"Even After Terminating Mutual Name Trust, Ownership Cannot Be Claimed by Third Parties Without Registration"

The Supreme Court has ruled that even if there is a beneficial owner separate from the nominal trustee in a mutual name trust that has been terminated by agreement, without registration transfer, the nominal trustee cannot assert ownership rights against a third party who has acquired ownership rights from the nominal trustee.

The Civil Division 3 of the Supreme Court (Presiding Justice Ahn Cheol-sang) overturned the lower court ruling that dismissed the claim filed by Mr. A (represented by attorney Lee Si-hoon) against Mr. B and others for land rent, and remanded the case to the Incheon District Court on the appeal trial held on the 28th of last month (2023Da260972).

Mr. B’s parents acquired part of the land in the Seongbuk-gu area of Seoul around 1970, constructed a building, and completed ownership preservation registration for half of the shared interest in October 1984. Although the land was registered as co-owned by several co-owners including Mr. B’s parents before division, internally, each co-owner had a divided ownership relationship owning specific parts of the undivided land. Around 1998, the co-owners agreed to dissolve the divided ownership relationship, filed division registrations for each owned part, and in January 2000, reached a judicial settlement to terminate the mutual name trust and transfer ownership registrations for each part.

One of the co-owners, Mr. C, completed ownership transfer registration for part of the land according to the settlement record around May 2000, but Mr. B’s parents did not complete the ownership transfer registration as per the settlement record. Therefore, the land remained registered as co-owned by the co-owners.

Mr. C passed away while still holding a registered share of the land, and his heirs completed ownership transfer registrations based on an agreed division inheritance. Mr. A acquired some of the heirs’ shares by auction in November 2020 and completed ownership transfer registration.

After Mr. B’s parents passed away, their children inherited one-fifth shares each, and Mr. B completed ownership transfer registrations for all co-owners’ shares except Mr. A’s in January 2000 based on the termination of the mutual name trust.

Mr. A filed a lawsuit claiming, “As a partial owner of the land, I demand the return of unjust enrichment equivalent to land rent on the premise of the establishment of statutory superficies against Mr. B and others who own the building on the land, arguing that statutory superficies does not apply because the owners of the land and building were different when the building was established.”

Statutory superficies is a right that allows the building to continue to be used by law regardless of the landowner’s intention when ownership of either the land or the building changes.

The first trial court ruled, “Even if one holds a registered co-ownership share, such registration is ineffective as it pertains to an object over which the nominal owner has no rights,” and “Mr. A, who succeeded to this right, cannot assert it,” rejecting Mr. A’s claim.

The second trial court also ruled, “The divided ownership relationship between Mr. C and Mr. B regarding the land has already been dissolved,” and “Even if the registered co-ownership shares remain under Mr. C or his heirs’ names, such registration is ineffective as it pertains to an object over which the nominal owner has no rights, and Mr. A, who succeeded to this right, cannot assert it,” dismissing Mr. A’s appeal.

However, the Supreme Court’s ruling was different. The Supreme Court stated, “Even though the mutual name trust among the co-owners was terminated, since Mr. B and others did not receive ownership transfer registration for some shares, externally, ownership of those shares belongs to Mr. C’s heirs, and Mr. A, who acquired the shares by auction from those heirs, is the owner of those shares.”

It added, “The lower court judged that Mr. B and others were the owners of those shares, but this judgment contains an error that affected the ruling by misunderstanding the legal principles regarding the effect of terminating the name trust.”

Attorney Lee Si-hoon (age 40, 2nd bar exam), representing Mr. A from the law firm Sugar Square, said, “Article 186 of the Civil Act declares the principle that ownership changes take effect only upon registration, and Article 187 provides exceptions where real rights on real estate can change without registration, such as inheritance, public expropriation, judgment, auction, and other legal provisions,” adding, “This Supreme Court ruling broadly reaffirms the principle that changes in real rights must be based on registration.”

He continued, “Even if the mutual name trust is dissolved, it should not be regarded externally as a change in ownership under the ‘name trust doctrine,’ but only as an internal change in ownership,” and explained, “The Supreme Court found no need to recognize exceptions to the principle of registration-based real rights changes only in mutual name trusts.”

Reporter Han Su-hyun, Legal Times

※This article is based on content supplied by Law Times.

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