Where a seller retains ownership of goods until full payment, what is the seller's position in the buyer's bankruptcy, and can the buyer's assignment of its purchase-price claims to that seller be avoided? Decision 2022Da294084 on a right of separate exercise

Question

Article 407 of the Debtor Rehabilitation and Bankruptcy Act provides that a bankruptcy adjudication does not affect the right to retrieve property not belonging to the debtor from the bankruptcy estate, and Article 410 governs a substitute right of retrieval where that property was transferred before the adjudication. Article 411 gives a right of separate exercise over the object property to holders of a lien, pledge, mortgage, a security right under the Act on Security over Movables, Claims, etc. or a lease deposit right on estate property, and Article 412 provides that the right is exercised without going through the bankruptcy proceedings. Article 391(1) lets the trustee avoid 'an act done by the debtor knowing that it harms bankruptcy creditors', unless the person who benefited did not know at the time of the act that it would harm bankruptcy creditors. Where movables are sold and delivered on terms that ownership stays with the seller until the price is fully paid, the question is which of these positions the seller holds in the buyer's bankruptcy, and what follows for anything the seller received before the adjudication.

Decision 2022Da294084 answers that question in a dispute between the bankruptcy trustee of a company and its supplier. The supplier had granted the debtor company an exclusive distributorship and supplied car parts and other goods on retention-of-title terms; it had also lent the company money and, before the adjudication, had taken an assignment of the company's receivables from its customers in payment of both debts. The trustee sued to avoid that assignment.

Material to check

The statutes read for this brief are Articles 70, 141, 391, 407, 410, 411, 412, 492, 497 and 498 of the Debtor Rehabilitation and Bankruptcy Act and Article 288 of the Civil Procedure Act. Article 411 lists the holders of a right of separate exercise; Article 492(13) makes the trustee's recognition of estate claims, rights of retrieval and rights of separate exercise an act requiring the court's permission; Articles 497 and 498 let the trustee realise the object of a right of separate exercise and let the court set a period for its holder to dispose of it. Article 288 provides that facts admitted by a party in court and manifest facts need no proof.

The decisions examined are Decision 2022Da294084 and the precedents it cites. Decision 2000Du8752 (23 April 2002) treated a holder of a transfer of security as a holder of a right of separate exercise although such holders are not among those listed, and Decision 2006Da17201 (14 January 2010) held the same for a holder of a bill transferred as security. Decision 2009Do5064 (25 February 2010) stated that a retention-of-title sale arises from the seller's intention to acquire and keep security for the price claim until it is paid in full, and that the concept need not be invoked for property whose ownership passes by registration. Decision 2013Da61190 (10 April 2014) held that the retained ownership has the substance of a security right, so in the buyer's rehabilitation the seller is treated as holding a rehabilitation security right and cannot exercise a right of retrieval over the goods. Decision 2011Da56637, 56644 (13 October 2011) is cited in the decision, but its text could not be opened, so it is not discussed here.

Possible readings

Read with Decisions 2000Du8752, 2006Da17201, 2009Do5064 and 2013Da61190, the retention-of-title seller's position in the buyer's bankruptcy is that of a holder of a right of separate exercise. The decision gives its reasons: bankruptcy is a collective and comprehensive procedure for fairly realising the estate of a debtor whose rehabilitation is difficult and distributing it to creditors, so creditors whose rights are of a similar legal nature must be treated equally; the retained ownership has the substance of a security right, so the seller is no different from the listed secured creditors and holders of a transfer of security; and since the Act links rehabilitation and bankruptcy proceedings organically, treating the seller as able to exercise a right of separate exercise in bankruptcy as well is the consistent construction. The decision adds that this brings the seller no great disadvantage, because Article 412 lets the right be exercised outside the bankruptcy proceedings, while the trustee may recognise the right, set a disposal period or realise the object property under Article 492(13), Article 497 and Article 498, balancing the interests of those concerned and letting the bankruptcy run quickly and efficiently.

The same reasoning supports a second rule. To the extent of the secured claim, estate property subject to a security right or lease deposit right is not part of the general creditors' common security, so a payment or payment in kind by the debtor to such a holder is in principle not open to avoidance while the secured claim and the value paid remain in balance.

A third reading follows from the buyer's power of disposal. Where the seller authorises the buyer to dispose of the goods and the buyer disposes of them to a third party, the third party acquires ownership and the seller loses the retained ownership; as a rule, the seller then cannot assert ownership, a security right or other priority over the buyer's purchase-price claim against the third party. So where the buyer disposed of the object before the adjudication on a power of disposal already conferred by the seller, absent special circumstances the seller cannot assert a right of separate exercise over those purchase-price claims either. Decision 2011Da56637, 56644 is cited in the decision for the scope of Article 391(1) and the burden of proof; its content is not described here.

