Construction Engineering Environmental Capital Law Review (Phase 10). Analysis of some legal issues in the confirmation and enforcement of the priority compensation right of construction project price.

[Abstract] Although the Contract Law and the judicial interpretation of the Supreme People's Court on the trial of construction contract disputes have made corresponding provisions on the priority compensation right of construction project price, there are still many disputes on the theory and practice of the priority compensation right of construction project price. Based on the case of the priority compensation right of construction project handled by the author, this paper summarizes and analyzes some outstanding problems in the confirmation and enforcement of the priority compensation right of construction project price, and puts forward the corresponding treatment opinions and suggestions.

 

[Key words] construction project price priority compensation right execution mortgage

 

The realization mode of the priority compensation right of the construction project price of the contractor of the construction project construction contract is the discount of the construction project or the priority compensation of the auction price, which is reflected in the priority subposition in the execution distribution. When the priority compensation right of the construction project price and the mortgage coexist, whether the priority compensation right of the construction project price can be confirmed through mediation or execution, how to confirm the priority compensation scope and the settlement subposition under different circumstances, combined with the author's handling of a construction contract dispute case for detailed analysis, a number of opinions, with a view to the construction project price priority compensation rights of the practical operation of the benefit.

 

1. brief

 

In its real estate development project, Company A contracts the main project of commercial housing to Company B for construction, the earthwork project of foundation pit to Company C for construction, the foundation pit support and dewatering project to Company D, and the road and pipe network project to Company E. After the start of the project, Company A's capital chain broke, resulting in the project can not continue to develop, creditors sued Company A, demanding payment for the project. At this time, the project content of Company B is a small part of the main project, and most of the construction content is enclosure, tower crane foundation, project gate, site hardening, car washing platform, road and other projects. Company B sued Company A for the recovery of the project funds and claimed the right of priority compensation for the construction price of the construction part. In the lawsuit, Company A and Company B reached a mediation agreement on the amount of the project payment, which determined the amount of the project payment, but the court did not agree to write the priority compensation right of the construction project price claimed by Company B into the mediation statement. After the case entered the enforcement procedure, Company B applied to the enforcement court to confirm that it enjoyed the right of priority compensation for the construction price, but the enforcement court did not agree to confirm, and Company B finally confirmed the right of priority compensation for the construction price through another lawsuit.

 

At the beginning of the project development, Company A mortgaged the right to use the project construction land to Company F and registered the mortgage. After the completion of a series of litigation procedures of Company B, the mortgage dispute between Company F and Company A has been carried out to the auction procedure. Company C, Company D, and Company E also confirmed their respective priority compensation rights for the construction project price, and Company B and several other companies have submitted applications to the enforcement court to participate in the distribution, claiming that they have the priority right to receive the construction project price for the auction price of the construction project. Because the auction evaluation value of the construction project of Company B in the execution court is lower than the amount of the main claim of the project confirmed by the litigation mediation, after the auction of the project land and the construction in progress of Company A as a whole, although the project claim of Company B is not fully paid off, a considerable part of its project claim is still given priority.

 

Analysis of some important issues in the confirmation and enforcement of the priority compensation right of 2. construction project price.

 

1, whether through mediation to confirm the construction project price priority compensation rights.

 

There are different views in practice on whether the right to priority compensation for the construction project price can be confirmed through mediation procedures.

 

The first view is that the right to priority compensation for the construction price cannot be determined by mediation. If the priority compensation right of the construction project price is confirmed by mediation, the scope of the priority compensation right of the construction project price is determined with great arbitrariness, there must be a game and compromise between the contractor and the contractor, and there may also be malicious collusion to damage the realization of the security right of other creditors.

 

The second point of view is that the reply letter of the Supreme People's Court ([2007] Zhihe Zi No. 11, hereinafter referred to as the reply letter) of the Request for Instructions on How to Apply the Legal Issues on the Priority of Compensation for Construction Projects Not Entitled in the Mediation Letter of the People's Court "states that" the priority of compensation for the construction project price is a legal creditor's right, which does not need to be specified in the mediation, nor can the right to priority compensation for the construction price be recognized in the mediation.

 

The third view is that the right of priority payment of the construction project price belongs to the legal priority, and in the case of the main claim of the project payment confirmed by the effective legal instrument, the court shall confirm the right of priority payment of the construction project price that meets the legal conditions in the mediation statement.

