[1] Method of interpreting the intent of the parties indicated in the disposal document / Whether the same legal doctrine applies to cases where an agreement is reached between the ordering person, contractor, and subcontractor to pay the subcontract price directly to the subcontractor (affirmative), and in cases where additional construction cost occurs under a separate contract between the contractor and the subcontractor after the direct payment agreement, whether the direct payment agreement is effective (affirmative)

[2] Whether it is unlawful that one of the selective claims is dismissed in the selective consolidation of claims, and that no judgment is made on other selective claims (affirmative)

[3] Where a subcontractor requests a direct payment of the subcontract price to the project owner due to delay on two or more occasions, whether there is an agreement between the project owner, contractor, and subcontractor on the direct payment (negative)

[4] In a case where a contractor’s obligation to pay a subcontract price is already extinguished as a result of the subcontractor’s request for a direct payment from the subcontractor pursuant to Article 14(1)3 of the Fair Transactions in Subcontracting Act or Article 35(2)3 of the Framework Act on the Construction Industry, whether the ordering person’s obligation to pay a subcontract price arises (negative)

[5] In a case where a plaintiff filed an appeal against the appellate judgment dismissing several selective joined claims, the extent that the appellate court should reverse the judgment when it recognizes that the appeal against one of the claims is well-grounded (=the entire judgment of the lower court)

[1] In the event of a dispute over the interpretation of a contract between the parties, the interpretation of the intent of the parties expressed in the disposition document is at issue, the contents of the text, the motive and background of the agreement, the purpose to be achieved by the agreement, the parties’ genuine intent, etc. shall be reasonably interpreted in accordance

The same legal doctrine shall apply to cases where the ordering person, contractor, and subcontractor agree to pay the subcontract price directly to the subcontractor. In such cases, if any additional construction cost occurs under a separate contract between the contractor and subcontractor after the direct payment agreement between the ordering person, contractor, and subcontractor, whether the direct payment agreement on such portion shall be determined prudently.

[2] The selective consolidation of claims is a form of seeking adjudication on several claims under the condition subsequent, in a case where either of the claims seeks performance of the same content or seeks the same formative effect based on a right to form several compatible claims. As such, in the case of selective consolidation, several claims are indivisiblely combined in one litigation procedure, the dismissal of only one of the selective claims and any decision on the other selective claims is unlawful.

[3] Where a contractor receives the completion money or progress payment for a contracted construction work, he/she shall pay the subcontractor the subcontract price within 15 days from the date he/she receives the completion money or progress payment (Article 34(1) of the Framework Act on the Construction Industry). Where the subcontractor requests a direct payment of the subcontract price to the project owner on at least two occasions due to the contractor’s delay in the payment of the subcontract price, the project owner shall directly pay the subcontractor the subcontract price corresponding to the part that the subcontractor performed (Article 35(2)3 of the Framework Act on the Construction Industry and Article 14(1)3 of the Fair Transactions in Subcontracting Act).

As such, if the subcontractor requests a direct payment of the subcontract price to the project owner due to the delay in two or more times of the subcontract price, it is not necessary that there exists an agreement between the project owner, contractor, and subcontractor. Accordingly, the subcontractor’s direct claim is acknowledged regardless of the subcontractor’s scope and specific details of the subcontract. As such, it is deemed that the project owner falls under the part of the subcontractor’s execution from among the part of the subcontract price to the contractor.

[4] Article 14(4) of the Fair Transactions in Subcontracting Act (hereinafter “subcontract”) provides that “When the ordering person directly pays the subcontract price to the relevant subcontractor pursuant to paragraph (1), it shall be paid after subtracting the subcontract price already paid by the ordering person to the principal contractor.” Article 9(3) of the Enforcement Decree of the Fair Transactions in Subcontracting Act (hereinafter “Enforcement Decree of the Subcontract Act”) provides that “the ordering person shall have the obligation to directly pay the subcontract price to the principal contractor to the extent of the obligation to pay the principal contractor.” According to Article 35(7) of the Framework Act on the Construction Industry and Article 29(3) of the Enforcement Rule of the Framework Act on the Construction Industry, Article 9(3) of the Enforcement Decree of the Subcontract Act applies mutatis mutandis to cases where the ordering person directly pays the construction price to the subcontractor pursuant to Article 35(2)3 of the Framework Act on the Construction Industry, barring any special circumstance, the ordering person shall be deemed to have the obligation to directly pay the subcontract price to the subcontractor to the extent of the obligation to pay the contractor.

