interpret that, barring special circumstances, Article 1108, Paragraph 1 of the Civil Act concerning the revocation of legacies applies to private gifts."

It added, "Although the lower court's reasoning that revocation of private gifts is generally not recognized is inappropriate, the conclusion of the lower court recognizing the revocation of the private gift contract in this case is justified."

Mr. A, who had an extramarital child C with his mistress Ms. B, wrote a memorandum in January 2012 stating that if he died or became unconscious, 40% of his property would be given to Ms. B and her child. This was a measure to prepare for difficulties Ms. B would face raising the extramarital child C alone, as C could not inherit in the event of Mr. A's unexpected accident. The memorandum also included that Ms. B would manage the funds until C, who was one year old at the time, turned 30, after which C would manage them.

About a year later, in April 2013, Mr. A wrote another memorandum titled "Inheritance Contents," stating that 2 billion KRW of his current property would be inherited by the extramarital child C, with Ms. B managing it until C turned 35, and that a mortgage lien would be established on his real estate as collateral. In May of the same year, a mortgage registration with a maximum claim amount of 1.5 billion KRW was completed in Ms. B's name.

The problem arose when their relationship broke down.

In February 2015, Mr. A filed a lawsuit against Ms. B and the extramarital child C seeking confirmation of the existence of a parent-child relationship and designation of a guardian. In November of the same year, the court mediated an agreement stating, "The plaintiff acknowledges the extramarital child as his biological child. The plaintiff will pay the defendant 2 million KRW monthly at the end of each month from December 2015 until the extramarital child reaches adulthood" and other terms. By acknowledging C, Mr. A recognized C as a biological child, granting inheritance rights.

After agreeing to pay monthly child support to C, Mr. A revoked the gift intention stated in the memorandum and filed a lawsuit against Ms. B to cancel the mortgage lien.

In court, Mr. A argued that the memorandum he wrote was a legacy that could be unilaterally revoked, but this was not accepted because the testator's address, which must be included in a handwritten will, was not stated. Instead, the first-instance court judged that a private gift contract was established between Mr. A and Ms. B.

The first-instance court also ruled that although the mortgage lien was in Ms. B's name, the donee in the memorandum was the son C, so the mortgage registration in Ms. B's name was invalid as there was no secured claim (secured debt) to guarantee.

Furthermore, even if the mortgage lien was valid, the court ruled in favor of Mr. A, stating that a private gift contract can be revoked by the donor at any time and that Mr. A's intention to revoke was recognized.

The second-instance court also recognized the establishment of a private gift contract between Mr. A and C.

It viewed Mr. A's memorandum as an offer expressing the intention of a private gift, and with the consent of Ms. B, the legal guardian and representative of C, a valid contract was formed.

The issue was whether Mr. A could unilaterally revoke the private gift contract concluded between him and C.

Article 562 of the Civil Act (Private Gift) states, "The provisions on legacies apply mutatis mutandis to gifts that take effect upon the donor's death," but there has been academic debate on whether Article 1108, Paragraph 1 of the Civil Act, which states, "A testator may revoke all or part of a will or lifetime act at any time," also applies. The Supreme Court had not issued an explicit ruling on this matter.

Earlier, the first-instance court cited a 2014 Busan High Court ruling, finalized by the Supreme Court's refusal to review, which held that private gifts can be revoked by the donor at any time. However, the second-instance court ruled differently.

The second-instance court held that the provisions on revocation of legacies in the Civil Act generally do not apply to private gifts.

The court reasoned, "The legal nature of a private gift is a contract, and the donee, as the counterparty, acquires a conditional right (so-called expectancy right) by agreeing to the private gift contract. Therefore, it is difficult to directly apply Article 1108 of the Civil Act, a unilateral revocation provision based on the nature of a unilateral act, to private gifts."

Since a private gift is also a type of gift contract and the Civil Act only allows rescission of gift contracts under certain conditions, it is difficult to accept the interpretation that private gifts can be freely revoked.

However, the second-instance court offered a teleological interpretation recognizing revocation of private gifts in special circumstances, stating, "Private gifts, like legacies, require respect for the donor's final intention. If unforeseen circumstances arise after the private gift contract is concluded or if there are changes in legal relations, it is necessary to reflect these in the private gift contract relationship."

The court stated, "Although the provisions on revocation of legacies cannot be applied to private gifts, if the relationship of affection (情誼, a close personal relationship) between the donor and donee, which was the premise of the private gift contract, breaks down, or if there is a change in the legal relationship between the donor and donee, and the purpose pursued by the private gift contract can no longer be sufficiently achieved, and if the donor's revocation of the private gift does not violate good faith, it is reasonable to apply Article 1108 of the Civil Act and affirm the revocation of the private gift in such special circumstances."

It added, "Private gifts often occur in relationships such as extramarital children, who lack legal protection, as a form of inheritance or compensation. If such legal relationships later become legitimate or receive appropriate economic protection, it is reasonable to grant the donor the right to revoke and free them from the constraints of the private gift relationship."

Finally, the court ruled, "Considering that even if the plaintiff (Mr. A) dies, the extramarital child (C) can legally inherit, and that the plaintiff's revocation of the private gift intention does not seriously infringe on the trust of the extramarital child or the defendant (Ms. B) or violate good faith, it is reasonable to find special circumstances allowing the plaintiff to revoke the private gift intention," and ordered the cancellation of the mortgage registration in Ms. B's name.

However, the Supreme Court found the second-instance court's view?that revocation of private gifts is only possible in special circumstances?inappropriate and stated that private gifts, like legacies, can generally be revoked.

Nonetheless, the Supreme Court upheld the second-instance court's conclusion to accept Mr. A's request for cancellation of the registration and dismissed Ms. B's appeal.

A Supreme Court official said, "Although there has been academic debate on whether Article 1108, Paragraph 1 of the Civil Act, which recognizes revocation of legacies, applies to private gifts, the Supreme Court had never explicitly ruled on this. Through this ruling, the Supreme Court established for the first time the legal principle that, considering the practical functions of private gifts and legacies are not different, revocation of private gifts is allowed barring special circumstances," highlighting the significance of this ruling.

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