Can a pledgee of a trustee's expense-reimbursement claim sell the trust property itself? Supreme Court Decision 2003Da55059 on 'the trustee's expense-reimbursement claim'

Question

Article 42 of the Trust Act, as the decision reads it, gives the trustee a claim for reimbursement of expenses properly incurred and of loss suffered without fault in handling trust business. Articles 331, 345, 353 and 355 of the Civil Act govern pledges of rights, and Article 352 provides that a pledge-setter may not extinguish or change the pledged right to the pledgee's prejudice without the pledgee's consent. The question is what kind of right the trustee's expense-reimbursement claim is, whether it may be assigned and pledged, and whether a pledgee of it may directly exercise the trustee's power to sell trust property.

Decision 2003Da55059 raises the question on a pledge agreement of 1 July 1998 between Non-party and Plaintiff and others, 14 financial institutions, covering 25 trust projects and securing loan principal and interest with the expense-reimbursement claim Non-party would hold against the trust property at the end of each trust. In about April 2001 Defendant took over 7 of those trust projects together with the expense-reimbursement claims, but denied the pledge agreement, relying on a second corporate restructuring plan for Non-party; Plaintiff therefore brought a confirmation action, because the trusts Defendant acquired had not yet ended.

Material to check

The statutes are Article 250 of the Civil Procedure Act, cited by the decision in connection with confirmation actions, whose current text allows a confirmation action to establish whether a document proving a legal relationship is genuine; Article 352 of the Civil Act, under which a pledge-setter may not, without the pledgee's consent, extinguish the pledged right or make a change prejudicial to the pledgee; Articles 331, 345, 353 and 355 of the Civil Act, on the object of a pledge, pledges of rights, enforcement of a pledged claim and the supplementary application of the rules on pledges of movables; Article 42 of the Trust Act; Articles 28 and 31 of the Trust Act, listed for the trustee's duty of fidelity, which the decision grounds on Article 31; and Articles 64 and 69 of the Bankruptcy Act, cited on avoidance. The current text of Article 42 of the Trust Act (in force from 1 November 2018) is headed 'entrustment of trust business' and deals with a trustee having another person handle trust business with the beneficiary's consent and the responsibility that follows; the decision reads Article 42 as providing the trustee's claim for reimbursement of expenses. The current text of Article 31 of the Trust Act describes the trustee as the party to which the rights and duties of the trust property belong, with authority to manage and dispose of it, while the decision cites that Article as generally restricting the trustee's acquisition of rights in the trust property.

The decisions are Decision 2003Da55059 (22 December 2005) and the three it cites: Decision 93Da40089 (22 November 1994) and Decision 97Da54024 (17 September 1999) on the interest in a confirmation action, and Decision 2001Da25078 (28 June 2002), which repeats that a confirmation action is allowed where there is an existing anxiety or danger in the plaintiff's rights or legal position and a declaratory judgment is the most effective and appropriate means of resolving the dispute fundamentally.

Possible readings

Read with the cited decisions, a confirmation action is recognised where the plaintiff's legal position is in anxiety or danger and a declaratory judgment is the most effective and appropriate means of removing it. Decision 97Da54024 adds the limit that where the plaintiff could bring an action for performance directly, a mere confirmation action serves no interest in protecting rights. Decision 2003Da55059 found the interest present because the trusts taken over by Defendant had not ended, so Plaintiff could not yet exercise its rights as pledgee, and Defendant's denial of the pledge agreement left its position uncertain.

Assignment of a claim that is the object of a pledge is not a change prejudicial to the pledgee's interest within Article 352 of the Civil Act, and so needs no consent of the pledgee. On this reading, Defendant's argument that Non-party's expense-reimbursement claims could not pass to it without Plaintiff's consent, and that the confirmation action therefore failed for want of interest, was rejected.

On the nature of the right, the decision reads Article 42 of the Trust Act as giving the trustee a right to claim reimbursement from the trust property or the beneficiary for expenses duly incurred, or loss suffered without fault, in handling trust business. While the trustee remains in office it cannot enforce that claim against the trust property, since the manager of the trust property is the trustee itself; after the trustee's term ends it may claim against the new trustee and enforce against the trust property. Under Article 42(1) it may sell the trust property and apply the proceeds to the claim ahead of other right-holders. Because the claim is held by the trustee personally and has independence, it may be assigned and may be the object of a pledge of rights. The self-help sale, however, rests on the trustee's power of management and disposition as holder of the title to the trust property and is limited to disposition in accordance with the purpose of the trust, so a pledgee of the trustee's expense-reimbursement claim cannot exercise that power directly.

