Cancellation right of beneficiary under trust law: Call for possible paradigm shift

• Main Author: WU, Ying Chieh
• Format: text
• Language: Korean
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Disposition; beneficiary; beneficiary`s right; union; partnership; bankruptcy; trustee; jurisdiction; proprietary right; disposition; beneficiary right; void; rescission; Bankruptcy Law
• Online Access: https://ink.library.smu.edu.sg/sol_research/2153
• Institution: Singapore Management University

This article questions the adequacy of rescission as a response to breaches of trust under Korean trusts law. When trustees dispose of trust assets in breach of trust, the beneficiary is entitled to rescind the disposition concluded by him (though the right to rescind is barred when someone who purchases the assets for value without notice of the breach). The argument here will be that it is hard to locate a theoretical justification for awarding rescission to the beneficiary under Korean law since he is only a holder of a personal right that only binds his obligor(i.e., his trustee). We can of course find two cases in which a personal right-holder is allowed to cancel the transaction entered into between others. The first case is Actio Pauliana in which the creditor can turn over the effect of the contract made between his obligor and third parties. The second case is parent`s right to rescind the contract made between his minor children and third parties. However, the former is only possible to be established under some stringent requirements and the latter is supported by a strong policy (i.e., protecting minors). But, as mentioned in the article, the beneficiary`s right to rescind neither requires strict conditions nor has a viable policy-based ground. Thus, the article concludes that the beneficiary`s right to rescind is an anomalous remedy. The article suggests that the deal transacted between the trustee and third party should be void. When we explore the following three cases that structurally resemble the case of breach of trust, the effect should be to make the transaction void rather than voidable. These cases are as follows: (1) when a partner disposes of partnership`s asset in breach of partnership`s constitution; (2) when a bankrupt disposes of his assets after he is declared bankrupt; (3) when a director disposes of company`s assets in breach of his powers. The article argues that the transaction concluded between the trustee and third party should also follow those cases and be treated as a void transaction. This would be a much more theoretically justified and practically plausible approach under the current law of trusts in Korea.