2006.11.14

2005 (Ju) 1594

Minshu Vol. 60, No. 9

Judgment concerning whether or not, where the authenticated copy of the decision to commence an auction of real estate against the third party mortgagor has been served to the principal debtor, and then the guarantor has made payment by subrogation and notified the execution court of his/her succession to the attaching creditor but a notice prescribed in Article 155 of the Civil Code has not been given to the principal debtor regarding the notification of succession, the extinctive prescription of the guarantor's right to obtain reimbursement from the principle debtor has been interrupted

Case to seek reimbursement

Judgment of the Third Petty Bench, quashed and decided by the Supreme Court

Fukuoka High Court, Judgment of April 27, 2005

In the case where the authenticated copy of the decision to commence an auction of real estate petitioned by the creditor against the third party mortgagor has been served to the principal debtor, and then the guarantor who was entrusted by the principal debtor to give guarantee has, after making payment by subrogation, received from the creditor the supplementary registration of the transfer of the security interest over the third party mortgagor, and notified the execution court of his/her succession to the attaching creditor, even if the notice prescribed in Article 155 of the Civil Code has not been given to the principal debtor regarding the notification of succession, the extinctive prescription of the right to obtain reimbursement from the principal debtor that the guarantor acquires by making payment by subrogation shall be interrupted for the period from the time of the notification of succession until the termination of the procedure for the auction of real estate.

Article 147, Article 155 and Article 501 of the Civil Code, Article 171 of the Rules of Civil Execution

Article 147 of the Civil Code
(Ground of Interruption of Prescription)
The prescription shall be nullified upon issuance of:
(i) any claim;
(ii) any attachment, provisional seizure, or provisional disposition; or
(iii) any acknowledgment

Article 155 of the Civil Code
When an attachment, provisional seizure, or provisional disposition is not effected vis-a-vis a person who acquires any benefit of the prescription, it shall not have the effect of interruption of the prescription unless a notice is given to such person.

Article 501 of the Civil Code
(Effect of Subrogation by Performance)
A person who is subrogated to the claim of the obligee pursuant to the provisions of the preceding two articles may exercise any and all rights possessed by such obligee as the effect of, and as a security for, such right to the extent he/she may seek reimbursement under his/her own right; provided, however, that:
(i) unless the fact of subrogation is noted in advance in the register of an applicable statutory lien, pledge of real estate, or mortgage, a guarantor may not be subrogated to the claim of the obligee vis-a-vis any third party acquirer of the real estate which is encumbered by such statutory lien, pledge of real estate, or mortgage;
(ii) a third party acquirer may not be subrogated to the claim of the obligee vis-a-vis the guarantor;
(iii) one of the third party acquirers of the real estate shall be subrogated to the claim of the obligee vis-a-vis other third party acquirers in proportion to the value of each real estate;
(iv) one of the third party pledgors shall be subrogated to the claim of the obligee vis-a-vis other third party pledgors in proportion to the value of each property;
(v) as between a guarantor and a third party pledgor, the subrogation to the claim of the obligee shall be effected depending on the number of such persons involved; provided, however, that, if there are more than one third party pledgor, such persons shall be subrogated to the claim of the obligee in proportion to the value of each property with respect only to the residual amount which remains after deduction of the portion to be borne by the guarantor; and
(vi) in the cases referred to in the preceding item, if the property in question is real estate, the provisions of item 1 shall apply mutatis mutandis.

Article 171 of the Rules of Civil Execution
(Notification of Succession to Attaching Creditor after the Commencement of the Procedure to Exercise Security Interest)
Where a document has been submitted to prove someone's succession to the attaching creditor after the commencement of the procedure to exercise the security interest, the court clerk or court enforcement officer shall notify the debtor and the holder of the right that is the subject matter of the security interest to that effect.

The original judgment is quashed.
The appeal to the court of the second instance filed by the appellee at the court of the last resort is dismissed.
The appellee at the court of the last resort shall bear the cost of the appeal to the court of the second instance and the cost of appeal to the court of the last resort.

