1. Case Overview
a. Party Represented by Barun Law: Defendant 2 (Appellant), the trustee of a real estate security trust
b. Background of the Case
Defendant 1, the settlor, entered into a demolition contract with the plaintiff but failed to pay the construction costs. The plaintiff, therefore, sought payment not only from Defendant 1 but also from Defendant 2, the trustee of the trust property.
c. Details of the Litigation
The plaintiff argued that Defendant 2 was either a party to the construction contract or had concurrently assumed the settlor’s obligation to pay the construction costs, and was thus liable for payment. Defendant 2, however, contested this claim, asserting that as trustee of a real estate security trust, it was only responsible for preserving and managing the collateral value of the trust property, and bore no liability for the settlor’s construction debt.
2. Judgment and Grounds
In the first instance, the court held that "Defendant 2 had concurrently assumed Defendant 1's payment obligations to the plaintiff for the construction costs, and therefore, Defendants 1 and 2 were jointly liable for such obligations."
However, the appellate court reversed, holding that "based solely on the evidence submitted by the plaintiff, it is insufficient to conclude that Defendant 2 concurrently assumed Defendant 1's obligation to pay the construction costs, and there is no other evidence to support such a finding."
3. Our Arguments and Role
In the appellate proceedings, we represented Defendant 2, emphasizing that Defendant 2 was not a party to the construction contract and had never assumed the debt. We further elaborated on the legal nature of a real estate security trust and the role of a trustee, persuasively arguing that Defendant 2, as trustee, was only obligated to preserve and manage the collateral value of the trust property, and bore no responsibility for the settlor's debt.
In particular, we clarified that the contractual provision stating "payment shall be made by the trust company" did not refer to Defendant 2, but instead referred to the trustee of a future management-type land trust to be established for the project financing (PF) business.
On the basis of these factual and legal arguments, we successfully proved that Defendant 2 bore no liability, thereby overturning the first instance judgment and winning on appeal.
4. Significance of the Judgment
This judgment clarified that, in the context of a real estate security trust, the trustee is not, in principle, liable for the settlor's general obligations (such as construction costs). It also made clear that the trustee's administrative cooperation cannot be construed as an expression of intent to assume liability for such debts.
