[1] In a case where a direct payment request under Article 14(1) of the Fair Transactions in Subcontracting Act is made, whether a contractor may set up against a subcontractor on the grounds that he/she could set up against a contractor before a direct payment request is made (affirmative), and in a case where the automatic claim against a subcontractor against a subcontractor is closely related to the subcontractor’s obligation to the subcontractor, such as the simultaneous performance relationship, whether the subcontractor may set off his/her obligation against the subcontractor even if the automatic claim has occurred after the subcontractor’s direct payment claim (affirmative)

[2] The case where the right of defense for simultaneous performance should be acknowledged even if each obligation owed by both parties is not an obligation under the bilateral contract with proper consideration relation

[1] Where a direct payment request under Article 14(1) of the Fair Transactions in Subcontracting Act is made, the subcontractor shall be transferred to the subcontractor after maintaining the identity of the obligation of the contractor to the subcontractor. Therefore, the subcontractor may oppose the subcontractor on the grounds that the contractor may oppose the contractor before receiving a direct payment request.

Where the automatic claim against the contractor is closely related to the subcontractor's obligation of the subcontractor, the subcontractor, even if the subcontractor's direct claim was made after the subcontractor's direct claim was made, the subcontractor may set off against the subcontractor by offsetting the claim. In such cases, the cause of the automatic claim has already been established before the subcontractor requests a direct payment, and thus, the automatic claim does not constitute the claim acquired after the subcontractor requests a direct payment.

[2] The right to simultaneous performance defense shall be acknowledged in a case where there are circumstances to recognize the relation of performance defense because it is of a quid pro quo meaning between the obligations borne by both parties under a specific contractual relationship even though each obligation owed by both parties is not an obligation under a bilateral contract with its own quid pro quo relationship.

[1] Article 14(1) of the Fair Transactions in Subcontracting Act; Articles 492 and 536 of the Civil Act / [2] Article 536 of the Civil Act

[1] Supreme Court Decision 2009Da19574 Decided June 10, 201 / [2] Supreme Court Decision 2000Da43819 Decided March 27, 2001 (Gong2001Sang, 996)

Tae Young River Co., Ltd. (Law Firm Mission, Attorneys Park Jong-ok et al., Counsel for the defendant-appellant)

Co., Ltd.

Daejeon High Court Decision 2018Na11372 decided August 22, 2018

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

The grounds of appeal are examined.

1. Case summary

The reasoning of the lower judgment and the record reveal the following facts.

A. On March 4, 2016, the Defendant entered into the instant contract with the Defendant’s construction work to extend the Defendant’s “mast” painting factory (hereinafter “instant construction work”) on the mining area construction industry corporation (hereinafter “mining area construction industry”) and Seocho-si (hereinafter omitted), under which the instant construction work agreement was concluded as of KRW 1.1 billion for the construction work cost (excluding value-added tax), March 7, 2016 for the commencement date, and May 15, 2016 for the completion date of the construction project. Article 40 of the General Conditions for the instant contract provides for construction work other than drawings under a special agreement.

On April 8, 2016, the Plaintiff entered into the first subcontract with respect to steel works among the mining area construction industry and the instant construction works, setting the construction cost of KRW 429 million from April 9, 2016 to May 31, 2016, and thereafter, increased the construction cost of KRW 495 million.

On June 20, 2016, the Plaintiff concluded a subcontract for the second subcontract with respect to metal structures and windows among the mining area construction industry and the instant construction works, setting the construction cost of KRW 363 million and the construction period from June 20, 2016 to July 10, 2016.

The defendant applied for approval for use of a factory extended on July 29, 2016 and obtained approval for use on August 8, 2016.

B. On March 31, 2016, the Plaintiff filed a claim for KRW 128.7 million with the mining area construction industry as the first subcontract price, KRW 297 billion on May 27, 2016, KRW 69.3 million on July 1, 2016, and KRW 495 million on July 1, 2016, and received KRW 250 million.

As the subcontract price for the mining area construction industry, the Plaintiff claimed KRW 100,000 on June 13, 2016, KRW 1100,000,000 on July 1, 2016, KRW 1552,90,000 on July 26, 2016, KRW 363,00,000,000,000,000 were paid to the mining area construction industry.

On July 29, 2016 and September 22, 2016, the Plaintiff requested the Defendant to pay the subcontract price directly on October 6, 2016, as it did not receive the payment of the subcontract price amounting to KRW 57.9 million for the mining area construction industry.

C. The Plaintiff filed the instant lawsuit against the Defendant seeking direct payment of subcontract consideration pursuant to Article 14(1)3 of the Fair Transactions in Subcontracting Act (hereinafter “subcontract Act”).

2. The assertion on an offset based on the damage claim

For the following reasons, the lower court accepted the Defendant’s defense that the damage claim in lieu of defect repair offsets against the claim for construction cost of the mining area construction industry.