Concerning the reasons for petition for acceptance of appeal to the court of the last resort argued by the appeal counsel, YASUNAGA Hiroshi, OKUDA Ritsuo, and AOYAMA Takanori
1. The outline of the facts legally determined by the court of the second instance is as follows:
(1) Shinkin Bank A, for the purpose of securing its loan claim vis-a-vis B, had a revolving mortgage established on the real estate owned by C and others (hereinafter referred to as the "Revolving Mortgage"), and on June 9, 1995, loaned 30 million yen to B (the debt arising from this loan shall hereinafter be referred to as the "Debt").
(2) Around that time, the appellant at the court of the last resort, as entrusted by B to give guarantee, concluded a contract with Shinkin Bank A for jointly and severally guaranteeing the Debt. The appellee at the court of the last resort concluded a contract with the appellant for jointly and severally guaranteeing the obligation of reimbursement to be borne by B for the appellant based on the entrustment for guarantee.
(3) On October 6, 1997, B was given by the Saga Clearinghouse the disposition of suspension of transactions, and lost the benefit of time for the Debt under the contract with Shinkin Bank A.
(4) Shinkin Bank A, for the purpose of securing the claim for the outstanding principal of the Debt and other loan claims, filed a petition for an auction of real estate against C and other owners based on the Revolving Mortgage (this auction shall hereinafter be referred to as the "Auction"). On November 26, 1997, the Saga District Court made a decision to commence the Auction. The authenticated copy of this decision was served to B by a special postal service for legal documents on December 11, 1997.
(5) On December 25, 1997, the appellant paid to Shinkin Bank A, by subrogation, the outstanding principal of the Debt with interest thereon, which amounts to 25,008,412 yen in total, and on that day, had Shinkin Bank A make the supplementary registration of the partial transfer of the Revolving Mortgage.
(6) On January 6, 1998, by submitting a written notice of claims and other documents, the appellant notified the Saga District Court of its partial succession to Shinkin Bank A's title of attaching creditor. Around that time, the court clerk of said court, in accordance with Article 171 of the Rules of Civil Execution (prior to the revision by Supreme Court Rules No. 22 of 2003), notified B by ordinary mail of the partial succession. Although this mail did not arrive to B because B's new address was unknown, the procedure for the Auction was continued (see Article 3, para.1 of the Rules of Civil Execution and Article 4, para.5 of the Rules of Civil Procedure).
(7) The appellant, on the date of liquidating distribution (September 29, 1999), received 3,322,197 yen as liquidating distribution, whereby procedure for the Auction terminated on that day.

2. In this case, the appellant requests the appellee, who is the jointly and severally liable guarantor for the obligation of reimbursement to be borne by B for the appellant, to perform his obligation as the joint and several guarantor by paying the outstanding principal of reimbursement amounting to 21,041,215 yen with delay damages thereon. Against this claim, the appellee argues that by the date of filing of this suit, September 9, 2004, five years had already elapsed since December 25, 1997, the day when the appellant made payment by subrogation to Shinkin Bank A, and therefore the appellant's right to obtain reimbursement from B has been extinguished by prescription and the appellant's right to request the appellee to perform the obligation as the joint and several guarantor has also been extinguished by prescription.

3. Given the facts mentioned above, the court of the first instance upheld the appellant's claim in full by means of a default judgment. However, the court of the second instance upheld the appellee's defense of extinctive prescription and dismissed the appellant's claim, on the grounds that the appellant's right to obtain reimbursement from B had become enforceable by December 25, 1997, the day when the appellant made payment by subrogation to Shinkin Bank A, and had been extinguished by prescription due to the lapse of five years since that day, and therefore the appellant's right to request the appellee to perform the obligation as the joint and several guarantor had also been extinguished by prescription. The appellant made a counterargument that the interruption of prescription occurred by the notification of its partial succession to the title of attaching creditor, which was rejected by the court of the second instance.

