Question from a reader:
I would like to learn about civil law, but I have heard that real estate does not have public credibility. However, I also heard that it can be applied by analogy to protect third parties based on Article 94, Paragraph 2 regarding collusive false representation. I am struggling to explain this relationship well. If asked why rights
holders can be protected despite the lack of public credibility, how should I respond?

Considerations on Public Credibility of Real Estate and Collusive False Representation in Civil Law

Legal issues regarding real estate are very close to our daily lives. Understanding real estate, which is said to lack “public credibility,” is important not only for legal professionals but also for the general public. This time, I will specifically discuss “collusive false representation” and its application. This topic can be a bit complex, but I will explain it thoroughly, so please stay with me.

What is the Public Credibility of Real Estate?

First, let’s briefly explain the public credibility of real estate. Generally, public credibility refers to the ability of third parties to trust the rights related to that real estate. Normally, real estate rights are clarified through the registration system. With registration, third parties can verify the content and trust that information when conducting transactions. However, the public credibility of real estate is often not complete. For example, let’s say Person A sells real estate to Person B. If B starts using the real estate without registering it, and A has actually sold that real estate to Person C as well, C’s rights will take precedence. This is the case if C has registered their rights; without registration, B’s rights will not be recognized.

What is Collusive False Representation?

Next, let’s look at collusive false representation. Collusive false representation refers to when the parties agree on a content different from the actual contract and present that to the outside world. For instance, if A and B agree to “sell this real estate,” but B’s actual purpose is not to acquire that real estate, they are engaging in “collusive false representation.” According to Article 94, Paragraph 2 of the Civil Code, if collusive false representation occurs, rights can be recognized for third parties under specific conditions to protect them. What’s important here is the idea of “protecting rights holders” under certain circumstances.

How Can Rights Holders Be Protected Despite the Lack of Public Credibility?

Now, returning to the question: “How can rights holders be protected despite the lack of public credibility?” To understand this point, we need to consider the background of collusive false representation and the mechanism of its application. The essence of collusive false representation lies in unfair acts between the parties. By making others believe in a contract that does not actually exist, they cause disadvantages to other third parties. Therefore, the law chooses not to tolerate such injustices and opts to protect third parties under specific conditions. For example, if A and B enter into a real estate sales contract, and then C purchases that real estate from A, if A and B engaged in collusive false representation, C is purchasing the real estate based on that information. If C is not protected, they would suffer complete disadvantage. For this reason, the law may recognize C’s rights.

Learning from Actual Cases

Now, let me share a bit of my experience related to this topic. When I worked at a real estate brokerage, I encountered a case of collusive false representation. A client introduced the same property to another client, even though that property had already been sold to someone else. In this case, the seller A and the buyer B had actually entered into a contract but were hiding that information from B. As a result, when C tried to purchase that property, legal issues arose. Ultimately, it was decided that C would be protected to avoid suffering a disadvantage, but it was a very troublesome situation for everyone involved. Through such real examples, I realized how realistically collusive false representation and its impacts can occur. I also felt that understanding why the law protects third parties in such situations is very important.

In Conclusion

Discussions on collusive false representation provide a good opportunity to understand the complexities of law. It is essential to know that there are mechanisms in place to protect third parties even in real estate transactions that lack public credibility. Real estate transactions are significant decisions that may occur only once in a lifetime, and understanding the underlying laws can help facilitate safer transactions. If you wish to learn more about this topic or consult about specific cases, I highly recommend speaking with a professional. The law may seem difficult, but by thinking together and deepening our understanding, we can gradually see a brighter light.