[1] In a case where a senior mortgagee renounces a mortgage on part of the immovable property which was jointly mortgaged before the secured debt is repaid, whether the distribution cannot be made preferentially to the junior mortgagee in the auction procedure on the real property in which the junior mortgagee was a junior mortgagee (affirmative), and whether the joint mortgage relationship with the jointly owned real estate is established for the purpose of securing the same claim (affirmative)

[2] Legal status and expectation of the subrogation of the subordinate mortgagee of the jointly mortgaged real estate is affected by the fact that part of the jointly mortgaged real estate has been transferred to a third party (negative)

[3] The case affirming the judgment below holding that in a case where Gap had renounced the right to collateral security on Byung's shares during the auction procedure, Eul's share was not preferentially distributed to Byung to the extent that Eul could not have subrogated the right to collateral security on Byung's share if Eul had not renounced the right to collateral security on Byung's share in the dividend procedure, and completed the registration of collateral security on Eul's share in the above real estate after Eul completed the registration of collateral security on Eul's share in the above real estate, Eul sold the above real estate without delay, and Eul renounced the right to collateral security on Byung's share in the auction procedure

[1] Where a joint mortgage has been created on several immovable properties owned by the debtor, the right of subrogation of the subordinate mortgagee under the latter part of Article 368(2) of the Civil Act is recognized only when the joint mortgagee has been apportioned the amount of money paid out of the auction proceeds of some of the immovable properties which are the object of the joint mortgage exceeds the share of the liability of the relevant immovable property. However, even if the joint mortgagee has not been reimbursed the secured claim, the junior mortgagee is expected to exercise the mortgage by subrogation of the joint mortgagee on other immovable properties which are the object of the joint mortgage in an auction procedure concerning part of the immovable properties which are the object of the joint mortgage, even if the joint mortgagee has not been reimbursed the secured claim, if the preferential mortgagee is apportioned the proceeds of auction proceeds in excess of the share of the liability of the immovable properties, and the legitimate expectation of such subrogation should be protected. Thus, if the joint mortgagee renounces a mortgage on part of the immovable properties which are the object of the joint mortgage before the repayment of the secured claim, it shall not be deemed that the subordinated mortgagee may not be apportioned preferentially to the extent he could have subrogated if not renounced the mortgage.

[2] Under Article 368(2) of the Civil Act, the position of subrogation recognized as a subordinate mortgagee of the jointly mortgaged real estate or the need to protect such subrogation’s legitimate expectation does not change on the ground that the jointly mortgaged real estate was transferred to a third party. In other words, a third party who acquires part of the jointly mortgaged real estate shall be deemed to have taken over the burden of joint mortgages on the premise of the existing status of interested parties, such as junior mortgagee, etc. on the jointly mortgaged real estate. Therefore, the legal status and expectation of subrogation of the jointly mortgaged real estate shall not be affected by the circumstance that part of the jointly mortgaged real estate was transferred to a third party.

[3] The case affirming the judgment below which held that, in case where Gap had a legitimate expectation to exercise the right to collateral security on Byung's share in the auction procedure, Eul had a legitimate expectation to exercise the right to collateral security on Byung's share in the auction procedure, and Eul had a legitimate expectation to exercise the right to collateral security on Byung's share in the auction procedure, on the ground that Eul had a legitimate expectation to exercise the right to collateral security on Byung's share in the auction price for Byung's share in the above real estate and building after Eul completed the registration of the establishment of the right to collateral security on Eul's share in the above real estate, Eul and Byung sold the above real estate without delay, and Eul renounced Eul's share in the auction procedure, Eul acquired the right to collateral security on Byung's share in the first priority, which was the first priority right to collateral security on Byung's share in the auction procedure, and Eul could not be subrogated to Byung's share in the auction procedure, since Eul had a legitimate expectation to exercise the right to collateral security on Byung's share in the first priority.

[1] Article 368(2) of the Civil Act / [2] Article 368(2) of the Civil Act / [3] Article 368(2) of the Civil Act

[1] Supreme Court Decision 2005Da44091 Decided June 15, 2006, Supreme Court Decision 2009Da41250 Decided December 10, 2009 (Gong2010Sang, 93)

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

Busan Bank (Law Firm Written, Attorneys Lee Jae-won et al., Counsel for the plaintiff-appellant)

Busan High Court Decision 2010Na5434 decided November 2, 2010

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1 through 3

A. Article 368(1) of the Civil Act provides that “where a mortgage has been created on several immovables as collateral 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 “If 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 of other immovables in accordance with the provisions of the preceding paragraph.” If several immovables are jointly owned by the obligor, the subrogation right of the mortgagee under the latter part of the latter part of Article 368(2) of the Civil Act is recognized only if the amount which the mortgagee received out of the auction proceeds of some of the immovables which are jointly mortgaged exceeds the apportioned amount of the claim (see Supreme Court Decision 2000 Decided that the mortgagee would have been jointly mortgaged before the auction auction proceeds.

