Weekly Case丨The actual contractor reached an oral agreement with the client and then subcontracted to a third party with qualifications. The actual contractor can directly claim payment from the client.

Lawyer Zhao Qianlong is a member of the Party branch committee of Zhejiang Hangtianxin Law Firm and concurrently serves as the director of the Real Estate Business Department. During his practice, he has handled numerous large-scale and complicated cases related to construction and real estate, demonstrating a high level of professionalism in this field. In addition, Lawyer Zhao Qianlong also possesses extensive experience in company law cases, other civil and commercial cases, and criminal cases, and serves as a legal consultant to many large and medium-sized enterprises.

Contact Information: Mobile: 18367197900 Email: zhaoqianlong@htxls.com

If the actual contractor reaches an oral agreement with the client and then subcontracts to a qualified third party, the actual contractor can directly claim payment from the client.

Case Summary

Lu Moumou and a certain mountain resort in Xintai City orally agreed on the decoration and renovation project of the resort, with Lu Moumou undertaking the construction. Lu Moumou borrowed the qualifications of a Zhejiang decoration company to sign a construction contract with the Xintai mountain resort. The project was completed by Lu Moumou, and the completion acceptance and put into use. However, the Xintai mountain resort still owes more than 10 million yuan in construction funds. Lu Moumou sued the court, requesting that the Zhejiang decoration company and the Xintai mountain resort directly pay the outstanding 10 million yuan plus construction funds.

Agency Strategy

    This case differs from typical cases where the actual contractor claims rights. According to the Supreme Court's judicial interpretation: "The client bears joint and several liability within the scope of unpaid engineering payment." Therefore, the actual contractor usually claims payment from the subcontractor while claiming joint and several liability from the client for unpaid amounts. This case has certain special circumstances. After reviewing relevant precedents and books of the Supreme Court, Lawyer Zhao Qianlong ultimately determined that the litigation strategy was for the plaintiff to claim joint payment of the construction funds from both the subcontractor, Zhejiang Decoration Company, and the client, Xintai Mountain Resort, rather than requiring the client, Xintai Mountain Resort, to bear joint and several liability within the unpaid amount.

   Judgment Result
 

The first-instance court supported Lu Moumou's claim and ordered the client, Xintai Mountain Resort, to pay Lu Moumou more than 10 million yuan in construction funds. Neither defendant appealed after the first-instance judgment.

Analysis
 

  Borrowing qualifications in construction projects is negatively evaluated in laws and regulations. The "People's Republic of China Construction Law" and the "Construction Engineering Quality Management Regulations" both clearly prohibit other units and individuals from borrowing the qualifications of qualified enterprises to undertake projects. There are generally two scenarios for the borrowing of qualifications by construction enterprises: First, the client is unaware that relevant units or individuals are borrowing the name of the construction unit to participate in bidding, contracting, and construction activities; Second, the client knowingly, permissively, or intentionally seeks to subcontract projects to unqualified units or individuals by borrowing the name of a construction unit. In the second scenario, there are two forms of legal relations; the construction project contract between the client and the contractor is invalid due to false intentions; the relationship between the contractor and the actual contractor regarding the borrowing of qualifications is also invalid because it violates mandatory regulations.

In this case, the construction contract between Xintai Mountain Resort and Zhejiang Decoration Company is invalid due to Lu Moumou's borrowing of qualifications, violating mandatory legal regulations. Lu Moumou does not have the relevant qualifications, and the internal subcontracting agreement between Lu Moumou and Zhejiang Decoration Company is also invalid. Article 269 of the Contract Law (the act occurred before the implementation of the Civil Code) stipulates that a construction project is a contract where the contractor undertakes construction and the client pays the price. Article 2 of the Judicial Interpretation of Construction Engineering Construction Contracts states that if a construction engineering construction contract is invalid, but the construction project has passed completion acceptance, and the contractor requests payment of the project price in accordance with the contract, it should be supported. In this case, Xintai Mountain Resort, as the project client, should directly bear the responsibility of paying the project price to Lu Moumou.

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