Korea Technology Credit Guarantee Fund and 1 other (Law Firm Jeong, Attorneys Park Jae-chul et al., Counsel for the defendant-appellant)

New Bank Co., Ltd. (Law Firm Gyeong & Yang, Attorney Kim Won-sung, Counsel for the plaintiff-appellant)

December 24, 2004

Incheon District Court Decision 2003Gahap10342 Delivered on May 7, 2004

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The judgment of the court of first instance is revoked, and the amount of dividends 135,69,067 won against the defendant shall be deleted from among the dividend table prepared on October 9, 2003 by the same court with respect to the case of applying for the auction of real estate (Seoul District Court 99TW172027) and the amount of dividends 101,513,667 won against the plaintiffs shall be changed to 237,209,734 won.

1. Basic facts

A. The plaintiffs and the defendant are the mortgagee of the right to collateral security (hereinafter "the real estate in this case") of the Bupyeong-gu Incheon District Court No. 37-4 and No. 306-4 (hereinafter "the real estate in this case") of the Hyundai Apartment-dong No. 304 (hereinafter "the real estate in this case"), which had filed an application for the auction of real estate under the Incheon District Court No. 99, 172027. The defendant received the registration of the establishment of the right to collateral security (hereinafter "the land in this case") of the debtor Taesung Metal Co.,, Ltd. and the maximum debt amount of 360,000,000 won on August 19, 1993. The defendant received the registration of the establishment of the right to collateral security (hereinafter "the land in this case") of the third neighboring land No. 32-232 and 32-233 of the Seocheon-gu, Busan District Court No. 3000, Apr. 19, 1996.

B. On December 27, 199, the Defendant participated in the distribution of the amount of the secured debt up to the time when distribution was made in the position of the seizure authority in the distribution procedure of Busan District Court Branch 99Tcheon-gu 2705, which was an auction case for the land expropriation compensation in the Bupyeong-si, Incheon District Court (Seoul District Court). The Defendant was apportioned KRW 360,000,000 among the secured debt amount up to the time.

C. After that, in the distribution procedure of the claim for auction of real estate (hereinafter “instant distribution procedure”), the Incheon District Court No. 99,172027, which was conducted upon the application of the Cho Jong-Hy Bank, which was the mortgagee No. 1 and No. 2 of the instant real estate, the distribution schedule was formulated to distribute the interest amount of KRW 135,696,067 to the Defendant, who was the mortgagee of the instant property, and the amount of interest of KRW 101,513,667 to the Plaintiffs, the mortgagee of the instant land No. 4, who was the mortgagee, as the mortgagee of the instant claim.

(Reasons for Recognition: Facts without dispute between the parties, Gap evidence 1, Gap evidence 2-1, Eul evidence 1, 2-2, Eul evidence 1, 2 and 3-1, 2-2, and whole purport of pleadings)

2. The assertion and judgment

A. The plaintiffs' assertion

In the case of the right to collateral security without any provision on the period for establishing the secured claim, applying for an auction in order to exercise the right to collateral because it falls under the ground for establishing the secured claim, so if the object of the right to collateral security is expropriated and converted into the expropriation compensation, the application for seizure on the expropriation compensation shall also be deemed the ground for establishing the secured claim.

On the other hand, in the case of joint collateral security for two or more real estates, where the mortgagee takes procedures to exercise the security right on a part of the real estates, this is externally expressed the intent to terminate the basic contract relationship, so the secured claim shall also be finalized for the remaining real estates provided as joint collateral.

However, in the instant case, the Defendant applied for the seizure order regarding the above right to claim for the expropriation of the land at the time of Busan City, which is one of the joint collateral on December 27, 1999, as to the payment of part of the secured debt from the expropriation compensation of the land at the time of Busan City. Accordingly, the Defendant clearly expresses his intention to terminate the basic contract relationship with the above right to collateral security, and accordingly, the secured debt should be deemed to have been finalized not only for the land at the time of Busan City but also for the right to collateral security

Therefore, as long as the Defendant received dividends of KRW 360,00,000, which is the maximum amount of the secured debt determined by the mortgage of this case, in the auction procedure for the land expropriation compensation in Bupyeong-si, the Defendant did not have any obligation to receive preferential dividends in the application for auction of the real estate of this case. Therefore, it is unlawful for the dividend court to distribute the amount of KRW 135,696,067 to the Defendant prior to the Plaintiffs.

B. Determination

With respect to a collateral security without any provision regarding the time when the secured claim is determined, it is reasonable to view that, in the event that the mortgagee files an application for auction to exercise the security right, the mortgagee has expressed his/her intent not to maintain any transactional relationship any longer by terminating the relationship between the debtor and the debtor. Therefore, in the event that the collateral security is the joint collateral security, the secured claim is determined at the time of the application for auction, and in the event that the collateral security is the joint collateral security, the intention to terminate the transactional relationship with the part of the secured claim is expressed even with the execution of the transaction. Therefore, in the event the secured claim has been satisfied in whole or in part at the auction procedure first executed with respect to a part of the secured claim, the remaining collateral security is either extinguished or reduced as much as the secured claim has been repaid.

