International Mutual Savings Bank (Law Firm Gwangju Metropolitan City, Attorneys Lee Dong-dae et al., Counsel for defendant-appellant)

Busan Bank (Law Firm Cheongn, Attorneys Choi Chang-il, Counsel for defendant-appellant)

September 28, 2010

Busan District Court Decision 2009Kahap3776 Decided April 9, 2010

1. Revocation of a judgment of the first instance;

2. From among the distribution schedule prepared by the above court on August 4, 2009 with respect to the auction of real estate in Busan District Court Decision 2008TTTY 15822 and 17385 (Dual), the amount of dividends against the defendant shall be corrected to 1,150,080,93 won, and the amount of dividends against the plaintiff shall be corrected to 130,000,000 won, respectively.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Basic facts

The following facts are not disputed between the parties, or may be acknowledged in Gap evidence 1 to 13, and Eul evidence 1 (including each number), taking into account the overall purport of the pleadings:

A. On March 12, 2002, the Defendant loaned money to Nonparty 1 and Nonparty 2, and completed the registration of the establishment of a neighboring mortgage in the Defendant’s name (hereinafter the Defendant’s above collateral security right is referred to as “first-class collateral security”) with respect to the building and its ground (hereinafter “each real estate of this case”) with the amount of 330.8 square meters and 330.8 square meters, which were owned by Nonparty 1 and Nonparty 2 in each of the shares of 1/2,00,000,000 won.

B. On March 17, 2008, the Plaintiff loaned KRW 1 billion to Nonparty 1. On the same day as security, the Plaintiff completed the registration of creation of a neighboring mortgage in the name of the Plaintiff, each of which is KRW 1.3 billion in maximum debt amount, with respect to Nonparty 1’s Busan Do-dong (hereinafter 2 omitted), Busan Do-dong (hereinafter Nonparty 3’s Busan Do-dong) in Busan Do-dong (hereinafter Nonparty 3 omitted), and ③ the registration of establishment of a neighboring mortgage in the name of the Plaintiff with respect to Nonparty 1’s share out of each of the instant real estate (hereinafter “first mortgage-mortgage-mortgage”) with respect to the maximum debt amount of KRW 130 million in maximum debt amount (hereinafter “the Plaintiff’s above secured mortgage on each of the instant real estate”).

C. On August 28, 2008, Nonparty 2 and Nonparty 1 sold each of the instant real estate in the upper-aid development amounting to KRW 2.575 million between the upper-aid development Co., Ltd. (hereinafter “ the upper-aid development”). Of each of the instant real estate, Nonparty 1 entered into a sales contract with the fact that the upper-aid development would acquire the shares through the auction procedure. Of each of the instant real estate, the ownership transfer registration was completed on October 9, 2008 in the name of the upper-aid development.

D. As to the non-party 1’s share in each of the instant real estate, the non-party 4, a lower-ranking right holder of the instant real estate, filed an application for commencement of voluntary auction at Busan District Court Branch of Busan District Court, 2008ta, 15822, and received the decision on commencement of voluntary auction on September 17, 2008. The defendant also filed an application for commencement of voluntary auction at around 2008, 17385 with the above court, and received the decision on commencement of voluntary auction on October 16, 2008 (hereinafter “instant auction procedure”).

E. In the auction procedure of this case, the superior development reported the preferential purchase as co-owner on May 28, 2009 and received the successful bid in the amount of KRW 1,289,325,000, and completed the registration of ownership transfer on June 22, 2009.

F. On the other hand, on July 8, 2009, the defendant completed the registration of change of the right to collateral security on the non-party 2's share among the first right to collateral security (the cause of registration: renunciation of shares on July 8, 2009).

G. On August 4, 2009, on the date of distribution, the court of auction distributed KRW 4,259,470 out of the total amount of KRW 1,289,325,00 and interest KRW 1,360,973 calculated by deducting the auction expense from KRW 1,290,685,973 out of the total amount of KRW 1,284,340,463 and the amount of KRW 1,284,340,463 among the real property of this case on the date of distribution. The plaintiff raised an objection against KRW 130,00,000 among the amount of dividends to the defendant, and filed the lawsuit of this case on August 7, 2009 (hereinafter “instant dividend procedure”).

H. As to the above (2 omitted) and (3) (hereinafter 3 omitted), the Plaintiff collected some of the claims by receiving a distribution in the process of each auction procedure with respect to the above (2 omitted) which was provided with the claims against Nonparty 1 as collateral, but as to July 1, 2009, the Plaintiff remains 241,715,712 won as the principal and interest of the loan to Nonparty 1 as a loan to Nonparty 1.

I. According to the appraisal conducted in the instant auction procedure, the value of Nonparty 1’s share out of each of the instant real estate is KRW 1,289,325,000 as of October 30, 208.