 

I agree with the third view. Article 9 of the Civil Procedure Law stipulates that "the people's court shall conduct mediation in civil cases on a voluntary and lawful basis", Article 96 stipulates that "mediation agreement must be reached on a voluntary basis and shall not be forced. The content of the mediation agreement shall not violate the provisions of the law", and Article 97 stipulates that "when a mediation agreement is reached, the people's court shall prepare a mediation letter. The mediation letter shall state the claim, the facts of the case and the result of the mediation". The claim for confirmation of the contractor's right of priority compensation for the construction price does not violate the provisions of the law and falls within the scope of mediation. The court's mediation of disputes between the parties is not just based on the mediation agreement of the parties. Article 12 of the "Opinions of the Supreme People's Court on the Coordinated Operation of the People's Court's Case Filing, Trial and Enforcement" stipulates that "the judicial department shall review both parties in civil mediation. The authenticity and legality of the intention, pay attention to the enforceability of the mediation statement", that is, the court has the power to examine the legality of the mediation agreement and the evidence of the contractor's claim of priority compensation for the construction price, and, according to the results of the examination, to state in the mediation letter whether the contractor enjoys the priority compensation for the construction price. Therefore, the confirmation of the right to priority compensation of the construction price that meets the statutory conditions through mediation does not violate the provisions of procedural law and substantive law.

 

The meaning expressed in the Reply is that, in the absence of a priority right to compensation for the construction price in the mediation letter, it does not affect the contractor's claim in the execution procedure. It cannot be understood that the mediation statement does not need or need to state that the right to priority compensation for the construction price or the right to priority compensation for the construction price cannot be confirmed through mediation. Mediation confirms that the contractor's right to priority compensation for the construction price will not affect the realization of the mortgage. In the dispute over the construction contract of the construction project, the mortgagee may act as a third party without independent claim in such litigation, and the trial work of the court mainly focuses on the validity and performance of the contract, and should not examine whether the project involved in the case is subject to the content of the mortgage on the construction in progress, and there is no need to examine it. Secondly, what affects the interests of the mortgagee is not only the priority of compensation for the construction project price, but also the amount of the main creditor's right of the project fund. There is no dispute in practice about the application of mediation to the main creditor's right of the project fund. Since the application of mediation to the confirmation of the main creditor's right of payment is confirmed, the application of confirmation of the priority of compensation for the construction project price should also be applied. Otherwise, the mediation procedure is no longer applicable to the construction contract disputes for the recovery of project funds, which obviously violates the provisions of the civil procedure law and the principle of voluntariness of the parties.

 

2. Can the third party apply for the revocation of the mediation letter confirming the priority compensation right of the construction project price?

 

The third paragraph of Article 56 of the Civil Procedure Law stipulates that if the third party specified in the first two paragraphs fails to participate in the lawsuit due to reasons that cannot be attributed to him, but there is evidence to prove that part or all of the contents of the legally effective judgment, ruling or mediation statement are wrong and damage his civil rights and interests, he can know or should know that his civil rights and interests have been damaged within six months from the date, file a lawsuit with the people's court that made the judgment, ruling or mediation statement. If the people's court, after hearing the claim, is established, it shall change or revoke the original judgment, ruling or mediation statement; if the claim is not established, the claim shall be rejected.

 

When the priority compensation right of the construction project price and the mortgage right point to the same subject matter, and the auction and discount price of the subject matter is not enough to pay off the project arrears and the main claim guaranteed by the mortgage right, the rights and interests of the mortgagee will inevitably be affected by the existence and scope of the priority compensation right of the construction project price.

 

The Supreme People's Court (2016) Supreme Law No. 193 ruling held that: "Because the priority between the right of priority compensation of the construction project price and the mortgage right is legal, once the priority compensation right of the construction project price is determined, it will of course take precedence over the mortgage right, so that the rights and interests of the mortgagee are legally affected. Therefore, the mortgagee has a legal interest in the litigation in which the creditor of the project and the debtor previously confirmed the right to priority compensation of the construction price, and belongs to the third party stipulated in Article 56 of the Civil Procedure Law. The mortgagee may bring a third-party revocation claim against the civil mediation between the contractor and the contractor concerning the realization of the right of priority compensation for the construction project price.

 

3. Whether the enforcement court in the enforcement procedure can directly determine the right of priority compensation for the construction price and enforce it.

 

The first view is that the right to priority compensation for the construction price is a substantive right, which needs to be confirmed through the trial procedure, and according to the principle of separation of trial and execution, the execution procedure is not responsible for the determination of substantive rights. If the right to priority compensation for the construction project price is not determined in the litigation proceedings or arbitration proceedings, the contractor's right to priority compensation for the construction project price cannot be determined in the execution procedure.