In addition, the above need to protect the status of subrogation recognized as a subordinate mortgagee of the jointly mortgaged real estate pursuant to Article 368(2) of the Civil Act or the legitimate expectation as to such subrogation does not change on the ground that the jointly mortgaged real estate has been transferred to a third party. In other words, a third party who acquires part of the jointly mortgaged real estate shall be deemed to have taken over the burden of joint mortgages on the premise of the existing status of interested parties, such as junior mortgagee, etc. on the jointly mortgaged real estate. Therefore, the legal status and expectation of subrogation of the jointly mortgaged real estate shall not be affected by the circumstance that part of the jointly mortgaged real estate has been transferred to a third party.

B. According to the reasoning of the judgment below, on March 12, 2002, the defendant extended 10 billion won to the non-party 1 and the non-party 2 on March 12, 2002, and the non-party 1 and the non-party 2 shared 1/2 shares on the 30.8m2 Busan Young-dong (hereinafter omitted) and the building on which the non-party 1 and the non-party 2 completed the registration of establishment of a mortgage on the non-party 1 and the non-party 2,240 million won (hereinafter "each real estate of this case"), on the non-party 1 and the non-party 2 and the non-party 2 were the non-party 9's non-party 9's non-party 2's non-party 1 and the non-party 2's non-party 9's non-party 2's non-party 1 and the non-party 2's non-party 9's non-party 1 and the non-party 28's co-party 2.

C. We examine the above facts in light of the legal principles as seen earlier.

Since Nonparty 1 and Nonparty 2, as a co-debtor, set up a mortgage on each of the instant real estate owned by Nonparty 1 and Nonparty 2 for the purpose of securing loans borrowed from the Defendant as a co-debtor, it shall be deemed that the relationship of joint mortgage was established with respect to each of the co-ownership of Nonparty 1 and Nonparty 2

In the event that an auction is conducted with respect to the shares of Nonparty 1, the Plaintiff, a junior mortgagee, was entitled to exercise the right to collateral security on the shares of Nonparty 2 by subrogation of the Defendant within the scope of the amount that the Defendant would have received out of the auction proceeds for the shares of Nonparty 2, and the expectation for subrogation was incurred prior to the acquisition of the shares of Nonparty 2. However, while the auction procedure of this case was in progress, the Plaintiff, a junior mortgagee, who was a senior mortgagee, violated the expectation that the Defendant could exercise the right to collateral security on the shares of Nonparty 2, a senior mortgagee, by giving up the right to collateral security on the shares of Nonparty 2 among the first priority collateral security.

In addition, the legitimate expectation of subrogation against the Plaintiff’s non-party 2’s share is not affected by the fact that the non-party 2’s share was transferred to the upper-level development, a third party.

In this regard, the court below is just in finding that the defendant in the distribution procedure of this case could not receive dividends preferentially from the plaintiff to the extent that the plaintiff could have subrogated if he did not waive the right to collateral security on the non-party 2's share. In so doing, the court below did not err by misapprehending the legal principles as to the establishment of joint mortgages and the subrogation of junior mortgagee in joint mortgages as alleged in the grounds of appeal.

The Supreme Court Order 95Ma500 dated June 13, 1995 cited by the defendant as the ground of appeal stated in the ground of appeal that, in principle, the subrogation of the person who has pledged his property to secure another's property provided by the property to secure another's property through the property to secure another's property is priority over subrogation under Article 368 (2) of the Civil Code of the subordinate mortgagee. Thus, the case is different from this case.

2. As to the fourth ground for appeal

The defendant asserted that the court below, without accepting the defendant's request for appraisal commission, calculated the scope of the plaintiff's subrogation by estimating the auction price for the non-party 2's shares as the appraised price for the non-party 1's shares, was erroneous in the rules of evidence and the incomplete hearing. However, this argument is merely an error in the selection of evidence and the fact-finding which belong to the whole matters

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee In-bok (Presiding Justice)