Yangdo-dambo

Yangdo-dambo (양도담보/讓渡擔保) is a non-statute collateral by means of a fiduciary transfer of title, acknoledged by the court in Korea.

If the debtor fails to perform its obligation, the creditor may secure the title of the collateral, or shall be satisfied with the proceeds of such collateral. Both real estate and movable asset are eligible for yangdo-dambo.

Once the Act on Security Interests in Movable Properties, Receivables, etc. (동산·채권등의 담보에 관한 법률/動産·債權擔保法) becomes effective in June 2012, however, yangdo-dambo is supposed to give way to new kind of chattel mortgage based on electronic registration of underlying movable assets.

Key words
yangdo-dambo, mortgage, chattel mortgage

Legal Nature of Yangdo-dambo
Conventionally yangdo-dambo has been acknowledged by the court as a fiduciary transfer of title insofar as such collateral is not detrimental to the obligor.

However, since the implementation of the Provisional Registration Security Act (가등기담보법/假登記擔保法) as from January 1, 1984, real estate may be granted as collateral subject to registration under the Act (Article 1), and the title of such collateral should be transfered in the course of liquidation procedure. If the title is transfered to an innocent third party even without the liquidation procedure, it shall be approved as an innocent acquisition (Proviso of Article 11).

Accordingly, as far as real estate is concerned, yangdo-dambo of real estate is of nature as a security interest. Otherwise, yangdo-dambo of personal properties and other assets is actually a fiduciary transfer of title.

Supreme Court cases
In 1990, for the first time, the Supreme Court acknowledge one million eels in the specified fish farm as collateral subject to traditional yangdo-dambo.

In a typical case, the Supreme Court held that, once the yangdo-dambo agreement is executed for collective goods, any change or replacement of individual components would not affect the continuity as single collateral even though the yangdo-dambo interest holder has not entered into a separated yangdo-dambo security agreement nor expressed sale and lease-back. Accordingly, the effect of yangdo-dambo prevails over the present collective goods. In this regard, the yangdo-dambo interest holder may exercise his/her right against third parties except the yangdo-dambo grantor as if he/she is the owner of the movable asset.

The situation is quite different when the change of collective goods is financed by a third party. Originally when a security holder has obtained the possession of collective goods existing at the time of a yangdo-dambo security agreement by means of “sale and lease-back” of floating collective goods, the yangdo-dambo security interest shall affect the current collective goods maintaining the same collectivity as a whole even though a separate yangdo-dambo security agreement is not executed for the individual in-coming goods. This principle applies to collective goods such as fish in a fish farm or inventories in a warehouse. Since a floating collective yangdo-dambo security agreement expects inflow and outflow of individual goods comprising the whole collective goods, it is for the convenience of the transactions that the legal effect of yangdo-dambo security interest presumes to affect the individual goods brought in or taken out by the security interest provider.

If, however, the number of goods brought in by the security interest provider increases and finally exceed remarkably the original number of goods in a specified place, the scope of yangdo-dambo security interest will be limited to an appropriate extent by interpreting the intent of the parties concerned.