[1] In a case where there is a different opinion on the interpretation of a contract for construction work as to the method of settlement of advance payment, and the interpretation of the parties' intent expressed in the disposition document becomes an issue, the method of interpreting it and the matters

[2] The case holding that the court below erred in the misapprehension of the legal principle as to the amount of advance payment, where Gap corporation paid advance payment to Eul corporation according to the contract for construction work with Eul corporation, the contractor Eul corporation paid advance payment to Eul corporation according to the contract for construction work. Eul corporation received a guarantee for advance payment from Byung Financial Cooperative and delivered it to Eul corporation, and according to the provision of the contract for construction work and the standard of government tender and contract execution applicable mutatis mutandis under the above contract for construction work, which is part of the above contract, the advance payment must be settled at least by the method of prepaid amount 】 (amount equivalent to prepaid portion / contract amount) ? (amount equivalent to prepaid portion / contract amount) ? (amount equivalent to prepaid portion / contract amount) , upon the completion of the first advance payment settlement, the amount equivalent to the prepaid portion was calculated at the time of the second advance payment and the amount equivalent to the prepaid portion was calculated at the time of the second advance payment and the amount equivalent to the prepaid portion was calculated at the time of the first advance payment.

[1] Where a contractor concludes a guarantee contract with respect to the return of advance payment made by a contractor in a construction contract, the occurrence and scope of the cause for the payment of deposit shall be determined according to the contents of the contract for construction works covered by the said guarantee. Therefore, where there are differences in the interpretation of the contract for construction works concerning the method of settlement of advance payment, and the interpretation of the parties’ intent expressed in the disposal document is at issue, such interpretation shall be reasonably interpreted in accordance with logical and empirical rules by comprehensively taking into account the contents of the language and text, the motive and background of such agreement, the purpose to be achieved by the agreement, the parties’ genuine intent, etc. In particular, in the settlement relationship following the termination of the contract for construction works, there are many interested parties who mutually conflict with each other with each other in advance payment claim and the claim for advance payment claim. Therefore, in interpreting the contract for construction works concerning the method of settlement of advance payment,

[2] Where a contractor Gap corporation paid advance payment to Eul corporation according to the formula of contract for construction works entered into with Byung corporation, Eul corporation was issued a guarantee of advance payment from Byung to Eul corporation, and Eul corporation issued a guarantee of contract for construction works entered into with Byung, and pursuant to the guidelines for tender and contract execution (amended by Ordinance of the Ministry of Strategy and Finance No. 2200.04-18 of May 13, 201) applicable mutatis mutandis to the above contract terms and conditions, it is necessary to calculate the amount of advance payment calculated according to the formula of "amount of advance payment x (amount of advance payment / amount equivalent to contract / amount)" to calculate the amount of advance payment / the amount of advance payment / the amount of advance payment / the amount calculated according to the formula of "amount of advance payment / the formula of contract 2)" to the effect that it is reasonable to calculate the amount of advance payment / the amount of advance payment / the amount of advance payment / the amount calculated by deducting the amount of advance payment / the amount of advance payment / 2.

[1] Articles 105 and 664 of the Civil Act / [2] Articles 105 and 664 of the Civil Act

Korea Institute of Marine Science and Technology (formerly: Maritime Plant Plant Research Institute (Attorney Jeong Young-soo et al., Counsel for the plaintiff-appellant)

Construction Financial Cooperative (Law Firm LLC, Attorneys Choi Gyeong-won et al., Counsel for the plaintiff-appellant)

Il-Gyeong Industrial Development Co., Ltd. (Law Firm A&C, Attorneys Go Young-gu et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2015Na203166 decided April 1, 2016

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Judgment on the Defendant’s grounds of appeal

A. Regarding ground of appeal No. 1

1) In a case where a contractor concludes a guarantee agreement on the return of advance payment to a contractor in a construction contract, the occurrence and scope of the cause for the payment of deposit shall be determined in accordance with the contents of the contract for construction works covered by the said guarantee. Therefore, in a case where there is any disagreement on the interpretation of the contract for construction works concerning the method of settlement of advance payment and the interpretation of the parties’ intent expressed in the disposal document is at issue, such interpretation shall be reasonably interpreted in accordance with logical and empirical rules by comprehensively taking into account the contents of the language and text, the motive and developments leading up to the agreement, the purpose to be achieved by the agreement, the parties’ genuine intent, etc. In particular, in a settlement relationship following the termination of the contract for construction works, there are many interested parties who conflict with each other on each of the settled claim for advance payment and the claim for advance payment. As such, in interpreting the contract for construction works on the method

