[1] The purport of Articles 57(2) and 112 of the Agricultural Cooperatives Act, which strictly restrict the counterpart to the loan by an agricultural cooperative, and whether the above provisions are mandatory provisions (affirmative)

[2] In a case where one party incurred loss to the other party due to failure to perform the contract even though one party stated and guaranteed the other party that the contract was not in violation of relevant statutes, etc., whether the liability for nonperformance is established (affirmative), and in a case where the contract concluded between the parties becomes null and void due to a breach of mandatory statutes, whether the performance of the obligation to compensate for damage under the statement and guarantee agreement on the ground of nonperformance of the contract may be claimed for damages on the ground of a violation of the provisions of statement and guarantee (negative)

[3] The case affirming the judgment below which held that Gap corporation's secondary purchase obligation against Eul corporation and Eul corporation's secondary purchase obligation, and Eul corporation's secondary purchase obligation is not legitimate in a case where Eul corporation's products sales contract entered into by Eul corporation, Eul corporation, Byung corporation, Eul corporation, and Eul corporation, etc., to guarantee "the conclusion and implementation of this contract is consistent with Eul's purposes, and it does not violate Eul's law and other relevant regulations," and Eul agreed to compensate Eul corporation, etc. for all damages caused by Eul's violation of Eul's products sales contract, and Eul's products were not purchased upon Eul's application for rehabilitation procedure, and Eul's products were not able to purchase Eul's products, and Eul's products were not able to purchase Eul's products, and Eul's products were 1 and 2 were able to purchase Eul's products and 2 others' products, and Eul's products and 2 others' products were able to purchase Eul's products and 2 others' products.

[1] According to Articles 57(2) and 112 of the Agricultural Cooperatives Act, an agricultural cooperative may borrow funds only from the State, public organizations, the National Federation, the Nonghyup Group and its subsidiaries, the Nonghyup Bank, or the Nonghyup Life Insurance, to achieve its business objectives, and may not borrow funds from any other institution or individual (the State, public organization, or the National Federation was originally prescribed as an institution capable of borrowing funds, but the Nonghyup Bank was added as it was amended by Act No. 10522 on March 31, 201, and as the Act was amended by Act No. 12950 on December 31, 2014, the Nonghyup Bank was amended by Act No. 12950 on December 31, 2014.

The Agricultural Cooperatives Act was enacted to improve the economic, social, and cultural status of farmers and to enhance the quality of life of farmers through the strengthening of agricultural competitiveness (Article 1). The foregoing provision strictly limits the counterpart to the borrowing of agricultural cooperatives is to prevent unfair infiltration by external capital by reflecting the purpose of this Act, and ultimately to ensure the financial soundness of agricultural cooperatives, which are autonomous cooperative organizations of farmers. In light of this purport, the above provision is null and void as mandatory law. If an agricultural cooperative guarantees another person’s debt, which is not an institution provided for in the above provision, actually bears the debt corresponding to the borrowing of a loan to a third party, not an institution as provided for in the above provision, by guaranteeing another person’s debt, such an act is also null and void.

[2] In cases where one party incurred loss to the other party due to failure to perform the contract even though one party stated and guaranteed the other party that the contract was not in violation of relevant statutes, etc., the contractual obligation is established as it constitutes nonperformance of contractual obligation. However, in cases where a contract concluded between the parties becomes null and void due to nonperformance of contractual obligation, performance of the obligation to compensate for damages under the statement and guarantee agreement on the ground of nonperformance of contractual obligation would result in the same outcome as prohibited under the mandatory law. In such cases, it would result in avoiding the mandatory law, and in such a case, it shall not be claimed for damages on the ground of violation of the provision

[3] The case affirming the judgment below which held that Gap corporation's 2nd obligation to guarantee Eul corporation's 2nd obligation to purchase and sell red ginseng products purchased from Eul Co., Ltd. after obtaining loans from Jung Co., Ltd. to sell them to Byung Co., Ltd.; Eul Co., Ltd.'s 2nd obligation to purchase and sell products; Eul Co., Ltd.'s 2nd obligation to secure Eul Co., Ltd.'s 2nd obligation to purchase and sell products; Eul Co., Ltd.'s 2nd obligation to guarantee Eul Co., Ltd.'s 2nd obligation to purchase and sell products; Eul Co., Ltd.'s 2nd obligation to secure Eul Co., Ltd.'s 2nd obligation to purchase and sell products; Eul Co., Ltd.'s 2nd obligation to guarantee Eul Co., Ltd.'s 2nd obligation to purchase and sell products; and Eul Co., Ltd.'s 2nd obligation to purchase and sell products from Byung Co.'s 1st obligation to purchase and sell products.