[5] In a case where the plaintiff filed an appeal against the judgment of the appellate court which dismissed multiple selective joined claims, if the court of final appeal recognizes that one of the selective claims is well-grounded, the judgment of the court of final appeal shall be reversed in its entirety.

[1] Article 105 of the Civil Act, Article 14 (1) 2 of the Fair Transactions in Subcontracting Act, Article 35 (2) 1 of the Framework Act on the Construction Industry / [2] Article 253 of the Civil Procedure Act / [3] Articles 34 (1), 35 (2) 3 of the Framework Act on the Construction Industry, Articles 13 (3) and 14 (1) 3 of the Fair Transactions in Subcontracting Act / [4] Article 14 (1) 3 and (4) of the Fair Transactions in Subcontracting Act, Article 9 (3) of the Enforcement Decree of the Fair Transactions in Subcontracting Act, Article 35 (2) 3 and (7) of the Framework Act on the Construction Industry, Article 29 (3) of the Enforcement Rule of the Framework Act on the Construction Industry / [5] Articles 253 and 436 of the Civil Procedure Act

[1] Supreme Court Decision 2002Da23482 Decided June 28, 2002 (Gong2002Ha, 1816), Supreme Court Decision 2014Da14115 Decided June 26, 2014 (Gong2014Ha, 1463) / [2/5] Supreme Court Decision 2015Da42599 Decided October 26, 2017 (Gong2017Ha, 2167) / [2] Supreme Court Decision 81Da1120 Decided July 13, 1982 (Gong1982, 747), Supreme Court en banc Decision 96Da199 Decided July 24, 198 (Gong198Ha, 2190) / [2] Supreme Court Decision 2015Da321970 Decided July 13, 2015]

Nam Jae Construction Co., Ltd. (Law Firm Ground, Attorneys Kim Byung-chul et al., Counsel for the plaintiff-appellant)

Korea Land and Housing Corporation (Attorney Kim Han-sung, Counsel for defendant-appellee)

Seoul High Court Decision 2015Na204949 decided May 24, 2016

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Scope of the subcontract price to be borne by the Defendant to the Plaintiff pursuant to the direct payment agreement

A. In the event that a dispute over the interpretation of a contract between the parties arises and the interpretation of the parties’ intent expressed in the disposition document becomes an issue, it shall be reasonably interpreted in accordance with logical and empirical rules by comprehensively taking into account the content of the text, motive and background of the agreement, the objective to be achieved by the agreement, the parties’ genuine intent, etc. (see, e.g., Supreme Court Decisions 2002Da23482, Jun. 28, 2002; 2014Da14115, Jun. 26, 2014).

The same legal doctrine shall apply to cases where the ordering person, contractor, and subcontractor agree to pay the subcontract price directly to the subcontractor. In such cases, if any additional construction cost occurs under a separate contract between the contractor and subcontractor after the direct payment agreement between the ordering person, contractor, and subcontractor, whether the said direct payment agreement on the said portion shall be determined prudently.

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

(1) The Ulsan Construction Co., Ltd. (hereinafter “Suld Construction”) was awarded contracts with the Defendant for construction work of KRW 69,694,46,00 for two tools of apartment construction works in Seoul Western District A4,5 block (hereinafter “instant prime contract”) with the Defendant.

(2) From the Ulsan Construction on August 16, 2012, the Plaintiff concluded the instant subcontract agreement based on the detailed name, standard, unit, and subcontract statement (Evidence No. 3) that specifically states the contract price for each of the instant construction works, on August 6, 2012 to October 4, 2013 (hereinafter “instant subcontract”). The instant subcontract agreement was concluded based on the construction period of KRW 3,150,000,00 (hereinafter “instant subcontract”).

(3) On January 15, 2013, the Plaintiff requested the Defendant to pay the subcontract price directly to the Plaintiff according to the instant construction work. On May 24, 2013, the Plaintiff, the Defendant, and the Ulsan Construction made an agreement on the direct payment of the subcontract price (hereinafter “instant direct payment agreement”) that the Defendant shall directly pay to the Plaintiff pursuant to Article 14 of the Fair Transactions in Subcontracting Act (hereinafter “subcontract”) and Article 35 of the Framework Act on the Construction Industry.

(4) On October 4, 2013, the Plaintiff changed the construction period of Ulsan Construction and the instant construction period to November 3, 2013, and completed the instant construction works around November 3, 2013. The instant prime contract was completed around November 16, 2013.

