Whether Article 485 of the Civil Act applies to the security of an obligee already extinguished prior to the time of guarantee, etc. which serves as the premise for statutory subrogation (negative)

Article 485 of the Civil Act provides, “In cases where a person is a person to be subrogated pursuant to Article 481 and the security has been forfeited or diminished by the obligee’s intentional or negligent act, the person to be subrogated shall be exempted from liability to the extent that it is impossible to receive reimbursement due to the loss or decrease thereof.” In cases of a person to be subrogated, the purport is to impose an obligation to preserve the security on the obligee in order to protect the obligee’s right to indemnity and the right to expectation for subrogation. Whether a statutory subrogation is exempted pursuant to Article 485 of the Civil Act and the scope of exemption is determined as at the time of the loss or decrease of the security, etc., the security for the already extinguished obligee is not applicable to the security of the obligee prior to the time of the guarantee, etc. which becomes a premise for statutory subrogation. It does not change on the ground that there are circumstances such as the obligee’s intentional or negligent act on the extinction of the security, or the trust of the existence of the security extinguished at the time of the guarantee, etc.

Article 485 of the Civil Act

Supreme Court Decision 2007Da66590 Decided December 11, 2008 (Gong2009Sang, 18)

National Agricultural Cooperative Federation

Nong Bank Co., Ltd. (Law Firm Kim & Yang World, Attorney Lee Won-won, Counsel for defendant-appellant)

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

Changwon District Court Decision 201Na14897 decided September 24, 2013

The judgment of the court below is reversed, and the case is remanded to the Changwon District Court Panel Division.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the Plaintiff’s successor’s ground of appeal

A. According to the reasoning of the judgment below, the court below acknowledged the following facts: ① (a) on March 29, 2004, the Plaintiff (ex officio) loaned loan of KRW 900 million, which is the first loan, to the Dong-hee Development Co., Ltd. (hereinafter “Dong-hee”) on March 29, 2007, and the first loan of KRW 1.177 million, out of the first loan's right to claim the refund of the purchase price held against the Korea Land Corporation; (b) on March 29, 2004, the Plaintiff (ex officio) did not specify the transfer claim subject to the consent of the Korea Land Corporation on March 29, 200; (c) on August 31, 2005, the Defendant extended the guarantee period of KRW 1.1 billion to the Korea Land Corporation with the credit guarantee period of KRW 2030,140,300,000,000,00 local tax credit extended to the Korea Land Corporation as the credit guarantee limit of KRW 131307.

In addition, regarding the Defendant’s assertion of exemption pursuant to Article 485 of the Civil Act, the lower court: (a) as to the Defendant’s assertion of exemption from liability, in light of the purport of Article 485 of the Civil Act, the Defendant’s first collateral guarantee contract should be protected; (b) the Plaintiff (ex officio) failed to have the opposing power of the first collateral claim by negligence in violation of the standards for credit management; (c) the Plaintiff’s negligence appears to be significantly significant; (d) the first collateral claim is evaluated to have higher value than the case where real estate was provided as a security to a public enterprise; (c) the Defendant entered into the first collateral guarantee contract under the trust that the transfer of claims and the acquisition of opposing power was normally conducted; (d) the existence and effect of the first collateral and the guarantor’s expectation right and subrogation interest protection; (b) even if there exists a valid collateral, even if the collateral had already been lost by the obligee’s intent or negligence, the Defendant was released from liability for exemption from liability under Article 180 of the Civil Act, on the premise that the Defendant had no substantial difference in its value.

B. However, it is difficult to accept the above determination by the court below for the following reasons.

Article 485 of the Civil Act provides, “In cases where a person is a person to be subrogated under Article 481 and the security has been forfeited or diminished by intention or negligence of the obligee, the person to be subrogated shall be exempted from liability to the extent that it is impossible to receive reimbursement due to such loss or reduction.” In cases where there is a person to make legal subrogation, the purport is to impose an obligation to preserve the security on the obligee in order to protect the obligee’s right to indemnity and the right to expectation for subrogation. Whether a statutory subrogation is exempted under Article 485 of the Civil Act and the scope of exemption is determined at the time of loss or decrease (see Supreme Court Decision 2007Da66590, Dec. 11, 2008). In full view of the foregoing, Article 485 of the Civil Act provides, “The security of the obligee already extinguished prior to the time of guarantee, etc. which becomes a premise for legal subrogation, the said security shall not be deemed to have been applied to the said security, and it shall not be deemed that there exist any other circumstances, such as the obligee’s intent or negligence, or trust at the time of statutory subrogation.

In light of the facts acknowledged by the court below in light of the above legal principles, since the plaintiff (Withdrawal) already lost its value as collateral around August 31, 2005, and thereafter terminated its value, the defendant entered into the first collateral guarantee contract on March 2007, and since Article 485 of the Civil Act cannot be applied to the first collateral guarantee claim, the defendant's exemption from liability for the first collateral guarantee obligation under the premise of its application is not allowed. The circumstances such as the defendant's trust of the existence of the first collateral guarantee claim already extinguished are merely merely the motive or circumstance of entering into the first collateral guarantee contract, but it is irrelevant to the application of Article 485 of the Civil Act.