What the decisions held

On the facts found below, on 7 August 2017 the defendant entered into a contract with the debtor company under which it granted the debtor an exclusive distributorship and supplied it with car parts and other goods; proceeds of the debtor's sales were to be paid into an account in their joint names, from which the defendant was to be paid the supply price first; and ownership of the supplied goods was to pass to the debtor when the supply price had been paid in full. The defendant supplied goods under that contract. Separately, on 13 August 2018 the defendant agreed to lend the debtor 480,000,000 won at 7% annual interest, with repayment dates of 30 October and 30 November 2018, and remitted that sum on 15 August 2018. On 29 November 2018 the debtor assigned to the defendant, in payment of the price of goods and the loan, receivables from 15 businesses totalling 596,920,000 won, of which the defendant collected 496,188,542 won. The debtor filed for bankruptcy on the ground of insolvency on 27 February 2019 and was adjudicated bankrupt on 3 April 2019.

Decision 2022Da294084 (12 September 2024) dismissed the defendant's appeal against the Seoul High Court's judgment of 20 October 2022 ((Incheon)2021Na15534) and ordered the defendant to bear the costs of the appeal. It held that the defendant, a seller under a retention-of-title sale, could exercise neither a right of retrieval nor a substitute right of retrieval in the debtor's bankruptcy, whatever its position on a right of separate exercise; and that, because it had conferred the exclusive distributorship on the debtor and so granted authority to dispose of the goods, it had lost the retained ownership over goods disposed of to third parties before the adjudication, and with it the standing to exercise a right of separate exercise. The court below had held that the agreement to receive payment through the joint-name account did not by itself entitle the defendant to be paid ahead of the debtor's other creditors, and that the assignment of the receivables was a preferential act evading equality among creditors, avoidable under Article 391(1); the decision agreed.

On the avoidance ground the decision holds that the words of Article 391(1), 'an act done by the debtor knowing that it harms bankruptcy creditors', cover not only acts that remove the debtor's general property from the estate, but also preferential acts such as payment to or provision of security for a particular creditor, which affect the debtor's property relations, put that creditor in a better position in the distribution and thereby hinder equal distribution among bankruptcy creditors. An act within that provision still cannot be avoided if the person who benefited did not know at the time that it harmed bankruptcy creditors, but the beneficiary's bad faith is presumed, so the beneficiary bears the burden of proving good faith. The Court held that the court below was right to find the defendant's evidence insufficient to establish its good faith, and found no error of fact-finding or incomplete inquiry affecting the judgment.

Points left open

The decision states that absent 'special circumstances' the seller cannot assert a right of separate exercise over the buyer's purchase-price claim against a third party, but it does not say what would count as such a circumstance. Nor does it address cases where the seller gave no authority to dispose of the goods, where the trustee rather than the buyer disposed of them, or where the price was collected some other way.

The decision also leaves open how the balance test for payments to a holder of a right of separate exercise works where an assignment secures both the price of goods and a separate loan, since this assignment was avoided as a preferential act without separate treatment of the secured part. On the beneficiary's proof of good faith, the decision says only where the burden of proof lies.

When to reconsider

This brief will be revised if the Supreme Court defines the 'special circumstances' in which a retention-of-title seller may still assert a right of separate exercise over the buyer's purchase-price claims, if it clarifies the balance test or the proof of a beneficiary's good faith, if the text of Decision 2011Da56637, 56644 becomes available, or if Articles 391, 410 or 411 of the Debtor Rehabilitation and Bankruptcy Act are amended.

Statutes referred to

• 채무자 회생 및 파산에 관한 법률 제70조, 제141조, 제407조, 제411조, 제412조, 제492조, 제497조, 제498조, 제391조, 제410조
• 민사소송법 제288조

Decisions referred to

• 대법원 2024. 9. 12. 선고 2022다294084 판결 · Decision ledger
• 대법원 2002. 4. 23. 선고 2000두8752 판결
• 대법원 2010. 1. 14. 선고 2006다17201 판결
• 대법원 2010. 2. 25. 선고 2009도5064 판결
• 대법원 2014. 4. 10. 선고 2013다61190 판결

Verification status

The texts read for this brief were the published holdings, summary and reasons of Decision 2022Da294084, the current text of the articles it cites, and the published holdings and summaries of the precedents it cites, all at the National Law Information Center on 24 October 2026. The text of Decision 2011Da56637, 56644 could not be opened, so nothing is said here of its content.