[1] In a case where a contractor is required to return advance payment due to the cancellation, termination, etc. of a construction contract, whether the unpaid contract price is appropriated for advance payment without a separate offset declaration (affirmative), and the standard for calculating the pre-paid contract price to be appropriated for advance payment

[2] The case holding that a contractor cannot be exempted from the obligation of payment of subcontract consideration on the ground that the payment of subcontract consideration was made due to an exceptional settlement agreement to exclude the payment of contract consideration from the details of contract consideration subject to advance payment, on the ground that the payment of contract consideration was made under the general conditions of contract for a construction project incorporated into a contract for a construction project

[1] The so-called advance payment, which is received from a construction contract, provides a contractor with a pre-payment of the construction cost to the contractor in order to ensure the smooth progress of the construction work without difficulty in securing materials and paying wages. In light of this, if a contractor has to return advance payment due to reasons such as cancellation or termination of the contract after paying advance payment, barring special circumstances, the unpaid amount of the construction cost shall be appropriated from advance payment and the contractor bears the duty to pay the remainder of the construction cost, but how the details of the advance payment shall be determined under the agreement between the parties to the contract.

[2] Where Article 43(1) of the General Conditions of the Construction Contract incorporated into a contract for construction work provides that a contractor shall pay a subcontract price directly to a subcontractor; where a contract is rescinded or terminated under Article 44(5), a contractor shall return an unpaid advance payment; and a contractor may offset the said amount and the contract price; and where the proviso provides that "if a subcontract price is paid directly under Article 43(1), any balance remains after the payment of the subcontract price, it may be offset if any; however, where a ground for the direct payment of the subcontract price arises, the case held that an exceptional settlement agreement for appropriation of an advance payment established under the proviso of Article 44(5) of the General Conditions of the Construction Contract provides that the subcontractor may not be exempted from the obligation to pay the subcontract price directly to the subcontractor, on the ground that the subcontractor is not exempt from the obligation to pay the subcontract price directly to the subcontractor under Article 14 of the Fair Transactions in Subcontracting Act (amended by Act No. 7488 of Mar. 31, 2005)

[1] Articles 105 and 664 of the Civil Act / [2] Article 105 of the Civil Act, Article 14(1), (2), and (4) of the former Fair Transactions in Subcontracting Act (amended by Act No. 7488 of March 31, 2005), Article 4(3) of the former Enforcement Decree of the Fair Transactions in Subcontracting Act (amended by Presidential Decree No. 18922 of June 30, 2005)

[1] Supreme Court Decision 9Da5519 delivered on December 7, 1999 (Gong2000Sang, 148) Supreme Court Decision 2003Da69713 Delivered on June 10, 2004, Supreme Court Decision 2002Da68362 Delivered on November 26, 2004 (Gong2005Sang, 12)

Dae Young Construction Co., Ltd. and one other (Law Firm Cheongung, Attorneys Kim Young-ro et al., Counsel for the plaintiff-appellant)

Cheongju-si (Law Firm Cheongju, Attorneys Yu Jae-gn et al., Counsel for the plaintiff-appellant)

Construction Financial Cooperative (Attorney Su-dae et al., Counsel for the plaintiff-appellant)

Daejeon High Court Decision 2006Na8373 Decided April 13, 2007

The judgment of the court below is reversed, and the case is remanded to Daejeon High Court.

The grounds of appeal are examined.

1. A. Under a contract for construction work, the so-called advance payment, which is received, provides the contractor with the payment of the construction cost in advance in order to ensure smooth progress of construction work without difficulty in securing materials and paying wages. In this case, the contractor is not the construction cost paid in relation to the specific period of work, but the construction cost paid in relation to the whole construction work. In light of this, if there is a reason for the contractor to return the advance payment in advance due to reasons such as cancellation or termination of the contract after the advance payment was made, barring any special circumstance, the unpaid amount of the construction cost in advance until the time when the contract was terminated or terminated shall be appropriated as advance payment without a separate offset declaration, and the contractor bears the duty to pay the remainder of the construction cost (see Supreme Court Decision 9Da5519, Dec. 7, 199; Supreme Court Decisions 9Da5519, Jun. 26, 200; 203Da16360, Jun. 26, 2004).

