High Court Decision 200Na11484 decided May 1, 200

Nong Bank Co., Ltd. and one other (Attorney Park Jong-ok, Counsel for the defendant-appellant)

June 7, 2017

1. With respect to real estate listed in [Attachment 3 and 4] to a clean farming association corporation:

A. As to the remainder of the registration of the establishment of a neighboring mortgage that was completed pursuant to No. 1191 as of July 1, 2013 by the Gwangju District Court, Gwangju District Court’s Netcheon Branch, Jeju District Court’s registration office, which was completed on July 1, 2013, excluding part of the transfer to Defendant National Agricultural Cooperative Federation under receipt No. 2061 as of February 3, 2016 on the ground of partial subrogation of the finalized claim:

B. As to the part partially transferred to Defendant National Agricultural Cooperative Federation under the receipt of No. 2061 on February 3, 2016 by the same registry office on the ground of the registration of establishment of neighboring mortgage completed by No. 11991 on July 1, 2013 and the partial subrogation of the established claim on January 29, 2016

Each procedure for registration for cancellation shall be implemented.

2. The plaintiff's remaining claims are dismissed.

3. 1/10 of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendants, respectively.

With respect to the real estate listed in paragraph (1) of this Article and the attached list Nos. 1 and 2 to the Clean Agricultural Cooperative Corporation, the defendant Nonghyup Bank Co., Ltd. shall perform the registration procedures for cancellation for part of the registration to the defendant National Agricultural Cooperative Federation under the receipt of No. 2061 of the same registry as of January 3, 2016, on the ground of the registration of the establishment of the neighboring mortgage completed under the receipt of No. 19202 on Oct. 18, 2012 and the partial subrogation of the confirmed claim on Jan. 29, 2016, as of February 3, 2016. The defendant National Agricultural Cooperative Federation shall perform the registration procedures for cancellation for each part of the registration to the defendant National Agricultural Cooperative Federation under the receipt of No. 2061 on Feb. 3, 2016, following the registration of the establishment of the mortgage completed under the receipt of No. 19202 on Oct. 18, 2012.

1. Basic facts

A. On March 2012, the Plaintiff decided to grant subsidies of KRW 300,000,000 for national expenses of KRW 2550,000,000 for military expenses and KRW 50,000,000 for the business of modernization of manufacturing facilities by clean farming associations (hereinafter “the instant subsidized business”) as part of the support project for the industrialization of traditional efficacy food (hereinafter “the instant subsidies”).

B. On September 20, 2012, a clean farming association started construction of a building listed in Articles 3 and 4 (hereinafter “instant building”) on the land listed in [Attachment List 1 and 2 (hereinafter “instant land”) on the ground. On October 18, 2012, the clean farming association completed the registration of establishment of a mortgage with respect to the instant land, which was provided as security to Defendant Nonghyup Bank Co., Ltd. (hereinafter “Defendant Nonghyup Bank”) on October 18, 2012, by providing the instant land as security.

C. On November 5, 2012, the Clean Farming Association filed a claim with the Plaintiff for the progress payment of KRW 150 million out of the instant subsidy to the Plaintiff for the support project for industrialization of Traditional Enative Foods. On November 6, 2012, the Plaintiff paid KRW 150 million of the subsidy to the Clean Farming Association.

D. On February 26, 2013, the Clean Agricultural Partnership completed the completion inspection on the instant building, and on February 27, 2013, on the following day, requested the Plaintiff to pay the remainder of KRW 150 million out of the instant subsidy. On February 28, 2013, the Plaintiff paid KRW 150 million to the Clean Agricultural Partnership.

E. On July 1, 2013, the Clean Agricultural Association entered into an additional contract to establish a collateral with regard to the instant building as a collateral for the instant land with Defendant Nonghyup Bank. On the same day, on the same day, the establishment registration of a collateral for the instant building was completed by adding up the collateral for the instant land and buildings to the maximum debt amount of KRW 984 million, clean farming association association association association association association association association association association association association association association association association association association association association association association association association association association association association association association association association association association association association association association

F. On January 29, 2016, Defendant National Agricultural Cooperative Federation subrogated to Defendant Nonghyup Bank of KRW 440,895,000 among the obligations of the clean farming association based on the instant collateral security, and completed the supplementary registration of partial transfer of the instant collateral security on February 3, 2016.