2. Judgment on the ground of the Plaintiff’s claim

A. The plaintiff's assertion

The Defendant’s joint collateral security right to exercise the Plaintiff’s right to subrogation as a subordinate mortgagee by giving up the right to demand reimbursement of Nonparty 2’s share in the auction proceeds if the auction proceeds of each of the instant real estate were to have been distributed at the same time, pursuant to the latter part of Article 368(2) of the Civil Act, the Plaintiff may exercise the right to demand reimbursement of the Defendant’s share in the auction proceeds of Nonparty 2’s share. However, the Defendant violated the Plaintiff’s right to demand reimbursement of the right to demand reimbursement of Nonparty 2’s share in the auction proceeds of the instant auction procedure. As such, such waiver cannot be set up against the Plaintiff to the

Therefore, if the auction proceeds of each real estate of this case were to be distributed at the same time, the Defendant received at least KRW 1,120,000, which is the half of the maximum debt amount of the first-class right to collateral security, since the auction proceeds of Nonparty 2’s share are equivalent to KRW 1,289,325,000, and thus, the Defendant received at least KRW 1,120,000, which is the maximum debt amount of the first-class right to collateral security, to the extent that the Plaintiff could have subrogated, should be distributed to the Plaintiff in the instant dividend procedure, so the instant

(b) Markets:

(1) Article 368(1) of the Civil Act provides that "where a mortgage has been created on several immovables as security of the same claim, if the proceeds of the auction are distributed simultaneously, the allotment of the claim shall be determined in proportion to the proceeds of the auction of each immovable." Paragraph (2) of the same Article provides that "where the proceeds of the auction of part of the immovables mentioned in the preceding paragraph are distributed first, the mortgagee may obtain full satisfaction of the claim from the proceeds of the auction. In this case, the mortgagee next in priority may exercise the mortgage by subrogation of the mortgagee to the extent of the amount which the mortgagee would have received out of the auction proceeds of other immovables in accordance with the provisions of the preceding paragraph." If several immovables are jointly mortgaged, the subrogation right of the mortgagee in accordance with the latter part of Article 368(2) of the Civil Act is recognized only if the mortgagee would have received out of the auction proceeds of some of the immovables which are the jointly mortgaged immovable property before the joint mortgagee would have been entitled to receive some of the dividends out of the auction proceeds of the joint mortgagee's auction proceeds, it shall be deemed that the joint mortgagee would have not have been entitled to exercise the same legal principle.

(2) In light of the above legal principles, the court below held that the auction proceeds of each of the real estate of this case, which is the joint collateral of the defendant's joint collateral security, were auctioned first only for the share of the non-party 1 among the real estate of this case, and that if the auction proceeds of each of the real estate of this case were to be distributed at the same time, the plaintiff, the subordinate collateral security holder, could exercise the right to exercise the mortgage by subrogation of the defendant in accordance with the latter part of Article 368 (2) of the Civil Code. However, while the auction proceeds of this case were to be in progress, the plaintiff, the subordinate collateral security holder against the non-party 1's share, who is the subordinate collateral security holder against the non-party 2's share, violated the right to expect the plaintiff to exercise the right to exercise the right to exercise the right to collateral security on the non-party 2's share of the non-party 2, which is the joint collateral security holder of this case, to the extent that

Furthermore, with respect to the limit that the plaintiff could have subrogated, the market price of the non-party 1 shares and the non-party 2 shares at the time of the above distribution is confirmed to be equivalent to KRW 1,289,325,000, respectively. Thus, if the auction price of each real estate of this case had been distributed at the same time, the defendant would have received from the auction price of each share the amount of KRW 1,120,000,000, one half of the maximum debt amount of the first priority mortgage (=2,240,000,000) ± 2). If the plaintiff exercised the right to collateral security with respect to the non-party 2 shares, he would have received a dividend of KRW 130,00,000, which is the maximum debt amount of the second priority mortgage.

(3) Therefore, in the instant distribution procedure where the Plaintiff did not receive dividends with the interest rate on the part of the Plaintiff after excluding the tax claim holders, and only the Defendant did not receive dividends, the Defendant cannot receive dividends in preference to the Plaintiff, the amount of KRW 130 million, which was the limit that the Plaintiff could have subrogated if the Defendant did not waive the right to collateral security on the part of Nonparty 2’s shares. As such, the amount of dividends of KRW 1,280,080,93, out of the instant distribution schedule, the amount of dividends of KRW 1,150,080,993, and the amount of dividends of the Plaintiff shall be adjusted to KRW 130,00,000, respectively.

3. Judgment on the defendant's assertion

A. First, the defendant asserts that Article 368(2) of the Civil Act applies to the case where one right to collateral security is established with respect to several real estate, and that there is no room to apply to the case where one right to collateral security is established with respect to one real estate with respect to the whole land and the ground building as in this case.

