Construction Engineering Environmental Capital Law Review (No. 16), "The exercise of the right of priority compensation for construction projects".

Basic Interpretation of 1.

According to the basic theory of civil law, the exercise of civil rights refers to the implementation of certain acts by the right holders to realize their rights. There are two ways to exercise rights: the factual way and the legal way. The factual approach refers to the right holder exercising his rights through a factual act; the legal approach refers to the right holder exercising his rights through a civil juristic act. The exercise of rights should follow the following two main principles: First, the principle of free exercise. The exercise of rights is the freedom of the right holder, who shall decide according to the will of the parties concerned and shall not be interfered by others. Second, the principle of proper exercise and prohibition of abuse of rights. The right holder shall properly exercise his rights in accordance with the purpose of his rights, follow the principle of good faith, and prohibit the abuse of his rights.

The priority of the contractor's construction project is an important right to protect the contractor's engineering claims. How does the contractor exercise this right? Article 807 of the Civil Code stipulates: "Except for the nature of the construction project that is not suitable for discount or auction, the contractor may Agreement with the employer to discount the project, or request the people's court to auction the project according to law." Therefore, the exercise of the priority of the contractor's construction project refers to the act carried out by the contractor in order to realize its own priority, that is, the contractor may "agree to discount" or "request the court auction" of the construction project constructed by the contractor, so as to give priority to the contractor's outstanding payment of the project price.

Although the right holder of the contractor's construction project priority is free to exercise the right in his or her mind, he or she should abide by the principle of proper exercise and prohibition of abuse of rights. The right holder of the contractor's construction project priority can not exercise the right of priority for the construction project "which is not suitable for discount or auction according to the nature of the construction project", and at the same time, in the "agreement discount" or "request court auction", it can not damage the legitimate rights of other third parties by means of improper or abuse of rights, if the contractor and the contractor collude to "agree to discount" or auction the construction work at a price significantly lower than the market value or at a price that is clearly unfair, thereby harming the legal rights of other creditors.

It should be noted that the exercise of the contractor's construction project priority in the enforcement procedure, the enterprise bankruptcy procedure and the transfer of the construction project is also in the form of "agreement discount" or "request court auction", that is, in the enforcement procedure, the enterprise bankruptcy procedure and the transfer of the construction project, the contractor can still adopt the form of "agreement discount" or "request court auction, the right holder of the contractor's construction project priority shall also abide by the principle of proper exercise and prohibition of abuse of rights, and shall abide by the provisions on the enforcement of discount and auction.

Exercise the priority of construction project 2. the way of "agreement discount"

The agreement discount means that the employer and the contractor reach an agreement through negotiation to offset the project price of the construction project constructed by the contractor, that is, the employer transfers all or part of the property right of the construction project to the contractor at the price determined by both parties through negotiation, and the transfer consideration of the property right of the construction project is offset by the project creditor's rights of the contractor, So that the contractor obtains all or part of the ownership of the construction project.

Although the autonomy of the parties can carry out the act of agreement discount, but because of the particularity of the contractor's construction project priority, how to avoid the right holder of the construction project priority improper exercise or abuse of rights, there is still no specific provisions of operability, the need for relevant legislation to improve.

In the field of construction projects, there is a widespread situation of "housing for debt", and attention should be paid to the difference between the exercise of construction project priority by means of "agreement discount" and "housing for debt. In practice, many "house for debt" agreements signed by the employer and the contractor are mainly in the process of construction or after completion, the employer reaches an agreement through negotiation to offset part of the contractor's progress payment or settlement payment according to a certain price. Some contractors sign commercial housing presale contracts for the houses used for debt repayment and put them on record, while others do not sign commercial housing presale contracts and put them on record, A large number of disputes have arisen, such as "house-to-house debt" agreements as non-contract or practical contracts. Therefore, from the practice of a large number of "housing debt" agreement form and content, often lack of "agreement discount" to exercise the construction project priority meaning, can not simply "housing debt" agreement as the contractor to negotiate the construction project "agreement discount" to exercise the construction project priority.

Exercise the priority of construction project 3. the way of "requesting court auction"

In practice, there are different situations in the way of "requesting the court to auction" to exercise the priority of construction projects: 1. If the contractor owes the contractor the project price and still fails to pay after being urged by the contractor, the contractor directly applies to the people's court for auction of the construction project it undertakes; 2. After the contractor's project creditor's rights and construction project priority are confirmed by the court or arbitration, in the process of court enforcement, the contractor applies to the court to auction the construction project involved in the case, so as to receive priority compensation from the auction proceeds; 3. In the bankruptcy proceedings of the construction project debtor's enterprise, after the contractor's engineering claims and construction project priority are confirmed by the court or arbitration, the contractor applies to the court to auction the construction project; 4. In the process of transfer of the construction project, the original owner of the construction project (the original contractor) owes the project price to the contractor, if the contractor still fails to pay after being urged by the contractor, the contractor shall apply to the court auction house for the priority of the construction project.

