Law Firm LLC et al., Counsel for defendant-appellant

Attorney Kim Yong-ro et al.

[Defendant-Appellee] Plaintiff 1 and 2 others

Law Firm Dong-dae et al., Counsel for defendant

Attorney Kim Jong-young

1. Case summary

According to the reasoning of the lower judgment, the following facts are revealed.

A. On June 4, 2003, the committee for promotion of the redevelopment of ○○○ Housing (hereinafter referred to as the “instant committee for promotion”) held a general meeting of residents and passed a resolution to select the Plaintiff as a contractor of the instant redevelopment project. Meanwhile, the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (hereinafter referred to as the “Urban Improvement Act”) was enacted on December 30, 202 by Act No. 6852, and was enforced on July 1, 2003.

B. On August 28, 2003, the Plaintiff and the instant promotion committee entered into a contract for construction works for the instant redevelopment project (hereinafter referred to as the “instant contract”). Article 10(1)2 of the instant contract provides that “The Plaintiff shall, at the request of the instant promotion committee, lend, within the total of 18.1 billion won, interest-free rental fees, etc. actually required for the implementation of the project. However, in order to guarantee the repayment of loans, the Plaintiff shall prepare and notarized the instant promotion committee’s monetary loan contract with the Plaintiff and the Plaintiff’s creditor, and submit it to the Plaintiff.” Article 13(1) provides that “The Plaintiff shall lend KRW 5 million per month from the date the establishment of the instant promotion committee to the date of establishment of the association, and KRW 10 million per month from the date the establishment of the association is approved to the date of occupancy” (hereinafter referred to as the “lease agreement”).

C. The Plaintiff agreed to lend the operating expenses of the association and other business promotion expenses to the instant promotion committee in accordance with the instant loan agreement, and entered into five loan agreements (hereinafter “each of the loan agreements of this case”) as indicated in the table in six pages of the lower judgment, and paid the amount corresponding to each of the “lease amount” stated in each of the loan agreements of this case to the instant promotion committee in accordance with each of the loan agreements of this case, and as indicated in the “joint guarantor” column, Defendant 1, Defendant 2, Defendant 5, Defendant 6, Defendant 4, Defendant 3, Defendant 1, and the deceased Nonparty 2 (hereinafter the above Defendants and the deceased Nonparty 1 and the deceased Nonparty 2’s successors) and the first instance co-defendant 3, Nonparty 4, Nonparty 5, and Nonparty 6 were jointly and severally liable for the instant promotion committee’s loan obligations.

D. The promotion committee of this case was approved on August 12, 2005 by the Yongsan-gu Office for the promotion committee under the Urban Improvement Act, but the promotion of the project, such as the designation of a rearrangement zone or the establishment of an association, was not achieved thereafter.

E. According to the operational regulations of the promotion committee of this case, according to Article 23(1) of the former Enforcement Decree of the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (amended by Presidential Decree No. 21171, Dec. 17, 2008; hereinafter referred to as the "former Enforcement Decree of the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents"), the "decision and change of the method of financing" of the promotion committee of this case requires the consent of at least 1/2 of the owners of land, etc. (Article 8(1)2(e). The promotion committee of this case may borrow funds for operation and project implementation from financial institutions and rearrangement project management entities (Article 32 subparag. 2). The operational regulations of the promotion committee of this case are implemented from the date when the said operational regulations are approved for the establishment of the promotion committee (Supplementary

2. Lower judgment

For the following reasons, the lower court determined that a loan agreement for consumption between 2 and 5 of the table Nos. 6 of the lower judgment (hereinafter referred to as “loan for consumption” in this case) was null and void, and that the Defendants’ joint and several surety obligations based thereon are also null and void in accordance with the subsidiary principle of the guaranteed obligation.

The instant contract and each of the instant loan for consumption were concluded after the enforcement of the former Act on the Maintenance and Improvement of Urban Areas (amended by Act No. 7392 of March 18, 2005; hereinafter referred to as the “former Act on the Maintenance and Improvement of Urban Areas”).

