In a case where a claim against a principal contractor against a principal contractor is executed and preserved by provisional attachment, etc. by a third creditor of the principal contractor before the cause for direct payment of subcontract consideration occurs under Article 14 of the Fair Transactions in Subcontracting Act, whether the principal contractor’s right to demand direct payment arises with regard to the amount corresponding to the claims preserved for execution if a cause for direct payment occurs thereafter (negative)

Since there is no provision excluding the effect of compulsory execution or preservation execution conducted prior to the occurrence of the cause for direct payment under the Fair Transactions in Subcontracting Act (hereinafter “subcontract”), if a third-party creditor of a principal contractor has preserved the principal contractor’s claims against the ordering person by seizure, provisional seizure, etc. before the cause for direct payment of subcontract consideration under Article 14 of the Subcontract Act occurred, a claim executed and preserved notwithstanding the cause for direct payment of the subcontract cost incurred thereafter shall not be extinguished. Accordingly, the subcontractor’s right to direct payment shall not occur with respect to the amount corresponding to the claims preserved by seizure, etc. as above.

Such legal principles as to the relationship between the principal contractor’s right to demand direct payment and the preservation of execution under the Subcontract Act are acknowledged to be considered in light of the fact that it is desirable to deal with the issue of adjustment of interests among the creditors regarding the principal contractor’s property in a simple manner, rather than dealing with it in accordance with the legal status of the parties concerned. In addition, such legal principles are equally applicable to cases where provisional seizure, etc. against the principal contractor’s claim against the principal contractor was made for the realization of the subcontractor’s claim against the principal contractor. In other words, even in cases where the principal contractor’s claim against the principal contractor is provisionally seized only upon the subcontractor’s request before the occurrence of the cause for direct payment under Article 14 of the Subcontract Act, unless the effectiveness of the preservation of execution due to provisional seizure, etc. is invalidated for reasons such as cancellation of execution or cancellation of execution prior to the occurrence of the cause for direct

Article 14 (1) and (2) of the Fair Transactions in Subcontracting Act

Supreme Court Decision 2009Da67351 Decided November 13, 2014, Supreme Court Decision 2015Da20107 Decided September 23, 2016

Multilateral Corporation, Inc.

C.C. Construction Co., Ltd. (Law Firm C.S., Attorneys Fixed-san et al., Counsel for the defendant-appellant)

Suwon District Court Decision 2013Na40985 decided December 11, 2014

The part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the Suwon District Court Panel Division.

The grounds of appeal are examined.

1. According to Article 14(1) of the Fair Transactions in Subcontracting Act (hereinafter “subcontract Act”), where a principal contractor is unable to pay the subcontract price due to the suspension of payment, bankruptcy, etc. of a principal contractor, and where a subcontractor requests a direct payment of the subcontract price to the ordering person (Article 14(1)1), the ordering person shall directly pay the subcontract price corresponding to the part that the subcontractor manufactured, repaired, constructed, or provided services to the subcontractor. In addition, pursuant to Article 14(2) of the Subcontract Act, if any of the above causes arises, the obligation of the ordering person to pay the subcontract price to the principal contractor and the obligation of the principal contractor to pay the subcontract price to the subcontractor to

According to the language and text of the Subcontract Act, only when the subcontractor executes construction works according to the subcontract and requests a direct payment of the subcontract price corresponding to the part performed by the subcontractor, the subcontractor’s right to demand direct payment to the ordering person under subparagraph 1 shall be interpreted as extinguished within the scope of the subcontract price.

However, there is no provision excluding the effect of compulsory execution or preservation execution conducted prior to the occurrence of a cause for direct payment under Article 14 of the Subcontract Act. Thus, where a third-party creditor of a principal contractor has preserved a claim against the principal contractor by seizure, provisional seizure, etc. before a cause for direct payment of subcontract consideration occurs, the claim preserved for the execution, notwithstanding the cause for the direct payment of the subcontract price incurred thereafter, shall not be extinguished. Therefore, the subcontractor’s right to demand direct payment does not accrue for the amount corresponding to a claim preserved by seizure, etc. as above (see Supreme Court Decision 2009Da67351, Nov. 13, 2014, etc.).

The legal doctrine regarding the relationship between the principal contractor’s right to demand direct payment and the preservation of execution under the Subcontract Act is acknowledged in consideration of the fact that it is desirable to deal with the issue of adjustment of interests among the creditors regarding the principal contractor’s property in a clear manner, rather than dealing with it relatively in accordance with the legal status of the parties concerned (see Supreme Court Decision 2015Da20107, Sept. 23, 2016, etc.). In addition, such legal doctrine likewise applies to cases where provisional seizure, etc. against the principal contractor’s right to demand direct payment was made for the realization of the subcontractor’s right to subcontract price against the principal contractor. In other words, even in cases where the principal contractor’s right to demand direct payment is provisionally seized only upon the subcontractor’s request before the cause for direct payment under Article 14 of the Subcontract Act arises, unless the effectiveness of the execution preservation pursuant to such provisional seizure prior to the occurrence of the cause for direct payment is invalidated due to the cancellation of execution or revocation of the execution.

2. According to the reasoning of the lower judgment and the evidence adopted, the Defendant: (a) contracted three construction works, including the construction of the South East Eastern Logistics Center, as the “project owner”; (b) contracted the instant construction works among the construction of the South East East Eastern Logistics Center; and (c) the Plaintiff completed the instant construction works until June 30, 2012; (b) the Plaintiff provisionally attached the instant three construction contract claims against the Defendant of Jho Eastdong Unemployment for the purpose of preserving the enforcement of the unpaid construction cost of KRW 64,90,000; and (c) on August 7, 2012, the provisional attachment order was served on the Defendant on August 16, 201; and (d) on September 7, 2012, the order of commencement of rehabilitation procedures was issued on August 6, 2012; and (d) the Plaintiff directly filed a claim with the Defendant for reimbursement of KRW 100,000,000,000 to the Defendant.

Examining the above facts in light of the legal principles as seen earlier, insofar as the Plaintiff filed a direct payment claim in this case under the condition that the effect of the above provisional seizure preservation is not invalidated, the Plaintiff’s claim for the construction payment against the Defendant of Jinho Unemployment, which was executed and preserved by the above provisional seizure, notwithstanding the instant direct payment claim, cannot be extinguished. Accordingly, the Plaintiff’s claim for direct payment cannot be concluded upon the instant direct payment claim. This does not change even if the Plaintiff was only the Plaintiff, who took measures to preserve the execution by provisional seizure, etc. at the time of the instant

Nevertheless, solely based on its stated reasoning, the lower court determined that the Defendant, upon the instant demand for direct payment, was liable to pay KRW 53,900,000, the remaining construction cost, which is the remainder of the construction cost related to the construction of the Southern East-dong Logistics Center, to the Plaintiff at the time of delivering the said demand for direct payment. In so determining, the lower court erred by misapprehending the legal doctrine on the validity of the right to demand direct payment and provisional

3. Therefore, without further proceeding to decide on the remaining grounds of appeal, the part against the Defendant is reversed, and that part of 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 the bench.

Justices Kim Jae-hyung (Presiding Justice)