Plaintiff Co., Ltd. (Law Firm Taedong, Attorney Lee Lee-soo, Counsel for the plaintiff-appellant)

Defendant Co., Ltd. (Attorney Kang Jae-sik, Counsel for defendant-appellant)

September 28, 2006

Daejeon District Court Decision 2005Kadan20510 Decided May 26, 2006

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the plaintiff.

The judgment of the first instance shall be revoked. The defendant shall pay to the plaintiff an amount of KRW 927,277,875 and an amount of KRW 863,124,296 per annum from February 8, 2006 to the date of full payment.

1. Basic facts

(a) A first credit transaction agreement;

On March 11, 2004, the Plaintiff entered into a credit transaction agreement with Defendant, Non-Party 1, and Non-Party 2 Co., Ltd. (hereinafter collectively referred to as “Defendant et al.”) with each credit subject loans, credit limit of KRW 650,00,000, interest rate of KRW 15% per annum (interest rate of 27% per annum), and the due date of payment on July 11, 2004 (hereinafter referred to as “credit transaction agreement”) and lent KRW 650,00,000 to the Defendant et al. on the same day.

B. Conclusion of a comprehensive continuing guarantee contract

(1) On March 11, 2004, the date of the first credit transaction agreement, the Defendant, etc., without setting the guarantee period within the limit of KRW 850,00,00,00, respectively, and without setting the guarantee period to the Plaintiff, the Defendant concluded a comprehensive collateral guarantee agreement with the Defendant and Nonparty 2 to provide the said joint and several debt owed to the Plaintiff at present and in the future.

(2) At the time of each of the above comprehensive collateral guarantee contracts, the Plaintiff and the Defendant, etc.: (i) in the event that the obligor separately provides a security or provides a guarantee for the same secured obligation to the Plaintiff, such security or guarantee shall not be modified by this guarantee agreement, unless otherwise agreed upon; (ii) cumulative application is distinct from the liability for guarantee under this agreement; and (iii) in the event that the obligor provided a joint and several guarantee at the same time as the security at the Plaintiff’s request in preparation for a decline in the value of the security, either of the two or some of the two are discharged from other responsibilities within the scope of the performance (Article 3 of the above comprehensive collateral guarantee contract).

(c) Preparation of authentic deeds of promissory notes;

On March 17, 2004, the defendant et al. prepared a notarial deed (hereinafter referred to as the "notarial deed of this case") as No. 1446 on March 17, 2004 by a notary public recognizing and recognizing that there is no objection even if compulsory execution is being made in case of delay in the payment of a bill with respect to each representative director, place of issuance and payment, each of the non-party 1 corporation, the guarantor, the defendant et al., the non-party 2 corporation, the defendant et al., and the defendant et al., such as the non-party 2 corporation, the non-party 2 corporation, the non-party 2 corporation, and the defendant et al., in order to secure a loan obligation based on the first credit transaction agreement.

(d) Claim seizure and assignment order;

(1) On July 11, 2004, the Plaintiff received only interest from the Defendant, etc. on the loan under the credit transaction agreement (on July 11, 2004), and applied for a seizure and assignment order (on August 4, 2004, promissory notes amounting to KRW 1,950,00,000) based on the instant notarial deed, the Daejeon District Court rendered a claim attachment and assignment order (on August 13, 2004, KRW 1,950,000, out of the collateral security claims against the non-party 1 corporation (hereinafter “instant assignment order”). The instant assignment order was served on the non-party 1 corporation on August 13, 2004, and became final and conclusive on August 27, 2004.

(2) The Plaintiff spent KRW 1,211,400 as the cost of filing an application for the above claim attachment and assignment order.

(e) A second credit transaction agreement;

(1) On December 28, 2004, the Plaintiff entered into a credit transaction agreement with Nonparty 1 Co., Ltd. with a comprehensive passbook loan for the subject of credit, credit limit of KRW 250,000,000, interest rate of KRW 15% per annum (interest rate of KRW 27% per annum), and the due date of payment of KRW 248,269,329 on June 28, 2005 (hereinafter “credit transaction agreement”). On the same day, the Plaintiff lent KRW 248,269, and 329 to Nonparty 1 Co., Ltd.

(2) At the time, Nonparty 1 Co., Ltd. agreed to pay the Plaintiff the interest and damages for delay, regardless of whether the amount exceeds the limit, and in this case, the amount exceeding the limit was immediately paid.

(f) Distribution of total amount;

The Plaintiff received dividends of KRW 1,950,00,000 on February 7, 2006, which was the date of distribution of the auction case of real estate rental, Daejeon District Court Branch of Daejeon District Court No. 2005,4726, 2005, 14891 (Dual).

(g) Basic terms and conditions of credit transactions by mutual savings banks;

The defendant et al. decided to comply with the basic terms and conditions of credit transaction (hereinafter referred to as "terms and conditions") at the time of the 1 and 2 credit transaction agreement and the above comprehensive credit guarantee contract. The main contents of the term are as follows.

