[Defendant-Appellant] Handong Steel Co., Ltd. (Law Firm Taesan, Attorneys Seo-gu et al.)

Korea

September 25, 2013

Suwon District Court Decision 2012Da12725 Decided October 12, 2012

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance is revoked. The defendant will pay to the plaintiff the amount of KRW 67,246,504 as well as 20% interest per annum from the day following the delivery of a copy of the complaint of this case to the day of full payment.

1. Basic facts

(a) Conclusion of a contract for construction works;

On June 15, 201, the Defendant’s Air Force ○○○○ Investment Group (hereinafter “Tel Case”) concluded a construction contract with respect to the construction work of Tel Total Construction Co., Ltd. and the Air Force ○○○○ Investment Group (hereinafter “instant construction work”) located in △△-si located in △△-si (hereinafter “instant construction work”). On June 22, 2011, the starting date was June 22, 2011; and on September 15, 2012, the completion date was September 15, 2012; and the construction contract was concluded to apply the general conditions of the construction contract as follows (hereinafter “instant construction contract”).

○ General Conditions of the Construction Contract

Article 44

(6) In cases falling under paragraph (5), the public official in charge of contracts shall offset the balance of the advance payment and the amount payable for the completed portion: Provided, That if a payment guarantee for a subcontract has not been issued pursuant to the Framework Act on the Construction Industry and the Fair Transactions in Subcontracting Act and it is required to directly pay the subcontract price pursuant to Article 43 (1), the balance of the advance payment may be offset by the balance, if any, remaining after the subcontract price has been paid.

B. Conclusion of a contract for supplying materials by the Plaintiff

1) Around October 2011, the Plaintiff entered into a contract for the supply of materials with the content that the Plaintiff would supply the necessary steel bars to the instant construction site to the TEL case.

2) On October 28, 2011, the Plaintiff received a written notice from the Defendant on October 28, 2011, from the Defendant that the Defendant would, at the time of payment of the price of the instant construction, notify the Plaintiff of the fact of payment of the price of the instant construction, and that the Defendant will faithfully perform the management and supervision duties, such as requiring the Plaintiff to submit the details of the payment and the evidentiary data, and then supplied the dual-type iron bars to the TEL case on October 29, 201 and October 31, 201, but did not receive KRW 67,246,504.

(c) Conclusion of advance payment guarantee contracts and advance payment;

1) In order to receive advance payment from the Defendant on June 201, TEL case concluded a construction mutual aid association and the guaranteed amount of KRW 312,379,000 (total sum of advance payment of KRW 300,000,000 and an agreement based on the annual rate of 6% thereto) and an advance payment guarantee contract with the guarantee creditor as the Defendant.

2) To receive advance payment from the Defendant on June 201, TEL case concluded an advance payment guarantee contract with the Seoul Guarantee Insurance Co., Ltd. and the Defendant for the guaranteed amount of KRW 209,473,980 (the total amount of advance payment of KRW 200,000,000 and an agreement based on the annual 7% ratio thereto), and the guarantee creditor as the Defendant.

3) On June 29, 201, the Defendant submitted a guarantee under each of the above guarantee contracts from TEL case, and paid KRW 500,000,000 to TEL case as an advance payment for the instant construction contract.

(d) Waiver of construction works and settlement, etc. related thereto;

1) On November 28, 201, when the management status of the instant construction project becomes worse as a result of the repayment of bankruptcy, and the instant construction project becomes unable to be performed normally, the Defendant submitted a waiver of the construction project to the Defendant on November 28, 201. Accordingly, on November 30, 2011, the Defendant expressed his/her intent to terminate the instant construction contract, which, around that time, reached TEL case.

2) According to the result of another inspection conducted on December 12, 2011 for the settlement related thereto, the unpaid construction cost for TEL case was KRW 374,321,869 at the time of the submission of the said source of waiver of construction work. Meanwhile, there is no fact that the Defendant paid the construction cost to TEL case in addition to advance payment.

3) On December 9, 2011, the Plaintiff requested the Defendant, the ordering person, to pay 67,246,504 won for the unpaid steel contract to the Plaintiff, as prescribed by the Fair Transactions in Subcontracting Act.

4) Meanwhile, the Defendant, on February 23, 2012, offsets the amount of construction work equivalent to the amount of 374,321,869 won and advance payment from the Construction Mutual Aid Association up to the time of the waiver of the said construction work from an equal amount, and (c) above, 78,431,417 won (125,678,678,131 won (Advance 500,000 - 374,321,869 won) x 60% + the agreed amount of construction work 3,024,538 won from the Seoul Guarantee Insurance Company to the time of the said waiver of the construction work x 374,538 won x 205,360 won x 3065,3615,206 won x 2045,2386,4769) calculated by the method described in the guarantee agreement as stated in paragraph (2) c) above.

E. Relevant statutes

○ Fair Transactions in Subcontracting Act (hereinafter “subcontract”)

Article 14 (Direct Payment of Subcontract Price)

(1) Where a cause falling under any of the following subparagraphs occurs, the person ordering shall directly pay the subcontract consideration corresponding to the portion of the manufacture, repair, construction, or service performed by the subcontractor:

1. Cases where a principal contractor becomes unable to pay the subcontract price due to the suspension of payment, bankruptcy or other causes similar thereto, or the permission, authorization, license, registration, etc. of the principal contractor, and the subcontractor requests a direct payment of the subcontract price;

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1 through 9, 17, 20, 21, 26 and Eul evidence No. 2 (including each number; hereinafter the same shall apply) and the purport of the whole pleadings

2. Judgment as to the plaintiff's primary claim

A. The parties' assertion

1) The plaintiff's assertion

Since TEL case, the principal contractor, was insolvent after the conclusion of the above material supply contract, and on December 9, 201, the Plaintiff, the subcontractor, requested the Defendant (hereinafter “instant subcontract price”), who is the ordering person, to pay directly the unpaid contract price. Accordingly, the Defendant is obligated to directly pay the Plaintiff the instant subcontract price within the reasonable range until the discontinuance of the construction due to the waiver of the construction work, pursuant to Article 14(1)1 of the Subcontract Act.

