[edit] Supreme Court Decision 2002Da2294 delivered on April 12, 2002 [Objection to Dividend Distribution]

【Main Issues】

[1] Where a city imposes charges for ownership of excessive housing sites (the Charges) on a person who owns excessive housing sites, seizes the property of the person due to his default in payment of the Charges, and registers the seizure thereof with a court and such imposition and attachment becomes final and conclusive before the Constitutional Court of Korea determines that all the provisions of the former Ceilings on the Ownership of Housing Sites Act (the COHSA) are not in compliance with the Constitution, (i) whether the city may proceed with subsequent procedures to collect the delinquent Charges from the obligor after the Constitutional Court's decision (negative) and (ii) whether the city may receive any dividends in the auction procedure initiated by another creditor of the obligor (negative)

[2] Effect of Paragraph 3 of the Addendum in the Act to Repeal the COHSA following the decision of the Constitutional Court of Korea finding the former Ceilings on the Ownership of Housing Sites Act (the COHSA) unconstitutional

【Summary of Decision】

[1] The Charges defined in the COHSA (Repealed by Act, Law No. 5571 of September 19, 1998) are not imposed as tax. Rather, the Charges can be considered as monetary obligations imposed on a person who breaches his duties set forth in the COHSA as sanctioned and are merely means to force the person to perform his obligations so that the purpose of the COHSA can be achieved. For this reason, no entity may force the obligor to pay the Charges pursuant to the procedures set forth under the National Tax Collection Act unless there is a legal ground for enforcing the Charges. Before the COHSA was nullified, Article 30 of the COHSA provided: If the person obligated to pay the Charges fails to pay the Charges and surcharge in full within the specified time limit even after the receipt of the notice of payment of the same, the Minister of Construction and Transportation is entitled to collect the delinquent Charges in the same manner as other national taxes are collected. This means that the provisions regulating dispositions on delinquent taxes under the National Tax Collection Act (Chapter 3 therein) may also serve as a legal basis on which delinquent Charges could be collected. However, on April 29, 1999, the Constitutional Court of Korea determined that all the provisions of the former COHSA are not in compliance with the Constitution, and the above Article 30 of the COHSA also became invalid on the same date. As a result of the decision, the sole legal ground for compulsory measures to collect the Charges ceased to exist and we cannot find any particular laws that set forth the legal measures to enforce the person's obligation to pay the delinquent Charges. In this regard, even though a city imposed Charges on the person who owned excessive housing sites, seized the property of a person due to his default in payment of the Charges, and registered the seizure thereof with a court, and such imposition and attachment became final and conclusive before the above Constitutional Court of Korea's decision of April 29, 1999, the city may not proceed with subsequent procedures, including the public sale of the property of the obligor, which is one of the administrative measures to collect the delinquent Charges from the obligor before the Constitutional Court's decision. Moreover, the city may not receive any dividends in the auction procedure initiated by another creditor of the obligor just because it had registered the above attachment unless there is a separate title of obligation.

[2] According to Paragraph 3 of the Addendum in the Act to Repeal the COHSA (Act, Law No. 5571 of September 19, 1998), if the Charges, which remain delinquent at the time when the Act to Repeal the COHSA is in full effect, are those imposed upon a taxpayer on or prior to December 31, 1997 and the legal grounds for the past or future imposition of the Charges are the provisions set forth in the former COHSA, the former COHSA shall be applied to impose and collect the Charges. However, application of the foregoing provision is conditional upon the compliance of the former COHSA (repealed by Act, Law No. 5571 of September 19, 1998) with the Constitution. Therefore, since April 29, 1999 when the Constitutional Court of Korea determined the unconstitutionality of all the provisions of the former COHSA, the provisions of the above Addendum cannot be applied and such results cannot be deemed to impair any legal stability.

【Reference Provisions】 [1] Article 30 of the COHSA (repealed by Act, Law No. 5571 of September 19, 1998), Article 24 of the National Tax Collection Act/ [2] Paragraph 3 of the Addendum included in the Act to Repeal the COHSA (Act, Law No. 5571 of September 19, 1998)

Article 30 of the former Ceilings on the Ownership of Housing Sites Act (repealed by Act, Law No. 5571 of September 19, 1998) (Dispositions on Default of Taxes, etc.) If the person obligated to pay the Charges fails to pay the Charges and surcharge in full within the specified time limit even after the receipt of the notice of payment of the same, the Minister of Construction and Transportation is entitled to collect the delinquent Charges in the same manner as other national taxes are collected.