What the decisions held

Decision 2003Da55059 dismissed the appeal and ordered Defendant to bear the costs, affirming the judgment of the Seoul High Court of 29 August 2003 (2002Na51106). It held that the pledge agreement of 1 July 1998 over Non-party's expense-reimbursement claim at the end of each trust was valid, that the assignment of those claims to Defendant in about April 2001 did not require Plaintiff's consent, and that the pledgee of such a claim could not itself exercise the trustee's self-help sale against the trust property.

Applying the rule, the Court held first that Plaintiff had an interest in the confirmation action, since Defendant denied the pledge agreement and the trusts it acquired had not ended, so Plaintiff could not yet act as pledgee. It then held that the costs of taxes, public charges and other trust business are borne by the trustee as the named holder and manager of the trust property, that where trust business is properly conducted such costs are in substance debts of the trust property, and that a trustee paying them from its own money must be able to recover from the trust property; the claim is therefore an independent right of the trustee personally, which may be pledged. Setting a pledge over it was not a breach of the trustee's duty of fidelity, which is the duty to manage the trust property in accordance with the trust purpose and to further its interests to the utmost and is generally recognised on the basis of Article 31 of the Trust Act, because the act did not set the interests of the trust property or the beneficiaries against the trustee's own. The avoidance exercised by Non-party's trustee in bankruptcy in respect of an act avoidable under Article 64(i) of the Bankruptcy Act affects only the bankruptcy estate and the counterparty and does not reach third parties, so it did not affect the pledge over the claims Defendant had taken over. Finally, the claim available to Plaintiff against Defendant concerns the trust projects Defendant acquired, which differs from the claims against Non-party, and the amount of KRW 671,000,000 that Plaintiff reported in Non-party's bankruptcy concerned the share it could exercise in relation to other joint pledgees; since the claims Defendant acquired can be fixed only when the trusts end, the Court of Appeal's holding that Plaintiff held a pledge within the maximum amount of the secured obligation already rejected Defendant's argument that the confirmation claim be limited to that sum.

Points left open

The decision does not settle how a pledgee realises the pledged claim while the trust is still running. It states that the trustee itself cannot enforce against the trust property during its term and that after the term ends the trustee may claim against a new trustee and enforce against the trust property, but it does not say whether a pledgee may collect directly from the trust property or from the beneficiary under Article 353 of the Civil Act, nor how the self-help sale restriction is to be worked around in practice.

The decision states at once that the expenses are in substance debts of the trust property and that the reimbursement claim is property belonging to the trustee personally, and it does not work out the consequences of that combination for the trustee's other creditors, for priority between them, or for any claim against the beneficiary. The texts read for this brief also supply a current text of Article 42 of the Trust Act that concerns entrustment of trust business rather than expense reimbursement, and it does not show which provision now carries the rule the decision stated.

When to reconsider

We revisit this brief if the Trust Act is amended or renumbered so that the trustee's expense-reimbursement claim is placed in a different article, if a later Supreme Court decision rules on whether a pledgee may collect the claim directly from the trust property or the beneficiary, or if a later decision holds that a pledgee of such a claim may exercise the self-help sale.

Statutes referred to

• 민사소송법 제250조
• 민법 제352조, 제331조, 제345조, 제355조, 제353조
• 신탁법 제42조, 제28조, 제31조
• 파산법 제64조, 제69조

Decisions referred to

• 대법원 2005. 12. 22. 선고 2003다55059 판결 · Decision ledger
• 대법원 1994. 11. 22. 선고 93다40089 판결
• 대법원 1999. 9. 17. 선고 97다54024 판결
• 대법원 2002. 6. 28. 선고 2001다25078 판결

Verification status

All texts were read at the National Law Information Center (law.go.kr) on 24 October 2026. The decision was read in its published holdings, summary and full reasons, the cited articles in their current text as supplied, and the three cited decisions in their published holdings and summaries.