Association Members Filed Refund Lawsuit After Expulsion... Supreme Court of Korea Says 'Not Permitted'

[Financial News] The Supreme Court of Korea has ruled that even if a member expelled from a Community Housing Cooperative demands a full refund of their contribution based on the invalidity of a Refund Guarantee Agreement, the cooperative is not required to return all costs if the project has proceeded normally. The court stated that if the project was progressing as planned and the member did not raise objections for years after expulsion, such a claim violates the principle of good faith.
According to the legal community on the 7th, the Supreme Court of Korea's First Division (Presiding Justice Ma Yong-joo) overturned a lower court ruling that partially sided with the plaintiffs in a lawsuit against a Community Housing Cooperative and remanded the case to the Changwon District Court.
The plaintiffs, who were members of the association, paid their contributions in June 2015 and joined the cooperative. From March 2016 to November of the following year, they made additional payments and took out bank loans to cover interim payments but failed to repay them by maturity. As a result, the cooperative, which had provided joint guarantees, repaid the loans on their behalf. The cooperative then filed a recourse lawsuit against them and expelled the members who had not repaid the loans.
The expelled members filed a counterclaim, arguing that the Refund Guarantee Agreement signed at the time of joining was invalid as it had not been approved by a general meeting, and sought to cancel their membership contract and reclaim their contributions. The agreement stipulated that if the Community Housing Cooperative failed to apply for project approval by December 2015, the deposit would be refunded. The cooperative received establishment approval on November 9, 2015, but did not apply for project approval in December. Approval was eventually granted on July 12, 2016, and subsequent procedures followed. The members did not raise issues with the Refund Guarantee Agreement at the time but filed the lawsuit only after being expelled.
Both the first and second trial courts sided with the members, agreeing that the Refund Guarantee Agreement was invalid due to lack of general meeting approval, and thus the membership contract should be canceled or considered void from the outset.
However, the Supreme Court of Korea reached a different conclusion. It sided with the Community Housing Cooperative, stating that it violates the principle of good faith for members to assert the invalidity or cancellation of the contract years later, after the project had proceeded normally and without exercising their right to a refund in 2015.
The Supreme Court of Korea explained, "If the purpose of the Refund Guarantee Agreement has been achieved and the housing construction project is proceeding normally according to procedure, refunding the full contribution to expelled members would create a financial shortfall for the Community Housing Cooperative, ultimately harming the remaining members."
The court further stated, "If the housing construction project is proceeding normally without risk of failure, it may violate the principle of good faith or constitute an abuse of rights for a member to claim the invalidity of the Refund Guarantee Agreement and, consequently, the membership contract."

hwlee@fnnews.com Lee Hwan-joo Reporter