Reimbursement Claim Rights: Parties, Timing & Exercise Methods | K&P Law Firm

4. Parties to Reimbursement Claim Rights

Reimbursement claim rights are special claim rights (nominal claims) granted to holders based on principles of equity when rights under bills of exchange or checks are extinguished. The party exercising these rights (claimants) and the party bearing performance obligations (obligors) are determined according to Bills of Exchange and Checks Law and related judicial precedents.

4.1 Claimants (Rights Holders)

Those who can exercise reimbursement claim rights are legitimate holders of bills of exchange or checks at the time when rights under such instruments are extinguished due to procedural defects in exercising bill/check rights or completion of prescription.

Scope of Legitimate Holders: Legitimate holders of bills of exchange or checks include not only those who acquired the instruments through final endorsement, but also endorsers or guarantors who performed reimbursement obligations and recovered the bills or checks.

Requirements for Exercising Rights: Some argue that claimants must be able to exercise rights under bills or checks, suggesting they must possess valid bills or checks.

Those Unable to Exercise Rights:

• Holders of formally invalid bills of exchange or checks
• Holders when there has been a judgment declaring the nullification of rights (judgment that causes instruments to lose their effect)
• Those unable to exercise rights under bills or checks due to personal or substantive defenses
• Those who acquired bills/checks after completion of prescription or after procedural defects occurred cannot exercise reimbursement claim rights. However, according to the cancellation condition theory (prevailing view and case law), if the holder at the time of presentation period expiration is the original acquirer, those who legitimately received checks from such person acquire already existing reimbursement claim rights through assignment.

Substantial Rights Holders: Substantial rights holders can also exercise reimbursement claim rights since they can exercise rights under bills or checks by proving their substantial rights.

Assignees through Post-maturity Endorsement: The prevailing view holds that those who acquired rights under bills or checks through post-maturity endorsement can also exercise reimbursement claim rights if they possess the instruments when rights are extinguished.

4.2 Obligors (Debtors)

Since the purpose of the reimbursement claim rights system is to prevent unbalanced benefit occurrence by requiring reimbursement from those who gained benefits, obligors must have obtained benefits. Reimbursement obligors are generally those among bill or check actors who gained benefits by not bearing debts.

Those Bearing Responsibility: Bills of Exchange and Checks Law recognize holders’ reimbursement claim rights against drawers, and include endorsers in obligors when they have obtained benefits. This applies when endorsers substantially hold the position of drawers or endorse for guarantee purposes while receiving consideration.

Case of Non-recourse Endorsers: While some argue that non-recourse endorsers bear reimbursement obligations if they gain benefits, there is counterargument that imposing responsibility on those who expressed intention not to bear bill obligations from the time of bill acts is unreasonable, even if reimbursement claim rights are viewed as nominal claims based on bill rights.

Guarantors, Acceptors for Honor, etc.: Since positive law (Bills of Exchange and Checks Law) does not explicitly identify guarantors, acceptors for honor, etc. as reimbursement obligors, they are generally excluded from the scope of reimbursement obligors. Although they cannot become reimbursement obligors through interpretation, there is a view that they could be included from a legislative perspective.

5. Timing of Reimbursement Claim Rights Arising

Reimbursement claim rights are special rights granted to holders based on principles of equity when rights under bills of exchange or checks are extinguished due to procedural defects or completion of prescription. The timing of when these rights arise differs somewhat between bills of exchange and checks due to their characteristics.

5.1 In Case of Bills of Exchange

Reimbursement claim rights for bills of exchange arise when rights under bills of exchange are extinguished.

The timing when rights under bills of exchange are extinguished and when procedural defects in rights preservation occur can be determined relatively clearly.

In determining whether reimbursement claim rights can be exercised, it does not matter whether the legitimate holder at the time of rights extinction was the holder at bill maturity or acquired through post-maturity endorsement. However, those who acquired bills after completion of prescription or after procedural defects occurred cannot exercise reimbursement claim rights.

5.2 In Case of Checks: Theoretical Debate

Unlike bills of exchange, there is debate regarding the timing of reimbursement claim rights arising for checks.

Whether ‘Authority to Receive Check Payment’ is Included in Check Rights: Check drawees can pay check amounts even after presentation period expiration unless drawer’s payment mandate is cancelled. Check holders have recourse rights during presentation period, but if payment mandate is not cancelled after presentation period expiration, they retain authority to receive payment from drawees – the check receipt authority. Whether this check receipt authority after presentation period expiration is included in ‘check rights’ is the core of debate regarding timing of reimbursement claim rights arising, as this determines when reimbursement claim rights arise.

Theoretical Conflict:

• Condition Precedent Theory: This view holds that check rights include not only recourse rights but also check receipt authority after presentation period expiration. Therefore, reimbursement claim rights arise subject to the condition precedent of payment possibility extinction such as payment mandate cancellation or payment refusal. According to this view, check holders must present checks for payment and receive refusal before exercising reimbursement claim rights.
• Condition Subsequent Theory (Prevailing View and Case Law): This view holds that check rights are limited to recourse rights. Therefore, when payment presentation period expires, check rights are definitively extinguished, and reimbursement claim rights arise at this point if requirements are met. However, if valid payment is made by drawees later due to no payment mandate cancellation, the drawer’s benefit is extinguished, so already existing reimbursement claim rights are extinguished subject to this condition subsequent. Since ‘procedural defects’ under Checks Law means failure to present timely, it is reasonable that reimbursement claim rights arise from presentation period expiration. This is the position of prevailing theory and case law.

Relationship with Drawee’s Discretionary Payment Authority: The condition subsequent theory argues that drawees’ ability to pay voluntarily after presentation period expiration is merely their authority, not obligation, so this cannot be viewed as check rights.