Nevertheless, the lower court, solely based on its stated reasoning, accepted the Defendant’s claim for discharge on the ground that Article 485 of the Civil Act applies to the first secured claim. In so doing, the lower court erred by misapprehending the legal doctrine on Article 485 of the Civil Act, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal

2. As to the Defendant’s ground of appeal

A. As to the first ground for appeal

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court was justifiable to have rejected the assertion on the invalidation of each of the instant collateral guarantee contracts, on the ground that the Defendant, at the time of entering into each of the instant collateral guarantee contracts, expressed its intent to guarantee the Plaintiff (ex officio) as stated in each of the instant collateral guarantee contracts, and thus, there was a mutual agreement between the parties on the invalidation of each of the instant collateral guarantee contracts. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, by exceeding the bounds

B. Regarding ground of appeal No. 2

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court is justifiable to have rejected the assertion on the cancellation of each of the instant collateral guarantee contracts on the grounds of deception or mistake, and contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, or by misapprehending the relevant legal doctrine or by failing to exhaust all necessary deliberations, or by failing to exercise the right of explanation.

C. Regarding ground of appeal No. 3

The allegation in the grounds of appeal in this part is that the defendant should be exempted from liability in accordance with Article 485 of the Civil Code as to the loss of security of the difference inasmuch as the plaintiff (Withdrawal) obtained the second security claim of KRW 43 million with respect to the second loan obligation of Donghee Development, but only 310 million with his/her negligence obtained the consent to the transfer of claims, as long as he/she obtained the consent to the transfer of claims.

However, as alleged in the grounds of appeal in this part, even if part of the second collateral claim has lost its value as a collateral, the record reveals the fact that the Defendant entered into a second collateral guarantee contract after such loss. As such, Article 485 of the Civil Act cannot be applied to the said loss of security in accordance with the aforementioned legal principles. On a different premise, the ground of appeal on this part cannot be accepted.

D. Regarding ground of appeal No. 4

In light of the records, there is no evidence to acknowledge that the interest on the second loan obligation after April 25, 2007 was a loss caused by the cause attributable to the plaintiff (the plaintiff). On a different premise, the ground of appeal purporting that the defendant should be exempted from liability under the principle of equity is not acceptable.

On the other hand, the remaining grounds of appeal are asserted for the first time in the final appeal and are not legitimate grounds of appeal.

E. Ground of appeal No. 5

As to the appropriation of performance to the expenses, interest, and principal, Article 479 of the Civil Act is stipulated in the order of appropriation, and Article 476 of the same Act does not apply mutatis mutandis to the appropriation of performance of the designated obligation, Article 476 of the same Act shall be appropriated in the order of appropriation. Thus, in principle, the order of appropriation cannot be designated unilaterally differently from the above legal order even though the debtor and creditor are not the debtor. However, in cases where there is a special agreement between the parties or where it is deemed that the other party has not raised an objection without delay, and that an implied agreement has not been reached due to the other party's unilateral designation, the order of appropriation may be recognized differently from the order of appropriation (see Supreme Court Decision 2009Da12399, Jun. 11, 2009, etc.).

According to the records, with regard to the payment of part of the loan obligation of this case including the second loan obligation of this case, KRW 330,748,767 as well as KRW 458,939,690 as dividends in the distribution procedure for the collection of dividends in the Korea Land Corporation's land loan payment procedure for this case's land development, including KRW 330,748,767 as well as KRW 458,939,690 as well as KRW 1, the plaintiff (ex officio) has designated the order of appropriation in the order of priority in order of expenses, principal, and interest for the benefit of the debtor through the application for change of the claim(hereinafter "application for change of this case's claim") on August 27, 2012. ② As to the name of the plaintiff, the successor, and the defendant against the defendant, the plaintiff, who was succeeded to the obligation of this case, designated the order of appropriation in the order of the plaintiff's claim(s) to be appropriated in the order of the plaintiff's claim(s claim(s claim No. 301) as well.

Examining these facts in light of the legal principles as seen earlier, it is deemed that there was an implied agreement between the Plaintiff (ex officio) and the Plaintiff’s succeeding intervenor and the Defendant to repay the said part of the repayment received by the Plaintiff (ex officio) in the order of the principal and interest as designated in the instant application for change.

Nevertheless, the lower court erred by misapprehending the legal doctrine as to the appropriation of performance, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

F. Regarding ground of appeal No. 6

The argument in the grounds of appeal purporting that KRW 330,748,767 of the Korea Land Corporation deposit received by the Plaintiff (Withdrawal) shall be appropriated for KRW 372,00,000,000, not for the total amount of principal and interest of the second loan obligation, but for the Defendant’s second priority guarantee obligation, shall not be a legitimate ground of appeal.

3. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices.

Justices Shin Young-chul (Presiding Justice)