Real estate perspective: Can the person affiliated with the construction project directly claim the project payment from the contractor?

Published:

2021-09-28

The raising of the problem Article 43 of the (I) of the Supreme People's Court on the Interpretation of Legal Issues Concerning the Trial of Construction Contract Disputes (hereinafter referred to as the "Construction Project Judicial Interpretation (I)"), which came into effect with the Civil Code on January 1, 2021, stipulates that If the actual builder sues as a subcontractor or an illegal subcontractor, the people's court shall accept it in accordance with the law. If the actual builder claims the rights of the contractor as the defendant, the people's court shall add the subcontractor or the illegal subcontractor as the third party in the case, and after finding out the amount of the construction project price owed by the contractor or the illegal subcontractor, the contractor shall be liable to the actual builder within the scope of the construction project price owed. The judicial interpretation basically continues the provisions of Article 26 of the 2004 Interpretation of the Supreme People's Court on the Application of Legal Issues in the Trial of Construction Contract Disputes and Article 24 of the 2018 Interpretation (II) of the Supreme People's Court on the Application of Legal Issues in the Trial of Construction Contract Disputes, with the word "actual builder" used at the beginning of the sentence, and in the latter sentence only provides that in the case of subcontracting and illegal subcontracting, the actual builder can claim the project price to the contractor, then the same as the actual builder's affiliate, similar to subcontracting and illegal subcontracting, in the case of invalid contract can claim the project price to the contractor? There are different viewpoints in theory and judicial practice. judicial practice viewpoint There are two different views in the administration of justice. One is that the affiliated person is no different from the actual construction person in the case of subcontracting or illegal subcontracting. Article 43 of the (I) for Judicial Interpretation of Construction Projects should be applied by analogy. The affiliated person can claim the project price from the employer; the other is that the scope of application of the judicial interpretation should be strictly limited, the affiliated person shall not claim the project price from the contractor on this basis. Several cases are cited below to illustrate: (I) support the case of the affiliated person claiming the project payment from the contractor. 1. Supreme People's Court (2019) Supreme Law Minzong No. 329 Civil Judgment Referee's Point of View: Zhu Tianjun borrowed the qualification of Zhongding Company to sign a construction contract with Wulan County Land and Resources Bureau. As the borrowed qualification party, Zhongding Company lacks the true meaning of signing a construction contract with Wulan County Land and Resources Bureau. Zhongding Company does not have a substantive legal relationship with Wulan County Land and Resources Bureau. In this case, Zhu Tianjun, as the actual builder of the project involved in the case, formed a de facto legal relationship with the Wulan County Land and Resources Bureau in the process of concluding and performing the construction contract, and Zhu Tianjun had the right to claim the project payment from the Wulan County Land and Resources Bureau. 2. Supreme People's Court Supreme Law Minzong No. 353 Civil Judgment Referee's Point of View: The "Affiliation Agreement" signed by Zheng Guoping and Zhongqin Qinghai Branch clearly stipulates that Zheng Guoping is affiliated with Zhongqin Qinghai Branch to contract the project involved in the construction case. Although Yuntian Company does not approve the agreement, the "Statement" issued by the company on July 23, 2017 clearly states that the construction party is Zheng Guoping. The existing evidence in this case is sufficient to prove that Zhongqin Qinghai Branch has not fulfilled its construction obligations, but is only the nominal subject of the contract. Yuntian Company knows the fact that Zheng Guoping is affiliated with Zhongqin Qinghai Branch for actual construction. The construction contract of the construction project in this case was actually performed by Yuntian Company and Zheng Guoping, so the two parties formed a de facto relationship of rights and obligations. A series of contracts signed by Zheng Guoping in the name of Zhongqin Qinghai Branch shall be deemed invalid in accordance with the provisions of Article 1 of the judicial interpretation of the construction contract. Article 58 of the the People's Republic of China Contract Law stipulates the legal consequences of the invalidity of the contract, that is, the parties to the contract have the obligation to return the property, compensate for the discount, compensate for the loss, etc. In this case, Zheng Guoping, as the affiliated construction party, the materials and services it invested have been materialized into the project involved in the case, and its value has been determined through appraisal. Yuntian Company shall complete the obligation to return the property after the contract is invalid by paying the project funds to Zheng Guoping. Zheng Guoping has the right to claim claims against Yuntian and has the right to directly request Yuntian to pay for the project. 3. Jiangsu Provincial Higher People's Court (2016) Su Min Zhong Zi No. 46 Civil Judgment Referee's point of view: The affiliated person claims the project payment to the contractor, which is due to the contractor's acceptance of the work results of the affiliated person, resulting in the obligation to pay to him. However, there is no factual and legal basis for the affiliated person to require the affiliated person to bear joint and several liability for the contractor's non-payment of the project funds. 