However, in case where a subordinate mortgagee, other than the mortgagee himself/herself, applied for a voluntary auction or applied for a compulsory auction on the pertinent real estate by a third party, the secured debt of the secured real estate which did not apply for auction is extinguished upon the completion of realization procedure. Therefore, in case of a joint collateral security, if a third party, other than the joint collateral mortgagee, applied for a auction on some of the joint collateral, the secured debt of the joint collateral mortgagee shall also be determined regarding the pertinent real estate where the auction is conducted. However, in such case, since the joint collateral is not commenced upon the recovery intention of the joint collateral mortgagee, it cannot be deemed that the joint collateral is determined with the intention of the joint collateral mortgagee to terminate the basic transaction relationship with the debtor, and even if the joint collateral was paid by some of the joint collateral held by the mortgagee, it does not affect the secured debt limit established on the remaining joint collateral because it is the same as the case where the joint collateral was paid voluntarily, and this discussion is due to the nature of the joint collateral security, and it does not result in the progress of the joint collateral security, whether the joint collateral is a separate claim or not.

In this case, as seen earlier, the defendant received 360,000,000 won as an execution creditor in the distribution procedure with respect to the land of this case, one of the joint collateral on December 27, 199 as to the land of this case, and appropriated the principal for the repayment of the principal of the loan obligation of Taecheon-si Co., Ltd. as an execution creditor. As seen above, the defendant becomes the seizure right holder with respect to the land of this case as to the land of this case can be deemed to have exercised his/her security right to be repaid when it is formally viewed that he/she exercised his/her security right to be reimbursed. However, if the property of this case is expropriated, the mortgagee can secure his/her right to preferential reimbursement before it is paid to the debtor, and if the seizure procedure is not implemented until a certain period expires, it cannot be deemed that the defendant expressed his/her intention to actively terminate the basic contract with the fact that the seizure procedure is inevitable under law, and thus, it cannot be deemed that the defendant expressed his/her intention to actively terminate the basic contract.

Then, even though the Defendant took the procedure of seizing the land expropriation compensation, which is a part of the joint collateral, and received the repayment of the amount equivalent to the maximum debt amount during the distribution procedure, it cannot be deemed that the secured debt of the right to collateral security concerning the instant real estate, which is the joint collateral, was also determined together. As such, the secured debt of the right to collateral security concerning the instant real estate cannot be deemed to be reduced as much as the amount received from the land expropriation compensation paid out from the land expropriation compensation in the Bupyeong-si

C. In other words, the Plaintiff asserts that, since the joint collateral security is to secure the obligation arising from the continuous business relationship between the obligee and the obligor as a whole, it shall be effective only when both parties continue to engage in a business relationship, and if a real business relationship is not continued, the secured debt shall be determined if the actual business relationship between the parties, and that the secured debt shall be determined. If Taesung Metal Co., Ltd. had already been established at the time of the establishment of the distribution procedure for the land of this case, the secured debt of this case was already established as long as the distribution procedure for the land of this case had already been established at the time of the time of the establishment of the distribution procedure, such as the dissolution between the Defendant and Taesung Metal Co., Ltd., on January 16, 196, and the 17th day of the same month, June 24, 1999.

According to the evidence evidence Nos. 3 and 4, as alleged by the plaintiff, it can be acknowledged that the bad credit standing situation due to the default on the per share sheet of Taesung Metal Co., Ltd. and Taesung Metal Co., Ltd. was dissolved on December 31, 2001. However, even if the ground for the loss of credit occurred due to the default on the per share sheet issued by the debtor, such as the occurrence of the bad credit standing situation due to the default on the per share sheet issued by the debtor, the issue of whether the special agreement for the loss of credit should be implemented on the ground of the loss of credit still depends on the will of the mortgagee, who is the creditor. Thus, the secured claim is not determined on the ground that the basic transaction relationship between the mortgagee and the debtor is terminated as a matter of course, and this is also the same even if there were the grounds for the dissolution of Taesung Metal Metal Co., Ltd. (In addition, the distribution procedure for the land of this case was conducted on December 27, 199).

3. Conclusion

Thus, the distribution court did not err in the measures that distributed dividends of KRW 135,696,067 to the defendant in the distribution procedure of this case, and therefore, the plaintiffs' claim of this case seeking correction of the distribution schedule shall be dismissed as there is no ground. The judgment of the court of first instance is just in this conclusion, and the plaintiffs' appeal is dismissed as it is without merit. It is so decided as per Disposition by the assent of all.

Judges' Profit-based Round (Presiding Judge)