[1] Articles 1, 57(2), and 112 of the Agricultural Cooperatives Act / [2] Article 390 of the Civil Act / [3] Articles 57(2) and 112 of the Agricultural Cooperatives Act, Article 390 of the Civil Act

[1] Supreme Court Decision 2004Da35410 Decided November 25, 2004 Supreme Court Decision 2009Da96731 Decided April 29, 2010 / [2] Supreme Court Decision 2017Da6108 Decided October 12, 2018 (Gong2018Ha, 2086)

Gavi Capital Co., Ltd. and one other (Attorneys Park Ma-sung et al., Counsel for the plaintiff-appellant)

Jeonbuk Ginseng (Law Firm LLC, Attorneys Kim Gyeong-he et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Na2019101 decided December 3, 2015

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. Whether the provision on the restriction on counterpart to an agricultural cooperative loan is a mandatory provision and its validity (the grounds of appeal as to the plaintiff's primary claim)

A. According to Articles 57(2) and 112 of the Agricultural Cooperatives Act, an agricultural cooperative may borrow funds only from the State, public organizations, the National Federation, the Nonghyup Group and its subsidiaries, the Nonghyup Bank, or the Nonghyup Life Insurance, to achieve its business objectives, and may not borrow funds from any other institution or individual (the State, public organization, or the National Federation was originally prescribed as an institution capable of borrowing funds, but the Nonghyup Bank was added as it was amended by Act No. 10522 on March 31, 201, and as the Act was amended by Act No. 12950 on December 31, 2014, the Nonghyup Bank was amended by Act No. 12950 on December 31, 2014).

The Agricultural Cooperatives Act was enacted to improve the economic, social, and cultural status of farmers and to enhance the quality of life of farmers through the strengthening of agricultural competitiveness (Article 1). The foregoing provision strictly limits the counterpart to the borrowing of agricultural cooperatives is to prevent unfair infiltration by external capital and ultimately ensure the financial soundness of agricultural cooperatives, which are autonomous cooperative organizations of farmers, by reflecting the purpose of this Act. In light of this purport, the above provision is null and void as a mandatory law. If an agricultural cooperative guarantees another’s debt, which is substantially owed to a third party, not an institution prescribed in the above provision, with the guarantee of a third party’s debt, the above act is also null and void (see, e.g., Supreme Court Decisions 2004Da35410, Nov. 25, 2004; 2009Da96731, Apr. 29, 2010).

B. For the following reasons, the lower court determined that the Defendant’s secondary purchase obligation under the instant sales contract for the product of this case, which constitutes an agricultural cooperative, is in fact a guarantee of each of the loans obligation against the Plaintiffs under the third party’s floor and the third party’s floor (hereinafter collectively referred to as “third party’s floor, etc.”) and thus, constitutes a violation of Articles 57(2) and 112 of the Agricultural Cooperatives Act, which are mandatory law, and also invalid in that it goes beyond the Defendant’s legal capacity.

(1) The instant raw material sales contract, the instant product sales contract, the processing entrustment contract, and the loan contract were concluded in close connection. Comprehensively examining the contents thereof, the basic structure of the transaction is as follows.

The third floor, etc. is a business selling red ginseng products manufactured by processing ginseng and red ginseng raw materials from the Defendant to Yyangyang Co., Ltd. (hereinafter referred to as “Tcheonyang”). The third floor, etc. is to lend money from the Plaintiffs under a loan contract and pay loans to the Plaintiffs with the purchase price of red ginseng products received from the Defendant who is liable for sun-dried or secondary purchase.

(2) Under the product sales contract, the seller of red ginseng products is a third floor, etc., and the buyer bears the primary obligation to purchase red ginseng products. In the event that the delivery of the first place of the obligation to purchase red ginseng products is impossible, the Defendant bears the secondary obligation to purchase the products. The Plaintiffs, as a party to the contract, concluded the instant contract with the Defendant, such as the seller’s third floor, etc., and the first place of the second place of the buyer, even though they are not the seller or the purchaser of the products, entered into the instant contract with the Defendant. The Plaintiffs can deliver red ginseng products by checking and approving the payment of the purchase price of red ginseng products.

Unlike the ordinary sales contract, the sales contract is set based on the principal and interest of a loan contract, not on the market price of red ginseng products which are subject to sale, and the change in the sales amount is set to the extent that the principal and interest of the loan is guaranteed.

As such, the purpose of imposing the primary obligation to purchase in the product sales contract is to ensure that the Plaintiffs can receive the principal and interest of the loan by guaranteeing the payment of the purchase price of red ginseng products by the floor, etc. or by guaranteeing the payment of the purchase price of red ginseng products from the Defendant, while imposing the secondary obligation to purchase in the product sales contract and imposing the secondary obligation to purchase.

(3) According to the relevant laws, the act of bearing an invalid guaranteed obligation in violation of the mandatory law is not included in the scope of business that the Defendant permitted under Article 111 of the Agricultural Cooperatives Act.