Practical Differences Between Theories: The substantial difference between the two theories lies in when rights can be exercised.

• According to condition precedent theory, reimbursement claim rights can only be exercised after payment refusal occurs.
• According to condition subsequent theory, reimbursement claim rights can be exercised immediately after presentation period expiration.
• Additionally, condition subsequent theory holds that reimbursement claim rights can be exercised without possessing checks after presentation period expiration, while condition precedent theory requires check possession until payment presentation after presentation period expiration.

Application Differences for Cashier’s Checks: Cashier’s checks are checks with the drawer as drawee, functioning similarly to currency in actual transactions. Since issuing banks secure payment funds before issuance, holders rarely need to worry about payment refusal, and issuing banks have no reason to ultimately appropriate funds to themselves. Therefore, payment is usually made even after presentation period expiration unless there are special circumstances like theft or loss. Considering this reality and Checks Law provisions, some argue that the condition subsequent theory is appropriate for cashier’s checks. Supreme Court precedents also appear to take the position of condition subsequent theory that reimbursement claim rights arise when presentation period expires for cashier’s checks. In this case, checks themselves are not negotiable instruments embodying reimbursement claim rights, but have meaning as evidence securities proving that holders acquired or were assigned reimbursement claim rights.

6. Exercise of Reimbursement Claim Rights

6.1 Transfer of Rights

Transferability: Since reimbursement claim rights are rights, they can be transferred. Therefore, those who acquired reimbursement claim rights from legitimate holders at the time when rights under bills or checks were extinguished can exercise them.

Transfer Methods (Differences According to Legal Nature): Transfer methods vary according to theories regarding the legal nature of reimbursement claim rights.

• Transformation/Remnant Theory: This view holds that reimbursement claim rights are embodied in bills or checks, so rights are transferred merely by delivery of bills or checks. The transformation theory interprets instruments like checks after reimbursement claim rights arise as negotiable instruments embodying rights of the same type as non-negotiable bills.
• Nominal Claim Theory: This view considers reimbursement claim rights as nominal claims, so civil law methods for transferring nominal claims apply – notice to debtors or debtor consent is required for assertion against debtors and third parties, and instrument delivery is not required. This is the majority view.

Special Nature of Cashier’s Check Transfer (En Banc Decision Intent):

• The Supreme Court En Banc Decision ruled that cashier’s check reimbursement claim rights belong to nominal claims, but provided special interpretation regarding transfer of cashier’s checks after payment presentation period expiration, reflecting actual transaction practices.
• The core of the En Banc Decision was that check delivery alone transfers reimbursement claim rights while granting assignees the authority to notify benefit-gaining drawer banks on behalf of holders (assignors) regarding such transfer. This means that despite the requirement for assertion requirements for nominal claim transfer (notice/consent), assignees receive authority to establish assertion requirements themselves considering the special nature of cashier’s check transactions. This interpretation is evaluated as an attempt to legally protect transaction practices aimed at realizing cash substitutability of cashier’s checks.
• Double Transfer Issue: Accepting the En Banc Decision intent, after reimbursement claim rights and transfer notice authority are attributed to assignees through cashier’s check transfer after payment presentation period expiration, such rights cannot be double-transferred to other third parties. This is interpreted as recognizing assignees as the sole rights holders of reimbursement claim rights.

Bona Fide Acquisition: As long as reimbursement claim rights are viewed as nominal claims, nominal claims cannot be subject to bona fide acquisition. Courts also do not recognize bona fide acquisition of reimbursement claim rights. Therefore, reimbursement claim rights are not lost through loss or theft of bills or checks, and those who acquire or are assigned them in good faith do not acquire reimbursement claim rights.

6.2 Requirement to Possess Bills/Checks

Whether bills or checks must be possessed for exercising reimbursement claim rights depends on how the legal nature of reimbursement claim rights is understood.

Nominal Claim Theory: According to the majority nominal claim theory, possessing bills or checks is not necessary for exercising reimbursement claim rights. However, notice or consent regarding nominal claim transfer is required.

Remnant/Transformation Theory: Since this view considers reimbursement claim rights as transformations or remnants of rights under bills or checks, possession of transformed bills or checks is necessary.

Case Law (Regarding Cashier’s Checks): While courts understand reimbursement claim rights as nominal claims, for cashier’s checks, notice to debtors is viewed as granting authority to notify through check transfer. This is interpreted to mean that cashier’s checks after payment presentation period expiration are difficult to view as negotiable instruments embodying reimbursement claim rights, and holders merely possess them as evidence securities supporting acquisition or assignment of reimbursement claim rights. That is, while check possession is not absolutely necessary for exercising rights themselves, check delivery plays an important role in the transfer process.

6.3 Place of Performance

The place of performance for reimbursement claim rights differs from bill or check debts in that it is not the place indicated on bills or checks.

Creditor’s Address (Delivery Debt) vs. Debtor’s Address/Business Office (Collection Debt) Debate under Nominal Claim Theory: When understood as nominal claims under civil law, performance is principally delivery debt performed at creditor’s (holder’s) current address, but there is debate regarding reimbursement claim rights.

Basis for Viewing as Collection Debt (Preventing Debtor Disadvantage): There is a view that debts under reimbursement claim rights should be viewed as collection debts where holders receive payment at debtors’ (drawers, endorsers, etc.) addresses or business offices.

6.4 Delay in Performance and Effects

Regarding legal effects when performance of reimbursement claim rights is delayed, the following discussions exist:

Delay Damages: Since reimbursement claim rights are also monetary claims, delay damages according to legal interest rates occur when performance is delayed.

Prescription: The prescription period for reimbursement claim rights is 5 years, the general prescription period for claims. This is a separate prescription period from rights under bills or checks.

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