The Supreme Court of Korea has ruled that expelled members of a regional housing cooperative cannot claim a full refund of their contributions by citing the invalidity of a refund guarantee agreement, as such claims violate the principle of good faith.
The ruling means that if a project's objectives have already been achieved and are progressing normally, members cannot retroactively demand their investment back by invoking the invalidity of a refund agreement made years earlier.
According to legal circles on Wednesday, the Supreme Court's First Division (presiding Justice Ma Yong-ju) overturned a lower court ruling that partially favored cooperative members in a lawsuit seeking refunds of their contributions from a regional housing cooperative in Changwon, South Gyeongsang Province. The case was remanded to Changwon District Court.
The cooperative members in question paid their contributions and signed membership contracts in June 2015. They subsequently paid additional contributions between March 2016 and November 2017 and also made interim payments through bank loans. However, they failed to repay the loans by maturity, forcing the cooperative, which had provided joint guarantees, to pay off the loans on their behalf. The cooperative then filed a reimbursement lawsuit against the members and expelled them from the organization.
The members filed a counterclaim seeking refund of their contributions, arguing that the refund guarantee agreement signed at the time of joining was invalid because it had not been approved by a general assembly vote. The refund agreement stipulated that "if the business approval application is not submitted by December 2015, the full deposit will be refunded."
The first and second instance courts accepted this argument, ruling that the refund guarantee agreement was invalid and therefore the membership contracts were also lawfully canceled, requiring the cooperative to return the contributions.
However, the Supreme Court reached a different conclusion. The court ruled that even if the refund guarantee agreement was invalid due to lack of general assembly approval, claiming a refund based solely on that circumstance violates the principle of good faith and cannot be permitted.
"The primary purpose of the refund guarantee agreement was to minimize losses in case of project failure, and it is difficult to view it as intended to absolutely guarantee the return of contributions," the court stated.
The court also noted that "even if the refund guarantee agreement becomes invalid, there are cases where this does not impede the ultimate objective of 'acquiring ownership of a newly constructed apartment.'" The court emphasized that in this case, business approval was subsequently obtained and the housing construction project has been proceeding normally according to proper procedures.
The Supreme Court specifically stated that "claiming invalidity of the refund guarantee agreement or consequent contract invalidity or cancellation, despite the project objectives being achieved, may constitute a violation of the good faith principle or an abuse of rights, as it deviates from the purpose and intent of the agreement."
The fact that the members did not demand refunds for a considerable period after the December 2015 deadline specified in the refund agreement, and instead continued to pay additional contributions, also served as grounds for the ruling.
"Housing construction projects are collective undertakings involving stable housing for numerous cooperative members, and contributions carry significant public interest," the court stated. "If full refunds of contributions are granted while the project is proceeding normally, project funds will become insufficient, and the resulting damage will inevitably be passed on to the remaining members."