2) The defendant's assertion

A subcontractor’s right to demand direct payment is premised on the existence of the principal contractor’s right to demand direct payment against the ordering person. Around November 30, 201, around November 30, 201, the Plaintiff requested direct payment of the subcontract price of this case, KRW 374,321,869, which was unpaid to the Defendant, was appropriated for KRW 500,000,000 for advance payment and terminated to the extent of equal amount. Ultimately, since the Defendant’s right to demand partial payment against the Defendant, who is the principal contractor, was all extinguished on November 30, 2011, the Defendant is not obligated to pay the subcontract price of this case to the Plaintiff even if the Plaintiff requested direct payment of the subcontract price of this case.

B. Determination

1) In the absence of special circumstances, the ordering person is obligated to pay the subcontract price to the extent of the principal contractor’s obligation to pay the price (see Supreme Court Decision 2011Da2029 decided Apr. 28, 2011).

In order to ensure the smooth progress of construction work without difficulty in securing materials and paying wages, advance payment is the pre-paid construction cost that the ordering person pays the pre-paid construction cost to the principal contractor in advance. In light of the above, if the principal contractor had to return advance payment during the process of construction due to reasons such as the cancellation or termination of the contract after the advance payment was made, barring any special circumstance, the unpaid amount of the pre-paid construction cost up to the time of maturity shall be appropriated as advance payment without a separate offset declaration, and if the advance payment remains after being appropriated for unpaid construction cost, it shall be deemed that the ordering person has a right to return the remaining advance payment, in light of the nature of advance payment (see, e.g., Supreme Court Decisions 97Da5060, Dec. 12, 1997; 2013Da317, May 17, 2017).

However, if an ordering person concludes an exceptional settlement agreement to exclude the details of progress payment subject to appropriation of advance payment from the details of advance payment where there occurs a cause for the ordering person to directly pay the subcontract price, the ordering person cannot be exempt from the obligation to pay the subcontract price on the ground that the advance payment is appropriated for the advance payment (see Supreme Court Decision 2007Da31211, May 13, 2010).

In light of the above legal principles, KRW 374,321,869, the amount of unpaid construction work for the defendant TEL case, was fully appropriated and extinguished from advance payment KRW 500,000 without a separate offset declaration on November 30, 201, where the grounds for the return of advance payment occurred due to the termination of the instant construction contract, and as long as the defendant's obligation to pay the advance payment for TEL case all terminates, the defendant's obligation to pay the advance payment for the plaintiff cannot be acknowledged.

2) As to this, the Plaintiff: (a) the proviso of Article 44(6) of the General Conditions of the instant Construction Contract provides that “if a direct payment is to be made for a subcontract, any balance may be offset against the balance of the advance payment if there is any unpaid amount after the payment of the subcontract price; and (b) the Defendant, applying the above proviso, requested a construction mutual aid association and the Seoul Guarantee Insurance Co., Ltd. to pay the said amount on the premise that the total unpaid subcontract price including KRW 67,246,504,00,000,000,000,000,000,000,000,000,000,000,000,000,0000,000,000,000,000,000,000,000,000,000,000,000,000,000,000.

In light of the above facts, if the defendant, the ordering person, directly pays the subcontract price of this case to the defendant on December 9, 201, as stipulated in Article 44(6) of the General Conditions of the Construction Contract incorporated into the construction contract of this case, the amount corresponding thereto should be deemed to have been an exceptional settlement agreement that excludes the details of the contract price subject to appropriation of advance payment (see Supreme Court Decision 2007Da31211, May 13, 2010). However, in order to oppose the defendant by the exceptional settlement agreement as alleged by the plaintiff, the ground for direct payment of the subcontract price of this case should arise prior to the termination of the contract price of this case on November 30, 2011. The plaintiff requested the defendant to directly pay the subcontract price of this case to the defendant on December 30, 2011, and the construction contract of this case was terminated on November 30, 2011, as seen earlier, it should not be deemed that the payment of the subcontract price of this case was terminated on December 11, 201, 2019.

C. Sub-decision

Therefore, the plaintiff's primary claim seeking the payment of the subcontract price of this case against the defendant pursuant to Article 14 (1) 1 of the Subcontract Act is without merit.

3. Judgment on the plaintiff's conjunctive claim

A. The plaintiff's assertion

Although the Defendant notified the Plaintiff of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment and promised to faithfully perform the management and supervision duties, the Defendant did not perform the management and supervision duties of the payment of the payment of the payment of the payment and the submission of evidentiary materials, thereby causing damage to the Plaintiff equivalent

B. Determination

On the other hand, as seen earlier, the Defendant did not have paid the price for the work for the work for the work for the work for the work for the work for the work for the work for the work, and further, it cannot be deemed that Eel case bears the duty of supervision and supervision over the payment for the work for the work to the Plaintiff by means of a letter of supervision and confirmation on the handling of the price for the above work for the work for the work for the work for the work for the work for the work for the work for

4. Conclusion

Therefore, all of the plaintiff's main and conjunctive claims in this case are dismissed as they are without merit, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed as it is without merit. It is so decided as per Disposition.

Judges Jin-bok (Presiding Judge) Kim Jong-young

1) However, the rate of interest paid by the Seoul Guarantee Insurance is likely to apply 5.8%, not the rate of 7% as stipulated in the above Guarantee Agreement.