4. Supreme People's Court (2019) Supreme Law No. 1350 Chen Yajun and Jiangxi four built between the formation of affiliated relations. When dealing with unqualified enterprises or individuals affiliated with qualified construction enterprises to undertake projects, they should further examine whether the contract counterpart is in good faith and whether they know the affiliated facts at the time of signing the agreement to make corresponding determinations. If the relative does not know the affiliated facts and has reason to believe that the contractor is the affiliated person, priority should be given to protecting the bona fide counterpart. The agreement signed by both parties directly binds the bona fide counterpart and the affiliated person. At this time, an illegal subcontracting relationship may be formed between the affiliated person and the affiliated person. The actual builder can request the contractor and the employer to bear corresponding civil liabilities for the project price involved in the case. If the counterpart knows the affiliation when signing of the agreement, that is, the relative and the affiliated person, the affiliated person conspires to make a false intention, then the affiliated person and the contractor may directly form a de facto contractual rights and obligations relationship, the affiliated person can directly claim rights to the contractor. That is, no matter what kind of situation it belongs to, it is not possible to simply deny the right of claim for the price of the project enjoyed by the attached person only by the existence of an attached relationship. Therefore, the court of first instance held that the affiliated relationship could not apply the provisions of Article 26 of the interpretation of the Supreme People's Court on the application of legal issues in the trial of construction contract disputes, and further determined that Chen Yajun was not the qualified plaintiff in this case and rejected his lawsuit, which was an error of applicable law. The (II) does not support the case of the affiliated person claiming the project payment from the contractor. 1. Civil Ruling No. 3613 of the Supreme People's Court (2017) Referee's point of view: In the case of affiliated construction, there are two legal relationships of different nature and content, one is the legal relationship of construction projects, the other is the legal relationship of the affiliated legal relationship, according to the principle of contract relativity, the rights and obligations of the parties should be dealt with separately according to the relevant contract. Jianbang Foundation Company has not provided evidence to prove that it has formed a de facto construction contract relationship with China Metallurgical Group Company. Therefore, even if Jianbang Foundation Company is identified as the actual constructor of the project involved in the case, it has no right to break through the relativity of the contract and directly claim the contract right of the construction project to China Metallurgical Group Company, which is not the counterparty to the contract. Article 26 of the Interpretation of the Supreme People's Court on the Application of Law in the Trial of Disputes over Construction Contracts for Construction Projects applies to illegal subcontracting and illegal subcontracting of construction projects, and does not apply to affiliated situations. Article 2 of the interpretation gives the subject of the right to claim the project payment as the contractor rather than the actual construction person, and the actual construction person under the condition that Jianbang Foundation Company claims to be attached can directly claim the project payment to the counterparty of the contract over the attached unit, which is not based on enough. 2. Supreme People's Court (2018) Supreme Law Civil Judgment No. 391 Referee's point of view: Even if Shen Guangfu, the subject of the case, is the actual construction person attached, the judicial interpretation does not clearly stipulate that the actual construction person attached has the right to claim rights against the contractor, and in this case the contractor has claimed rights against the contractor, its claim should not be supported. legal analysis According to the current legal system and its interpretation methods, whether or not based on Article 43 of the (I) for Judicial Interpretation of Construction Projects, there are different angles and bases for each person to claim the project price from the contractor, which can be analyzed from the following aspects: The legal analysis of the application of Article 43 of the (I) on the judicial interpretation of construction projects by the (I) affiliated persons Whether the affiliated person can refer to the provisions on subcontracting and illegal subcontracting, the analogy applies the provisions of Article 43 of the judicial interpretation, directly to the contractor to claim the price of the project, can be based on the legislative purpose from the perspective of the relationship between the interests of the affiliated person and the contractor to make a value judgment: 1. Analysis from the perspective of the affiliated person Whether it is subcontracting, illegal subcontracting or affiliation, although the contract is invalid, but without the confirmation of the court or arbitration institution, there is no contractual relationship between the contractor and the actual builder in the legal form, let alone the claim of contractual rights, otherwise there is a violation of the relativity of the contract. Even after the contract is confirmed to be invalid, according to the provisions of Article 793 of the Civil Code, if the construction project has passed the completion and acceptance, the contractor shall be compensated at a discount with reference to the contract on the price of the project. However, Article 43 of the (I) on Judicial Interpretation of Construction Projects allows breaking through the relativity of the contract under the circumstances of subcontracting and illegal subcontracting, which should be regarded as an exception to the relativity of the contract. The reason is to protect the vulnerable groups (especially the interests of migrant workers) who have performed the contract although they have not performed the contract. The Supreme People's Court also pointed out that breaking through the relativity of the contract is mainly applicable to the failure to pay of migrant workers, therefore, from the purpose of interpretation, the affiliated person and the other two types of actual construction is no different, the same need to protect, although the judicial interpretation is not clearly defined, but has the basis of the legislative purpose of analogy application. 