On the other hand, in a case where a mortgage was created on each co-owned real estate for securing the same claim, it is reasonable to view that each co-owned share is a security obligation of the entire amount of the mortgage (see Supreme Court Decision 2005Da44091, Jun. 15, 2006) and each co-owned share is a security obligation of the entire amount of the mortgage (see Supreme Court Decision 2005Da44091, Jun. 15, 2006). Furthermore, the Defendant’s first priority mortgage corresponds to the joint collateral security obligation of the instant real estate owned by Nonparty 1 and Nonparty 2

B. Next, the defendant, even in the case of a joint mortgagee, can obtain preferential repayment from one of the real estate subject to joint mortgage in accordance with the inseparability of the mortgage, and the creditor is not obligated to exercise his claim or security right against a third party in good faith. Thus, the defendant's waiver of security right cannot be deemed to have infringed the plaintiff's right as a subordinate security holder. In particular, in the case of this case, the defendant's waiver of the right to collateral security with respect to the share of the non-party 2 was made in accordance with reasonable judgment and grounds after receiving the adequate repayment of the secured claim through the auction procedure, etc. of this case, and therefore, it

On the other hand, the purpose of the latter part of Article 368(2) of the Civil Act is to examine the following: in the case where a joint mortgagee is able to simultaneously execute several mortgages which are in the relationship of joint mortgages, only a part of such mortgages may be carried out in sequential order, and the proceeds of the auction are distributed first, the joint mortgagee may be paid the whole amount of the secured debt out of the proceeds of the auction under the provisions of the first part of Article 368(2) of the Civil Act. In this case, when the proceeds of the auction of the joint mortgaged are distributed at the same time, the mortgagee is at a disadvantage in the distribution of dividends; on the other hand, the junior mortgagee of other real estate is at a disadvantage in the distribution of dividends; on the other hand, each real estate is sold at the auction of one real estate, depending on which the understanding of interested parties such as the subordinate mortgagee is different, so if only a part of the joint mortgagee is sold at the auction to adjust it fairly, the joint mortgagee can not limit the right to preferential reimbursement of dividends and thus, the provisions of Article 368(2).

Based on the purport of these provisions, if the defendant, who is a senior joint mortgagee, voluntarily renounces the right to collateral security on the non-party 2's shares, the plaintiff, a junior collateral security holder, as a matter of course, is subject to the infringement of the right to expectation of subrogation. This does not change the circumstances on the ground that the defendant, a junior collective collateral holder, voluntarily renounced the right to collateral security without the plaintiff's prior consent, was reimbursed for the appropriate secured claim that the defendant, a junior collective collateral holder, voluntarily renounced the right to collateral security without the plaintiff's prior

C. Finally, the Defendant asserts that the right of subrogation of the junior mortgagee may only arise when several real estates, which are the object of the joint mortgage, belong to the same debtor's ownership. The Defendant already transferred the ownership of Nonparty 2's share out of the first priority right to Nonparty 2 before the waiver of the right to collateral security with respect to Nonparty 2's share, and that the Plaintiff as the junior mortgagee with respect to Nonparty 1's share could not exercise the Defendant's exercise the right to collateral security with respect to Nonparty 2's share.

At the time of the establishment of the Defendant’s priority priority mortgage (i.e., the first priority mortgage), each of the instant real estate was owned jointly by Nonparty 1 and Nonparty 2, the same co-debtor, and among which, prior to the transfer of the ownership of Nonparty 2’s shares to the development of the advanced development, the lower priority mortgage (i.e., the second priority mortgage) was established on the Plaintiff’s portion of Nonparty 1. In addition, the Defendant was transferred the shares of Nonparty 2 before the Defendant renounced the right to collateral on Nonparty 2, and the Defendant’s right to collateral on the shares of Nonparty 2 is not extinguished naturally, since the first priority mortgage was transferred to Nonparty 2 before the Defendant renounced the right to collateral on the shares of Nonparty 2. Thus, even if the shares of Nonparty 2 were transferred to the poor development, the Plaintiff, the lower priority mortgage holder, still has the right to expect the Defendant’s subrogation on the shares of Nonparty

4. Conclusion

Therefore, the plaintiff's claim of this case is accepted on the grounds of its reasoning, and the judgment of the court of first instance is unfair on the grounds of its conclusion, so it is revoked by accepting the plaintiff's appeal, and it is so decided as per Disposition with the decision to correct the distribution schedule as above.

Judges Kim Yong-ho (Presiding Judge)

1) In the instant auction procedure, the Plaintiff submitted the claim statement of KRW 486,549,455 to each auction court. The Defendant submitted the claim statement of KRW 1,536,204,738 to each auction court.