 

The second view is that the contractor may claim the right to priority compensation for the construction price in the execution procedure. According to the provisions of Article 807 of the Civil Code (Article 286 of the former Contract Law), the right of priority compensation for the construction project price is a legal right of the project contractor. As long as the project contractor puts forward the claim of priority compensation for the project funds, whether in the trial stage or the execution stage, the trial court or the execution court can make a determination according to law.

 

I agree with the second view. If the right to priority compensation for the construction price is not confirmed in the trial procedure, after entering the enforcement procedure, the contractor is still required to claim to the enforcement court in accordance with the principle of "no complaint.

 

(1) Article 1 of the Reply of the Supreme People's Court on the Priority of Compensation for Construction Project Prices (Fashi (2002] No. 16, hereinafter referred to as the "Reply") stipulates that the people's court shall, in hearing real estate dispute cases and handling enforcement cases, determine that the priority of compensation for construction projects is superior to mortgage rights and other creditor's rights in accordance with the provisions of Article 286 of the Contract Law. Therefore, the contractor's right to priority compensation for the construction price may be made as an express request in the application for execution procedure.

 

(2) The Third Intermediate People's Court of Chongqing Municipality held that the People's Court could determine whether the contractor enjoyed the priority right to compensation for the construction project price in the course of execution.

 

First of all, the determination of the priority of the construction project price in the implementation procedure is consistent with the nature of the right of priority compensation for the construction project price. The establishment of the system of priority compensation for the price of construction projects in China is to give the contractor who is in a weak position in the construction market institutional guarantee, and when the contractor fails to pay the price of the construction project in time, the contractor can request the construction project to be discounted or auctioned or sold, and can be paid first on the auction and sale price. Whether in trial, arbitration proceedings, or in enforcement proceedings, the competent authority should safeguard the contractor's right to priority compensation for the construction price.

 

The separation of trial and execution is relative, should not be completely opposed to the two, and the enforcement department also has the right to implement the ruling of the internal body, through the enforcement department of the contractor whether to enjoy the construction project price priority compensation rights to determine not only to achieve the maintenance of the contractor's legal rights, but also to reduce the burden of the parties. Therefore, the people's court's determination of whether the contractor has the right of priority compensation for the construction price in the enforcement procedure is consistent with the nature of the right.

 

Secondly, the determination of the priority of the construction project price in the implementation procedure is consistent with the legislative purpose of the priority compensation right of the construction project price. The legislative purpose of the priority compensation right of construction project price is compound, and the construction of the system of priority compensation right of construction project price is not only to protect the legitimate rights and interests of contractors, but also to safeguard the survival rights of workers, but also to objectively promote the standardized development of the construction industry. The "Approval" also clearly stipulates: "In hearing real estate dispute cases and handling enforcement cases, the people's court shall, in accordance with the provisions of Article 286 of the the People's Republic of China Contract Law, determine that the contractor's priority compensation right for construction projects is superior to mortgage rights and other claims." In the execution procedure, the people's court determines whether the contractor enjoys the right of priority compensation for the construction project price, which is consistent with the purpose of the construction project price priority compensation system.

 

Third, the determination of the priority of the construction price in the execution procedure is consistent with the exercise of the right of priority compensation for the construction price. "A legal right is a benefit recognized and guaranteed by law and available to the subject by a relatively free act or omission." The contractor shall actively claim the right of priority compensation for the construction project price, that is, to exercise it within the statutory time limit if the conditions for the exercise of the right are met. In litigation or arbitration proceedings, the contractor usually, when claiming the right to pay the price of the project in a specific amount, requires confirmation of its right to priority compensation for the auction and sale price of the project in question within the amount of the claim. However, in judicial practice, the contractor only requests to pay the project price, but does not request to confirm that it enjoys the right of priority compensation for the construction project price. Although the exercise of rights should be proactive, and the provisions on time limits in the Reply are also intended to encourage the contractor to exercise his rights in a timely manner, it is not appropriate to consider the contractor's failure to claim as a waiver of rights. The reason is that the contractor's waiver of the priority of the construction price should be done in a clear manner, and that a negative non-exercise should not be considered a positive waiver. The Reply clearly states: "The right of priority compensation for the price of the construction project is a legal priority and does not require the parties to express otherwise." Therefore, the contractor's waiver of the right to priority compensation for the construction price should be a clear waiver, which does not amount to a negative non-assertion.

