2014Da47757 Construction Price

Han-han Co., Ltd.

Dusan Construction Co.

Seoul High Court Decision 2014Na545 Decided June 13, 2014

December 29, 2016

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

The grounds of appeal are examined.

1. The judgment of the court below

A. The lower court acknowledged the following facts in full view of the admitted evidence.

(1) On March 14, 2011, the Defendant awarded a contract for the instant construction to the Art Art Co., Ltd. (hereinafter “Eart”). At the time of the contract, the Defendant and the Art Art entered into a direct payment agreement with the purport that “In the event the delayed payment occurred due to the failure of re-subcontracts, labor costs, food costs, materials costs, etc. arising in connection with the construction work, the Defendant may directly pay the creditors the delayed payment with the construction cost to be paid to the Art at his/her option, and the claim for the construction cost of Art is recognized as having been paid as the amount of the pertinent subsidies.”

(2) On August 12, 201, the Plaintiff entered into a service consignment agreement on the part of cleaning the completion of the instant construction project with the Art Art, and completed cleaning services accordingly on November 201. (3) As the instant construction project was discontinued due to the nonperformance of Art, the Defendant and Art entered into another settlement agreement on November 28, 2011. In the foregoing agreement, the Defendant and Art reserves the payment of KRW 251,90,000 for the unpaid term work, with the payment of KRW 251,90,00,000 for the unpaid term work, and the Defendant agreed to dispose of all overdue payments to be borne by the re-contractor of Art or Art, within the scope of the reserved construction cost as above, within the scope of the reserved construction cost, and the direct payment of the instant subsidies is recognized as having been paid to the creditors.

(4) When the Plaintiff refused to pay a bill issued from Art. 1, the Plaintiff asserted that, on November 30, 201, Article 14(1)1 of the former Fair Transactions in Subcontracting Act (amended by Act No. 12709, May 28, 2014; hereinafter “subcontract”) was against the Defendant, the ordering person, and requested a direct payment of the consideration amount. However, the Defendant, without complying therewith, paid the said reservation amount directly to other creditors, such as Art. 14(1).

B. Next, the court below held that since the defendant, who is the ordering person, made the above direct payment agreement with the Ethart, the principal contractor before making a direct payment request pursuant to Article 14(1) of the plaintiff's Subcontract Act, the above circumstances had already existed before the request for direct payment, and therefore, the above circumstances had already existed before the request

In addition, even if the Plaintiff’s direct payment was made to other creditors after the Plaintiff’s request for direct payment, it cannot be seen as a ground newly created after the request for direct payment. Thus, the Defendant determined that the Defendant could assert against the Plaintiff the extinguishment of the instant subcontract payment obligation corresponding to the said direct payment.

2. Judgment of the Supreme Court

A. In cases where a subcontractor’s right to demand direct payment has occurred pursuant to Article 14(1) of the Subcontract Act due to the occurrence of a cause for direct payment as prescribed by the subparagraphs of Article 14(2) of the same Act, the obligation to pay the principal contractor to the principal contractor and the obligation to pay the principal contractor to the subcontractor are extinguished within the scope thereof. The principal contractor’s right to demand direct payment is transferred to the subcontractor without maintaining the identity of the construction cost to the principal contractor, and the ordering person may oppose the subcontractor as a defense against the principal contractor before the subcontractor’s right to demand direct payment arises. However, in principle, the subcontractor cannot oppose the subcontractor for any cause arising to the principal contractor after the subcontractor’s right to demand direct payment occurred (see, e.g., Supreme Court Decisions 2009Da19574, Jun. 10, 2010; 2013Da8124, Aug. 27, 2015).

B. Examining the facts acknowledged by the court below in light of the above legal principles, even if the defendant, at his own option, reserved the payment of KRW 251,900,00 for the construction cost to Aart in accordance with the direct payment agreement with Aart, was able to directly pay to the creditors of Eart, etc. at his/her own option, if the plaintiff acquired the right to direct payment by requesting a direct payment pursuant to the Subcontract Act while the defendant did not actually pay the above reservation amount, the defendant's obligation to pay Eart and the obligation to pay the subcontract price to the plaintiff of Eart were extinguished within its scope. Since the defendant had already transferred the right to direct payment to the plaintiff while maintaining its identity, the defendant's obligation to pay the construction cost to the plaintiff of Eart for the defendant of Eart, which was reserved after the defendant had already been transferred to the plaintiff. Ultimately, the defendant's direct payment of the construction cost to the other creditors of Eart, such as Eart, is merely a cause after the plaintiff's right to direct payment had occurred. Accordingly, it cannot be asserted against the plaintiff's direct payment claim under the Act.

Nevertheless, the lower court determined otherwise solely on the grounds indicated in its reasoning. In so doing, it erred by misapprehending the legal doctrine on direct payment claims under the Subcontract Act, thereby adversely affecting the conclusion of the judgment. The ground of appeal assigning this error is with merit

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 Park Jae-young

Justices Park Young-young

Chief Justice Kim Jong-il

Justices Kim Jae-in