(5) As the instant construction cost, the Plaintiff received KRW 178,654,00 from Ulsan Construction from October 2012 to January 2013, and KRW 2,824,34,545 from the Defendant during the period from February 2013 to December 2013 in accordance with the instant direct payment agreement. The Defendant reserved KRW 54,00,000, out of the completion amount to be paid for Ulsan Construction from May 13, 2014, paid the remainder of the completion amount to Ulsan Construction.

(6) On July 31, 2014, the Plaintiff entered into a contract with Ulsan Construction and the construction period of the instant construction from August 6, 2012 to July 31, 2014, under which the construction cost was changed to KRW 3,032,00,000 (hereinafter “the contract with the change of July 31, 2014”).

(7) On December 18, 2014, the Plaintiff was paid KRW 41,757,239, out of KRW 54,00,00 reserved by the Defendant as the subcontract price.

C. For the following reasons, the lower court deemed that the Plaintiff, the Defendant, and the Ulsan Construction was subject to direct payment only for the parts executed by the Plaintiff in accordance with the construction specifications stipulated in the instant subcontract at the time of the instant direct payment agreement, and deemed that the Defendant cannot be deemed to bear the obligation of direct payment, unless the Defendant and the Defendant agree separately to make direct payment or agreed to do so with respect to the parts that the Plaintiff modified or added construction in accordance with the agreement with the Ulsan Construction.

(1) At the time of the instant direct payment agreement, the direct payment of the subcontract price was specified as the instant subcontract agreement concluded on August 16, 2012. There is no evidence to deem that there was a modified contract on the instant part of the construction between the Defendant who is the ordering person and the contractor.

(2) In order for the Plaintiff, a subcontractor, to directly claim the payment for a subcontract for a change under the Act on July 31, 2014, which was amended by the Ulsan Construction Department, to the Defendant on July 31, 2014, there is no reason to acknowledge it. If the ordering person directly pays the payment for the changed portion only without the consent of the ordering person or a new direct payment agreement between the contractor and the subcontractor, it is unreasonable that the contract between the contractor and the subcontractor are likely to undermine the legitimate interest of the ordering person, such as being detained by the ordering person, rather than the contractual party to the contract arbitrarily changed.

(3) In the part of the Plaintiff’s modified and added construction, it appears that there are a considerable number of details or quantities that the Plaintiff originally agreed to directly perform to the Defendant. This cannot be viewed as a change in the construction content according to the Defendant’s order. The Defendant, the ordering person, did not have to regard this part of the construction as having been executed unless he received a separate notice or concluded a modified contract.

(4) The Ulsan Construction demanded the Defendant to pay a direct payment for the subcontract price, by distinguishing the amount of the flag of sewage companies, including the Plaintiff, from the Plaintiff, upon the confirmation of the Plaintiff each month. The Defendant deposited all the amount requested to the Plaintiff. The Plaintiff did not raise any objection against the demand for a direct payment of the subcontract price for the Ulsan Construction and the payment of the Defendant.

(5) After completion of the alteration and addition work, the Plaintiff claimed the price for the Ulsan Construction, which is not the Defendant, and received a promissory note from the Ulsan Construction. The Plaintiff itself seems to have also deemed that the price for the alteration and addition work was not subject to the instant direct payment agreement.

(6) If the volume and the content of construction vary, such change will be reflected in the ordinary course of construction or at the time of completion. The conclusion of the instant contract would be contrary to the empirical rule or transactional practice in which the Defendant completed the payment of the completion money to the Ulsan Construction after eight months from the completion of the instant original contract and the Defendant completed the payment of the completion money to the Ulsan Construction.

(7) If 49,549,338 won in items 49,549,338 claimed by the Plaintiff as the subject of the direct payment obligation is not only an item that was not included in the subcontract statement at the time of the instant direct payment agreement, but also the Plaintiff and Ulsan Construction are to settle accounts later between the Plaintiff and the Defendant, it seems that

D. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine, 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, contrary to what is alleged in the grounds of appeal, or by misapprehending the legal doctrine on interpretation of a contract, Article 14(1)2 of the Subcontract Act, and Article 35(2)1 of the Framework Act

2. Whether any request made by the contractor for delay in payment of the subcontract price is omitted;

A. The selective consolidation of claims is a combination of claims that seek the same formative effect on the basis of the performance of the same content or on the basis of the right to form several compatible claims. In the case of selective consolidation, one of the claims is indivisible in one litigation procedure. As such, the dismissal of one of the selective claims and any decision on the other selective claims is unlawful (see, e.g., Supreme Court Decisions 81Da120, Jul. 13, 1982; 96Da99, Jul. 24, 1998).