2. Analysis from the Employer's Point of View In the case of affiliation, it is necessary to distinguish whether the contractor is aware of the facts of the affiliation, and then to determine whether the affiliation is contrary to the principle of protecting good faith if the affiliation claims to it. (1) The Employer does not know the facts of the affiliation. If the employer does not know the qualification of the affiliated party, from the perspective of bona fide protection of the employer, according to the principle of contract relativity and trust protection, it may come to the conclusion that the legal relationship between the affiliated party and the employer has formed a construction contract, and then it is concluded that there is no de facto construction contract relationship between the affiliated party and the employer, and the affiliated party directly requests the employer to claim the project price without a claim basis. However, from another perspective, both the affiliated person and the affiliated person enjoy monetary creditor's rights. According to the second paragraph of Article 545 of the Civil Code on the transfer of monetary creditor's rights, even if it is admitted that only the affiliated person can request the project price from the employer and both parties agree that the project payment creditor's rights cannot be transferred, the affiliated person can also transfer the project payment creditor's rights to the affiliated person, and the employer cannot use this as an excuse against the third person, therefore, even if the contractor is in good faith and does not know the facts of the affiliation, it is not impossible for the affiliation to directly claim the project payment from him. In addition, from a result-oriented point of view, the contractor pays the affiliated person within the scope of the project payment owed to the nominal contractor, and the project payment owed to the nominal contractor is eliminated at the same time, which can simplify the rights and obligations between the three parties. (2) The Employer knows the facts of affiliation If the contractor is aware of the fact of the affiliation, the contract signed by the contractor in name with the affiliated person shall be invalid for the false meaning of the accomplice of both parties, and the actual construction contract relationship between the affiliated person and the contractor hidden by the false meaning shall also be invalid because the affiliated person does not have the corresponding qualifications. In the case that both contract relationships are invalid, according to the general theory of judicial practice, the actual performance of the contract should be respected. The affiliated person, as the actual builder, has a de facto legal relationship between the construction contract and the employer. If the quality of the project involved is qualified, the affiliated person has the right to request the owner to pay the project fund according to the agreement of the construction contract. To sum up, from the balance of interests between the affiliated person and the employer, Article 43 of the (I) for Judicial Interpretation of Construction Projects is not without applicable space for the affiliated person, and can be applied by analogy based on the above reasons. (II) other paths for the affiliated person to claim the price of the project from the contractor. In addition to the application of the above-mentioned judicial interpretation to the contractor by analogy, there is also the possibility of realization through other paths, such as the right of subrogation and the right of claim for the return of unjust enrichment. 1. The attached person may claim the project payment from the contractor on the basis of the right of subrogation. Article 44 of the (I) for Judicial Interpretation of Construction Projects stipulates that if the subcontractor or the illegal subcontractor is lazy in claiming the due claims from the contractor, the actual contractor may claim the subrogation litigation for the defendant. Although the judicial interpretation does not make it clear that the affiliated person can exercise the right of subrogation, according to the general provisions of the General Principles of the Civil Code of Contracts on the right of subrogation, the right of subrogation is not limited by the subject. As long as the affiliated person is idle in claiming the project claim to the contractor, affecting the realization of the project payment claim enjoyed by the affiliated person, the affiliated person can exercise the right of subrogation to claim the project payment to the contractor. 2. The affiliated person may claim the project payment from the contractor on the basis of the right to claim the return of unjust enrichment. Whether it is the provisions of Article 793 of the Civil Code on invalid discount compensation for construction contracts, or Article 157 of the Civil Code on the invalidity of general legal acts and the return of property or discount compensation after revocation, in the case of invalid contracts, their essence is the return of unjust enrichment. Similarly, the affiliated person as the actual construction person, its labor materialization in a specific construction project, the contract is invalid, the abstract labor results can not be returned, can only be discounted compensation, which is also the legislative basis of the above-mentioned legal provisions. The construction project is constructed and completed by the affiliated person, and the contractor benefits as a result, so the affiliated person can get out of the dilemma of contract relativity and claim the project payment to the contractor through the right of return of improper profits. Summary Whether the affiliated party can directly claim the project price from the employer can be analyzed from two angles. One is to weigh the interests of the affiliated party and the employer on the basis of legislative purpose, and to analyze whether the provisions of Article 43 of the (I) for Judicial Interpretation of Construction Projects can be applied by analogy through legal interpretation and value judgment. The second is to jump out of the dilemma of applying the above judicial interpretation and contract relativity by analogy, attempt to claim the project payment from the contractor by exercising the right of subrogation or the right of return of unjust enrichment.

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