In addition, each of the loan agreements of this case, for which the Defendants assume joint and several liability, the loan agreement of this case was concluded after the enforcement of the operating regulations of the Promotion Committee. The loan agreement of this case constitutes either a case involving the bearing of expenses by the owners of land, etc. or a case involving changes in rights and obligations, and thus becomes null and void since it was concluded without obtaining the consent of the owners of land, etc. under Article 14(3) of the former Act, even though it is necessary to obtain the consent of the owners of land, etc...

3. Supreme Court Decision

The judgment below cannot be accepted for the following reasons.

A. Article 14(1) of the former Urban Improvement Act provides that "the promotion committee shall perform the affairs concerning an application for safety diagnosis (Article 14(1)), the selection of a rearrangement project management company (Article 2(2)), the preparation of an implementation plan for rearrangement projects (Article 3), the preparation for obtaining authorization for establishment of an association (Article 4) and other affairs prescribed by the Presidential Decree as necessary for promoting establishment of an association (Article 5)." Article 14(3) of the former Urban Improvement Act provides that "where the contents of affairs performed by the promotion committee under paragraph (1) involve the cost of owners of land, etc., such as the land, or cause changes in rights and obligations, the consent of owners of land, etc. shall be obtained prior to performing such affairs." Article 23(1) of the former Enforcement Decree of the Urban Improvement Act provides that "Where the promotion committee carries out the affairs under paragraph (1) or causes changes in rights and obligations, the consent of owners of land, etc. shall be obtained from a majority of owners of land, etc. or at least 2/3 of owners of land who consent to the promotion committee."

The purpose of Article 14(3) of the former Act is to ensure that consent of owners of lands, etc. is obtained more than a certain percentage, so that the intent of owners of lands, etc. can be reflected in matters directly affecting the rights and obligations of owners of lands, etc.

However, according to the delegation of Article 15 (2) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (No. 165 of the Ministry of Construction and Transportation notification) provides that "the operating rules of the Promotion Committee shall be prepared in accordance with the following methods, based on the attached operating rules, based on the attached operating rules," and the Addenda of the "Operation Rules of the Promotion Committee for the Establishment of the Promotion Committee for the ○○○○○○ Group" attached thereto stipulates that "the operating rules shall enter into force on the date when the head of ○○ Si/Gun/Gu has obtained approval for the ○○ Housing Reconstruction/Housing Redevelopment/Urban Environment Improvement Project Promotion Committee." Therefore, the "Operation Rules of the Promotion Committee prepared on the basis of the above attached operating rules shall apply only after the approval for the establishment of the Promotion Committee is granted in accordance with the Act and subordinate statutes, and the operation rules shall not apply to the performance of duties before the preparation of the operation regulations

B. According to the facts in the above 1., the "basic decision on the method of financing funds" that the promotion committee of this case raises funds for the operation, etc. from the plaintiff as the loan from the plaintiff was already made at the time of conclusion of the contract of this case including the loan agreement of this case, and each of the loan contracts of this case is nothing more than the subsidiary contract based on the loan agreement of this case.

Article 14(3) of the former Urban Improvement Act and Article 8(1)2(e) of the Operational Rules of the Promotion Committee of this case upon delegation from the latter part of Article 23(1) of the former Enforcement Decree of the Urban Improvement Act, was made on August 28, 2003 before the approval for establishment of the Promotion Committee of this case and the execution of the contract of this case was made on August 12, 2005. There is no room for applying Article 8(1)2(e) of the Operational Rules of the Promotion Committee of this case according to delegation of the latter part of Article 23(1) of the former Enforcement Decree of the Urban Improvement Act. Accordingly, these provisions should not affect the validity of the loan agreement of this case and the respective loan contracts

C. Nevertheless, the lower court determined that the loan contract of this case 2-5 was null and void on the grounds of violating Article 14(3) of the former Act, Article 23(1) of the former Enforcement Decree of the Act, and Article 8(1)2(e) of the Operational Rules of the Promotion Committee. The lower court erred by misapprehending the legal doctrine on the application of the former Act on the Maintenance of Urban Areas and the Operational Rules of the Promotion Committee to the matters for which the Promotion Committee shall obtain the consent of the owners of lands, etc.

5. Conclusion

The Plaintiff’s appeal is with merit, and the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Jae-hyung

Justices Noh Jeong-hee