Tae Young River Co., Ltd. (Law Firm Mission, Attorney Park Jong-sik, Counsel for the defendant-appellant)

Co., Ltd.

December 22, 2017

1. The defendant shall pay to the plaintiff 457,080,000 won with 6% interest per annum from October 7, 2016 to January 26, 2018, and 15% interest per annum from the next day to the day of full payment.

2. The plaintiff's remaining claims are dismissed.

3. Of the costs of lawsuit, 10% is borne by the Plaintiff, and 90% is borne by the Defendant, respectively.

4. Paragraph 1 can be provisionally executed.

The defendant shall pay to the plaintiff 507,90,000 won with 6% interest per annum from October 7, 2016 to the delivery date of a copy of the complaint of this case, and 15% interest per annum from the next day to the day of complete payment.

1. Basic facts

A. Status of the parties

The plaintiff is a company that manufactures steel structures, etc., and the defendant is a company that manufactures and sells steel parts.

(b) Conclusion of a contract for construction works;

1) On March 4, 2016, the Defendant entered into a contract with the mining area construction industry corporation (hereinafter “mining area construction industry”) for the construction of the Defendant’s “mast” painting factory (hereinafter the above “mast” factory, and the above construction “the instant construction”) on the ground of the land located in Seodaemun-si ( Address omitted). The main contents of the instant contract are as follows: (a) the instant contract is the “instant contract”; (b) the standard contract for private construction works (Evidence A) drafted at the time of the said contract; and (c) the standard contract for private construction works (Evidence A) written at the time of the said contract are called “instant contract”).

3. Date of commencement: The scheduled date of completion on March 7, 2016: May 15, 2016 (* the date of completion of construction: April 30, 2016): Contract amount: KRW 1.1 billion by value, by value-added tax (excluding electricity, fire-fighting, and communications construction): Contract deposit (20%): KRW 220 million by KRW 220 million (20%) (within 14 days after the floor concrete is completed): Two intermediate payments (20%)-(20 million won after the floor is completed) (within 14 days after the completion of steel construction): The remainder of KRW 220 million by 40 million (40%): The remainder of KRW 7.7 (40%) within 3 billion after completion of the steel construction, and other matters for liquidated damages: the rate of KRW 400,000,000,000,000: 1.5.

2) Meanwhile, the general terms and conditions of the standard contract for private construction works attached to the instant contract (hereinafter “the general terms and conditions of the instant contract”) are as follows.

Article 9 [Period of Construction] ① The date of commencement and completion of construction work shall be the date specified in the contract. ② The date of commencement of construction work and the date of commencement of construction work shall be the date of commencement of construction work if it is impossible to start construction work without any cause attributable to the mining area construction industry, and in this case, the mining area construction industry may request the extension of the period of construction. ③ The date of completion shall be limited to the date a mining area construction industry completes construction work and a written request for completion inspection is made to the defendant: Provided, That the date of completion shall be limited to the case where a mining area construction industry passes a completion inspection pursuant to Article 24, but the construction work shall be included in a separate construction work that is not indicated in the drawing(s) - Article 40 [special agreement] - 16m-20m prior to the end of “ma” 16m-30m prior to the end of 20-30m prior to the end of construction work(25m prior to the completion of construction work)” and “24m subsequent after the completion of construction work”.

C. Conclusion of subcontract agreements with the Plaintiff and mining area construction industry

1) On April 8, 2016, between the mining area construction industry and the mining area construction industry, the Plaintiff entered into a subcontract by setting the subcontract period as KRW 429 million, and the construction period as from April 9, 2016 to May 1, 2016, respectively (hereinafter referred to as “instant subcontract”). Thereafter, the construction price under the instant first subcontract was increased to KRW 495 million.

2) Meanwhile, on June 20, 2016, the Plaintiff entered into a subcontract with the mining area construction industry by stipulating that the subcontract price for metal structures and creative works among the instant construction works shall be KRW 363 million, and the construction period shall be from June 20, 2016 to July 10, 2016, respectively (hereinafter “instant subcontract agreement”).

D. Approval for use of the factory of this case

On July 29, 2016, the Defendant applied for approval for the use of the factory of this case to the Seosan City Mayor, and obtained approval for the use on August 8, 2016.

E. Claim for the payment of the subcontract price as stipulated in the first and second subcontract of this case

1) On March 31, 2016, the Plaintiff filed a claim with the mining area construction industry for the construction cost of steel framed, KRW 128.7 million on March 31, 2016, KRW 297 billion on May 27, 2016, KRW 69.3 million on July 1, 2016, and KRW 495 million on the aggregate, and the mining area construction industry paid KRW 250 million on the said claim amount to the Plaintiff.

