Whether the actual contractor of the affiliated type can request the contractor to compensate the contractor for the construction of the project with reference to the construction contract

For the Dhamma, it will make it clear and easy to know

- Legal proverb

In recent years, with the rapid development of the construction market, a large number of enterprises or individuals have circumvented the corresponding qualification requirements of the law by contracting projects in the name of qualified enterprises, and have also brought many controversial issues. Among them, there is a lot of controversy in judicial practice as to whether the affiliate can directly request the contractor to refer to the agreed discount compensation for the project price in the construction contract.

In this issue, we have selected a typical case of the Supreme Court and conducted an analysis and study of related issues. We'll share it below and hope it inspires you.

Brief facts of the case

I. In August 2015, Zhu Tianjun signed the "Affiliation Agreement" with Zhongding Company. During the period of affiliation, Zhu Tianjun contracted the project involved in the case contracted by the Land and Resources Bureau of Wulan County in the name of Zhongding Company and carried out construction, which has now been completed and accepted.

Second, after that, Zhongding Company issued a "Work Contact Letter" to the Land and Resources Bureau of Wulan County, stating: "The land development project in Tohai Village, Keke Town, Ulan County, which won the bid by your unit in 2016, has been actually contacted and contracted by Mr. Zhu Tianjun, who is attached to my unit, and the actual contact with your bureau and the contract of this project."

3. In January 2018, Zhu Tianjun, with Zhongding Company and Wulan County Land and Resources Bureau as defendants, sued and ordered Zhongding Company to pay its project payment of 4,058,300 yuan, and the Wulan County Land and Resources Bureau bore joint and several liability within the scope of unpaid payment, and the interest of 1,025,800 yuan was borne by Zhongding Company.

4. The court held that Zhu Tianjun's signing of a construction contract with the Land and Resources Bureau of Wulan County, which was affiliated with Zhongding Company, lacked the true intention to conclude a construction contract with the contractor, and there was no substantive legal relationship between the two parties. Zhu Tianjun, as the actual builder of the project involved in the case, and the contractor formed a de facto legal relationship in the conclusion and performance of the construction contract, and Zhu Tianjun had the right to directly claim the project money from the Land and Resources Bureau of Wulan County.

Core ideas

Where the affiliate signs a construction contract with the contractor in the name of the affiliated construction enterprise, a de facto construction contract relationship has been formed between the contractor and the affiliate in the case that the contractor knows or should know that the contractor is actually carrying out the construction, and the affiliate has the right to request the contractor to compensate the contractor with reference to the agreed discount in the contract on the project price.

Practical analysis

In construction projects, affiliation refers to the act of borrowing the name of a qualified construction enterprise in various forms to engage in engineering construction by units or individuals that do not have corresponding qualifications in order to circumvent legal prohibitions. Since the affiliation construction violates the mandatory provisions of relevant laws and regulations such as the Construction Law, the construction contract signed shall be invalid. According to article 157 of the Civil Code, after the contract is invalid, the two parties shall each return the property acquired as a result of the contract before that, and if it cannot be returned or is not necessary, it shall be compensated at a discount. Due to the special nature of the construction project contract, the construction project contract that has been performed can often not be restored to its original state, and compensation can only be applied according to the construction project situation. In judicial practice, there are different understandings as to whether the actual builder who borrowed the qualification has the right to request the contract issuer to compensate for the discount of the construction project.

In practice, there are mainly the following two views: the first is that there is no construction contract relationship between the affiliate and the contractor, so the affiliate cannot request the contractor for compensation for the discount of the project. In the affiliation construction dispute, there are two independent contractual relationships, one is the construction contract relationship between the contract issuer and the affiliated person, and the other is the affiliation contract relationship between the affiliated person and the affiliated person, and the two are not the same in terms of subject, rights and obligations. In view of this, the main system contractor and the affiliate of the construction contract cannot be directly determined on the basis of the existence of the affiliation fact, and the affiliation has the right to request the contractor to compensate the contractor for the discount of the construction project, but should be recovered separately according to the respective contractual relationship. The second view is that there is a factual construction contract relationship between the affiliate and the contractor, and the affiliate has the right to request the contractor for discount compensation. In the construction of a construction project, the affiliate has actually performed the construction obligations of the affiliated person for the contractor, and the contractor has achieved the purpose of the contract, so the relationship of rights and obligations has in fact been formed between the two, and the affiliate has the right to request the contractor to perform the obligations based on the contractual relationship of the construction project. The above views are the main points of judicial decisions.

The latest discussion of the Judges' Meeting of the First Civil Division of the Supreme People's Court held that when an unqualified actual contractor borrowed the name of a qualified construction enterprise to sign a construction project construction contract with the contractor, a de facto construction contract relationship was formed between the contractor and the affiliated person when the contractor knew or should have known that the actual contractor who borrowed the qualification was carrying out the construction. Although the construction contract for the construction project is invalid because it violates the mandatory provisions of the law, in the case of qualified acceptance of the construction project, the actual builder who borrowed the qualification has the right to request the contract issuer to compensate for the discount with reference to the agreed discount in the contract on the project price.