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

A) Under the instant contract, 70% of the contract amount shall be paid as advance payment. According to Article 6 of the Special Conditions for Construction Contracts included in the said contract as part of the said contract and the guidelines for the enforcement of government bids and contracts applicable mutatis mutandis thereto (amended by Ordinance of the Ministry of Strategy and Finance No. 2200.04-159-18, May 13, 201; hereinafter “execution guidelines”), advance payment shall be calculated by the method of “amount of advance payment x (amount of advance payment x (amount equivalent to the amount of advance payment / the contract amount) x (amount equivalent to the amount of advance payment / (the contract amount)” (hereinafter “instant settlement provisions”).

B) The Plaintiff paid the Defendant Intervenor KRW 2,166,00,000, respectively, around August 201, 201 as advance payment under the instant contract, and KRW 2,88,00,000, around January 2012.

C) Around that time, the Defendant’s Intervenor issued and delivered each advance payment guarantee amount of KRW 2,317,324,00 with respect to each of the above advance payment amount of KRW 3,203,301,00 to the Plaintiff.

D) On October 26, 2012, the Plaintiff: (a) determined the final examination amount of KRW 4,794,900,000 after the first preliminary examination on the part of the execution of the Defendant’s Intervenor’s supplementary intervenor; and (b) settled the amount of KRW 3,356,430,000 in advance; and (c) paid the remainder of KRW 1,438,470,00 to the Defendant’s supplementary intervenor as the final amount.

E) On October 30, 2012, the Defendant’s Intervenor issued a certificate of guarantee that reduced the amount guaranteed by the Defendant to KRW 1,785,750,80,801, and delivered it to the Plaintiff. The amount of advance payment for the foregoing guarantee is KRW 1,697,570,000 in the form of advance payment for each advance payment guarantee issued around August 201 and around January 2012. The amount is calculated by subtracting KRW 5,054,00,000 in total from the amount indicated in the advance payment column for each advance payment guarantee given around the end of August 201 and around January 2012 (=2,16,00,000 + KRW 2,88,00,000 in + KRW 2,88,00,000 in advance settled in the first advance inspection for the first time.

F) The Defendant’s assistant intervenor failed to complete the construction by April 18, 2013, the construction period stipulated in the instant contract.

G) On June 3, 2013, the Defendant Intervenor issued a guarantee that extended the guarantee amount to KRW 1,803,052,801 and extended the guarantee period to June 17, 2013. In addition, the Defendant Intervenor issued an additional guarantee that amounted to KRW 42,137,000, and issued the said guarantee amount to the Plaintiff. Each of the instant guarantee certificates is indicated as KRW 7,222,224,250 in total.

H) On the other hand, around February 2013, the Plaintiff increased the contract amount of this case to KRW 7,935,00,000. On June 3, 2013, the Plaintiff calculated the advance payment by applying the amount calculated by adding the amount of the second period examination and the amount of the first period examination to the “amount equivalent to the price for the original part” in the formula described in paragraph (a) and applying the increased contract amount to the “contractual amount.” As a result, the Plaintiff calculated the advance payment amount by deducting the remaining KRW 25,508,072 from the advance payment, and deducting the amount of the second period examination amount to KRW 876,00,000 from the amount of the second period examination amount to KRW 870,00,00,00,000.

I) According to the terms and conditions applicable to each of the above advance payment guarantees issued by the Defendant, if a guarantee accident occurs due to a cause attributable to the guarantee creditor (Article 2 subparag. 2), the Defendant shall be exempted from liability (Article 2 subparag. 2), and if the guarantee creditor is changed or the principal contract has a significant change, the guarantee contract becomes null and void

3) Examining the aforementioned legal doctrine in light of the aforementioned factual basis, it is reasonable to interpret that both the “amount equivalent to the price of the completed portion” and “contract amount” in the formula stipulated in the instant settlement provisions mean only the amount at the time of payment of the completed portion, and that the amount cannot be aggregated by accumulating the amount equivalent to the price of the completed portion. The reasons are as follows.

A) The phrase “at the time of payment of the price for the part of the flag or the term” located in both the settlement provisions of the instant case is interpreted not only as “which must be settled at the time of payment of the price for the part of the said provisions, but also as “the corresponding formula in the middle part” accords with the ordinary meaning and structure of the text.