2) The Plaintiff filed a claim with the mining area construction industry for KRW 100,000,000 won on June 13, 2016, KRW 1100,000,000,000 on July 1, 2016, KRW 1552,90,000,000 on July 26, 2016, and KRW 363,00,00,000,000,00 for the construction cost of metal structures and windows among the instant construction works, and the construction cost of the mining area was paid to the Plaintiff out of the said claim amount.

3) On July 29, 2016 and September 22, 2016, the Plaintiff claimed payment of the unpaid subcontract price of KRW 57.9 million to the mining area construction industry.

F. Plaintiff’s request for direct payment of subcontract consideration to the Defendant

On October 6, 2016, the Plaintiff requested the Defendant to pay the above subcontract price directly, although the mining area construction industry did not pay the said unpaid subcontract price in KRW 57.9 million.

[Ground of recognition] The fact that there is no dispute, Gap's 1, 2, 3, 6 through 11 (including the number of branches; hereinafter the same shall apply)'s entries and the purport of the whole pleadings

2. Summary of the parties' arguments

A. The plaintiff

The mining area construction industry, which is the contractor of the instant construction, delayed payment of the subcontract price to the Plaintiff as the subcontractor at least twice, and did not issue a payment guarantee letter of subcontract price. Accordingly, the Plaintiff requested the Defendant as the contractor to pay the subcontract price directly. As such, the Defendant is obligated to pay the Plaintiff KRW 57.9 million of the subcontract price payable pursuant to Article 35(2)3 and 5 of the Framework Act on the Construction Industry and Article 14(1)3 and 4 of the Fair Transactions in Subcontracting Act (hereinafter “subcontract Act”).

B. Defendant

1) The mining area construction industry failed to perform the construction stipulated in Article 40(4) of the General Conditions of the instant contract, and the Plaintiff also did not perform the shipment site construction work of the instant plant among the subcontracted construction works from the mining area construction industry, and thus, the instant construction work has not been completed. Accordingly, the Defendant is not obliged to pay the Plaintiff the subcontract price.

2) Even if the Defendant is liable to pay the subcontract price to the Plaintiff, the Plaintiff paid KRW 809,937,090, out of the Defendant’s mining area construction industry, Han Industrial Co., Ltd., a subcontractor of the instant construction project (hereinafter “Korea-Japan Industry”), and Gohap Co., Ltd., Ltd. (hereinafter “Korea-Japan”) a total of KRW 809,937,090, out of the Defendant’s liability for the construction price for the instant mining area construction industry, the Plaintiff extinguished due to repayment.

3) The mining area construction industry did not perform the construction set forth in Article 40(4) of the General Conditions of the instant contract, and requires at least KRW 150 million to perform the said construction, so the amount equivalent to the above amount should be deducted from the subcontract price to be paid by the Defendant to the Plaintiff. Moreover, the Defendant received an order to pay KRW 70,290,465 for ready-mixed which the mining area construction industry did not pay to the Plaintiff. As such, the amount equivalent to the above ready-mixed should also be deducted from the subcontract price.

4) [Offset of Claim] Since the Defendant has the claim for the delayed payment against the mining area construction industry as follows, it offsets the Plaintiff’s claim for the construction payment against the Defendant (the claim that the amount equivalent to the delayed payment should be deducted from the subcontract price) by using it as an automatic claim.

A) Since the instant construction project was completed on August 8, 2016, which was before May 15, 2016, the completion date of the instant construction project, the completion date of the instant construction project, the Defendant has a claim for liquidated damages worth KRW 142,065,000, to the mining area construction industry.

B) Even if the date of completion of the instant construction project applied for approval of use on July 29, 2016, the Defendant has a claim for liquidated damages of KRW 129,937,500 against the mining area construction industry.

C) Even if the Defendant agreed to extend the construction period by June 21, 2016 between the mining area construction industry and the mining area construction industry, the Defendant has a claim for liquidated damages worth KRW 65,835,000 to the mining area construction industry.

3. Determination as to the claim

A. Determination on the cause of the claim

1) Relevant statutes

Article 14(1)3, Article 13(1) and (3) of the Subcontract Act provide that where a contractor fails to pay a subcontractor two or more installments of the subcontract price to the subcontractor (contractor), the subcontractor (contractor) shall pay the subcontract price directly to the subcontractor corresponding to the part that the subcontractor performed when the subcontractor requests a direct payment of the subcontract price.