Lawyer suggests

Before the two parties to the contract sign a contract related to the construction project, the awareness of contract management and legal awareness shall be raised to avoid the invalidity of the construction contract. It is suggested that when signing the contract, the contractor should pay special attention to refining the provisions of the contract on the quality, price, settlement method and other terms of the project, so as to ensure that even if the contract is invalid, but the project is completed and accepted, it can still request to claim the project price with reference to the contract. In addition, in the process of contract performance, the contractor should also pay attention to collecting and fixing relevant evidence, do a good job in various visas, meeting minutes, work contact lists and other management work, especially for the completed project quantity, the contractor, the supervising party and the contractor should confirm it in time to prevent the difficulty of presenting evidence after the dispute occurs or to determine the relevant workload through cumbersome and time-consuming appraisal.

Similar case references

Case 1 In the trial of the dispute over the construction contract between Chen Yajun and Fuyang Trauma Hospital [(2019) SPC Min Zhong No. 1350], the Supreme People's Court held that after preliminary review, the supreme people's court held that chen Yajun and Jiangxi Sijian had formed an affiliation relationship. When dealing with the contracting of projects by unqualified enterprises or individuals affiliated with qualified construction enterprises, it is necessary to further examine whether the counterparty to the contract is in good faith and whether it knows the fact of the attachment when signing the agreement to make a corresponding determination. If the counterparty does not know the fact of the affiliation, and has reason to believe that the contractor is the affiliated person, priority should be given to protecting the bona fide counterpart, and the agreement signed by the two parties directly binds the bona fide counterparty and the affiliated person, at this time an illegal subcontracting relationship may be formed between the affiliated person and the affiliated person, and the actual builder may request the contractor and the contractor to bear the corresponding civil liability for the project price involved in the case; if the counterparty knows the fact of the affiliation when signing the agreement, that is, the counterparty conspires with the affiliated person and the affiliated person to make a false expression of intent. Then the relationship between the affiliate and the contractor may directly form a de facto contractual rights and obligations, and the affiliate may directly claim the rights to the contractor. That is to say, regardless of the above circumstances, the right to claim the project price enjoyed by the affiliate cannot be simply denied on the basis that there is a relationship of affiliation. The court of first instance held that the affiliation relationship could not be applied to Article 26 of the Judicial Interpretation of Construction Engineering, and then found that Chen Yajun was not a qualified plaintiff in this case and dismissed his lawsuit, which was an error in the application of law, and this court corrected it. Chen Yajun has the qualifications of the plaintiff in this case as the subject of litigation, and the court of first instance should accept it. Chen Yajun's grounds for appeal are established and supported by this court.

Case 2 The Supreme People's Court held in the trial of the dispute over the construction contract between Jianbang Foundation Company and MCC Corporation [(2017) SPC Minshen No. 3613] that Jianbang Foundation Company did not deny that the parties to the contract, engineering construction, settlement information, and submission of construction materials were all carried out in the name of Bochuan Geotechnical Company, and the trustees involved in the relevant work, Tian Lei and others, also had a power of attorney from Bochuan Geotechnical Company, but only claimed that they had an affiliation relationship with Bochuan Geotechnical Company. By borrowing the construction qualification of Bochuan Geotechnical Company to contract the project involved in the case, he was the actual builder. In the case of affiliated construction, there are two legal relationships of different nature and different contents, one legal relationship of construction projects and one legal relationship of affiliation, and according to the principle of contract relativity, the rights and obligations of all parties should be handled separately according to the relevant contracts. Based on the facts recognized by the above-mentioned Jianbang Foundation Company, the judgment of the second instance found that the parties to the contract of the legal relationship of the construction project were MCC Group Corporation and Bochuan Geotechnical Company, which was not improper. Jianbang Foundation Company did not provide evidence to prove that it had formed a de facto construction contract relationship with MCC Group Corporation, so even if it was determined that Jianbang Foundation Company was the actual builder of the project involved in the case, it had no right to break through the contractual relativity and directly claim the construction project contract rights from the non-contractual counterpart, MCC Group Corporation. As for the internal rights and obligations between Jianbang Foundation Company and Bochuan Geotechnical Company, the two sides can still find another legal way to resolve it. Article 26 of the Judicial Interpretation on Construction Works applies to the illegal subcontracting and illegal subcontracting of construction projects, and does not apply to the situation of affiliation. Article 2 of the Interpretation gives the right to claim the project payment to the contractor rather than the actual builder, and the actual builder of the Jianbang Foundation Company's claim that the actual builder may directly claim the project payment from the contract counterparty beyond the affiliated unit under the circumstances of the affiliation, which is insufficient.

