The purport of Article 14 (3) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents that requires the consent of the owners of lands, etc. above a certain ratio under Article 14 (3) of the same Act, and whether the "Operational Rules of Promotion Committee" prepared based on the Regulations on Operation of Promotion Committee for Establishment of Consolidation and Improvement Projects under Article 3 (2) of the same Act shall also apply to the performance of duties prior to the preparation of operational regulations

Article 14(3) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (amended by Act No. 7392 of Mar. 18, 2005; hereinafter “former Act”) provides that “Where the contents of duties performed by the Promotion Committee pursuant to the provisions of paragraph (1) involve the bearing of expenses by the owners of the land, etc., or cause changes in the rights and obligations, the consent of the owners of the land, etc. shall be obtained at least the rate prescribed by the Presidential Decree before performing such duties.” 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 of Dec. 17, 2008) provides that “Where the contents of duties performed by the Promotion Committee pursuant to the provisions of paragraph (1) involve the bearing of expenses by the owners of the land, etc., or cause changes in the rights and obligations, the former Enforcement Decree of the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents shall be listed in accordance with the Operation Regulations.

The purport of Article 14 (3) of the former Act on the Improvement of Urban Areas and Dwelling Conditions for the consent of the owners of land above a certain ratio is to ensure that the opinions of landowners, such as land, are reflected in matters that directly affect the rights and obligations of landowners.

However, Article 3(2) of the former Act provides that “The operating rules of the Promotion Committee for the Establishment of a Rearrangement Project Association (No. 165 of the Ministry of Construction and Transportation notification) shall be prepared on the basis of the attached operating rules and in accordance with the following methods.” The attached regulations stipulate that “this operating rules shall be implemented from the date when the head of ○○ Si/Gun/Gu has obtained approval from the head of the Si/Gun/Gu for the Operation Committee for the Development of ○ Housing/Act for the Development of Urban Environment Projects.” Therefore, the “Operation Rules of the Promotion Committee” prepared on the basis of the attached operating rules shall be applied only after the establishment of the Promotion Committee is approved pursuant to the Urban Improvement Act and the regulations for the operation of the Promotion Committee are prepared only after the establishment of the Promotion Committee is made. Therefore, the “Operation Regulations of the Promotion Committee” does not apply to the performance of duties prior to the preparation of the operating regulations

Articles 14(1) and (3) and 15(2) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (Amended by Act No. 7392, Mar. 18, 2005); 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);

Hyundai Construction Co., Ltd (Law Firm LLC, Attorneys Kim Yong-ro et al., Counsel for the plaintiff-appellant)

Defendant 1 and nine others (Law Firm Daeong et al., Counsel for the defendant-appellant)

Defendant (Appointed Party) (Law Firm Dongdong, Attorneys Kim Jong-young, Counsel for the defendant-appointed Party)

Seoul High Court Decision 2018Na2017349 decided December 14, 2018

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

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 “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. On the other hand, the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (hereinafter “Urban Improvement Act”) was enacted by Act No. 6852 on December 30, 2002 and was enforced from July 1, 2003.

B. On August 28, 2003, the Plaintiff and the instant promotion committee concluded a contract for construction works related to the instant redevelopment project (hereinafter “instant contract”). Article 10(1)2 of the instant contract provides that “The Plaintiff shall lend interest-free and actual expenses within the total of 18.1 billion won upon the request of the instant promotion committee, including the association office rent, etc. actually spent at the time necessary for the implementation of the project. However, in order to guarantee the repayment of loans, the instant promotion committee shall be prepared and presented to the Plaintiff with a monetary loan contract with the Plaintiff and the Plaintiff’s creditor.” Article 13(1) provides that “The Plaintiff shall, at the expense of the instant promotion committee, lend KRW 5 million per month from the date of the conclusion of the instant contract to the date of establishment of the association, KRW 10 million per month from the date of establishment of the association and KRW 10 million per month until the date of occupancy after the establishment of the association.”

C. Under the instant loan agreement, the Plaintiff agreed to lend the operating expenses of the association and other business promotion expenses to the instant promotion committee, and entered into five loan agreements (hereinafter “each of the loan agreements of this case”) as indicated in the attached Table 6 of the lower judgment. Under each of the loan agreements of this case, the Plaintiff paid and lent each of the corresponding amounts stated in the “lease” column of the above Table to the instant promotion committee. As indicated in the “joint guarantor” column of the above Table, the Plaintiff jointly and severally and severally guaranteed the Defendant 1, 2, 5, 6, 4, 3, and the deceased Nonparty 1, and the deceased Nonparty 2 (hereinafter the Defendants and the deceased Nonparty 1 and Nonparty 2’s successors), and the joint Defendant 3, Nonparty 4, Nonparty 5, and Nonparty 6 of the first instance trial jointly and severally guaranteed the obligation of the promotion committee of this case.