2) Determination as to the existence of direct payment obligation of subcontract consideration

As to the instant case, the Plaintiff, a subcontractor of the instant construction project, filed a claim for the payment of subcontract consideration under the first and second subcontract consideration in three order from March 31, 2016 to July 26, 2016. The mining area construction industry paid only part of the subcontract consideration claimed as above, and the Plaintiff, on two occasions on July 29, 2016 and September 22, 2016, did not directly claim payment of the subcontract consideration amounting to KRW 57 billion [2.45 billion for the subcontract consideration amounting to KRW 495 billion which is payable under the instant subcontract consideration (i.e., KRW 4., KRW 495 billion - KRW 25 billion 90 million - KRW 1.6 billion for the Defendant’s payment of subcontract consideration amounting to KRW 1.6 billion which is not directly paid to the Defendant under the Framework Act on the Construction Industry (i.e., KRW 4., KRW 500 million).

B. Judgment on the defendant's argument

1) Determination on the assertion that there is no obligation to pay subcontract consideration due to the completion of construction works

A) Although the construction work is suspended during the course of the construction work and fails to complete the last process scheduled to be completed, it is reasonable to interpret that the construction work has been completed in accordance with the terms and conditions of the contract and its main structure has been completed as agreed upon. However, if it is required to compensate due to incomplete works, it is reasonable to interpret that the construction work has been completed but it is only a defect in the object. Whether the last process has been completed must be objectively determined in light of the specific contents of the contract and the good faith principle without asking for the contractor’s assertion or the completion inspection conducted by the contractor. Such standard is likewise applicable to the agreement on compensation for delay, which has the nature as the liquidated damages for delay due to the contractor’s completion of the work (see Supreme Court Decision 97Da23150, Oct. 10, 1997, etc.).

B) As to the instant case, the health department, mining area construction industry did not perform the construction works as stipulated in Article 40(4) of the General Conditions of the instant contract, and the fact that the construction cost under the instant contract was determined, including the price for the said construction works (the Plaintiff asserts that the said general conditions clause is invalid as it violates Article 22(5)1, 3, and 4 of the Framework Act on the Construction Industry, but the said general conditions clause is not in violation of the said provision, as long as the said general conditions clause was already stipulated at the time of the conclusion of the instant contract, it is difficult to view the said provision as being in violation of the said Act), and the fact that the Plaintiff failed to perform the shipping site construction work and the capital construction work, does not conflict between the parties (However, there is dispute between the parties

However, the above facts and evidence Nos. 23, 24, 26, 30, 37, and Eul evidence Nos. 4 and 11, together with the overall purport of oral arguments, are the type, structure, size, etc. of the factory of this case, namely, ① approval for the use of the factory of this case has already been made, i.e., (i) the payment of damages within 30 days after the completion of construction; (ii) the construction cost under the contract of this case as stipulated in Article 40(4) of the General Conditions of the contract of this case was determined to execute the construction after the completion of construction (the defendant obtained a building permit separately for the above construction after approval for use of the factory of this case), and separately from the fact that the construction period of the above construction and payment date were not determined separately for the above construction period of the construction (the remainder of the contract of this case is determined to be paid within 30 days before the completion of construction work within 30 days after the completion of construction works, and the defendant seems to have agreed that the above construction work payment was within 20 days before the completion of construction work.

Therefore, this part of the defendant's argument is without merit.

2) Determination as to the assertion that KRW 809,937,090, out of the construction cost obligations for the mining area construction industry, has ceased to exist due to repayment

A) According to Article 14(2) of the Subcontract Act, when a subcontractor makes a lawful request for direct payment under Article 14(1) of the same Act, a subcontractor’s right to demand direct payment to the subcontractor arises, and at the same time a subcontractor’s right to demand direct payment to the subcontractor and a subcontractor’s right to demand payment to the subcontractor is extinguished. In such cases, a contractor’s right to demand direct payment to the subcontractor is transferred to the subcontractor without maintaining the identity of the subcontractor’s right to demand payment to the subcontractor, and the subcontractor may oppose the subcontractor on the grounds that the subcontractor may oppose the subcontractor before the subcontractor’s right to demand direct payment arises, but in principle, the subcontractor cannot oppose the subcontractor on the grounds that occurred to the subcontractor after the subcontractor’s right to demand direct payment occurred (see Supreme Court Decision 2013Da81224, 81231, Aug. 27, 2015, etc.).

