ADFC Co., Ltd. (Attorney Yoon-soo, Counsel for the plaintiff-appellant)

Seocho-dong Agricultural Cooperatives (Attorney Hong-han, Counsel for the defendant-appellant)

December 2, 2010

Seoul Northern District Court Decision 2009Kahap10359 Decided March 31, 2010

1. The judgment of the court of first instance is modified as follows.

(1) The defendant shall pay to the plaintiff 154,00,000 won with 6% interest per annum from November 10, 2009 to December 16, 2010, and 20% interest per annum from the next day to the day of full payment.

(2) The plaintiff's remaining claims are dismissed.

3. 1/10 of the total costs of litigation shall be borne by the Plaintiff, and the remainder by the Defendant.

4. The provisional execution under paragraph (1) (1) may be effected.

The judgment of the court of first instance is revoked. The defendant shall pay to the plaintiff 154,00,000 won with 20% interest per annum from the day following the delivery of a copy of the complaint of this case to the day of complete payment.

1. The summary of the case and the facts premised on the case

A. Case summary

In this case, the plaintiff, the subcontractor, who was awarded a subcontract for waterproof Construction among the construction works ordered by the defendant from the Han-dong Seoul High Distribution Center Co., Ltd., the principal contractor, had completed the waterproof Construction Works awarded by the defendant to the defendant, the ordering party, and the plaintiff seeks a direct payment of the subcontract price based on Article 14 (1) 2 and 4 of the Fair Transactions in Subcontracting Act or Article 35 of the Framework Act on the Construction Industry.

The first instance judgment dismissed the Plaintiff’s claim on the ground that the scope of the obligation of direct payment by the ordering person under Article 14(1) of the Subcontract Act is limited to the construction cost to be borne by the principal contractor for the subcontracted construction work, which is not the scope of the obligation of direct payment of the construction cost to the principal contractor, and that the Defendant paid all the cost of waterproof Construction executed by the principal contractor, and the Plaintiff filed an appeal against this.

B. Presumed factual basis

【Evidence A-1-3, A2-1, A2-1, A3, A4-1 through 5, A5, A6, A7-1 through 8, A10, B-1, B-2, B-3, 4-1 through 19, B-5-1 through 8, witness Nonparty 2, 3, and the whole purport of pleadings

(1) A party;

(A) The Plaintiff is a stock company with the purpose of Buddhist class, cooking, etc., and the Defendant is a corporation with the purpose of production, life guidance, purchase, sales, etc.

(B) As a constructor under Article 2 subparagraph 5 of the Framework Act on the Construction Industry, a named national construction is a small and medium constructor who has been subcontracted for a waterproof construction project with the appraised value of the execution capacity in 2009 KRW 15.812 billion from a named national construction in 2009 exceeding twice the appraised value of the execution capacity in 2009 KRW 545 million.

(2) Failure to comply with the subcontract agreement and the payment guarantee obligation between the Plaintiff and the Construction of a named country

(A) On October 6, 2008, the name bureau construction was awarded a contract with the Defendant for the new construction (construction and fire fighting) of the Seocho-dong Agricultural Cooperative High Distribution Center in the amount of KRW 7.12 million for the construction cost of KRW 7.168,80,000 (the subsequent increase in the amount of KRW 8,168,80,000).

(B) On April 1, 2009, the Plaintiff agreed to be guaranteed the payment of the subcontract price for the waterproof construction among the aforementioned new construction works (the date of completion on May 25, 2009, changed from June 30, 2009 to June 6, 30, 2009; the date of completion on June 30, 2009; the date of completion on June 30, 2009; the date of completion on June 30, 2009; the date of completion on June 6, 30, 2080). However, after concluding a subcontract for the construction works related to waterproof construction with the Plaintiff, the Plaintiff did not perform its obligation to guarantee payment under Article 13-2 (1) of the Subcontract Act and the subcontract for the construction works.

(C) By June 30, 2009, the Plaintiff performed a waterproof construction subcontracted, and the cost of waterproof construction in proportion to the cost of the construction work already performed is KRW 231 million.