G. On April 11, 2016, the Plaintiff revoked the instant decision to grant subsidies to clean farming partnerships on the ground that it offered the instant building as security in violation of Article 35 (Restrictions on Disposition of Property) of the Subsidy Budget and Management Act (hereinafter “Subsidy Act”) and notified that it should return KRW 214,821,917 to clean farming partnerships.

H. The positive property of a clean farming association is equivalent to KRW 1,152,620,840 for positive property of a clean farming association, and KRW 1,492,330,00 for a small property, and a clean farming association is currently insolvent.

[Ground of recognition] Facts without dispute, entry of Gap evidence 1 through 8 (including branch numbers, if any; hereinafter the same shall apply) and the purport of the whole pleadings

2. Summary of the parties' arguments

A. The plaintiff's assertion

Article 35 of the Subsidy Act provides that "Any important property prescribed by Presidential Decree, which is acquired with a subsidy or the utility thereof increased shall not be used for any purpose that violates the purpose of the grant of a subsidy, or transferred, exchanged, or provided as a security, even after the completion of the subsidy program." The above provision is null and void as an effective provision. However, although a clean farming association corporation has acquired or increased the utility of the land and buildings of this case with a subsidy granted pursuant to the Subsidy Act, it was concluded with Defendant Nonghyup Bank without the approval of the head of the central government agency, and thus, each of the above mortgage contract is null and void, and the registration of establishment of a right to collateral security is also void. Since the Plaintiff has a claim to recover the subsidy of this case against clean farming association corporation, it may seek implementation of the procedure for registration of cancellation of the establishment of a right to collateral security against the Defendants by subrogation of clean farming association corporation to preserve the claim to recover the subsidy of this case.

B. The defendants' assertion

1) Article 35(3) of the Subsidy Act applies to cases where a subsidy program operator or an indirect subsidy program operator disposes of important property acquired with a subsidy or indirect subsidy. However, a clean farming association operator is only a subsidy program operator and is not a subsidy program operator or indirect subsidy program operator.

2) On January 13, 2010, before the decision to grant the instant subsidy was made by the Plaintiff, clean farming association acquired the instant land on January 13, 2010, which was before the decision to grant the instant subsidy was made, and the instant building also acquired a loan granted from Defendant Nonghyup Bank, which was not the instant subsidy, with the construction fund. As such, the instant land and buildings do not fall

3) Article 35(2) of the Subsidy Act provides that the head of a local government shall publicly announce the current status of important property reported by a subsidy program operator or indirect subsidy program operator by means of computer communications, etc., and since the Plaintiff did not publicly announce that the instant land and buildings are important property, the Plaintiff’s seeking cancellation of the registration of creation of a mortgage on the instant land and buildings is abuse of rights against the good faith

3. Whether Article 35 (3) of the Subsidy Act is applied;

The following circumstances, which are recognized by the evidence Nos. 4, 6, and 13, i.e., the instant subsidy was implemented as part of the “Support Project for the Industrial Complex of Agricultural and Fishing Villages” by the Ministry for Food, Agriculture, Forestry and Fisheries. The Guidelines for the Agricultural Village Resources Industrialization Support Project (Evidence No. 13) select a “subsidized Project Operator” after deliberation by a Si/Gun/Gu, and the Si/Gun/Gu shall take necessary measures and report the results of the use of subsidies in violation of the Acts and subordinate statutes. ② The Plaintiff’s decision to grant subsidies is indicated as a “subsidized Project Operator”. ③ The Plaintiff’s decision to grant subsidies of this case (Evidence No. 4-2) provides for the Plaintiff’s duty of the Agricultural Association Association to prohibit the use of any indirect subsidy program in relation to the terms of the subsidy grant, “the matters concerning the change of the contents of the subsidy program, etc.,” and “the Plaintiff’s duty of the Agricultural Association Association to newly provide the subsidy to the Plaintiff’s indirect subsidy program, as part of the Plaintiff’s duty of the subsidy program.

4. Whether important property acquired with subsidies has been acquired;

A. In the case of the instant land

According to the evidence No. 7-1 and No. 2, since it is recognized that a clean farming association corporation acquired the instant land on January 13, 2010, prior to the decision to grant the instant subsidy from the Plaintiff, prior to the decision to grant the instant subsidy was made, the instant land cannot be deemed a “property acquired with subsidies,” and ultimately, it cannot be said that the instant land is subject to the restriction of the approval by the head of central government agency for offering the instant land as security.

