2021.06.21

2021 (Kyo) 7

Minshu Vol. 75, No. 7

Decision concerning the issue of whether the heir of an obligor in a secured real property auction falls under the "obligor" referred to in Article 68 of the Civil Execution Act as applied mutatis mutandis pursuant to Article 188 of the same Act, in the case where the obligor received an order of grant of discharge and the secured claim for the security right that served as a basis for the same auction is subjected to the effect of the aforementioned order

Case of appeal with permission against a ruling to dismiss an appeal against a disposition of execution filed against an order of non-permission of sale

Decision of the First Petty Bench, quashed and decided by the Supreme Court

Tokyo High Court, Decision of February 9, 2021

Where an obligor in a secured real property auction received an order of grant of discharge and the secured claim for the security right that served as a basis for the same auction is subjected to the effect of the aforementioned order, the heir of the obligor does not fall under the "obligor" referred to in Article 68 of the Civil Execution Act as applied mutatis mutandis pursuant to Article 188 of the same Act.

Article 68, Article 71, item (ii), and Article 188 of the Civil Execution Act and the main clause of Article 253, paragraph (1) of the Bankruptcy Act

Civil Execution Act (Tentative translation)
(Prohibition of a Purchase Offer by an Obligor)
Article 68 An obligor may not make a purchase offer.
(Grounds for Non-permission of Sale)
Article 71 An execution court shall, when it finds that any of the following grounds exist, issue an order of non-permission of sale:
(ii) The highest purchase offeror lacks the qualification or capacity to purchase the real property or his/her agent lacks the authority of representation.
(Application Mutatis Mutandis of the Provisions on Execution against Real Property)
Article 188 The provisions of Article 44 shall apply mutatis mutandis to exercise of a real property security interest, the provisions of Section 2, Subsection 1, Division 2 of the preceding Chapter (excluding Article 81) shall apply mutatis mutandis to a secured real property auction, and the provisions of Division 3 of said Subsection shall apply mutatis mutandis to execution against earnings from secured real property.

Bankruptcy Act (Tentative translation)
(Effect of an Order of Grant of Discharge, etc.)
Article 253 (1) When an order of grant of discharge becomes final and binding, the bankrupt shall be discharged from his/her liabilities for bankruptcy claims, except for a liquidating distribution through bankruptcy proceedings; provided, however, that this shall not apply to the following claims:

The decision in prior instance is quashed, and the decision in first instance is revoked.

This case is remanded to the Yokohama District Court.

Concerning the reasons for appeal stated by the counsel for appeal, FURUTA Takehisa

1. According to the case records, the background of this case, etc. is as follows.

(1) On December 27, 2013, the Yokohama District Court issued an order of commencement of an auction in relation to the land and building owned by P that are stated in the List of Items attached to the decision in first instance, as the exercise of a revolving mortgage of which the obligor is P (2013 (Ke) No. 1011, the judgment of the Yokohama District Court; case of auction of a land and building security; hereinafter referred to as the "Auction Case").

(2) P received an order of commencement of bankruptcy proceedings on June 18, 2014, and received an order of discontinuance of bankruptcy proceedings on September 18, 2014. P also received an order of grant of discharge on the same day, and the same order became final and binding thereafter. The secured claim for the aforementioned revolving mortgage is subjected to the effect of the aforementioned order of grant of discharge.

(3) P died on February 23, 2015, and the appellant, who is P's child, and other heirs succeeded to P's property.

(4) A court execution officer determined the appellant as the highest purchase offeror on the bid opening date for the Auction Case, specifically, at 9:00 a.m. on December 1, 2020.

(5) On December 21, 2020, the execution court ruled that the appellant, who is the heir of P who was the obligor in the Auction Case, did not have the qualification to purchase the aforementioned land and building and that there is a ground for non-permission of sale set forth in Article 71, item (ii) of the Civil Execution Act (hereinafter referred to as the Act) as applied mutatis mutandis pursuant to Article 188 of the Act. Based on this ruling, the execution court issued an order of non-permission of sale to the appellant. In response to this order, the appellant filed an appeal against a disposition of execution.

2. The court of prior instance determined that the heir of an obligor in a secured real property auction also falls under the "obligor" referred to in Article 68 of the Act as applied mutatis mutandis pursuant to Article 188 of the Act, even when the obligor received an order of grant of discharge and the secured claim for the security right that served as a basis for the same auction is subjected to the effect of the aforementioned order. Based on this determination, the court of prior instance found the existence of the aforementioned ground for non-permission of sale and dismissed the appellant's appeal against a disposition of execution.

3. However, the aforementioned determination of the court of prior instance cannot be upheld for the following reasons.

According to Article 68 of the Act as applied mutatis mutandis pursuant to Article 188 of the Act, an obligor may not make a purchase offer in a secured real property auction. The reasons are considered as follows: in a secured real property auction, the obligor is liable to fully perform the secured claim for the security right that served as a basis for the same auction, and the obligor may avoid the sale of the subject real property if he/she performs the secured claim; therefore, the obligor should give higher priority to the performance of the secured claim than the purchase of the subject real property; even if an obligor is permitted to purchase the subject real property, a compulsory auction can be additionally held for the real property upon petition of the obligee of the same claim unless the secured claim is fully extinguished by the liquidating distribution of the proceeds of sale, etc.; therefore, there is little need to permit an obligor to make a purchase offer; in addition, an obligor who has failed to perform a secured claim and has become subject to the execution of the relevant security right is considered to be typically more likely to impair the progress of the auction procedures by non-payment of price.

However, where an obligor in a secured real property auction received an order of grant of discharge and the secured claim for the security right that served as a basis for the same auction is subjected to the effect of the aforementioned order, the heir of the obligor is not liable to perform the secured claim and the obligee also becomes unable to achieve the compulsory fulfilment of the secured claim. Therefore, it cannot be said that the aforementioned heir should give higher priority to the performance of the secured claim than the purchase of the subject real property. Even if the aforementioned heir is permitted to purchase the subject real property, an additional compulsory auction is never held upon petition of the obligee of the same claim. Therefore, it cannot be said that there is little need to permit the aforementioned heir to make a purchase offer. In addition, the aforementioned heir is also not considered to be typically more likely to impair the progress of the auction procedures by non-payment of price.

Therefore, in the aforementioned case, it is reasonable to consider that the aforementioned heir does not fall under the "obligor" referred to in Article 68 of the Act as applied mutatis mutandis pursuant to Article 188 of the Act.

4. Based on opinions different from those described above, the court of prior instance determined that there is the ground for non-permission of sale set forth in Article 71, item (ii) of the Act as applied mutatis mutandis pursuant to Article 188 of the Act, in relation to the appellant. This determination of the court of prior instance contains a violation of laws and regulations that has clearly influenced the judicial decision. The counsel's arguments are well-grounded, and the decision in prior instance should inevitably be quashed. Therefore, the decision in first instance is revoked, and this case is remanded to the court of first instance to have it further examine the existence of other grounds for non-permission of sale.

Accordingly, the Court unanimously decides as set forth in the main text of the decision.

Justice MIYAMA Takuya

Justice IKEGAMI Masayuki

Justice KOIKE Hiroshi

Justice KIZAWA Katsuyuki

Justice YAMAGUCHI Atsushi