Supreme Court: "Change in Secured Debt Scope Effective with Debtor Agreement Alone"

[Asia Economy Reporter Baek Kyunghwan] The Supreme Court has ruled that a senior mortgagee can change the scope of secured debt through a separate agreement with the debtor.

According to the legal community on the 9th, the Supreme Court's 3rd Division (Presiding Justice Kim Jae-hyung) overturned the lower court's ruling in favor of NongHyup Bank in a dividend objection case against Company A and remanded the case to the Daegu High Court.

Company A is a securitization-specialized company (SPC) that received loan claims and mortgage rights from Industrial Bank of Korea and sequentially established mortgages on the owned land starting in 2013. As a result, the first-priority creditor was Industrial Bank of Korea, the second-priority was NongHyup Bank, and the third and fourth priorities were Industrial Bank of Korea.

The issue began in 2018 when Company A faced difficulties in repaying the loan. Auction procedures for the land and buildings were carried out, and the court decided to distribute 7.3 billion KRW in dividends to the creditors.

However, NongHyup Bank claimed that part of the dividends paid to Industrial Bank of Korea belonged to them. Their argument was that although they had entered into a loan agreement with Company A to establish a second-priority mortgage on the land and to register a second-priority mortgage on the building to be completed in the future, Company A did not comply.

The first trial sided with NongHyup Bank. Although Industrial Bank of Korea lost the mortgage contract and did not submit it to the court, considering the usual method of setting the maximum claim amount, the mortgage was deemed to have been established only on the on-lending loan.

The second trial maintained the same judgment, but the Supreme Court interpreted it differently. The court stated, "When changing the scope of the secured debt, it is not necessary to obtain the consent of the junior mortgagee plaintiff, and the scope of the secured debt does not correspond to the registered details of the mortgage," adding, "The change is effective by agreement between the parties." Furthermore, it said, "Junior mortgagees and other interested parties entered into their interests knowing that the collateral value corresponding to the maximum claim amount was already identified by the mortgage, so it cannot be considered that they suffered unforeseen damages due to such changes."

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