As to this, the Plaintiff argues that the disposal of the instant land is limited in accordance with Article 35 of the Subsidy Act, as well as the property acquired by the subsidy, and the property whose utility has increased by the subsidy. Since a clean farming association constructed the instant building on the instant land with the subsidy, the utility of the instant land, which is the site, has increased, the instant land is also subject to restriction on disposal in accordance with Article 35 of the Subsidy Act. However, since the instant building was constructed on the instant land, it cannot be deemed that the utility of the instant land itself is increased by the construction of the instant building on the instant land, and rather, it may be deemed that the instant building, which is the above ground building, was a state in which its use and profit has been restricted. Accordingly, the foregoing argument cannot be accepted.

Therefore, without any need to further examine the Plaintiff’s claim on the premise that the instant land is “property acquired with a subsidy” subject to disposal restrictions under Article 35 of the Subsidy Act or “property whose utility is increased by a subsidy.”

B. In the case of the instant building:

In light of the following circumstances acknowledged based on the foregoing facts, namely, the instant building was constructed as part of the instant subsidized project, and the Clean Agricultural Association claims for the payment of KRW 150 million out of the instant subsidy to the Plaintiff on November 5, 2012, the Plaintiff paid subsidies of KRW 150 million to the Clean Agricultural Association on November 6, 2012, and the Clean Agricultural Association completed the completion inspection of the instant building on February 26, 2013, the building of this case shall be deemed to fall under the property acquired by the instant subsidy.

5. Whether the principle of good faith or abuse of rights is violated

Since a creditor's subrogation right exercises the right against a third party debtor, the third party debtor may oppose all defenses that he/she has against the debtor. However, the creditor can only assert within the extent of the grounds that he/she can assert, and he/she cannot assert an independent reason based on his/her own circumstance between himself/herself and the third party debtor (see Supreme Court Decision 2009Da4787, May 28, 2009). In addition, if a person who violates the mandatory law rejects his/her assertion on the ground that he/she is the exercise of the right in violation of the principle of good faith, it would result in realizing the result that he/she would be excluded by compulsory law, and completely excluding the legislative intent, barring any special circumstance, such assertion is contrary to the principle of good faith (see, e.g., Supreme Court Decision 2007Da17482, Mar. 10, 2011).

In light of the above legal principles, the third obligor cannot assert the reasons that he had against the creditor. Accordingly, the violation of the duty of disclosure under Article 35(2) of the Plaintiff’s Subsidy Act is a reason between the third obligor and the Plaintiff, which is the obligee, and the Defendants cannot make a protest against the violation of the principle of good faith or the abuse of rights based on this reason. In addition, in this case where it is difficult to deem that the Plaintiff offered to the Defendants a new belief regarding the validity of the instant mortgage contract, or that there is a justifiable reason to deem that the Defendants’ exercise of rights against the trust of the said Defendants came to an irrecoverable state in light of the concept of justice, it cannot be said that the Plaintiff’s claim seeking the cancellation of the registration of establishment of a mortgage pursuant to Article 35 of the Subsidy Act, which is a mandatory law, is contrary to the principle of good faith.

Therefore, the defendants' assertion in this part is without merit.

6. Sub-committee

As seen earlier, a clean farming association formed a mortgage establishment contract on the instant building with Defendant Nonghyup Bank without obtaining approval from the head of a central government agency as prescribed by the Subsidy Act, and thus, the above mortgage establishment contract is null and void against Article 35 of the Subsidy Act, and furthermore, the registration of establishment of a mortgage on the instant building, which was completed pursuant to an invalid mortgage establishment contract, should also be cancelled as the registration

Therefore, in this case, the plaintiff claims by subrogation of clean farming association as creditor of the clean farming association, the defendants are obligated to implement the registration procedure for cancellation of the registration of cancellation of the establishment of the neighboring establishment of the building of this case

7. Conclusion

Therefore, the plaintiff's claim is justified within the above scope of recognition, and the remaining claims are dismissed as it is without merit. It is so decided as per Disposition.

[Attachment]

Judges Seo-won