The Supreme Court rejected a lawsuit in which a member expelled from a regional housing cooperative demanded "a full refund of all contributions paid." The court found that demanding a refund while belatedly claiming the contract was void, even though the project is proceeding normally, violates the principle of good faith.
The Supreme Court's First Division said on the 7th that it overturned an appellate ruling that had partially sided with the plaintiffs in a suit filed by former members a person surnamed Jeong and a person surnamed Jang seeking the return of contributions from the Changwon Dong-eup Regional Housing Cooperative, and sent the case back to the Changwon District Court.
The Changwon Dong-eup Regional Housing Cooperative is promoting an apartment construction project in Yongjam-ri, Dong-eup, Uichang-gu, Changwon, South Gyeongsang Province. The two people joined the cooperative in 2012 on the condition that, in exchange for paying contributions, they would receive the transfer of ownership of one apartment unit in the future.
At that time, the cooperative issued a written refund guarantee agreement stating, "If we fail to file the project approval application by Dec. 2015, we will fully refund the down payment." In reality, the project plan approval application was not filed until May 2016, and approval was granted in July that year. The promised deadline was not met.
Even so, the two maintained their member status. They later paid additional contributions and entered into a loan agreement to raise the interim payment. When they failed to repay principal and interest by the loan maturity, the cooperative made a subrogation payment on their behalf. After the subrogation payment, the cooperative expelled the two from membership under its bylaws.
The expelled pair sued the cooperative. They argued, "Because the cooperative did not file the project approval application within the promised deadline, the refund guarantee agreement was not properly performed," and "the cooperative membership contract based on that premise is void or can be canceled due to a mistake in a material part." They then demanded a full refund of all contributions paid to date.
The courts of first and second instance partially accepted the members' claims. They found that entering the contract in the belief that the refund guarantee agreement was valid was a mistake regarding a material part of the contract, constituting grounds for cancellation under the Civil Act. They ruled that the contributions received by the cooperative constituted unjust enrichment obtained without legal grounds and ordered the cooperative to return them.
The Supreme Court, however, ruled differently. It first examined the nature of housing construction projects by regional housing cooperatives. Because the structure involves many members pooling contributions to build dwellings, the success or failure of the project is linked to other members' housing plans. It therefore assessed such projects as having a certain public character.
Premised on that public character, the Supreme Court said, "If expelled members are refunded all their contributions, that burden inevitably shifts to the other members." It added that recognizing a full refund based on the circumstances of individual members is inconsistent with the balance of interests among all members.
The Supreme Court also pointed out that for some time the two did not claim the invalidity of the refund guarantee agreement or the invalidity or cancellation of the cooperative membership contract, and instead continued performing the contract by paying additional contributions and even taking out loans on the premise that the project was proceeding according to procedure.
It found that only after failing to fulfill their contractual obligations and being expelled from membership did they claim the contract was void or canceled and demand the return of contributions, which violates the principle of good faith.
The Supreme Court said, "Seeking the return of contributions already paid on the premise that the refund guarantee agreement is void and thus the cooperative membership contract is also void or should be canceled cannot be allowed in light of the principle of good faith." It added that the appellate ruling, which recognized the cooperative's obligation to return the contributions, erred in its understanding of the law, and it reversed and remanded all parts in which the cooperative lost in the first and second instances.