Taiwan - If The Claim Secured By A General Mortgage Does Not Exist, Even If The Mortgage Is Set Up And Registered, It Is Still Difficult To Conclude That The Mortgage Has Been Established.

Legal News & Analysis - Asia Pacific - Taiwan - Dispute Resolution

23 October 2020
 

The Supreme Court rendered the 109-Tai-Shang-220 Decision of April 30, 2020 (hereinafter, the “Decision”), holding that if the claim secured by a general mortgage does not exist, even if the mortgage is set up and registered, it is still difficult to conclude that the mortgage has been established.
 

According to the facts underlying this Decision, the Appellee asserted that his property at issue had been registered under a borrowed name and registered under the name of Appellant A.  The Appellee subsequently terminated the relationship of such registration under a borrowed name and filed suit to compel A to register the transfer of the ownership of the property at issue to the Appellee.  A final court decision was subsequently rendered in favor of the Appellee.  It was unexpected that after losing the first instance decision on the matter of transfer registration, A issued the promissory note at issue to Appellant B and registered the mortgage at issue on the property at issue for B.  However, since there was no debtor-creditor relationship between A and B for the promissory note at issue and there was no claim secured by the mortgage at issue, the claims over the promissory note and the mortgage did not exist, and the mortgage at issue did not exist, either.  Moreover, the issuance of the promissory note at issue and the registration of the mortgage at issue were resulted from the collusion and false intent between the Appellants and were also invalid.  A may request B to cancel the mortgage at issue and filed a debtor’s objection.  Since A was negligent in exercising the right, the Appellee could certainly exercise such right by way of subrogation as A’s creditor.  A contended as follows.  A borrowed money (hereinafter, the “2012 Loan”) from B in 2012 and issued the promissory note at issue as security.  Subsequently in 2014, A borrowed NT$1.5 million (hereinafter, the “2014 Loan”) again from B.  A incorporated the IOU for the 2012 Loan into an agreement on the borrowing of NT$3 million and issued Promissory Note No. 2 and set up the mortgage at issue as the security.  B also contended that according to the “Agreed-upon Matters Other Than Registration Application” in the contract on establishing the mortgage at issue and its attachment “Other Agreed-upon Matters,” the types and scope of the claims secured by the mortgage at issue and all of the debts current as of the establishment of the mortgage and in the future such as loans and negotiable instruments are not limited to the “monetary and consumption borrowing of 2012” and also include the 2014 Loan at issue and the claim over Promissory No. 2.   Therefore, the claim over the promissory note at issue and the claim secured by the  mortgage at issue actually existed.
 

According to the Decision, the proviso of Article 861, Paragraph 1 of the Civil Code provides that the types and scope of claims secured by a mortgage pertain to the content of the mortgage and can be set by the parties to the contract.  However, a mortgage is a real estate right in rem and requires registration to become a valid right in rem.  Since the mortgage is not valid without registration, the mortgagee’s right can only be exercised based on the content of the registration.  A general mortgage, which is a subordinate right in rem, is preconditioned by the existence of the secured claim.  If the claim so secured does not exist, even if the mortgage is set up and registered, it is still difficult to conclude that the mortgage has been established.
 

It was further indicated in the Decision that after generally considering relevant evidence, the original trial court lawfully concluded that the mortgage at issue was a general mortgage based on the fact that both the contract on the establishment of the mortgage at issue and the “Types and Scope of Secured Claim” field in the land and building registration transcripts of the real estate at issue indicated: “monetary consumption and lending on January 12, 2012.”  The types and scope of claim so secured were only limited to the claim over the 2012 Loan at issue and did not include the claim over the 2014 Loan at issue and Promissory Note No. 2.  What is specified in the “Other Agreed-upon Matters” attached to the contract on establishing the mortgage at issue is a nonspecific claim concerning the maximum amount of the mortgage and does not affect the scope of security of the general mortgage at issue.  In addition, the original trial court concluded that B enjoyed no claim against A over the 2012 Loans and the promissory note at issue.  Therefore, under the principle of mortgage subordination, since the claim secured by the mortgage at issue did not exist, the mortgage at issue did not exist.


 

For further information, please contact:  

 

Angela Wu, Lee Tsai & Partners

[email protected]