In case the junior mortgagee files an application for auction, the time when the amount of the claim secured by the senior mortgagee becomes fixed (=when the successful bid price is fully paid)

In the event that other creditors have not filed a request for auction of the mortgaged real estate, the mortgagee of the mortgaged real estate has also extinguished by auction pursuant to the provisions of Articles 608(2) and 728 of the Civil Procedure Act. Thus, it cannot be said that the secured claim of the mortgaged real estate has been established at any time from the time when other creditors have filed a request for auction of the mortgaged real estate to the time when the auction procedure begins. However, if the secured claim of the mortgaged real estate is established at any time, the mortgagee of the mortgaged real estate registered before filing a request for auction registration of the mortgaged real estate auction procedure can be apportioned according to the order of priority even if the successful bidder did not demand a distribution of the mortgaged real estate under Article 605 of the Civil Procedure Act, and since there is no prior priority in the sale of the mortgaged real estate which was established at any time after the auction procedure had been commenced, it is reasonable to view that the secured claim would have been damaged by the secured claim owner's prior to auction, even if there was no prior priority in the sale of the mortgaged real estate at any time when the auction was executed.

Article 357(1) of the Civil Act; Article 608(2) of the Civil Procedure Act

[Plaintiff-Appellant] Plaintiff 1 and 1 other (Law Firm Gyeong, Attorneys Park Jong-soo et al., Counsel for plaintiff-appellant)

National Agricultural Cooperative Federation

Mutual Savings Bank of Korea

Daejeon High Court Decision 98Na5775 delivered on April 21, 1999

The part of the judgment of the court below against the defendant shall be reversed and that part of the case shall be remanded to the Daejeon High Court.

The grounds of appeal are examined.

In the event that the mortgagee did not file a request for auction of the mortgaged immovable but other creditors filed a request for auction of the mortgaged immovable property, the mortgagee’s right to collateral security without filing a request for auction in accordance with the provisions of Articles 608(2) and 728 of the Civil Procedure Act shall also be extinguished by a successful bid. Therefore, it cannot be said that the secured claim of the mortgaged movable property is also finalized at any time from the time when other creditors filed a request for auction to the time when the auction procedure begins. However, there is no provision in the Civil Act as to which the secured claim of the mortgaged movable property is finalized at any time.

According to the reasoning of the judgment below, the court below determined this issue as follows: (a) when the mortgagee of the right to collateral security (right to collateral security (right to collateral security (right to collateral security) voluntarily filed an application for auction, the secured claim of the right to collateral security (right to collateral security (right to collateral security) shall be established at the time when the mortgagee of the right to collateral security (right to collateral security) has expressed his/her intent not to maintain any transaction relationship with the debtor; (b) however, when the mortgagee of the right to collateral security (right to collateral security) filed an application for auction, the secured claim of the right to collateral security (right to collateral security (right to collateral security) may be acknowledged to the maximum extent possible to utilize his/her right to collateral, while the right to collateral security (right to collateral security (right to collateral security) may be established on the date following the date when the right to collateral security (right to collateral security (right to collateral security (right to collateral security (right to collateral security (right to collateral security) has been acquired), barring any special circumstance.

Furthermore, the lower court determined that the Defendant’s claim on November 19, 196, which was the date following the date on which the notice of claim declaration according to the decision to commence voluntary auction of this case was delivered to the Defendant, was already finalized on November 19, 1996, when the Defendant had known that the voluntary auction procedure was in progress with respect to each real estate listed in the attached list attached to the lower judgment, and that the Defendant’s claim on July 3, 1997 and August 6 of the same year constituted a secured claim on the premise that the Defendant’s claim on July 3, 1997 and the amount of KRW 25,30,000,000 and KRW 24,000,000, which discounted the Nonparty’s promissory notes, the debtor of the second secured claim of KRW 5,556,717, which was claimed by the Defendant, cannot constitute a secured claim under the premise that the Defendant’s claim amount constituted a secured claim within the limit of the amount of the secured claim.

However, the right to collateral security registered prior to the registration of commencement of an auction procedure of real estate is naturally entitled to dividends according to the order of priority even if the mortgagee did not demand a distribution under Article 605 of the Civil Procedure Act (see Supreme Court Decision 98Da7179, Jul. 28, 1998). Accordingly, the person who seeks to acquire the right to collateral security in real estate on which the right to collateral security has been established is recognized as having already been identified by the prior mortgagee and make transactions as having a value of the right to collateral security equivalent to the maximum debt amount of the right to collateral security. Thus, even if the amount of the right to collateral security increased at any time after the prior mortgagee became aware of the commencement of an auction procedure, if the amount of the right to collateral security increases within the maximum amount of the maximum debt amount of the right to collateral security, it cannot be deemed that the prior mortgagee who applied for the auction will suffer unexpected damages if the amount of the right to collateral security is within the scope of the successful bidder who applied for the auction procedure. In other words, the court below erred in understanding the legal principle regarding the right to collateral security.

Therefore, without considering the defendant's remaining grounds of appeal that there is a mistake of facts due to violation of the rules of evidence, the part against the defendant among the judgment below shall be reversed and remanded to the court below for further proceedings consistent with this Opinion.

Justices Park Jong-chul (Presiding Justice)