(3) The plaintiff's remainder payment claim for the subcontracted work

On June 18, 2009, the name-based construction claimed KRW 706,473,525 for the nine-time progress payment based on the name-based inspection, and the Defendant paid KRW 77 million among them to the Plaintiff’s bank account at the request of the name-based construction.

(4) Plaintiff’s direct claim for subcontract consideration

(A) Around April 2009, the Construction Company notified the Defendant of a subcontract for construction works that the Defendant had subcontracted the waterproof Construction to the Plaintiff.

(B) On July 30, 2009, the Plaintiff’s representative director Kim Jong-chul requested that the Plaintiff pay directly to the Plaintiff the remainder of KRW 154 million after deducting the amount of KRW 770 million already received from the amount of KRW 231 million, which was paid to Nonparty 4, an employee of the Construction of Master's Name, who was an employee of the Construction of Master's Name.

(5) The relationship between the Defendant’s payment of the construction price for the name-based construction

(A) On July 31, 2009, the 12th statement of the 12nd statement requested by the Defendant on July 31, 2009, that the waterproof construction had already been completed by 100%, and there was no time to request the construction cost for waterproof construction process. Accordingly, the Defendant paid KRW 213 million of the construction cost on July 31, 2009 upon the request of the wise Construction in spite of the Plaintiff’s direct request, and on September 16, 2009, settled the remainder of the construction cost at KRW 59,976,693.

(B) Before receiving a direct claim from the Plaintiff on July 30, 2009, the Defendant rendered a provisional attachment order against Nonparty 1 (the Nonparty of the judgment) (the Nonparty of the Daegu District Court 2009Kadan859), the provisional attachment order against Nonparty 5’s claim amounting to KRW 2,630,00 (the Daegu District Court 209Kadan850), the provisional attachment order against the claim amounting to KRW 5,823,00 on July 30, 209 (the Daegu District Court 209Kadan908), the provisional attachment order against the claim amounting to KRW 2,630,00 (the Daegu District Court 209Kadan908), the provisional attachment order against the Defendant (the Daegu District Court 209Kadong District Court 23,000) on the claim amounting to KRW 15,280,100 on June 19, 2009, the Defendant received the provisional attachment order from Nonparty 165 and Nonparty 297.

2. Issues of the instant case

A. The plaintiff's claim for direct payment of subcontract consideration

B. The defendant's obligation to pay the subcontract price

3. The judgment of this Court

A. The plaintiff's claim for direct payment of subcontract consideration

【Plaintiff’s Claim】

The plaintiff asserts that the construction of a named country did not perform the obligation to guarantee payment of the subcontract price to the plaintiff, and that the plaintiff requested a direct payment of the subcontract price to the defendant on July 30, 2009, the defendant, who is the ordering person, should pay the price of waterproof construction directly to the plaintiff within the scope of the obligation to pay the contract price for the construction of a named country based on Article 14(1)4 of the Subcontract Act.

[Judgment]

However, according to Article 14 (1) 4 of the Subcontract Act, where a principal contractor fails to fulfill his/her obligation to guarantee payment of subcontract consideration under Article 13-2 (1) of the same Act and the subcontractor requests a direct payment of subcontract consideration, the ordering person shall pay directly to the subcontractor the subcontract consideration corresponding to the part of the manufacture, repair, construction, or service performance.

According to the above premise facts, construction in the name of a country constitutes a principal contractor under Article 2 (2) 2 of the Subcontract Act. The plaintiff falls under a small and medium constructor entrusted by construction in the name of a country and falls under a subcontractor under the provisions of Article 2 (3) of the Subcontract Act, and thus, the Plaintiff’s waterproof Corporation constitutes subcontract transactions to which the Subcontract Act applies. In addition, construction in the name of a country did not perform the Plaintiff’s obligation to guarantee payment of subcontract price under Article 13-2 (1) of the Subcontract Act. Since the Plaintiff requested the Defendant to pay a subcontract price directly to the Plaintiff on July 30, 2009, the Defendant who ordered construction in the name country to the construction in the name country was obligated to pay the Plaintiff the price of waterproof construction directly to the Plaintiff within the scope of the obligation to pay the construction price to the name country based on Article 14 (1) 4 of the Subcontract Act. The Plaintiff’s above assertion has merit.