The Addendum to the Ceilings on the Ownership of Housing Sites Act (Law No. 5571 of September 19, 1998) (3) (Transitional Measures Regarding Levy and Collection of Charges) If the Charges, which remain delinquent at the time when the Act to Repeal the COHSA is in full and effect, are those imposed upon a taxpayer on or prior to December 31, 1997 and the legal grounds for the past or future imposition of the Charges are the provisions set forth in the former COHSA, the former COHSA shall be applied to impose and collect the Charges.

Article 24 of the National Tax Collection Act (Requirements for Seizure) (1) A public official engaging in tax collection shall seize the property of a taxpayer in any of the following events:

1. When the taxpayer fails to pay national taxes and surcharges in full not later than a specified time limit even after the receipt of the notice of payment of the same (including a demand note, hereinafter referred to as the Notice)

2. When the taxpayer fails to pay imposed taxes within a specified time limit even after the receipt of notice of payment prior to the due date for payment in accordance with the provision of Paragraph 1 of Article 14

(2) After national taxes are confirmed because there are reasons falling under any of the events set forth in each item of Paragraph 1 of Article 14, if it is impossible to levy the confirmed national taxes on the taxpayer in the reasonable judgment of the president of the relevant tax office, the president may seize the taxpayer's property equivalent to the amount not exceeding that presumed to be the confirmed national tax.

(3) If the president of the tax office intends to seize the taxpayer's property pursuant to the provision of the above Paragraph 2, he shall obtain the approval of the commissioner of a relevant regional tax office in advance.

(4) If the president of the tax office seizes the taxpayer's property in accordance with the provision of the above Paragraph 2, he shall notify the taxpayer of such fact in writing.

(5) The president of the tax office shall immediately release the seizure of the taxpayer's property under the provision of the above Paragraph 2 in any of the following events:

1. If the person, in receipt of the notice as specified in the provision of the above Paragraph 4, provides security for tax payment and requests the release of such seizure

2. If national taxes that the president of the tax office intends to collect by means of seizure have not been confirmed until three months after such seizure was made.

【Reference Cases】 [1] [2] Constitutional Court Decision 94HunBa37 delivered on April 29, 1999 and other 66 cases (combination) (Hungong34, 337)

【Plaintiff, Appellant】 Bupyeong-gu, Incheon (Law Firm WooReeLaw, Attorneys Jin Young-gwang and 1 other, Counsel for plaintiff-appellant)

【Defendant, Appellee】 Seocho-gu, Seoul and 1 person (Law Office Durey, Attorneys Jeon Min-gi and 6 others, Counsel for defendant-appellee)

【Court of First Instance】 Seoul District Court Judgment 2000Gahap 88602 delivered on May 31, 2001

【Court of Second Instance】 Seoul Hight Court Judgment 2001Na37103 delivered on November 30, 2001

【Disposition】 The appeal shall be dismissed. All costs of appeal shall be assessed against the Plaintiff.

【Reasoning】 The Charges defined in the COHSA (repealed by Act, Law No. 5571 of September 19, 1998) are not imposed as tax. Rather, the Charges can be considered as monetary obligations imposed on a person who breaches his duties set forth in the COHSA as sanctioned and are merely means to force the person to perform his obligations so that the purpose of the COHSA can be achieved. For this reason, no entity may force the obligor to pay the Charges pursuant to the procedures set forth under the National Tax Collection Act unless there is a legal ground for enforcing the Charges. Before the COHSA was nullified, Article 30 of the COHSA provided: If the person obligated to pay the Charges fails to pay the Charges and surcharges in full within the specified time limit even after the receipt of the notice of payment of the same, the Minister of Construction and Transportation is entitled to collect the delinquent Charges in the same manner as other national taxes are collected. This means that the provisions regulating dispositions on delinquent taxes under the National Tax Collection Act (Chapter 3 therein) may also serve as a legal basis on which delinquent Charges could be collected.

