Supreme Court Rules Clan Must Return Sale Proceeds for Invalid Land Transaction

▲ The Supreme Court of Korea

The Supreme Court has ruled that if a person without proper authority sells land belonging to a clan (Jongjung), the sales contract is invalid, requiring the return of the land to the clan. However, the court also held that if the purchase price paid by the buyer was effectively used for the clan's benefit, the clan must return that portion of the funds to the buyer.

The Third Division of the Supreme Court (Justice Lee Heung-gu presiding) issued this ruling in a lawsuit involving ownership transfer registration and unjust enrichment between Clan A and a buyer identified as B, remanding the case to the Suwon High Court.

In November 2014, Clan A held a general meeting and passed a resolution appointing C as its president. However, in January 2015, a clan member filed a legal challenge, claiming the resolution was invalid.

In October 2015, the court ruled in the first trial that the resolution was invalid and issued an injunction suspending C from performing his duties that same month.

The issue arose because, two days before the injunction was granted, C, acting as the representative of the clan, signed a contract to sell clan land to B for 4.18 billion won.

B completed the ownership transfer registration around that time and deposited the full purchase price into a bank account managed by C by February 2016.

C sold other clan lands to individuals besides B and used the proceeds to pay for clan taxes, legal fees related to the dispute over his representative status, clan business expenses, operational costs, office management fees, and staff salaries.

Following a prolonged dispute over the clan's leadership, an acting representative was appointed in July 2016. The clan subsequently filed a lawsuit against B and other current landowners, arguing that the sales contracts signed by C were invalid and demanding the return of the land.

The first trial court accepted the clan's argument and ordered B and the others to proceed with the ownership transfer registration, ruling that the registrations made based on an invalid contract were void.

The second trial court reached the same conclusion.

During the second trial, B filed a counterclaim, arguing that if the sales contract was invalid, the clan should return the purchase price as unjust enrichment, but this was rejected.

However, the Supreme Court maintained the ruling that B and the others must return the land, while also accepting B's counterclaim, ruling that the clan must return the portion of the purchase price that effectively benefited the clan.

The Supreme Court stated, "If a significant portion of the purchase price paid by B was delivered to an acting representative who could be considered the clan's leader, or was used for the benefit of the clan, it can be viewed that the clan effectively received the benefit." The court added, "It is reasonable to conclude that the clan bears the obligation to return the corresponding amount as unjust enrichment."

The Supreme Court cited the legal principle that "when a party performs an obligation under a contract, but the contract is later found to be invalid or canceled, both parties are entitled to request the return of their respective performances to restore the state as if the contract had never existed."

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