B. The defendant's obligation to pay the subcontract price

【Plaintiff’s Claim】

On July 30, 2009, the Plaintiff claimed that the Defendant’s obligation for the payment of the price for waterproof Construction was KRW 272,976,693 at the time of requesting the Defendant to pay the price for a waterproof Construction, and that the amount attached around that time exceeded KRW 23,733,100, the Defendant’s obligation for the payment of the price for the subcontract to the Plaintiff of the Master Name Construction was exceeded that of the Master Name Construction, and that the remainder of the waterproof Construction for the Master Name Construction was KRW 154 million.

[Dissenting of the Defendant]

The Defendant asserts that the scope of the obligation of direct payment by the ordering person under Article 14(1) of the Subcontract Act is limited to the construction cost to be borne by the principal contractor for the subcontracted construction work, and that the Defendant did not have any waterproof construction cost to be paid directly to the Plaintiff, since the Plaintiff paid all the waterproof construction cost for the subcontracted construction work.

[Judgment]

However, in cases where the prime contractor requests and receives the payment of the price for subcontract from the ordering person and then fails to pay it to the subcontractor in question, if it is possible for the ordering person to refuse a direct request of the subcontractor on the ground that he has paid the price for construction work, not only the prime contractor but also the ordering person is unable to request the prime contractor for the payment of the price for subcontract due to his bankruptcy, etc. Furthermore, if the ordering person concludes a contract for construction work with the prime contractor by specifying specific process, not only shall the prime contractor pay the price for construction work by specific process, but also if the scope of the obligation to directly pay the ordering person to the prime contractor is limited to that of the prime contractor, it is unreasonable that the subcontractor cannot request the prime contractor to pay the price for construction work directly to the prime contractor within the scope of the obligation to directly pay the price for construction work by specific process. Furthermore, if the prime contractor and the prime contractor are not subject to attachment of the prime contractor’s obligation to pay the price for construction work to the prime contractor under Article 14 of the Enforcement Decree of the Subcontract Act, the scope of the subcontractor’s obligation to directly pay the price shall be excluded.

According to the above premise facts, the Plaintiff’s remainder of waterproof construction for the construction of a scenic name (231 million won) is KRW 154 million (20 million). The Plaintiff’s remainder of construction for the construction of a waterproof construction is KRW 272,976,693 (i.e., KRW 213,00,000 + KRW 976,693) at the time when the Plaintiff requested the Defendant to pay the remainder of the construction for the construction of a scenic name on July 30, 2009 (i.e., KRW 23,733,100).

Therefore, the defendant is obligated to pay the price to the plaintiff within the scope of KRW 249,243,593 (=272,976,693-23,733,100) remaining after deducting KRW 23,73,100 which was executed and preserved before the plaintiff's direct request for construction of a named country. The plaintiff's above assertion has merit (if the judgment of this case becomes final and conclusive after the defendant received a direct request from the plaintiff, the defendant's payment obligation against the named country construction which is the principal contractor and the subcontractor's payment obligation against the plaintiff who is the principal contractor and the subcontractor's payment obligation against the named country construction which is the principal contractor shall be extinguished within the scope of the subcontract price, and unjust enrichment shall be established within the extent that this court did not recognize the defendant's direct payment obligation against the plaintiff.)

4. Conclusion

Thus, the defendant is obligated to pay to the plaintiff 154 million won the construction cost and the damages for delay at the rate of 6% per annum under the Commercial Act from November 10, 2009 to December 16, 2010, the date following the delivery of a copy of the complaint of this case demanding the plaintiff to perform the construction cost of 154 million won and the day after the delivery of the copy of the complaint of this case, to the day after the decision of this court, to the day after the decision of this court, and to pay damages for delay at the rate of 20% per annum under the Act on Special Cases Concerning Expedition, etc.

Therefore, the plaintiff's claim is justified within the scope of the above recognition and the remaining claims are without merit. The judgment of the court of first instance dismissing the plaintiff's claim on the contrary of this conclusion is unfair, and it is modified as per Disposition.

Judges Lee Dong-sik (Presiding Judge)