The reason for the existence of the above-mentioned different situations is also due to the lack of unified and clear legal provisions on the exercise of the priority of construction projects by means of "requesting court auction" in China. Therefore, there is a great dispute over the way in which the contractor requests the court auction. At present, there are several different views and treatment methods:

The first point of view: the contractor, that is, the right holder of the priority of the construction project, should directly apply in the court's enforcement. The main reasons are as follows: 1. At present, there is no independent cause of action for the exercise of the priority compensation right of the construction project price, and there is no legal basis for the independent filing of the request; 2. Article 410 of the Civil Code stipulates: "The debtor fails to perform the due debts or the situation agreed by the parties to realize the mortgage, the mortgagee may agree with the mortgagor to pay the mortgaged property at a discount or at the price of the proceeds from the auction or sale of the mortgaged property. If the agreement harms the interests of other creditors, the other creditors may request the people's court to revoke the agreement. If the mortgagee and the mortgagor fail to reach an agreement on the manner in which the mortgage is realized, the mortgagee may request the people's court to auction or sell the mortgaged property. Where the mortgaged property is discounted or sold, reference shall be made to the market price." Therefore, the mortgagee can directly apply to the court to exercise the mortgage right without making a request in the entity procedure.

The second point of view: The contractor, the right holder of the priority of the construction project, should make a request for the exercise of the priority compensation right of the specific construction project price at the same time. Main reasons: 1. If the request is not made in the same litigation procedure and the entity trial is carried out, the court will often not hear the right based on the principle of "no complaint or disregard", thus it will not be stated in the judgment; in turn, it may happen that the parties apply for enforcement of the effective judgment of the court, and because the judgment does not specify whether there is a priority right to compensation for the project price, so that the court can not meet the request of the parties. In the case that the priority of the construction project is not clearly confirmed by the court decision, the court will rarely allow the application for enforcement directly on the basis of Article 807 of the Civil Code. 2. At present, the Provisions on the Causes of Civil Cases promulgated by the Supreme Court do not have the cause of priority compensation for the project price in the mortgage dispute in the part of the "property dispute", therefore, the request made by the parties in the project arrears is more in line with the actual trial of the current court.

The third point of view: according to the provisions of the Civil procedure Law, the construction project contractor may apply to the court for the exercise of the priority of the construction project. After the court accepts the application, it shall examine the corresponding materials provided by the applicant, such as the supporting documents on whether the priority of the construction project is established, whether the employer owes the project payment, the current situation of the project and other facts, if necessary, it may investigate the relevant facts according to its authority and ask the relevant parties. After examination, if the provisions of the law are met, the construction project may be ordered to be auctioned or sold off. If the employer raises an objection, the court shall conduct a review. The contractor's application cannot be rejected solely on the basis of the employer's objection. After review, if the employer's objection is indeed established, it shall rule to reject the contractor's application. If the application is rejected, the parties concerned may file an ordinary lawsuit for confirmation of priority of construction projects with the court.

The provisions of the 4. court's trial guidance document on the way to exercise the priority of construction projects are not uniform.

Some provincial courts have issued trial guidance documents, which have made some provisions on the way to exercise the priority of construction projects, but these provisions are not unified, which has caused a lot of uncertainty to the practical operation, which needs to be improved by legislation.

Article 2 of the "Priority Answer" of Zhejiang High Court stipulates: "The construction project contractor shall negotiate with the employer to offset the unpaid project price at a discount of the project, or file a lawsuit or apply for arbitration to confirm that it has the priority to receive compensation for the auction price of the project, or directly apply to the court to auction the project to realize the project payment creditor's rights, or apply to participate in the participation in the distribution procedure of the variable price of the construction project to claim for the project, all belong to the construction project price in accordance with the law to exercise priority. If the construction project contractor files a lawsuit or applies for arbitration only to require the judgment or award to be paid by the contractor for the project, and does not require confirmation that it has the right of priority to be paid for the auction price of the project, it shall not be deemed to exercise the right of priority."

Article 17 of the "Answer" of the Guangdong High Court stipulates: "Where a construction project contractor files a lawsuit, applies for arbitration to claim the priority of compensation for the project price, negotiates with the employer to offset the arrears of the project at a discount, applies to the court to auction the project to realize the project payment creditor's rights, applies to participate in the distribution procedure of the construction project auction to claim the priority of compensation, or explicitly claims the priority of compensation to the employer in writing, all belong to the construction project price in accordance with the law to exercise the right of priority compensation."

Article 18 of the "Answers" of the Jiangsu High Court stipulates: "If the contractor claims the right of priority compensation for the construction project price by filing a lawsuit or applying for arbitration, it is an effective way to exercise the right of priority compensation for the construction project price. If the contractor claims the right of priority compensation for the construction project price by sending a letter, the effectiveness of its exercise shall not be recognized."

(Note: The original text is contained in the Law of Construction Contracts in China, Law Press, October 2019. The present text has been partially revised)