B) As to the instant case, the fact that the construction cost under the instant contract was determined as KRW 1.1 billion (excluding value-added tax), and that the Plaintiff requested the Defendant to pay the subcontract price directly on October 6, 2016 is acknowledged as seen earlier, and that the Plaintiff paid KRW 809,937,090 in total to the mining area construction industry and its subcontractor from March 21, 2016 to June 30, 2017 according to the overall purport of the statements and arguments as indicated in the following table:

On March 21, 2016, 100,00,000 mining area construction industry; on April 4, 2016, 2016; on May 12, 2016, 10,000, mining area construction industry 100,000,000; on May 30, 2016, the mining area construction industry 200,000,000,000; on May 30, 2016; on June 7, 2016, the mining area construction industry 10,000,000,000,000; on June 7, 2016; on June 15, 2016; on 10,000,000; on June 3, 200, 2000; on June 15, 2016, the mining area construction industry 1000,008.

However, among each of the above construction costs, it cannot be asserted that the defendant paid to mining area construction industry, etc. after the date of the above direct payment request that the above amount was paid by the defendant. As for the defendant's mining area construction industry as of the date of request for direct payment, the defendant's obligation to pay the construction cost for the mining area construction industry as of the date of request for direct payment shall not exceed 523,062,910 won remaining after deducting the total of 686,937,090 won and the total of 686,937,090 won and 57,90,000 won of the subcontract price that the plaintiff requested direct payment. Accordingly, this part of the defendant's assertion is without merit.

3) Determination as to the assertion that KRW 150 million (excluding value-added tax) necessary for performing construction works stipulated in Article 40(4) of the General Conditions of the instant contract ought to be deducted from the subcontract price.

The construction cost under the contract of this case includes the price for the construction work as stipulated in Article 40(4) of the General Conditions of the contract of this case, and the fact that the mining area construction industry did not perform the above construction work as seen earlier. However, it is not sufficient to recognize that the price for the construction work as stipulated in Article 40(4) of the General Conditions of the contract of this case as the price for the construction work as stipulated in Article 40(4) of the General Conditions of the contract of this case is 150 million, and there is no other document to determine whether the cost necessary for the above construction work is much. Accordingly, the defendant's assertion on this part is rejected.

4) Determination as to the assertion that the amount equivalent to the amount equivalent to the amount of ready-mixed for the Korea-Japan industry should be deducted

A) Even if a subcontractor requests a direct payment of the subcontract price to a contractor, where another subcontractor meeting the requirements set forth in each subparagraph of Article 14(1) of the Subcontract Act exists, the contractor may assert that the obligation of the amount equivalent to the subcontract price paid to the other subcontractor has been extinguished (see Supreme Court Decision 2009Da19574, Jun. 10, 201, etc.).

B) According to the health stand, Eul evidence Nos. 7 and the purport of the argument as to the instant case, it is recognized that Korea Industries applied for a payment order against the mining area construction industry and the Defendant for payment of KRW 70,290,465 (Seoul Central District Court Decision 2016 tea6778). The Seoul Central District Court issued a mining area construction industry and the Defendant on January 17, 2017 with an order to pay the above ready-mixed amount. However, the above recognition alone is insufficient to recognize the fact that Korea Industries requested the Defendant to pay the above ready-mixed amount directly before the Plaintiff requested a direct payment, and there is no other evidence to acknowledge it. Accordingly, this part of the Defendant’s assertion that the Defendant’s obligation to pay the construction price to the mining area construction industry was extinguished as much as the above ready-mixed amount.

5) Determination on the defense of set-off

A) First, we examine the existence and amount of the Defendant’s claim for delay against the mining area construction industry.

(1) The construction cost under the instant contract is KRW 1.1 billion (excluding value-added tax) and the scheduled completion date of construction works, respectively, determined on May 15, 2016, and the rate of liquidated damages for delay is KRW 1.5/100, respectively. Article 9(3) of the General Conditions of the instant contract provides that the mining area construction industry is completed and the date a written request for completion inspection is made to the Defendant. The fact that approval for use was made on August 8, 2016 upon the application for approval for use filed on July 29, 2016 for the instant factory is as seen earlier. According to the foregoing facts, it is reasonable to deem that the mining area construction industry requested completion inspection to the Defendant from the time when the said application for approval for use was filed. As such, the completion date of the instant building is deemed as July 29, 2016 pursuant to Article 9(3) of the said General Conditions.

