Case Interpretation | Legal Analysis of Subrogation Right Breaking the Privity of Contract in Construction Contract Disputes
Published:
2025-06-11
Recently, in a case where the appellant, Shandong Construction and Installation Group Co., Ltd., represented by the author, and the appellee, Gong Mouhai, were involved in a creditor's subrogation right dispute, Shandong Intermediate People's Court reversed the first-instance judgment: revoking the first-instance judgment and rejecting all the litigation requests of Gong Mouhai. This case is a typical example where Gong Mouhai subcontracted part of the labor from the actual contractor and carried out construction, and now claims subrogation rights as a creditor, requesting the project general contractor, Shandong Construction and Installation Group Co., Ltd., to pay him the project payment. The first-instance court supported all of Gong Mouhai's litigation requests, but the second-instance court revoked the original judgment and rejected all of his litigation requests on the grounds that "the breach of contract relativity is not established" and "the amount of the debt is not determined".
Introduction
Recently, the case of creditor's subrogation right between the appellant Shandong [a certain] Construction and Installation Group Co., Ltd., represented by the author, and the appellee Gong Mouhai, was heard by Shandong [a certain] Intermediate People's Court, and a revised judgment was obtained in the second instance: the first instance judgment was revoked and all claims of the first instance plaintiff Gong Mouhai were dismissed. This case is Gong Mouhai from actual contractor subcontracted part of the labor and construction, and now, as a creditor, claims subrogation right, suing the general contractor of the project, Shandong [a certain] Construction and Installation Group Co., Ltd., to pay the project sum. This is a typical case. The first instance court supported all of Gong Mouhai's claims, but the second instance court revoked the original judgment and dismissed all his claims on the grounds of "failure to break the privity of contract" and "undetermined debt amount".
The core points of contention similar to this case raise the following questions:
1. Whether the conditions for exercising subrogation right are met: whether the debtor's claim against the sub-debtor claim is clear and due;
2. Identity of the actual contractor and the breakthrough of privity of contract: Can an actual contractor who borrowed qualifications directly assert rights against the general contractor, breaking the privity of contract?
3. Conflict between assistance in execution procedures and subrogation litigation: Does a prior notice of assistance in execution affect the exercise of subrogation rights? The author will now analyze the above points of contention one by one.
I. Legal Connotation and Institutional Evolution of Creditor's Subrogation Right
Creditor's subrogation right refers to the right of a creditor to exercise the debtor's rights against a sub-debtor in their own name when the debtor is negligent in exercising their due claim against the sub-debtor, affecting the creditor's ability to realize their own claim. Articles 535 to 537 of China's "Civil Code" have made important innovations on the basis of inheriting the provisions of the original "Contract Law": first, the object of subrogation right has been expanded from "due claim" to "claim and ancillary rights related to that claim," including security interests, rights of rescission, etc.; second, it clarifies the direct repayment rule for the exercise of subrogation right, meaning the sub-debtor directly performs obligations to the creditor, breaking the traditional " "in-repository rule" " limitation.
The core value of this system lies in breaking the privity of contract, compensating for the undue reduction of the debtor's liable property through public relief, and balancing the protection of creditor's interests with transaction security. For example, in the field of construction engineering, actual contractors can use subrogation rights to break through contractual barriers of multi-layer subcontracts or illegal subcontracts and directly assert rights against the employer. However, it should be noted that subrogation rights are not infinitely expanded; their exercise must strictly comply with legal requirements and is subject to litigation procedures.
II. Statutory Constituent Elements of Creditor's Subrogation Right
According to Article 535 of the "Civil Code" and judicial practice, the establishment of subrogation right requires the satisfaction of the following elements:
1. The creditor has a legitimate and due claim against the debtor
The creditor's claim must be confirmed by an effective legal document (such as a judgment, arbitration award) or have a legitimate basis (such as a contract, unjust enrichment), and its performance period must have arrived. For example, in a certain judgment by the Shandong High People's Court, the court held that the creditor's claim for project funds confirmed by another judgment met the "legitimate and due" requirement, laying the foundation for the exercise of subrogation rights. If the claim is disputed or not yet due, the court will dismiss the subrogation claim.
2. The debtor has a due claim against the sub-debtor
This claim must be for property payment and not exclusively personal to the debtor (such as alimony, personal injury compensation claims, etc.). It is worth noting that the "Civil Code" abolished the requirement of "debtor's insolvency," only requiring "affecting the realization of the creditor's claim," which lowers the threshold for subrogation rights. For example, in case (2025)京民终456号案, where the sub-debtor and debtor did not sue due to a dispute over project fund settlement, the court held that the creditor could claim subrogation rights, and the claim amount was ultimately determined through judicial audit.