B. Upon receipt of the completion money or progress payment for a contracted construction work, the contractor shall pay the subcontractor the subcontract price within 15 days from the date of receipt of the completion money or progress payment (Article 34(1) of the Framework Act on the Construction Industry). If the contractor delays the payment of the subcontract price at least twice and the subcontractor requests a direct payment of the subcontract price to the project owner, the project owner shall directly pay the subcontractor the subcontract price corresponding to the portion that the subcontractor performed (Article 35(2)3 of the Framework Act on the Construction Industry and Article 14(1)3 of the Subcontract Act are also the same as that of the subcontractor).

As such, if the subcontractor requests a direct payment of the subcontract price to the project owner due to the delay in two or more times of the subcontract price, it is not necessary that there exists an agreement between the project owner, contractor, and subcontractor. Accordingly, the subcontractor’s direct claim is acknowledged regardless of the subcontractor’s scope and specific details of the subcontract. As such, it is deemed that the project owner falls under the part of the subcontractor’s execution from among the part of the subcontract price to the contractor.

C. According to the records, the Plaintiff asserted that the Plaintiff is obligated to pay the above subcontract price directly to the Plaintiff pursuant to Article 14(1)3 of the Subcontract Act and Article 35(2)3 of the Framework Act on the Construction Industry, since the Ulsan Construction, the contractor of the instant complaint and the preparatory documents, etc. on March 16, 2015, delayed payment of the subcontract price for the additional and modified portion to the Plaintiff, the subcontractor, and requested the Defendant, the ordering person, on several occasions including June 2, 2014, on several occasions. In other words, the Plaintiff asserted that the Plaintiff is obligated to pay the said subcontract price directly to the Plaintiff pursuant to Article 14(1)3 of the Subcontract Act and Article 35(2)3 of the Framework Act on the Construction Industry.

Nevertheless, the lower court, among the Plaintiff’s assertion on the cause of the claim, dismissed the claim only based on the instant direct payment agreement, without any deliberation and determination as to the claim, and dismissed all the Plaintiff’s claim against the Defendant. In so determining, the lower court erred by misapprehending the legal doctrine on selective merger, thereby failing to render a judgment as to the claim for construction cost due to the delay in payment of the subcontract price. The allegation contained in the grounds of appeal on this point is

D. Article 14(4) of the Subcontract Act provides that “When the ordering person directly pays the subcontract price to the subcontractor in question, the subcontract price that the ordering person has already paid to the principal contractor shall be deducted.” Article 9(3) of the Enforcement Decree of the Fair Transactions in Subcontracting Act (hereinafter “Enforcement Decree of the Subcontract Act”) provides that “the ordering person shall have the obligation to directly pay the subcontract price to the principal contractor to the extent of the obligation to pay it to the principal contractor.” According to Article 35(7) of the Framework Act on the Construction Industry and Article 29(3) of the Enforcement Rule of the Framework Act on the Construction Industry, Article 9(3) of the Enforcement Decree of the Subcontract Act shall apply mutatis mutandis to the case where the ordering person directly pays the subcontractor the contract price pursuant to Article 35(2)3 of the Framework Act on the Construction Industry, the ordering person shall be deemed to have the obligation to directly pay the subcontractor to the extent of the obligation to pay the contractor. Therefore, where the ordering person has already become liable to directly pay the subcontract price from the subcontractor, 2017.

According to the reasoning of the lower judgment, as of June 2, 2014, the Defendant reserved 54,000,000 won as of June 2, 2014 at the time of the Plaintiff’s direct payment, and completed the settlement of the completion money for the Ulsan Construction, and paid KRW 41,757,239 to the Plaintiff out of KRW 54,00,000,000, the remainder of KRW 12,242,761 (i.e., KRW 54,00,000 - 41,757,239) may be deemed to have already extinguished the Defendant’s obligation for the Ulsan Construction to the extent of exceeding the remainder of KRW 12,242,761 (i.e., KRW 54,00,000 - 41,757,239).

3. Conclusion

Where a plaintiff filed an appeal against a judgment of an appellate court which has dismissed several selective joined claims, if the court of final appeal recognizes that an appeal against one of the selective claims is well-grounded (see, e.g., Supreme Court en banc Decision 2010Da95390, Jan. 19, 2012). Therefore, the lower judgment is entirely 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 Kim Chang-suk (Presiding Justice)