Case 3 The Supreme People's Court, in the trial of the construction contract dispute between Zhengzhou Hand-in-Hand Group Co., Ltd. and Henan Metallurgical Construction Co., Ltd. [(2018) SPC Min zhong No. 391], held that whether Shen Guangfu was the actual builder should support his claim to the hand-in-hand company as to whether he was the actual builder. This court held that even if Shen Guangfu was the actual contractor affiliated, article 26 of the judicial interpretation of the construction contract did not clearly stipulate that the actual contractor of the contractor had the right to claim rights against the contractor, and that his claim should not be supported in the case where the contractor had already claimed rights against the contractor. According to Article 26 of the Judicial Interpretation on Construction Contracts, it can be seen that the actual builders in subcontracting contracts or illegal subcontracting contracts should claim rights based on the basic principle of not breaking through the relativity of the contract, and only under certain circumstances can the relativeness of the contract be broken. The provisions are formulated to protect the interests of migrant workers in order to protect the interests of migrant workers in order to protect the interests of migrant workers in the case of subcontracting and illegal subcontracting, and do not break through the relativity of the contract, which will cause migrant workers to have no way to negotiate wages and lead to the intensification of contradictions. The first instance found that Shen Guangfu belonged to the actual contractor attached to it, and Shen Guangfu claimed that he had formed a de facto construction contract relationship with Hand-in-Hand Company and Chanda Company, but according to the facts clearly examined in the first instance, the "Construction Project Construction Agreement" in this case was signed between the metallurgical company and the hand-in-hand company, and on the agreement submitted by the metallurgical company and Shen Guangfu, Shen Guangfu only signed as an agent of the metallurgical company, and there was no signature of Shen Guangfu on the agreement provided by the hand-in-hand company and the metallurgical company. In the actual performance, Shen Guangfu only received a deposit of 1 million yuan, and the hand-in-hand company paid the project payment to the metallurgical company, and the metallurgical company then allocated part of it to Shen Guangfu. Indicate that the hand-in-hand company is still performing the contract with the metallurgical company. Shen Guangfu did not form a de facto construction contract relationship with hand-in-hand company, so this court does not support Shen Guangfu's claim to hand-in-hand company, and Shen Guangfu should deal with it separately with the metallurgical company according to law.

Links to laws

1. Civil Code of the People's Republic of China

Article 157: [Legal Consequences of Civil Juristic Acts Being Invalid, Revoked, or Determined not to Be Effective] After a civil juristic act is invalid, revoked, or determined not to be effective, the property acquired by the actor as a result of that act shall be returned; The party at fault shall compensate the other party for the losses suffered as a result; if each party is at fault, it shall bear corresponding responsibilities. Where the law provides otherwise, follow those provisions.

Article 793 [Handling of Invalid Construction Project Construction Contracts] Where a construction project construction contract is invalid, but the construction project experience is qualified, the contractor may be compensated with reference to the agreed discount in the contract on the project price.

Where the construction contract for a construction project is invalid and the experience in the construction project is unqualified, it shall be handled in accordance with the following circumstances:

(1) Where the experience of the repaired construction project is qualified, the contract issuer may request the contractor to bear the costs of restoration;

(2) If the experience of the repaired construction project is unqualified, the contractor shall not have the right to request compensation for the discounted price agreed upon in the contract on the project price.

If the contract issuer is at fault for the losses caused by the unqualified construction project, it shall bear the corresponding responsibility.

2. Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Project Contracts (I)

Article 43 Where the actual builder sues the subcontractor or illegal subcontractor as the defendant, the people's court shall accept it in accordance with law.

Where the actual contractor claims rights against 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 ascertaining the amount of the contractor's arrears in paying the subcontractor or the illegal subcontractor's construction project price, rule that the contractor shall be liable to the actual builder within the scope of the arrears in paying the construction project price.

Article 44 Where the actual builder, in accordance with the provisions of Article 535 of the Civil Code, initiates a subrogation lawsuit on the grounds that the subcontractor or the illegal subcontractor neglects to exercise the matured claim or the subordinate right related to the claim to the contract issuer, affecting the realization of its matured claim, the people's court shall support it.

3. Answers of the Higher People's Court of Shaanxi Province on Several Questions Concerning the Trial of Cases Involving Disputes over Construction Project Contracts

13. The construction person who borrows the qualification directly claims the project payment from the contractor, how to deal with it.

Usually, a builder who borrows a qualification can only file a subrogation lawsuit if the lender is lazy in performing his rights. However, if the contract issuer knows that the fact of borrowing the qualification exists, the construction person who borrows the qualification can directly claim rights from the contract issuer.

4. Guidelines for the Trial of Construction Contract Cases of the Higher People's Court of Hebei Province

31. In the case of a lawsuit brought by the actual builder against the subcontractor, subcontractor, general contractor or contractor with whom it has no contractual relationship, and the contractor and the contractor have not yet settled the project payment, in principle, the relativity of the contract shall still be adhered to, and the predecessor contractor who has a contractual relationship with the actual construction person shall pay the project payment.

If the contractor and the contractor have settled the project payment or have not yet settled the project payment, but the scope of the arrears is clear, it may be determined that the amount of the project money owed by the contractor to the contractor is greater than the amount of the project money owed by the contractor to the actual builder, and the contract issuer can directly order the contract issuer to bear joint and several liability for the actual contractor to pay the actual contractor within the amount of the project money owed by the contractor to the actual builder.

The scope of the unpaid project payment means that the scope and amount of joint and several liability borne by the contract issuer must be clarified in the judgment, and cannot be simply expressed as the contract issuer bears joint and several liability within the scope of the arrears of the project payment.