(1) Paragraph (1) of Article 4: The plaintiff's claims against the debtor, the guarantor, or the person who has pledged his/her property to secure another's obligation shall bear the expenses for the exercise, preservation (including termination), investigation, collection and disposal of collateral, the expenses for demand and notification due to delay in performance of his/her obligation.

(2) Article 13(1) of the Act: In the event that an obligor performs a debt that has lost the benefit of time, or the Plaintiff makes a set-off or substitute repayment, the full amount of the obligor’s debt is insufficient to extinguish, the appropriation shall be made in the order of expenses, interest, and principal. However, the order of appropriation may vary to the extent that it is not favorable

[Ground of recognition] Evidence Nos. 1-1 to 6, Evidence No. 8, Evidence No. 9-1, Evidence No. 10-2, Evidence No. 16, Evidence No. 1, Evidence No. 2, Evidence No. 2, and the purport of the whole pleadings

2. The parties' assertion

A. The plaintiff's assertion

(1) The plaintiff set off the interest rate of KRW 72,604,109 (=650,000 x 0.27 x 151/365) from July 12, 2004 to December 9, 2004 as the automatic bond against the defendant's lending principal under the credit transaction agreement of December 10, 2004 against the defendant's lending principal (=650,00,000 x 0.27 x 151/365) against the amount equal to the defendant's credit against the plaintiff. Meanwhile, under the credit transaction agreement of December 28, 2004, the interest rate of KRW 81,258,904 from July 12, 2004 to December 27, 2004 x 60,000,000 x 151/6369).

(2) On February 7, 2006, based on the instant assignment order, the Plaintiff received dividends of KRW 1,950,000 in full from the real estate auction procedure on February 7, 2006. Since the instant assignment order’s execution claim is a promissory note gold claim that the Plaintiff received from the Defendant, etc. for the security of the claim for loans under the first credit transaction agreement, the Plaintiff, rather than the date of confirmation of an assignment order, appropriated the Defendant, etc. for the repayment of the principal and interest on loans under the first credit transaction agreement, according to the following order based on the date of distribution on February 7, 2006, for which the Plaintiff

① Costs: 13,751,540 won (=2,524,160 won for provisional seizure of claims made on September 9, 2005 + Voluntary auction cost of October 7, 2005 + KRW 9,545,400 + Costs of seizure of claims made on October 21, 2005)

② The overdue interest amount: 594,295,889 won (=the overdue interest amounting to 203,868,493 won from December 10, 2004 to February 7, 2006 on the Defendant’s leased principal + the overdue interest amounting to 195,213,698 won from December 28, 2004 to February 7, 2006 on the leased principal amount of the non-party 2 corporation + the overdue interest amounting to 195,213,698 won from December 28, 2004 to February 7, 2006 on the leased principal amount of the non-party 1 corporation

(3) Part of principal: 1,341,952,571 won.

∴ 1,950,000,000원 = 13,751,540원 + 594,295,889원 + 1,341,952,571원

(3) Therefore, the loan principal based on the first credit transaction agreement remains 608,047,429 won (i.e., KRW 1,950,00,000 - KRW 1,341,952,571). The loan principal based on the second credit transaction agreement is 319,230,447 won as of February 7, 2006 (i.e., principal amount 25,076,868 won + interest rate from March 4, 2005 to February 7, 2006 + interest rate of KRW 64,153,579). The notarial deed of this case is to secure a loan pursuant to the first credit transaction agreement against the Plaintiff by the Defendant, etc. 1,950,000 won - KRW 1,341,952,571). However, the Defendant is liable to secure a comprehensive loan to Nonparty 1 and Nonparty 2, a comprehensive loan guarantee of the above 3201, including a comprehensive loan agreement.

(4) The defendant is obligated to pay to the plaintiff the amount of KRW 927,277,875 [=608,047,429 won (202,682,476 won x 3) +319,230,447] and the principal of which is 863,124,296 [202,682,476 won x 3) + 25,076,868 won] from February 8, 2006 to the date of full payment], which is the sum of the plaintiff's total appropriation for payment, to pay damages for delay at the rate of 27% per annum, which is 27% per annum from February 8, 2006 to the date of full payment.

B. Defendant’s assertion

(1) On August 13, 2004, upon the confirmation of the instant assignment order, the said assignment order was served on Nonparty 1 Co., Ltd. as the basis of the credit transaction agreement, and the entire amount was appropriated for the repayment of loan obligations based on the credit transaction agreement, and all of the loan obligations based on the credit transaction agreement were extinguished.

(2) The substance of the instant comprehensive collateral guarantee agreement is to guarantee loan obligations under the first credit transaction agreement, which is a final and conclusive debt secured by the instant notarial deed, and constitutes an overlapping collateral. Pursuant to Article 3(2) of the comprehensive collateral guarantee agreement, the amount exceeding KRW 845 million, which is the maximum amount of guarantee for comprehensive collateral service out of the total amount, is appropriated for the repayment of loan obligations based on the credit transaction agreement between Nonparty 1 and Nonparty 2, and the Defendant extinguished its liability as a guarantor based on the comprehensive collateral guarantee agreement. The Defendant is not liable for the loan obligations under the second credit transaction agreement as a guarantor.