The construction cost under the instant contract includes the construction work stipulated in Article 40(g) of the General Conditions, and the mining area construction industry did not perform the construction work stipulated in Article 40(d) of the General Conditions. A mining area construction industry waived the construction work stipulated in a special agreement on September 12, 2016 and prepares for the Plaintiff a letter of waiver of construction works in which the construction cost is KRW 67,556,000, which entered the construction cost as KRW 67,556,000. Therefore, the construction cost of the non-construction portion out of the special agreement can be deemed as KRW 67,56,000, the Defendant acquired damage claim in lieu of

Examining the reasoning of the lower judgment in light of the record, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on the burden of proof.

3. Claims concerning offset based on claims for indemnity;

A. Where a direct payment request under Article 14(1) of the Subcontract Act is made, the obligation of the contractor to the subcontractor is transferred to the subcontractor while maintaining the identity thereof. Therefore, the contractor may oppose the subcontractor on the grounds that he may oppose the contractor before a direct payment request is made (see Supreme Court Decision 2009Da19574, Jun. 10, 2010).

Where the automatic claim against the contractor is closely related to the subcontractor's obligation to the subcontractor, which is a passive claim, the subcontractor may set off against the subcontractor by offsetting the claim even if the subcontractor has incurred the automatic claim after the subcontractor's direct claim has occurred. In such cases, the cause of the automatic claim has already been established before the subcontractor requests a direct payment, and thus, the automatic claim does not constitute the claim acquired after the subcontractor requests a direct payment.

The right of simultaneous performance defense shall be acknowledged in a case where there are circumstances to recognize the relation of performance as there is a quid pro quo meaning between the obligations borne by both parties under a specific contractual relationship even though each obligation owed by both parties is not an obligation under a bilateral contract with its own quid pro quo relationship (see Supreme Court Decision 2000Da43819, Mar. 27, 2001).

B. According to the reasoning of the lower judgment and the record, the following facts are revealed.

The mining area construction industry entered into a contract with Korea Industrial Co., Ltd. (hereinafter referred to as “Korea Industrial Complex”). On March 1, 2016, the Defendant jointly and severally guaranteed the payment obligation of ready-mixeds for the Korea Mining Area Construction Industry.

Japan supplied ready-mixeds to the mining area construction industry from March 10, 2016 to June 11, 2016.

On September 5, 2016, the Hanil Industry requested the Defendant to pay the amount unpaid mining area construction industry but failed to receive the payment, and on December 29, 2016, applied for a payment order against the mining area construction industry and the Defendant (Seoul Central District Court 2016 tea67478). The payment order case was decided as a substitute for conciliation on April 17, 2017, and the above decision became final and conclusive on May 9, 2017 (Seoul Central District Court 2017M4658). The Defendant paid the amount of KRW 3 million on April 28, 2017, KRW 200,000,000,000 on May 31, 2017, and KRW 200,000,000,000 on June 3, 2017.

C. Examining these facts in light of the legal principles as seen earlier, the following conclusions are derived.

The Defendant acquired the claim for indemnity against the mining area construction industry by subrogation by paying for the amount of ready-mixed. The claim for indemnity for the mining area construction industry is modified to the obligation to complete the instant construction in accordance with the instant contract, and the Defendant’s obligation for the construction cost and the compensatory significance still exist, and thus, it is reasonable to deem that two obligations are in a simultaneous performance relationship. Therefore, even if the Defendant’s claim for indemnity has arisen after the Plaintiff’s direct claim occurred, the Defendant may set off the claim for indemnity against the Plaintiff by offset it by its automatic claim.

In the same purport, the lower court determined that the Defendant could oppose the Plaintiff by offsetting the claim for reimbursement against the Plaintiff. The lower judgment is justifiable in accordance with the foregoing legal doctrine, and contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, or by misapprehending the legal doctrine on concurrent performance defense, burden

4. Claims on offsetting the claim of the penalty for delay;

The lower court rejected the Plaintiff’s assertion that part of the liquidated damages should be deducted by accepting the Defendant’s defense based on the claim for liquidated damages, as follows. In applying Article 27(2) of the General Conditions of the Contract to the instant case, where the Defendant used the whole or part of the subject matter of construction, the amount corresponding thereto shall be deducted from the contract amount when applying the liquidated damages. However, it is difficult to recognize the fact that the Defendant used the factory of this case when the mining area construction industry performed steel construction works.

Examining the reasoning of the lower judgment in light of the record, the lower judgment did not err by failing to exhaust all necessary deliberations and exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

5. Claims concerning performance; and

The lower court partially accepted the Defendant’s defense of repayment, deeming that the Defendant paid the amount of money to the Plaintiff to the subcontractor of the mining area construction industry as to the instant construction work.

Examining the reasoning of the lower judgment in light of the record, the lower judgment did not err by failing to exhaust all necessary deliberations and exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

6. Conclusion

The Plaintiff’s appeal is dismissed as it is without merit, 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 Lee Dong-won (Presiding Justice)