2016Da267432 Deposits for advance payments

A Stock Company

Law Firm under the jurisdiction of Law Firm

Attorney Lee Han-hoon, Attorneys Lee Han-hoon, Bon-sik, Kim Jong-hun, Park Jae-jin

C Financial Cooperative

Law Firm Bululul, Counsel for the plaintiff-appellant

Attorney Park Young-man, Attorneys Park Young-han, Lee Tae-tae, Counsel for the plaintiff-appellant

Suwon District Court Decision 2016Na58772 Decided November 3, 2016

December 27, 2018

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

The grounds of appeal are examined.

1. Review of the reasoning of the lower judgment and the record reveals the following facts.

(1) On February 17, 2014, the Plaintiff subcontracted part of the instant construction work to F Co., Ltd. (hereinafter “F”) on KRW 1,127,50,000 (the total amount of KRW 676,50,000, labor cost of KRW 348,50,000, value-added tax of KRW 102,50,000, value-added tax of KRW 102,50,000).

(2) Article 22(1) of the subcontract agreement provides that the Plaintiff shall pay advance payment to F, and Article 22(5) of the subcontract agreement provides that the advance payment shall be settled in accordance with the formula of the contract amount.

(3) On February 19, 2014, the Defendant issued to the Plaintiff an advance payment guarantee amount with the guarantee creditor from February 19, 2014 to December 4, 2014, in order to guarantee the repayment obligation of advance payment to the Plaintiff, the Defendant issued to the Plaintiff an advance payment guarantee amount with the guarantee creditor from February 19, 2014, the amount of KRW 744,150,000, the contract amount of KRW 127,50,000, the contract amount of KRW 1,127,500,000, and the guarantee period from February 19, 2014 to December 4, 2014.

(4) Article 2(1) of the Terms and Conditions of Advance Payment stated on the back of the letter of advance payment guarantee provides that "Advance payment settlement shall be made in accordance with the method of settlement under the main contract, and where the main contract (or, in the case of subcontracting, the superior construction) is an annual contract for construction works (including long-term continuing construction works and continuing expenditure contracts), advance payment settlement shall be made on the basis of the contract amount subject to advance payment (the contract amount as the basis for advance payment calculation)."

(5) On February 19, 2014, the Plaintiff notified F that it would pay KRW 189,750,000 as an advance payment under the subcontract agreement, and paid the said amount to F as an advance payment.

(6) As F failed to perform its obligations under the subcontract after the subcontract, the Plaintiff notified the termination of the subcontract to F on October 6, 2014, and the notification reached F.

2. Based on the above factual basis, the court below determined that the Defendant, who guaranteed the obligation to return the advance payment, should deduct the labor cost from the progress payment and the contract amount respectively, on the ground that the advance payment received by F should be appropriated for the progress payment under the formula of Article 22(5) of the subcontract agreement among the advance payment received by F upon termination of the subcontract agreement between the Plaintiff and F, namely, the advance payment X-value: contract amount: the Defendant is obligated to pay the remainder to the Plaintiff, except for the advance payment appropriated for the progress payment by F in accordance with the formula of contract amount: the Defendant, on the following grounds, should pay the Plaintiff the remainder of the advance payment. On the Plaintiff’s assertion, the court below held that, on the ground that the advance payment received by F should be appropriated for the progress payment: 74,150,000 won (contract amount - value added tax on labor cost - labor cost): the advance payment amount is calculated and the Defendant is obligated to pay only the remainder to the Plaintiff, and the Defendant already paid the remainder to the Plaintiff.

(1) The standard for calculating an advance payment (contract) is specified in an advance payment guarantee amount to KRW 744,150,000.

(2) On February 19, 2014, the Plaintiff’s notice as of February 19, 2014, stated that “prepaid amount” was KRW 744,150,000: subject amount X 25.5%: KRW 189,750,000; and as such, when calculating advance payment to F, the Plaintiff calculated the subcontract amount, based on KRW 74,150,000, not KRW 1,127,500,000, not KRW 744,150,000, which deducted value-added tax on labor costs and labor costs from the said amount.

(3) There is no reason to change the computation method of advance payment to F and the calculation method of advance payment to be appropriated for progress payment from among advance payment received by F. Therefore, it is consistent with the intent of the parties to the contract by deducting the labor cost from the advance payment and the value-added tax on labor cost and labor cost from the subcontract contract amount, in calculating advance payment appropriated for progress payment from the advance payment received by F.