3. The debtor is negligent in exercising their rights
The debtor has not asserted rights against the sub-debtor through litigation or arbitration, and has no legitimate reason. For example, in case (2021)最高法民提 186 号案, where the debtor and sub-debtor signed an agreement to extend the repayment period by 8 years, it was deemed "negligent in exercising rights," and the creditor's subrogation right was established.
4. The claim is subrogable
The object of subrogation must be a right not exclusive to the debtor. For example, the priority right of payment for construction project costs is an ancillary right, which actual contractors can claim together through subrogation. However, an actual contractor who borrowed qualifications cannot directly assert rights against the general contractor, breaking 《民法典》第 535 条, due to lack of privity of contract.
III. Points of Contention and Adjudication Rules in Judicial Practice
1. Limitations on the Breakthrough of Privity of Contract for Actual Contractor's Subrogation Rights
In the field of construction engineering, the exercise of actual contractor's subrogation rights often faces disputes over privity of contract. According to 《最高人民法院关于审理建设工程施工合同纠纷案件适用法律问题的解释（一）》第 43 条, actual contractors can only break the privity of contract to assert rights against the employer, not the general contractor. For example, in case (2023)粤民终 789 号案, the court explicitly ruled that an actual contractor who borrowed qualifications has no right to directly sue the general contractor, and the exercise of their subrogation rights requires that the transferor or illegal subcontractor has a due claim against the employer.
2. Sub-claim Judicial Determination of Undetermined Claim Amount
Whether the sub-claim amount is determined is a common point of contention in subrogation disputes. The 《民法典》 does not list "clear claim" as a requirement for subrogation, but there are divergences in judicial practice:
Some courts require the sub-claim amount to be clarified through settlement or appraisal, otherwise, the subrogation request will be dismissed on the grounds of "claim not due." For example, in case (2022)浙民终 345 号案, because the debtor and sub-debtor had not completed the project fund settlement, the court ruled that the subrogation right was not established.
Most courts hold that the creditor only needs to initially prove the existence of the sub-debt, and the specific amount can be resolved in the lawsuit through judicial appraisal or allocation of the burden of proof. For example, in case (2025) Lu 15 Minchu 1877, the court, based on the difference between the amount paid by the principal and the amount received by the contractor, combined with the rules of burden of proof, presumed the amount of the sub-debt to be established. In case (2020) Supreme People's Court Min Zai 231, the Supreme People's Court emphasized that requiring the sub-debt to be absolutely certain would lead to the failure of the subrogation right system; the creditor only needs to prove the existence of the sub-debt and that the debtor is neglecting to claim it.
3. Conflict Coordination between Assistance in Enforcement Procedures and Subrogation Lawsuits
Judicial practice has different views on whether prior assistance in enforcement procedures affects the exercise of subrogation rights:
Some courts believe that the sub-debtor should prioritize the obligation to assist in enforcement, and the subrogation lawsuit should be suspended or dismissed. For example, in case (2024) Su Minzhong 567, the court denied the subrogation right on the grounds that "the debt has been frozen."
The mainstream view is that assistance in enforcement and subrogation lawsuits belong to different procedures. After the subrogation right is established, the sub-debtor still needs to perform its obligations to the creditor, but the execution order needs to be coordinated. For example, in case (2025) Lu Minzhong 987, the court allowed the creditor to claim rights through a subrogation lawsuit, but required that when enforcing, priority should be given to satisfying the claims determined in the assistance in enforcement notice. Article 537 of the Civil Code clearly states that if the creditor's rights of the sub-debtor are subject to preservation or enforcement measures, they shall be handled in accordance with relevant laws, providing a basis for parallel processing.
IV. Conclusion
The subrogation right system for creditors is an important legal tool for debt protection; its application requires balancing the protection of creditors' interests and the principle of contract relativity. In the judicial practice of construction disputes, it is necessary to further clarify the boundaries of the subrogation right of the actual constructor, the standard for determining the amount of the sub-debt, and the rules for coordinating procedural conflicts, and to promote the realization of the system's functions through refined adjudication. In the future, with the improvement of the supporting judicial interpretations of the Civil Code, the subrogation right system will play a greater role in resolving "triangle debts" and optimizing the business environment. When claiming subrogation rights, creditors should pay attention to evidence collection and procedural compliance, while sub-debtors should actively exercise their right of defense, jointly maintaining a fair and orderly market order.
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