However, on April 29, 1999, the Constitutional Court of Korea determined that all the provisions of the former COHSA are not in compliance with the Constitution, and the above Article 30 of the COHSA also became invalid on the same date. As a result of the decision, the sole legal ground for compulsory measures to collect the Charges ceased to exist and we cannot find any particular laws that set forth the legal measures to enforce the person's obligation to pay the delinquent Charges. In this regard, even though a city imposed Charges on the person who owned excessive housing sites, and seized the property of a person due to his default in payment of the Charges, and registered the seizure thereof with a court, and such imposition and attachment became final and conclusive before the above Constitutional Court of Korea's decision of April 29, 1999, the city may not proceed with subsequent procedures, including the public sale of the property of the obligor, which is one of the administrative measures to collect the delinquent Charges from the obligor before the Constitutional Court's decision. Moreover, the city may not receive any dividends in the auction procedure initiated by another creditor of the obligor just because it had registered the above attachment unless there is a separate title of obligation.

Furthermore, according to Paragraph 3 of the Addendum in the Act to Repeal the COHSA (Act, Law No. 5571 of September 19, 1998), if the Charges, which remain delinquent at the time when the Act to Repeal the COHSA is in full effect, are those imposed upon a taxpayer on or prior to December 31, 1997 and the legal grounds for the past or future imposition of the Charges are the provisions set forth in the former COHSA, the former COHSA shall be applied to impose and collect the Charges. However, application of the foregoing provision is conditional upon the compliance of the former COHSA (repealed by Act, Law No. 5571 of September 19, 1998) with the Constitution. Therefore, since April 29, 1999 when the Constitutional Court of Korea determined the unconstitutionality of all the provisions of the former COHSA, the provisions of the above Addendum cannot be applied and such results cannot be deemed to impair any legal stability.

Reviewing the decision of the court below in light of the records, we find that the court below acknowledged the following facts with regard to the real estate in issue in this case (the Real Estate): i) A keun-mortgage was created on the Real Estate in favor of Nara Banking Corporation, not a party to this litigation, with a maximum claim amount of 30 billion won, the mortgagor being Wonpyoung Housing Co., Ltd. and the mortgagee being Nara Banking Corporation. The established keun-mortgage was registered with the Seoul District Court as No. 12732 on March 14, 1996; ii) As Daehyup World Plaza Co., Ltd., not a party to this litigation, defaulted in payment of various taxes imposed on itself, the Defendant, Seocho-gu, a district government in Seoul, registered a seizure of the Real Estate with the Seoul District Court as No. 1812 on January 14, 1998 in order to collect the delinquent taxes; iii) The Plaintiff, Bupyeong-gu, a district government in Incheon, registered a seizure of the Real Estate with the Seoul District Court as No. 23785 on May 24, 1995 in order to collect the delinquent Charges from Choi Moon-hoon, not a party to this litigation; and iv) On August 10, 1999, the auction applied for by Nara Banking Corporation for exercise of the keun-mortgage was commenced. During the auction procedure, the Plaintiff could receive no dividends.

With regard to the dividends, the court below rendered a proper judgment that the Plaintiff was not entitled to any dividends of the auction in light of the above legal principles. Therefore, we conclude that the court below did not err by misunderstanding the legal principles regarding the effect of the decision of the Constitutional Court of Korea and the order of priority in dividend distribution under the procedures for compulsory conversion of assets into currency, including involuntary auction. In addition, it cannot be inferred that the Defendants had the intention to willingly suffer any disadvantages caused by the above seizure of Real Estate just because they neither initiated the lawsuits seeking cancellation of the Charges imposed upon the Defendants nor applied for release of the above seizure registered by the Plaintiff.

Therefore, we find the relevant grounds for appeal also unacceptable.

Based on the foregoing, this appeal shall be dismissed with the assent of all Justices who reviewed the appeal and all costs of the appeal shall be assessed against the losing party.

Justices Song Jin-hun (Presiding Justice)

Byun Jae-seung

Yoon Jae-sik (Justice in charge)

Lee Kyu-hong

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