(2) Meanwhile, in full view of the facts based on Gap’s basic facts, Gap’s evidence Nos. 20, 21, and 22, the testimony of the Non-party witness, the fact-finding results of this court’s fact-finding, and the following circumstances revealed through the entire purport of the pleadings, it is reasonable to deem that the Defendant agreed with the mining area construction industry to extend the construction period under the instant contract by July 10, 2016.

① Under the instant contract, the construction period had been from March 7, 2016 to May 15, 2016. The Defendant filed an application for permission to construct the instant factory with the Mayor Seosan City for permission for the alteration of the construction site (the permission to extend the “mam” to the factory on the ground of the land of ○○-ri ( Address omitted), which was scheduled to be constructed up to the “Mandong,”) and obtained permission on April 21, 2016. On April 29, 2016, the Defendant filed a report on the alteration of the construction site (contractor) with the contractor from ASEAN Construction Co.,, Ltd. to the mining area construction industry, and the said report was accepted on May 26, 2016. Moreover, the Defendant filed an application for permission to alter the construction site on June 30, 2016, which was subsequent to the expiration date of the said contract, and received the alteration of the construction site on the first floor and the first floor to 2016.

② At the time when the mining area construction industry started the instant construction work, the Defendant did not obtain a construction permit for the instant factory, and the design drawings issued by the Defendant to the mining area construction industry while entering into the instant contract appears to have not completed detailed matters.

③ On June 10, 2016, the completion date of the instant subcontract was concluded after the completion date of the instant subcontract, and the completion date of the instant subcontract was July 10, 2016. In this regard, the Nonparty, the employee of the mining area construction industry, at the site manager of the instant construction site, testified to the purport that “the Defendant had extended the construction period twice to the extent that it was difficult for the Defendant to meet the construction period. At the time of the instant subcontract, it would be appropriate for the Defendant and the Defendant to conclude the said subcontract. At the time of the instant subcontract, it would be possible for the Defendant to confirm the construction period to meet the construction period, and it would be appropriate for the said date. At the time of the instant subcontract, the Defendant would be able to confirm the construction period to meet, and the accurate date would not be memory, but would complete the construction by setting the last day of June or the last day of July.”

(3) Therefore, barring special circumstances, the mining area construction industry is obligated to pay 50,820,000 won as liquidated damages for delay due to the delay in completion of construction works for 28 days from July 11, 2016, following the date of expiration of the construction period, which was extended to the Defendant, from July 29, 2016 to July 29, 2016 (i.e., total construction cost of 1.21 billion won x 1.5/1000 x 28 days) (the Plaintiff asserts that there was no cause attributable to the mining area construction industry for delay on the ground that there was a change in the construction permit matters several times, but the Defendant and the mining area construction industry have agreed to extend the construction period by reflecting the change in the construction permit matters. Thus, it cannot be deemed that there was no cause attributable to the mining area construction industry as above for the failure to complete the construction works within the extended construction period solely on the ground that the construction permit matters were modified).

B) Furthermore, since the Defendant could offset the above compensation claim against the Defendant for delay against the mining area construction industry’s claim against the Defendant before receiving a direct payment request from the Plaintiff, it can be said that the payment claim for delay damages can be set off against the Plaintiff by set-off based on the above compensation claim. Therefore, the subcontract price that the Defendant is liable to pay to the Plaintiff is KRW 579 million, which is the remainder after deducting the amount equivalent to the above compensation for delay damages from the amount equivalent to KRW 457 billion (=57 billion - 50820,00 won).

C. Sub-committee

From October 7, 2016, the day following the date on which the Defendant directly requested payment with respect to KRW 457 million to the Plaintiff, the Defendant is obligated to pay damages for delay calculated by the ratio of 6% per annum prescribed by the Commercial Act to January 26, 2018, which is the date of this decision, and 15% per annum prescribed by the Act on Special Cases concerning Expedition, etc. of Legal Proceedings from the next day to the date of full payment.

4. Conclusion

Therefore, the plaintiff's claim is justified within the above scope of recognition, and the remaining claims are dismissed as it is without merit. It is so decided as per Disposition.

Judges Park Hun-young (Presiding Judge)

Note 1) Although the starting point of reckoning damages for delay is not specified in the complaint and written application for modification of the purport of the claim, it is concluded to seek damages for delay from October 7, 2016, after the date following the date on which the direct payment of subcontract consideration is requested, in light of the cause of the claim and the substance of the pleading as follows.