4. However, the determination of the court of the second instance cannot be affirmed, on the following grounds.
(1) In the case where, with regard to the auction of real estate petitioned by the creditor against the third party mortgagor, the execution court has made a decision to commence the auction and served the authenticated copy of the decision to the principal debtor, and then the guarantor who was entrusted by the principal debtor to give guarantee has, after making payment by subrogation, received from the creditor the supplementary registration of the transfer of the security interest over the third party mortgagor, and notified the execution court of his/her succession to the attaching creditor, even if the notice prescribed in Article 155 of the Civil Code has not been given to the principal debtor regarding the notification of succession, it is appropriate to construe that the extinctive prescription of the right to obtain reimbursement from the principal debtor that the guarantor acquires by making payment by subrogation shall be interrupted for the period from the time of the notification of succession until the termination of the procedure for the auction of real estate. The reasons for this are as follows.
(a) The guarantor shall, by making payment by subrogation, acquire the right to obtain reimbursement from the principal debtor and also acquire by subrogation the claim that the creditor holds vis-a-vis the principal debtor (hereinafter referred to as the "Original Claim") and the security interest over the third party mortgagor (Article 501 of the Civil Code). In such case, the Original Claim and the security interest shall be regarded as something being incidental to and dependent on the right to obtain reimbursement for the purpose of securing it (See 1983 (O) No. 881, judgment of the First Petty Bench of the Supreme Court of February 20, 1986, Minshu Vol. 40, No. 1, at 43). The guarantor's notification of succession is intended to fulfill the right to obtain reimbursement by exercising the Original Claim and the security interest acquired by subrogation, and therefore it should be deemed that this notification amounts to the exercise of rights which is the basis for affirming that the prescription of the right to obtain reimbursement has been interrupted (See 1991 (O) No. 1493, judgment of the First Petty Bench of the Supreme Court of March 23, 1995, Minshu Vol. 49, No. 3, at 984).
(b) Where the authenticated copy of the decision to commence an auction of real estate against the third party mortgagor has been served to the principal debtor, the prescription for the Original Claim shall be interrupted for the period from when the authenticated copy of the decision was served to the principal debtor until the procedure for the auction of real estate terminates (See 1995 (O) No. 374, judgment of the Third Petty Bench of the Supreme Court of September 5, 1995, Minshu Vol. 49, No. 8, at 2784; 1993 (O) No. 1788, judgment of the Second Petty Bench of the Supreme Court of July 12, 1996, Minshu Vol. 50, No. 7, at 1901). Since this also applies where the guarantor, by making payment by subrogation, has succeeded to the attaching creditor during this period, the guarantor's succession to the attaching creditor generally does not cause any disadvantage to the principal debtor in terms of the extinctive prescription of the Original Claim. The same applies to the extinctive prescription of the right to obtain reimbursement because, as explained above, the Original Claim exists for the purpose of securing the right to obtain reimbursement.
Furthermore, the principal debtor who has entrusted the guarantor to give guarantee should necessarily predict that the guarantor would make payment by subrogation and make notification of his/her succession to the attaching creditor, unless the principal debtor stops the procedure for the auction of real estate by making payment independently, or take other action.
The purpose of Article 155 of the Civil Code is to ensure that where any conduct that can interrupt the prescription has occurred in relation to a person other than the person who is entitled to benefit of prescription (hereinafter referred to as "Beneficiary of Prescription"), notice should be given to the Beneficiary of Prescription regarding the occurrence of such conduct so that the Beneficiary of Prescription will not suffer any unpredictable disadvantage (See 1972 (O) No. 723, judgment of the Second Petty Bench of the Supreme Court of November 21, 1975, Minshu Vol. 29, No. 10, at 1537). In the case where the principal debtor who is the Beneficiary of Prescription has already been notified of the occurrence of the conduct that can interrupt the prescription by receiving the authenticated copy of the decision to commence the auction of real estate against the third party mortgagor, as explained above, the guarantor's succession to the attaching creditor generally does not cause any disadvantage to the principal debtor in terms of the extinctive prescription of the Original Claim as well as the extinctive prescription of the right to obtain reimbursement. Furthermore, the principal debtor should necessarily predict that the guarantor would make payment by subrogation and make notification of his/her succession to the attaching creditor. Therefore, it cannot be said that the principal debtor would suffer any unpredictable disadvantage without the notice of the guarantor's notification of succession.
It follows that in light of the legislative purpose of Article 155 of the Civil Code, it is not required to give notice to the principal debtor of the guarantor's notification of succession, at least, with respect to the extinctive prescription for the principal debtor who is the Beneficiary of Prescription.
(c) Consequently, in the case outlined above, it should be concluded that the extinctive prescription of the right to obtain reimbursement from the principal debtor that the guarantor acquires by making payment by subrogation shall be interrupted for the period from the time of notification of succession until the termination of the procedure for the auction of real estate.
(2) According to the facts mentioned earlier, the following circumstances are obvious. In response to the petition for the Auction filed by Shinkin Bank A against C and others based on the Revolving Mortgage, the Saga District Court made a decision to commence the Auction, and served the authenticated copy of the decision to B, the principal debtor. Subsequently, on December 25, 1997, the appellant, who had been entrusted by B to give guarantee, paid by subrogation the outstanding principal of the Debt, etc. to Shinkin Bank A, and received from Shinkin Bank A the supplementary registration of the partial transfer of the Revolving Mortgage. On January 6, 1998, by submitting a written notice of claims and other documents, the appellant notified the Saga District Court of its partial succession to Shinkin Bank A's title of attaching creditor. The procedure for the Auction terminated on September 29, 1999. In light of these factual circumstances, it should be construed that the extinctive prescription of the right to obtain reimbursement from B that the appellant acquired by making payment by subrogation started to run on December 25, 1997, the day when the right became enforceable, but was interrupted for the period from January 6, 1998, when the appellant made the notification of succession, until September 29, 1999, when the procedure for the Auction terminated, and then resumed running on the last day of this period. Consequently, it should be concluded that by September 9, 2004, the day when this suit was filed, the extinctive prescription of the right to obtain reimbursement had not yet been completed, and therefore the extinctive prescription of the appellant's right to request the appellee to perform the obligation as the joint and several guarantor had not yet been completed by that day (Article 457, para.1 of the Civil Code).
The determination of the court of the second instance that is contrary to this reasoning contains a violation of laws and regulations that apparently affects the judgment. The appellant's argument is well-grounded to the extent to allege such violation, and the original judgment should inevitably be quashed. According to the reasoning presented above, the judgment of the first instance that upheld the appellant's claim is justifiable as conclusion, and therefore the appeal to the court of the second instance filed by the appellee at the court of the last resort shall be dismissed.

Therefore, the judgment has been rendered in the form of the main text by the unanimous consent of the Justices.

Justice UEDA Toyozo
Justice FUJITA Tokiyasu
Justice HORIGOME Yukio
Justice NASU Kohei