Meanwhile, if a subcontractor (contractor) requests a subcontractor to make a direct payment of the subcontract price equivalent to the portion executed by the subcontractor under Article 14(1) of the former Fair Transactions in Subcontracting Act (amended by Act No. 7488 of March 31, 2005; hereinafter "former Subcontract Act"), the subcontractor shall be liable to pay it directly to the subcontractor. Under Article 14(2) of the former Subcontract Act, the subcontractor's obligation to pay the subcontract price and the subcontractor's obligation to pay the subcontract price shall be terminated within the scope of the subcontractor's obligation to pay it directly. In addition, Article 14(4) of the former Subcontract Act provides that "When the ordering person directly pays the subcontract price to the subcontractor, the subcontract price already paid by the ordering person to the subcontractor shall be deducted." Article 14(3) of the former Enforcement Decree of the Fair Transactions in Subcontracting Act (amended by Presidential Decree No. 18922 of Jun. 30, 2005; hereinafter "former Enforcement Decree of the Subcontract Act") provides that the subcontractor's obligation to pay it directly to the subcontractor's obligation to pay it.

B. According to the reasoning of the lower judgment and evidence duly admitted, the Defendant, on May 28, 202, concluded a set-off contract with the Defendant for the remainder of the 00-day construction contract (hereinafter “construction”) and entered into a contract for construction work with the Defendant for the remaining 0-day construction cost of the 0-day construction contract (hereinafter “instant construction contract”) on the ground that the remaining 0-day construction cost of the 0-day construction contract was 5-day construction contract and the remaining 3-day construction cost was 50% of the total amount of the 0-day construction contract was 50-day construction, and the remaining 0-day construction cost was 40-day construction cost was 50-day and the remaining 0-day construction cost was 50-day construction cost was 100-day and 40-day construction cost was 50-day construction cost was 500-day construction cost was 100-day and 40-day construction cost was 500-day.

C. Examining these facts in light of the aforementioned legal principles and the provisions of the former Subcontract Act and the Enforcement Decree thereof, the court below erred by misapprehending the legal principles that the court below decided that the Defendant was appropriated for unpaid construction costs due to the occurrence of the grounds for refund of the unpaid balance of 415,250,000 won out of the advance payment paid in 000 days. However, if the grounds for direct payment of the subcontract price equivalent to the part executed by the subcontractor occur as prescribed in Article 43(1) of the General Conditions of the Construction Contract, the amount corresponding thereto shall be deemed to have been excluded from the details of the advance payment, and the purpose of introducing Article 44(5) of the General Conditions of the Construction Contract that guarantees substantial payment of the subcontract price, reasonable adjustment of interests surrounding the principle of appropriation for advance payment and the provisions on direct payment of the subcontract price under the former Subcontract Act, the obligation to pay the subcontract price directly to the subcontractor prior to appropriation for the advance payment, and the obligation to pay the subcontract price directly to the subcontractor under the proviso to the former Construction Contract cannot be viewed as an exceptional condition of the Act.

Meanwhile, according to the evidence duly admitted by the court below, construction in 005 by submitting to the defendant on March 8, 2005 the intention to waive the contract for the remaining construction, thereby changing the equity shares of construction in 00 days to 0", instead of 46.54% equity shares in 46.54% equity shares in 00, and the defendant approved the fact that the contract was entered into between the defendant and the new joint venture members and the new joint venture members and received the remaining construction costs by executing the remaining construction costs. Considering that the proviso of Article 44(5) of the General Conditions of the Construction Contract is located within the scope of the provision on the rescission or termination of the contract, the above proviso of Article 44(5) of the General Conditions of the Construction Contract is related to the interpretation of Article 43 of the General Conditions of the Construction Contract that directly pays the subcontract consideration, and the above proviso of Article 44(5) of the Construction Contract remains due to the submission of the settlement of the contract amount in effect as well as the cancellation or termination of the contract.

Therefore, the defendant should not be exempted from the obligation to pay the consideration to the plaintiffs pursuant to the provisions of Article 44(5) of the General Conditions of the Construction Contract and Article 14(5) of the former Subcontract Act, which provide for the exceptional settlement agreement for appropriation of advance payment. However, the court below rejected the plaintiffs' claim on the grounds that Article 44(5) of the General Conditions of the Construction Contract of this case does not fall under the exceptional settlement agreement for appropriation of advance payment, or that even if the exceptional settlement agreement for appropriation of advance payment was made, there is no room to apply Article 44(5) of the General Conditions of the Construction Contract as the contract does not cancel or terminate between the defendant and the White Construction, and thus, it is erroneous in the misapprehension of legal principles as to the interpretation of Article 44(5) of the General Conditions of the Construction Contract of this case, which affected the conclusion of the judgment. The ground of appeal assigning this error is with merit.

2. 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 Yang Sung-tae (Presiding Justice)