 

Therefore, according to the provisions of the "Approval" and "Reply" of the right to priority compensation of the construction project price, the right to priority compensation of the construction project price is a legal priority, without the need for the parties to express otherwise, and the people's court has the right to determine the right to priority compensation of the construction project price in the execution procedure.

 

(4) The Supreme People's Court (2016) Supreme Fa Minshen Civil Ruling No. 1281 pointed out: According to the provisions of Article 286 of the Contract Law, the project contractor shall have the statutory priority of compensation for the project involved. If the people's court does not specify in the judgment or mediation statement that the construction project funds enjoy priority, it does not prevent the right holder from applying for the exercise of his right of priority compensation. Therefore, according to the view of the ruling, in the enforcement procedure, if the project contractor claims the priority of the project payment, the enforcement court shall, after review, confirm the right of priority compensation for the construction project that meets the statutory conditions.

 

4, the construction project price priority compensation right can separate litigation and judgment to confirm.

 

The right of priority compensation for the construction project price belongs to the legal priority, and in the project payment litigation, the contractor also claims the right of priority compensation for the construction project price, that is, the claim for the payment of the project and the confirmation of the priority compensation right of the construction project price. From the perspective of trial practice, countless cases have confirmed the contractor's priority right to compensation for construction projects while determining the amount of the project. That is, the right to receive priority compensation for the construction project price belongs to an independent right of claim, and if the contractor does not claim in the litigation of the project payment, a separate claim for confirmation may be filed.

 

The claim of the project price is the right basis of the priority compensation right of the construction project price, usually the amount of the project has been decided or confirmed by mediation, the court shall accept the claim for confirmation of the priority compensation right of the construction project price separately filed by the contractor, and make a judgment on whether the contractor enjoys the priority compensation right of the construction project price.

 

For the confirmation of the priority compensation right of the construction project price brought by the contractor according to the project payment creditor's rights agreement signed with the employer, because the project payment creditor's rights agreement between the employer and the contractor does not have the effect of enforcement, and the priority compensation right of the construction project price takes precedence over the mortgage in effect, the confirmation of the priority compensation right of the construction project price will affect the realization of a series of general creditors' mortgage rights, and even lead to the mortgage rights can not be realized, property suffered damage. In my opinion, the agreement on the claim of the project payment without judicial trial cannot be used as the basis for judicial confirmation of the right of priority compensation for the construction project price, and the people's court shall inform the contractor to file a claim for the payment of the project payment or at the same time to file a claim for the payment of the project payment and the confirmation of the right of priority compensation for the construction project price.

 

5. Whether the contractor of the construction project that is not suitable for auction or discount shall enjoy the right of priority compensation for the price of the construction project.

 

There is a view that: regardless of the nature of the construction project can be auctioned or discounted, the project contractor has the right to priority compensation of the construction project price, whether it can be auctioned or discounted, only the construction project price priority compensation right can be realized.

 

The author believes that the construction project price priority compensation right as a legal priority, should be strictly in accordance with the provisions of the law to be identified, in strict accordance with the literal interpretation of the construction project price priority compensation right of the legal provisions, can not be expanded or reduced. Article 807 of the Civil Code (formerly Article 286 of the Contract Law) stipulates: "If the contractor fails to pay the price as agreed, the contractor may urge the contractor to pay the price within a reasonable period of time. If the contractor fails to pay within the time limit, the contractor may agree with the contractor to discount the project or request the people's court to auction the project according to law, except that it is not appropriate to discount or auction the project according to the nature of the construction project. The price of the construction project is paid in priority to the price of the project at a discount or auction." It can be seen that, according to the nature of the project "not suitable for discount, auction" construction works, is the law clearly excluded from the contractor to enjoy the construction project price priority outside the scope of the project. For example, a national defense military project is a typical construction project that is "not suitable for discount or auction" according to its nature. If the effective judgment determines that the contractor has the priority right to receive compensation for the construction price of the national defense military project, but such a judgment is not enforceable at all, is this not a serious contradiction or paradox with the enforcement effect that the effective judgment should have?

 

Therefore, we believe that if the construction project is not suitable for discount or auction according to the nature of the construction project, the project contractor does not enjoy the priority of compensation for the construction project price; the problem to be solved in practice is that in specific cases, it should accurately distinguish whether the project involved in the case belongs to "according to the nature of the construction project." The Supreme People's Court also needs to make a unified specific standard for distinguishing and determining this.

 

6, the same construction project there is a mortgage, multiple engineering contractors construction project price priority compensation in the case of how to implement the priority.

