Hello. This is attorney Lee Kyung-jun of Cheongchul Law Firm.

It is common to see embezzlement complaints filed on the ground that “money was lent for a specific purpose only, but the borrower used it for something else.” Such disputes frequently arise in real estate transactions (balance/down payments), business funds, joint-venture operating funds, and auction bid deposits.

However, not every “misuse of purpose” constitutes embezzlement. The same factual pattern may amount only to a civil breach of contract, while in other cases it may fall under embezzlement defined in Article 355(1) of the Criminal Code (형법 제355조 제1항). The decisive concept that draws this boundary is “whether the entrustment relationship still exists.”

On this very issue, the Supreme Court recently issued a ruling that once again clarifies the standard: Supreme Court Decision 2025Do16015 (대법원 2026. 5. 29. 선고 2025도16015 판결, embezzlement, appeal dismissed). Using an auction bid deposit case, the Court clearly set out “when an entrustment relationship terminates and when it transforms into a mere creditor-debtor relationship.”

1. Overview of the Case — Arbitrary Use of Returned Bid Deposit Money

The defendant borrowed KRW 34,087,800 from the victim company strictly for the purpose of paying a real estate auction bid deposit. The defendant paid the deposit to the court using this money and was even designated as the highest bidder, receiving the court’s permission of sale.

However, the defendant failed to pay the purchase price, and the auction was therefore unsuccessful. Concerned about a drop in the land’s sale price, the victim company withdrew the auction application itself, and the court returned to the defendant the previously paid bid deposit plus interest, totaling KRW 34,117,958.

Despite promising to pay this returned money back to the victim company, the defendant breached the promise and arbitrarily used the money. The prosecution thus indicted the defendant for embezzlement. Both the trial and appellate courts acquitted the defendant, and the Supreme Court dismissed the appeal, confirming the acquittal.

2. The Supreme Court’s Reasoning — Timing of Termination of the Entrustment Relationship Is Key

The Supreme Court first reaffirmed the basic structure of embezzlement. For embezzlement to be established, all of the following must be satisfied: (i) the embezzled property must belong to another person; (ii) an entrustment relationship must exist between the actor and the owner; and (iii) the actor must arbitrarily use the property kept on the basis of that entrustment (see Supreme Court en banc Decision 2017Do17494 of July 19, 2018 / 대법원 2018. 7. 19. 선고 2017도17494 전원합의체 판결 참조).

The Court then addressed the special nature of “purpose-restricted entrusted funds.” Money entrusted for a specified purpose remains under the entruster’s ownership until it is used for that purpose; therefore, if the trustee arbitrarily uses it before that point, embezzlement is established (see Supreme Court Decision 2007Do10341 of December 11, 2008 / 대법원 2008. 12. 11. 선고 2007도10341 판결 참조).

The key issue in this case, however, is the next stage: where the borrowed money has “already been used” for its designated purpose (payment of the bid deposit) and is subsequently returned to the defendant due to a change in circumstances, does the entrustment relationship continue to apply to the returned funds? The Supreme Court held that “the entrustment relationship was terminated at the moment the funds were used for their designated purpose, and the money later returned therefore belongs to the defendant,” concluding that no embezzlement was committed.

3. Embezzlement, Breach of Trust, Fraud, and Mere Default — How to Distinguish Them

Among property crimes, the most confusing area for ordinary citizens is distinguishing embezzlement, breach of trust, fraud, and mere default on a debt. Embezzlement (Criminal Code Article 355(1)) is established when a person entrusted with “property belonging to another” disposes of that property as if it were their own. The key question is “who owns the property.”

Breach of trust (Criminal Code Article 355(2)) is established when a person “handling the affairs of another” violates their duty and causes loss to the principal. Unlike embezzlement, which concerns “tangible objects,” breach of trust concerns “property interests.” Fraud (Criminal Code Article 347) is established when a person, with the intent to deceive from the outset, deceives another party and obtains property or property interests, which decisively distinguishes it from mere default.

Mere default is not a criminal offense. Failure to repay borrowed money in itself does not give rise to criminal liability — it is purely a matter of debt recovery through civil litigation. Therefore, when handling criminal complaints or representing complainants, the first analysis must be: “does this case fall within embezzlement, breach of trust, or fraud, or is it merely a default?”

4. Practical Significance of the 2025Do16015 Ruling

This ruling makes clear that “purpose-restricted loaned money” cannot automatically be charged as embezzlement. While the entrustment relationship subsists (i.e., until the money is used for its designated purpose), embezzlement may apply; but once the money has been used for that purpose, the entrustment relationship terminates and any subsequent circumstances cannot easily be charged as embezzlement.

Notably, this ruling lays down a general principle applicable to all cases where funds change hands under a “purpose agreement” — real estate transactions, auctions, joint ventures, investment agreements, and so on. In disputes such as a business partner using operating funds elsewhere, or a real estate buyer diverting the balance payment, the core issue likewise becomes “did the entrustment relationship still exist at that point, or had it already terminated?”

It should also be noted that, although this is an acquittal in an embezzlement case, it does not mean “the defendant is free of all liability.” The defendant still bears civil liability for non-repayment of the loan. Clearly explaining to clients that criminal and civil liability are separate is also an important role of defense counsel.

5. What Clients Should Check at the Early Stage of a Case

For clients who have been accused of embezzlement in money transactions involving a purpose agreement, or who are considering filing such a complaint, the first item to review is “the specific content of the agreement”: (i) whether the purpose was expressly agreed at the time of the loan; (ii) whether the agreement was preserved in writing (loan note, settlement agreement, messenger logs); and (iii) whether there is evidence that the money was actually used for the agreed purpose, all organized in chronological order.

Next, the “timing of termination of the entrustment relationship” must be clarified: (iv) when the money was actually used for the agreed purpose; (v) whether there were subsequent changes in circumstances (failed transactions, withdrawal of the auction, cancellation of contract, etc.); and (vi) whether the funds returned after such changes can be evaluated as having the same character as the original loan.

Finally, it must be examined which category the case falls into: “embezzlement, breach of trust, fraud, or mere default.” Even on the same facts, the case may amount to (vii) fraud if the borrower had no intent to repay from the outset, (viii) embezzlement if the money was arbitrarily used while the entrustment relationship subsisted, or (ix) mere default if it was not repaid after the entrustment relationship had terminated. The defense strategy changes entirely depending on this classification.

6. Conclusion

The 2025Do16015 ruling once again shows that the mere label “purpose-restricted entrusted funds” does not automatically establish embezzlement. The intervals during which the entrustment relationship subsists and the intervals after it has terminated must be clearly distinguished, and because the boundary is decided through factual findings, the work of meticulously reconstructing the facts is absolutely critical to the outcome of guilt or acquittal.

For anyone who has been accused in a property crime case or who is considering filing such a complaint, what is needed is not merely the perspective of “I did not get my money back,” but a reorganization in the language of criminal elements of “at what point and how a specific entrustment relationship was terminated.” We strongly recommend that you consult a criminal-law specialist attorney as early as possible and design your defense strategy together.