3. Determination

(a) Validity of an assignment order and the termination of an execution claim;

The execution claim of the instant assignment order is a promissory note amounting to KRW 1,950,000 in face value. As the assignment order of this case became final and conclusive, on August 13, 2004, when KRW 1,950,000,000 out of the Defendant’s collateral against Nonparty 1 Co., Ltd., a third debtor, was transferred to the Plaintiff as a whole creditor while maintaining its identity, the Plaintiff’s claim for the instant promissory note was extinguished by repayment. The said promissory note is issued and issued as collateral under the first credit transaction agreement. As such, given that a promissory note bond, which is an execution bond, was extinguished as well as a loan based on the first credit transaction agreement, which is the underlying claim at the time of the extinguishment of payment, was extinguished in proportion to the same amount. Accordingly, as of August 13, 2004, the assignment order became final and conclusive, KRW 1,950,000,000 shall be appropriated for the repayment of the loan agreement based on the loan transaction agreement.

B. Relationship between the instant comprehensive collateral guarantee contract and the Notarial Deed

Upon the Plaintiff’s request, the Defendant, etc. provided the instant notarial deed in order to secure a loan obligation of KRW 1.95 million based on the No. 1 Credit Transaction Agreement. In light of the fact that each of the instant comprehensive collateral guarantee by the Defendant, etc. was made on the date of the first credit transaction agreement, and that the Defendant, etc. mutually guaranteed for the remainder of the obligor except himself/herself, it is for guaranteeing the Defendant, etc.’s loan obligation under the first credit transaction agreement, and thus, it is deemed that the instant notarial deed is an overlapping security with the instant notarial deed. Therefore, pursuant to Article 3(2) of the said comprehensive collateral guarantee agreement, the Defendant shall be exempted from any other liability to the extent of its performance if the Defendant fully or partially performed one of the instant notarial deeds

C. Satisfaction of performance on August 13, 2004

(1) Legal appropriation of performance is made in the order of expenses, interest or delay damages and the principal, and the principal shall be made in order with each other in accordance with the different interests of repayment, such as the time when the due date arrives and the time when the due date comes and when the interest rate is high. Barring special circumstances, the guaranteed obligation (including joint and several obligation obligations) owed by the person performing the obligation as a surety for another person is less beneficial than the principal obligation of the person performing the obligation (see Supreme Court Decision 98Da5543 delivered on July 9, 199).

(2) Appropriation for expenses

If the assignment order cost of this case is preferentially appropriated for KRW 1,211,40, the KRW 1,948,788,600 remains (in addition to the above cost, the plaintiff shall not include the provisional attachment cost of claims 2,524,160, the expenses paid on September 9, 2005 for the voluntary auction on October 7, 2005, and the expenses KRW 9,545,400, the expenses paid on October 21, 2005, and KRW 1,681,980, the expenses paid on October 21, 2005. However, each of the above expenses incurred on voluntary auction after August 13, 2004, shall not be included in the preferential appropriation claim).

(3)Appropriation for overdue interest.

When 47,601,369 won (=1,950,000,000 x 0.27 x 33/365) is appropriated for the overdue interest of the Defendant, etc. from July 12, 2004 to August 13, 2004, the following day following the due date for repayment of KRW 1,950,00,000 (1,950,000 x 0.27 x 33/365) x 1,901,187,231 won (1,948,78,600 - 47,601,369) remaining.

(4) Appropriation to principal

The Defendant’s debt amounting to KRW 650,00,000, which has a large amount of repayment interest, shall be appropriated first to KRW 1,251,187,231 (the remainder 1,901,187,231 - 650,000), and the remainder 1,30,000,000 (=650,000,000 x 2) of each loan principal of the non-party 1 and the non-party 2 x 48,812,769 (= 1,300,000,000-1,251,187,231) of the remainder.

D. In the event of satisfaction of the above obligation, the Defendant fully repaid the principal obligation based on the credit transaction agreement. Of the loan obligations based on the credit transaction agreement of Nonparty 1 Co., Ltd. and Nonparty 2 Co. 2 Co., Ltd., the Defendant paid KRW 1,282,921,477 (annual interest KRW 31,734,246 + principal KRW 1,251,187,231) in excess of the Defendant’s guarantee amount under the instant comprehensive collateral transaction agreement. As such, the Defendant was also liable to guarantee the amount loaned to Nonparty 1 Co., Ltd. based on the said comprehensive collateral transaction agreement. As to the amount loaned to Nonparty 2 Co., Ltd. based on the credit transaction agreement, the Defendant has no liability to guarantee the above comprehensive collateral transaction agreement.

4. Conclusion

The plaintiff's claim shall be dismissed as it is without merit. Since the judgment of the court of first instance is consistent with this conclusion, the plaintiff's appeal is dismissed. It is so decided as per Disposition.

Judges Kim Jong-dae (Presiding Judge)