(4) On March 2014, the Plaintiff, D Corporation, and F drafted a “Agreement on the Classification of Labor Expenses and Payment Confirmation”. Article 6 of the Agreement provides that “The amount of advance payment shall be applied for in consultation with the other party to the contract because it is excluded from advance payment,” in relation to advance payment.

3. However, it is difficult to accept the above determination by the lower court for the following reasons.

(1) As long as the formation of a disposal document is recognized as authentic, the court shall recognize the existence and content of declaration of intent in accordance with the language and text stated in the disposal document, unless there is any clear and acceptable counter-proof that denies the contents of the statement (see Supreme Court Decision 2017Da235647, Jul. 12, 2018).

(2) As seen earlier, Article 2(1) of the Terms and Conditions of Advance Payment provides that the settlement of advance payment is based on the method of settlement under the main contract, while the latter part of the term "in the case of a long-term continuing construction project and a continuous continuing construction project contract (including a contract for a long-term continuing construction project and a continuous construction project contract)" means the settlement based on the contract amount subject to advance payment (including a contract amount being the basis for calculation of advance payment). According to the records, the term "main contract" as stated in the terms and conditions of advance payment refers to the "contract" as stated in the terms and conditions of advance payment, and the term "prepaid contract" as stated in the terms and conditions of advance payment between the plaintiff and the F refers to the above subcontract. In conclusion, the term "main contract under the terms and conditions of advance payment" as stated in the terms and conditions of advance payment refers to the said subcontract.

While the court below calculated the advance payment appropriated for the progress payment out of the advance payment received by F based on the standard amount of "(744,150,000 won) for the calculation of the advance payment (74,150,000 won)" as stated in the letter of guarantee for advance payment, it did not serve as the basis for the determination that the instant case constitutes "in the event of a main contract (or, in the case of a subcontract, the superior construction)" under the latter part of Article 2(1) of the terms and conditions of guarantee for advance payment (including a contract for long-term continuing construction and a contract for construction of continuing expenditure). Considering the above circumstances, the court below seems to have determined

Under the premise of the lower court, the instant case does not fall under the latter part of the foregoing guarantee agreement. According to the legal doctrine as seen earlier, unless there is any clear and acceptable counter-proof to deny the contents of the said guarantee agreement, advance payment pursuant to the said guarantee agreement ought to follow the method of settlement under the main contract, i.e., the method of settlement under the said subcontract agreement, in accordance with the wording of

(3) Considering the following circumstances, it is difficult to view that the circumstances based on the lower court’s determination constituted a clear and acceptable counter-proof circumstance to deny the contents of the advance payment terms and conditions.

① Even if the Plaintiff calculated the advance payment to F, based on KRW 744,150,00,00 that deducts value-added tax on labor cost and labor cost from the contract amount, solely on such circumstance alone, it is difficult to readily conclude that applying the same calculation method to immediately settle the advance payment that the Plaintiff received from the Plaintiff was the party’s intent. If applying the same calculation method was the party’s intent, the Defendant appears to have been able to separately state such intent in the advance payment statement, etc., but the Defendant did not state such intent.

② According to the records, the purpose of the agreement on the division management and payment confirmation of labor cost by the plaintiff, D Corporation, and F is to agree on the detailed implementation of the agreement on the division management and payment confirmation of labor cost, i.e., the institution issuing the contract to the counter-party or the subcontractor separately from the cost other than the labor cost, and to confirm whether the counter-party to the contract has paid the labor cost to the counter-party or the subcontractor separately from the cost other than the labor cost. Considering the purpose of the agreement above, even though the above agreement is written that the labor cost is excluded from the advance payment, it can only be viewed as related to the implementation of the “pre-division management and payment confirmation system.” Unlike the wording of the guarantee agreement on advance payment, it is difficult to interpret the above contents as the basis of the “amount obtained by deducting the labor cost from the pre-paid payment” and the “amount obtained by deducting the value-added tax on the labor cost and the labor cost from the contract amount.”

③ According to the reasoning of the judgment below, the Plaintiff and F before the termination of the subcontract, applying the formula of contract amount: “Advance X progress payment”, and the F calculated the amount of the advance payment appropriated for the progress payment out of the advance payment received from the Plaintiff. As such, the Plaintiff and F’s intent related to the method of settling the advance payment of the said subcontract is consistent with the language and text of Article 22(5) of the said subcontract.

(4) Nevertheless, the lower court erred by misapprehending the legal doctrine on the interpretation of the disposal document, solely based on its stated reasoning, in interpreting the method of settlement of advance payment as stipulated in the advance payment guarantee clause differently from the language.

4. Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and 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 Min Il-young

A person shall be appointed.