B) Article 34 of the enforcement guidelines is located in front of the aforementioned provisions within the same chapter as the instant settlement provisions. Paragraph (1) requires the counter-party to the contract to submit securities or certificates of guarantee regarding advance payment. Paragraph (3) of the same Article provides that, in the event of securing claims, if settlement is made pursuant to the instant settlement provisions, the pertinent advance payment (referring to the amount obtained by deducting the advance payment settlement amount under the instant settlement provisions from the advance payment amount) may be taken upon the counter-party’s request. The enforcement guidelines do not provide for changes in the balance of advance payment or the measures to secure claims if the contract amount is changed after advance payment settlement. Accordingly, advance payment settlement should be based on the contract amount as at the time of advance payment settlement, and thus, the pertinent advance payment settlement should be deemed completed.

C) In the event that a ground for return of advance payment arises, the contractor may recover the advance payment through the advance payment guarantee, while the guarantor guarantees the obligation to return the advance payment after deducting the amount of advance payment from the amount of advance payment. As such, the scope of the liability to guarantee the advance payment increases if the amount of advance payment is small. As such, the instant settlement provisions can be deemed to have a significant impact on the guarantor’s interest. The said provisions set the amount of advance payment calculated by the relevant formula as the mandatory minimum settlement amount. However, if the contract amount increases, if the contract amount is interpreted to be able to be calculated by adding up the amount of the advance payment to the amount of the advance payment as the basis of the increased contract amount, the instant settlement provisions would result in the retroactive settlement of the amount less than the minimum amount of the advance payment as stipulated in the instant settlement provisions on the ground of the circumstances that occurred after the completion of the settlement. Therefore, the instant settlement provisions are practically unreasonable with respect to the advance payment settlement for the previous completed portion, and the guarantor would

D) This is more so in cases where the adjustment of the guaranteed amount is completed based on the balance of the advance payment after the previous settlement of advance payment. In light of the provisions of the pre-payment guarantee agreement or the general legal principles of the pre-payment guarantee, the existence and scope of the guarantee liability should be determined based on the contract agreement at the time of the conclusion of the contract. Therefore, if the guarantee liability of the construction mutual aid association is increased by applying the increased contract amount to the advance payment whose settlement has been completed after the adjustment of the guaranteed amount to the contractor and the advance payment, thereby resulting in the increase in the guarantee liability of the construction mutual aid association, it shall be deemed that the guarantee is not effective to the extent of the above extent (see Supreme Court Decision 2002Da13447, Dec. 26, 2002).

4) Therefore, the Plaintiff should have calculated the amount of advance payment by dividing only the amount of the second advance payment into the increased contract amount. Unlike this, the amount of the first advance payment applying the increased amount by adding up the amount of the first advance payment cannot be asserted against the Defendant in violation of the instant provision for the settlement of accounts. Accordingly, the part of the second advance payment paid by the Plaintiff to the Defendant’s Intervenor should not affect the scope of the Defendant’s liability for guarantee.

5) Nevertheless, solely based on its stated reasoning, the lower court upheld the first instance court’s determination that, if the contract amount has been increased, it is reasonable to calculate the advance payment settlement amount by removing the “amount equivalent to the price for the part of the original term” and the “amount of the contract” as the accumulated contract amount, and thereby rejecting the Defendant’s defense that all the Plaintiff’s claims were accepted and the Defendant’s second advance payment cannot be set up against the Defendant due to the Plaintiff’s second advance payment settlement. In so determining, the lower court erred by misapprehending the legal doctrine on the interpretation of legal act, the method of settlement of advance payment, and the method of settlement of advance payment, thereby affecting

B. Regarding ground of appeal No. 2

For reasons indicated in its reasoning, the lower court maintained the first instance judgment that it is difficult to recognize that the amount of the instant contract, which the Plaintiff notified to the Defendant on January 28, 2014, means a conclusive amount of the construction work.

Examining the relevant legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine regarding the calculation of accrued construction costs and offsetting against the payment of accrued construction costs, or by neglecting the Defendant’s status, etc., which affected the conclusion of the judgment.

2. Judgment on the grounds of appeal by the Defendant Intervenor

The Defendant’s ground of appeal overlaps with the Defendant’s first ground of appeal among the grounds of appeal by the Defendant’s Intervenor is with merit as seen in 1-A. All of the remaining arguments except the above allegations are not legitimate grounds of appeal due to a new argument at the appellate court. Furthermore, even if examining the records in light of the records, the Defendant’s aforementioned assertion

3. Conclusion

Therefore, 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 Noh Jeong-hee (Presiding Justice)