Where a contractor concludes an agreement to exclude the above amount from the details of the work price subject to an advance payment when there occurs a cause for a direct payment of the subcontract price to the subcontractor, whether the contractor may be exempted from the obligation to pay the subcontract price to the subcontractor (negative), and whether the contractor is exempted from the obligation to pay the subcontract price where the contract price has been fully extinguished due to the appropriation of the advance payment to the work price before the cause for a direct payment of the subcontract price occurred (affirmative in principle)

The so-called advance payment, which is received from a contract for construction works, provides a contractor with the payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the pre-payment of the construction work. In light of the above, if there are reasons for the contractor to return the pre-payment of the pre-payment due to the cancellation or termination of the contract after the payment of the pre-payment of the pre-payment of the pre-payment, barring special circumstances, the unpaid amount of the pre-payment of the pre-payment of the pre-payment is appropriated as the pre-payment of the pre-payment of the pre-payment of the pre-payment and the contractor bears the obligation to pay the pre-payment of the pre-payment of the pre-payment of the pre-payment.

Article 14 (1), (2), and (4) of the Fair Transactions in Subcontracting Act; Article 9 (3) of the Enforcement Decree of the Fair Transactions in Subcontracting Act

Supreme Court Decision 99Da5519 Decided December 7, 1999 (Gong2000Sang, 148) Supreme Court Decision 2003Da69713 Decided June 10, 2004, Supreme Court Decision 2002Da68362 Decided November 26, 2004 (Gong2005Sang, 12) Supreme Court Decision 2007Da31211 Decided May 13, 201 (Gong2010Sang, 1091)

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

Korea

Suwon District Court Decision 2012Na39513 decided October 16, 2013

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. As to the ground of appeal by misapprehending the legal principles as to appropriation for advance payment

If a subcontractor requests a subcontractor to pay a direct subcontract price equivalent to the part which the subcontractor manufactured, repaired, constructed, or provided services pursuant to Article 14 (1) of the Fair Transactions in Subcontracting Act (hereinafter referred to as the "subcontract Act"), the subcontractor shall be liable to pay it directly to the subcontractor, and the subcontractor's obligation to pay the subcontract price and the subcontractor's obligation to pay the subcontract price shall be terminated to the extent of the scope of the subcontractor under Article 14 (2) of the Subcontract Act. In addition, Article 14 (4) of the Subcontract Act provides that "where the ordering person directly pays the subcontract price to the subcontractor pursuant to paragraph (1) of the same Article, the subcontractor shall be paid after subtracting the subcontract price already paid by the ordering person to the prime contractor." Article 9 (3) of the Enforcement Decree of the Fair Transactions in Subcontracting Act (hereinafter referred to as the "Enforcement Decree of the Subcontract Act") provides that "the ordering person bears a direct payment obligation within the scope of the subcontractor's obligation to pay the subcontract price to the subcontractor, to the extent that it does not impose any new obligation to pay the subcontract price to the subcontractor.

Meanwhile, the so-called advance payment under a contract for construction works provides the contractor with the payment of the contract price in advance in order to ensure the smooth progress of construction works without difficulty in securing materials and paying wages. In light of the above, if there are reasons for the contractor to return the advance payment in advance due to the reasons such as the cancellation or termination of the contract after the advance payment was made, the unpaid amount of the contract price up to the time of the advance payment shall be appropriated as the advance payment and the contractor shall be liable to pay the remainder of the contract price (see, e.g., Supreme Court Decisions 9Da5519, Dec. 7, 1999; 200Da36164, Jun. 10, 2004; 2003Da616360, Jun. 26, 2004). The contractor shall be liable to pay the advance payment in advance to the subcontractor for the reasons that the contractor would not be subject to advance payment unless there are special circumstances.

The court below acknowledged that Article 44 (6) of the General Conditions of the Construction Contract incorporated into the instant construction contract by the defendant who is the contractor and the contractor, the contractor (hereinafter "TEL Construction") provides that "in the case of 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 where the payment guarantee of the subcontract price has not been granted under the Framework Act on the Construction Industry and the Subcontract Act and where a direct payment is to be made pursuant to Article 43 (1), the advance payment may be offset if there is any unpaid balance after the subcontract payment is made." The provisions of the General Conditions of the above Construction Contract constitute an exceptional settlement agreement to exclude the amount equivalent to the advance payment from the details of the completed construction contract subject to the advance payment where a direct payment cause occurs, but the plaintiff who is the subcontractor from the contractor cannot be recognized as having been directly liable to pay the plaintiff as long as the contract of this case was terminated before the contract of this case was terminated.

Examining the reasoning of the lower judgment in light of the aforementioned legal principles and records, the lower court’s aforementioned determination is justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine regarding the appropriation of advance payment, or by exceeding the bounds of

2. As to the ground of appeal by misapprehending the legal principles as to the management and supervision duty

The court below rejected the plaintiff's claim for damages on the ground that the defendant cannot be deemed to have been responsible for managing and supervising the business of paying the steel bars to the plaintiff of Eel type recommendation.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court’s aforementioned determination is justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors in the misapprehension of legal doctrine

3. Conclusion

Therefore, the appeal is dismissed, 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.

Justices Kim Yong-deok (Presiding Justice)