C. Examining the reasoning of the lower judgment in light of the foregoing legal doctrine and the record, the lower judgment is justifiable. In so determining, the lower court did not err by misapprehending the legal doctrine regarding interpretation of expression of intent, legal nature, and guarantee

2. The relationship between the violation of the mandatory law and the statement and guarantee clause (the grounds of appeal as to the plaintiff's preliminary claim)

A. A. A contracting party, along with the fact that the conclusion of a contract to the other party does not violate relevant statutes, etc., and when a party causes damage to the other party due to failure to perform the contract even though the party stated and guaranteed the other party as to the performance of the contract, the contractual obligation is not fulfilled (see Supreme Court Decision 2017Da6108, Oct. 12, 2018). However, in a case where a contract entered into between the parties becomes null and void due to a breach of mandatory statutes, if the performance of the obligation to compensate for damage under the statement and guarantee agreement is identical to the prohibition of mandatory statutes, it would result in the evasion of mandatory regulations, and in such a case, it shall be deemed that the party cannot claim damages on the ground of a violation of the provisions on statement

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

(1) The Defendant, through a product sales contract concluded between the Plaintiffs, third party, etc., and third party, as a lending institution, had the secondary obligation to purchase red ginseng products at a fixed price and schedule from the ridge, etc., which is the debtor of the loan, in the event that the third party does not purchase red ginseng products at a fixed price and schedule, the Defendant had the secondary obligation to purchase red ginseng products at a fixed price and schedule from the ridge, etc. In this contract, the Defendant guaranteed that “the conclusion and implementation of this contract is consistent with the Defendant’s intended business and is not in violation of the Defendant’s applicable law and other relevant regulations,” and agreed to compensate for all damages arising therefrom (hereinafter “statement and guarantee clause”).

(2) Following the application for rehabilitation procedures, when the loan obligations against the plaintiffs such as the ridge, etc. that did not purchase red ginseng products from the ridge, etc., upon the application for rehabilitation procedures, the plaintiffs filed a claim against the defendant for the second purchase obligation. Accordingly, the defendant argued that the second purchase obligation agreement was null and void because it violated the Agricultural Cooperatives Act, which is a mandatory law, and thus null and void.

(3) The Plaintiffs filed a lawsuit against the Defendant for the performance of the secondary obligation to purchase the loans against the ridges, etc. as the preserved right, and for the compensation of damages, etc. under the preliminary statement and security provision.

C. The lower court determined as follows based on the foregoing facts.

As long as it is null and void in a product sales contract that allows the Defendant to bear secondary purchase obligations, the Defendant may not perform the secondary purchase obligations under a contract. In such a case, based on the provision on statement and security, if the Defendant compensates for damages equivalent to the performance profit to the nonperformance party based on the provision on the statement and security, the application of the mandatory law may result in unreasonable consequences. Therefore, the Plaintiffs’ claim for damages equivalent to the purchase price to the Defendant on the basis of the provision on statement and security may result in the elimination of the legislative intent of the Agricultural Cooperatives Act, which is a mandatory law, and thus, cannot be permitted.

D. The lower judgment is justifiable in light of the foregoing legal doctrine. In so determining, the lower court did not err by misapprehending the legal doctrine on the interpretation of the statement and guarantee provision, contrary to what is alleged in the grounds of appeal.

3. Whether the defendant's tort liability is recognized (the ground of appeal as to the second preliminary claim by the plaintiff)

The court below dismissed the plaintiffs' second preliminary claim seeking tort liability against the defendant. For that reason, it is not sufficient to recognize that the defendant's president and directors deceive the plaintiffs intentionally or by negligence, or that they formed a false trust to the plaintiffs, or that the president of the defendant's association caused damages to the plaintiffs by soliciting or aiding and abetting tent and illegal acts by negligence, and there is no other evidence to acknowledge it otherwise.

Examining the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on tort liability, failing to exhaust all necessary deliberations, etc., as alleged in the grounds of appeal.

4. Whether the Defendant’s return of unjust enrichment constitutes a return of unjust enrichment (the grounds of appeal as to the 3 preliminary claim by the Plaintiff, Inc., Ltd.)

The lower court determined that it is insufficient to recognize that a raw material and product sales contract, a processing consignment contract, and a loan contract are entirely null and void, and that there is no other evidence to acknowledge it, and dismissed the conjunctive claim of the Plaintiff Gavi Capital Co., Ltd. seeking return of unjust enrichment against the Defendant.

In light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine regarding the requirements for establishing unjust enrichment and partial invalidation, as alleged in the grounds of appeal.

5. Conclusion

The plaintiffs' appeals are dismissed in entirety as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Dong-won (Presiding Justice)