D. The promotion committee of this case was approved by the Yongsan-gu Office to establish the promotion committee under the Urban Improvement Act on August 12, 2005, but did not implement subsequent projects such as the designation of the improvement zone or the establishment of the association.

E. According to the “Operational Rules of the Promotion Committee of this case” made pursuant to the latter part of 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 “former Enforcement Decree of the Promotion Committee”), the Promotion Committee requires the consent of at least 1/2 of the owners of land, etc. (Article 8(1)2(e)) and the Promotion Committee may borrow funds for operation and project implementation from financial institutions and rearrangement project management entities, etc. (Article 32 subparag. 2). The Operational Rules of the Promotion Committee of this case shall enter into force from the date on which the said Operational Rules was approved (Supplementary Rule of the Operation Rules).

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 “the loan agreement for consumption between 2 and 5”) 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 guaranteed liabilities

The instant contract and each of the instant loans for consumption were concluded after the enforcement of the former Act on the Maintenance and Improvement of Urban Areas (amended by Act No. 7392, Mar. 18, 2005; hereinafter “former Act”). Furthermore, among each of the loans for consumption in this case, the instant loan contract, the Defendants are liable for joint and several sureties, was concluded after the enforcement of the operating regulations of the instant promotion committee. The said loan agreement constitutes either the case involving the cost borne by the owners of land, etc. or the case involving changes in rights and obligations, and thus, was concluded without the consent of the owners of land, etc. under Article 14(3) of the former Act without the consent of the owners of land, etc., and thus all of them are null and void. The joint and several sureties’s debt based on each of the above loans for consumption by the Defendants is null and void in accordance with the principle of non-performance

3. Supreme Court Decision

The judgment below cannot be accepted for the following reasons.

A. Article 14(1) of the former Act provides that “The promotion committee shall perform the duties concerning an application for safety diagnosis (Article 14(1)), the selection of a specialized management company for rearrangement projects (Article 2(2)), the preparation of an implementation plan for rearrangement projects (Article 3), the preparation for obtaining authorization for the establishment of an association (Article 4) and other duties prescribed by the Presidential Decree as necessary for promoting the establishment of an association (Article 5).” Article 14(3) of the former Act provides that “Where the promotion committee carries out the duties under the provisions of paragraph (1) is accompanied by the cost of the owners of the land, etc. or causes changes in the rights and obligations, the consent of the owners of the land, etc. shall be obtained prior to the performance of such duties.” Article 23(1) of the former Enforcement Decree of the Act on the Maintenance and Improvement of Urban Areas provides that “Where the contents of the duties performed by the promotion committee under the provisions of paragraph (1) are accompanied by the cost of the owners of the land, etc. or with the consent of the promotion committee (Article 2).).

The purport of Article 14 (3) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for the consent of the owners of land above a certain ratio is to ensure that the opinions of landowners, such as land, are reflected in matters that directly affect the rights and obligations of landowners.

However, Article 3(2) of the former Act provides that “The operating rules of the Promotion Committee for the Establishment of a Rearrangement Project Association (No. 165 of the Ministry of Construction and Transportation notification) shall be prepared on the basis of the attached operating rules and in accordance with the following methods.” The attached regulations stipulate that “this operating rules shall be implemented from the date when the head of ○○ Si/Gun/Gu has obtained approval from the head of the Si/Gun/Gu for the Operation Committee for the Development of ○ Housing/Act for the Development of Urban Environment Projects.” Therefore, the “Operation Rules of the Promotion Committee” prepared on the basis of the attached operating rules shall be applied only after the establishment of the Promotion Committee is approved pursuant to the Urban Improvement Act and the regulations for the operation of the Promotion Committee are prepared only after the establishment of the Promotion Committee is made. Therefore, the “Operation Regulations of the Promotion Committee” does not apply to the performance of duties prior to the preparation of the operating regulations.

B. According to the facts in the above 1., the "basic decision on the financing method" that the promotion committee of this case raises funds for the operation, etc. of the promotion committee 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 Act and Article 23(1)2(e) of the former Enforcement Decree of the Act on the Maintenance and Improvement of Urban Areas and Article 8(1)2(e) of the Operating Rules of the Promotion Committee pursuant to delegation of the latter part of Article 23(1) of the former Enforcement Decree of the Act on the Maintenance and Improvement of Urban Areas and Article 8(1)2(e) of the former Enforcement Decree of the Act on the Maintenance and Improvement of Urban Areas and the conclusion of the contract of this case was conducted on August 28, 2003, which was the enforcement date of the establishment approval of the Promotion Committee of this case and the execution of the contract of this case. Accordingly, these provisions should not affect the validity of the loan agreement of this case and each loan contract

C. Nevertheless, the lower court determined that the instant loan for consumption 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 Rule of the Promotion Committee of this case. 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 Rule of the Promotion Committee to the matters for which the Promotion Committee should obtain consent from the landowner, etc., and thereby adversely affecting the conclusion of the judgment.

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 on

[Separate] List of Appointors: Omitted

Justices Ansan-chul (Presiding Justice)