[1] When a direct payment of the subcontract price is agreed upon between the ordering person, the prime contractor, and the third party of the subcontractor, the subcontractor's right to request a direct payment has occurred, and the subcontractor's obligation to pay to the prime contractor is extinguished within the scope of the subcontract price

[2] Whether an expression of intent to request direct payment of the subcontract price is included in the agreement between the ordering person, the prime contractor, and the subcontractor on the direct payment made before the subcontractor performed the subcontracted work (negative)

[1] According to the language and text of Article 14(1) of the former Fair Transactions in Subcontracting Act (amended by Act No. 8359 of Jul. 19, 2007), even if a direct payment of the subcontract price is agreed upon between the ordering person, the prime contractor, and the third parties of the subcontractor, a subcontractor’s right to claim direct payment against the ordering person only when the subcontractor performs construction works according to the subcontract and requests a direct payment of the subcontract price equivalent to the portion performed by the ordering person, and the subcontractor’s obligation to pay to the prime contractor shall be interpreted to be extinguished within the scope of the subcontract price. Thus, the obligation to pay the prime contractor immediately shall not be deemed to be extinguished within the scope of the subcontract price solely on the basis of the direct payment agreement between the third parties before the subcontractor requests a direct payment of the subcontract price.

[2] In a case where a subcontractor entered into an agreement on direct payment between the ordering person, the prime contractor, and the subcontractor before the execution of subcontracted works, it shall not be deemed that the expression of intent to request direct payment of the subcontract price equivalent to the portion which was not yet executed is included in the agreement.

[1] Article 14 of the former Fair Transactions in Subcontracting Act (amended by Act No. 8359 of July 19, 2007) / [2] Article 14 of the former Fair Transactions in Subcontracting Act (amended by Act No. 8359 of July 19, 2007), Article 105 of the Civil Act

Plaintiff Co., Ltd. (Law Firm Taeyang, Attorneys Masung-sung, Counsel for the plaintiff-appellant)

Daegu Metropolitan City (Law Firm Daegu, Attorneys Park Jin-jin, Counsel for the plaintiff-appellant)

Daegu District Court Decision 2006Na16053 Decided June 21, 2007

The judgment below is reversed, and the case is remanded to the Daegu District Court Panel Division.

1. The judgment of the court below

In light of the adopted evidence, the court below acknowledged that the non-party company ordered the construction work of this case to the non-party company (hereinafter "non-party company"), the non-party company subcontracted the construction work of A.L to the plaintiff on October 21, 2005, and the non-party company and the plaintiff directly pay the plaintiff according to Article 14 of the Fair Transactions in Subcontracting Act and Article 4 of the Enforcement Decree of the same Act. The plaintiff completed the construction work of the above title and requested the defendant to pay the subcontract price directly to the non-party company on January 18, 2006. However, the court below acknowledged that the non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party company's non-party.

2. The judgment of this Court

However, this decision of the court below is not acceptable for the following reasons.

Article 14(1) of the former Fair Transactions in Subcontracting Act (amended by Act No. 8359, Jul. 19, 2007; hereinafter “former Subcontract Act”) provides that “When a cause falling under any of the following subparagraphs occurs and a subcontractor requests a direct payment of the subcontract price equivalent to the portion manufactured, repaired, constructed, or provided services, the subcontractor shall directly pay it to the subcontractor.” One of the reasons under subparagraph 2 provides that “where the ordering person has agreed to pay the subcontract price directly to the subcontractor, the ordering person, the prime contractor, and the subcontractor,” and Article 14(2) provides that “any obligation to pay the subcontract price to the subcontractor and any obligation to pay the subcontractor to the subcontractor shall be deemed extinguished within the scope of the subcontractor’s terms and conditions that the subcontractor directly made a request for the payment of the subcontract price before the ordering person enters into force, and such obligation to pay the subcontract price shall not be deemed extinguished within the scope of the direct payment by the subcontractor, and it shall not be construed that the subcontractor has been directly made within the scope of the subcontractor’s right to request for the payment.”

Even based on the facts duly confirmed by the court below, the plaintiff and the non-party company prepared a written agreement (Evidence 1) as stated in its reasoning on October 21, 2005 and submitted it to the defendant, and the plaintiff completed the original construction work under the subcontract and requested the defendant to pay the subcontract price on January 18, 2006. In light of the above legal principles, even if the agreement on the direct payment of subcontract price on October 21, 2005 between the defendant, the subcontractor, the subcontractor, and the non-party company, who is the principal contractor, was implicitly agreed on October 21, 2005, the plaintiff's right to claim the direct payment against the defendant, and the time when the defendant's obligation to pay the subcontract price for the non-party company was extinguished within the scope of the subcontract price, and thereafter, the time when the plaintiff completed the subcontracted construction work and requested the defendant to pay the subcontract price equivalent to the portion executed by the defendant.

Nevertheless, the court below held that the time when the defendant's obligation to pay the construction price to the non-party company was extinguished within the scope of the above subcontract price was an implied and direct payment agreement between the third parties on October 21, 2005, and accepted the plaintiff's claim for the subcontract price in this case as it is on the ground that the effect of seizure and provisional seizure against the non-party company's obligation to pay the construction price to the non-party company before January 18, 2006 does not extend to the above part of the subcontract price already extinguished among the claims subject to provisional seizure against the non-party company's other creditors. Thus, the court below erred in the misapprehension of legal principles as to Article 14 of the former Subcontract Act, and such illegality affected the judgment.

3. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the judgment below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Ji-hyung (Presiding Justice)