 

When the priority compensation right of the construction project price and the land mortgage exist at the same time, the priority compensation right of the construction project price is less than the construction land use right occupied by the construction project; when the value of the building is realized, although the building and the construction land use right should be disposed of together according to the principle of "integrated disposition of premises", the value of the building and the construction land use right should be distinguished when they are disposed together, the right of priority compensation for the construction price has the effect of priority compensation only on the value part of the building. This has been the basic consensus of judicial theory and practice (see the Supreme People's Court, Civil Trial Guidance and Reference, 44 episodes, Law Press, 2011 edition, p. 208).

 

And Article 397 of the Civil Code stipulates: "Where a building is mortgaged, the right to use the land for construction within the area occupied by the building shall be mortgaged together. Where the right to use the land for construction is mortgaged together, the buildings on the land shall be mortgaged together. If the mortgagor fails to mortgage together in accordance with the provisions of the preceding paragraph, the unmortgaged property shall be deemed to be mortgaged together." As long as the land use right or one of the above-ground buildings is registered for mortgage, even if the other is not registered for mortgage, it is presumed according to law that the two are mortgaged together, and the mortgagee has the priority right of mortgage payment for both.

 

Article 17 of the Interpretation (II) of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Construction Contract Disputes (hereinafter referred to as "Construction Project Judicial Interpretation II") stipulates that the contractor who enters into a construction contract with the employer shall, in accordance with Article 286 of the Contract Law, request that the price of the construction project be paid at a discount to the project or the auction price in priority, the people's court shall support it. That is, the people's court that the contractor claims the right of priority compensation beyond the part of its construction will not support it.

 

(1) The price of the project auction or discount shall be used in full priority to reimburse the contractor for the construction of the project.

 

After the construction project and its occupied land are evaluated together for auction or discount, the transaction price of the project, except for the land transaction price, shall be used in full priority to repay the contractor's construction project price in accordance with the legal provisions of the construction project price priority compensation right.

 

(2) How to implement the treatment of multiple construction project price priority compensation rights in the same construction project.

 

The same construction project may have a foundation construction contract directly contracted by the contractor, a civil installation construction contract for the main project, a road and pipe network construction contract, and a project decoration contract. That is, there may be multiple contractors in the same project construction project priority compensation rights.

 

The view was expressed that in the same construction project, several contractors should have equal priority in the payment of the project price, and the contractors should be paid equally in proportion to the determined claims.

 

The author thinks that the above point of view is open to question. According to Article 807 of the Civil Code (formerly Article 286 of the Contract Law) and Article 17 of the Judicial Interpretation of Construction Projects II, each project contractor only has the priority to be paid for the discount or auction price of each construction project, and each contractor does not have the priority to be paid for the part of the construction project constructed by others. For the project that the employer has actually paid most of the project funds, the discount or auction price will give priority to the remaining project price after repaying the project arrears of the contractor who undertook this part of the project. The contractor who undertook other parts of the project does not enjoy the priority of compensation, and the mortgagee shall give priority to the compensation; if the contractors are equally compensated according to the determined proportion of creditor's rights, it will infringe on the interests of other priority holders such as the mortgagee and the interests of other ordinary creditor creditors, and if each contractor's project payment is paid in priority to the discount or auction price of the construction project, the outstanding part is converted into an ordinary claim, and after the other priority is paid, it participates in the distribution according to the proportion of the claim.

 

In practice, in order to protect the contractor's claims, when the execution court entrusts the evaluation institution to evaluate the construction project, it shall notify the contractor who has confirmed the right of priority compensation for the construction project price to jointly conduct a site survey and have the right to object to the evaluation report. In my opinion, the price of the construction project at a discount or auction is still essentially the property of the contractor, but the enforcement court forces the use of the discount or auction price to pay off the contractor's debts. The auction price shall be divided proportionally according to the evaluation value of the construction part of each contractor in the evaluation report. If the split discount or auction transaction price of the construction part is higher than the amount of the confirmed priority compensation right of the construction project price, the remaining part shall continue to be used as the property of the contractor to pay off the debt. If the divisional discount or auction transaction price of the contractor's construction part is lower than the confirmed amount of the priority compensation right, the discount or auction price of the construction part shall be used to pay off the project funds of each contractor, and the project creditor's rights of each contractor that have not been paid off, because the construction project has been completely discounted or auctioned, the contractor's remaining project creditor's rights have lost the material basis for continuing priority compensation, and have no priority compensation, and become general creditor's rights, creditors of general claims shall participate in the distribution in proportion to their outstanding claims.