Classic case

In 2021, I acted as an agent for a major construction project contract dispute case, which belonged to Shanshui Wenyuanzi Company. The involved amount was over ten million yuan, involving multiple legal entities such as the employer, contractor, actual construction party, creditor's rights transferor, and transferee. The legal relationships were complex and involved multiple legal relationships such as construction project contracts, creditor's rights transfers, and contract termination. Under the leadership of Director Liu Gangming, Beijing Rainbow Law Firm has appointed young and talented lawyer Zhang Wangwang as the plaintiff's litigation representative, and the core legal team of Rainbow has undertaken the case. Through the unremitting efforts and careful judgment of the Rainbow legal team, as well as the verbal battles and arguments of Lawyer Zhang Wangwang in court, the plaintiff's legitimate rights and interests were finally won, and a classic case with profound significance on the path of rule of law was created.

01

Case Review

In June 2012, the subsidiary of Shanshui Wenyuan Kaiya Real Estate Development Co., Ltd. (hereinafter referred to as Shanshui Wenyuan Company) contracted the construction project of Shanshui Square to the construction unit, and my client was the actual construction worker. Later, all construction projects were accepted and delivered for use. The contracting party was unable to pay for the project, so they signed a debt to equity agreement with the contractor. The contractor also signed a debt transfer agreement with the client, transferring all debts owed to the contracting party to the client free of charge. The client found that the subject property in the debt to equity agreement has not been registered for property rights and has been sealed or mortgaged by the court. The entrusting party believes that the mortgage agreement cannot be actually fulfilled, and therefore requests the people's court to order the termination of the mortgage agreement. The contracting party shall pay the entrusting party the outstanding project payment of 13136622.82 yuan and the estimated settlement payment of 5492827.8 yuan.

key word

Construction project contract, debt offset, debt transfer, contract termination

02

Case analysis

This case belongs to a construction project contract dispute. Shanshui Wenyuanzi Company is the contracting party, the construction unit is the contractor, and my client is the actual constructor. The focus of the dispute in this case is:

① Can the plaintiff terminate the agreement of using the house as collateral. Since 2020, more than two years have passed since the signing of the debt to equity agreement. After investigation by the court, it was found that the subject property of the contract, the house, has not obtained property registration, and the property developer has not processed the purchase procedures for the contractor. The court has reason to believe that the contract cannot be fulfilled and the purpose of the contract cannot be achieved. According to Article 563 of the Civil Code, if one party delays the performance of its obligations or commits other breaches of contract, resulting in the inability to achieve the purpose of the contract, the party may terminate the contract. Therefore, the agreement to use a house as collateral for debt should be terminated. However, the mortgage agreement stipulates that the creditor's rights cannot be transferred without the written consent of Shanshui Wenyuanzi Company. As a result, the principal cannot acquire the creditor's rights under the mortgage agreement, and cannot become a party to the mortgage agreement, thus unable to terminate the contract. In this case, although the principal was unable to terminate the agreement of using the house as collateral, the construction unit of the contracting party participated in the lawsuit as an independent third party with the right to claim, and the demand to terminate the contract was supported by the court.

② As the actual constructor of the construction project, the principal has a affiliation with the contractor. The defendant argued in their defense that the construction contract signed through the affiliation is invalid. Does the principal have the right to demand payment of the project funds from the contracting party? According to Article 44 of the Interpretation of the Supreme People's Court on the Application of Law in the Trial of Construction Contract Disputes (I), if the actual construction party initiates a subrogation lawsuit based on Article 535 of the Civil Code, claiming that the subcontractor or illegal subcontractor has failed to exercise the due creditor's rights or related subordinate rights against the employer, which affects the realization of the due creditor's rights, the people's court shall support it.

03

Significance of the case

In construction projects, when the contracting party is unable to pay the project funds, they often sign a debt to equity agreement with the contractor. After the signing of the agreement on using the house as collateral for debt, the contractor has two options for claiming compensation: ① to fulfill the obligations stipulated in the agreement; ② Terminate the debt to equity agreement and require the contracting party to pay the project funds. It can be seen that no matter which path the contractor chooses, they cannot avoid the agreement of using the house as collateral. The particularity of this case lies in the fact that the agreement of using the house as collateral for debt has fallen into a situation where it cannot be fulfilled, and the principal, as the actual construction party, cannot acquire the creditor's rights of the agreement and cannot terminate the contract. But my lawyer, Zhang Wangwang, took a different approach by adding the contracting party as a third party to the debt settlement agreement contract, allowing them to exercise the right to terminate the contract. After the contract was terminated, the principal exercised the right of subrogation to recover from the contracting party, successfully recovering tens of millions of project funds. Since the day I signed the agency agreement with the plaintiff, the Rainbow legal team has embarked on the path of upholding fairness and justice in the rule of law. They have conducted multiple field investigations and evidence collection, carefully analyzed and studied the evidence materials collected from all parties, and researched a large number of judicial cases and laws and regulations. Sort out the context of the case and strengthen its logical connection. The case is complex and underwent multiple rounds of evidence exchange and pre-trial meetings before the court hearing. In the trial, Lawyer Zhang Wangwang also argued with reason, engaged in verbal battles with scholars, presented his viewpoints clearly, and accurately grasped the legal principles. After several rounds of intense debate, he ultimately won the lawsuit, defending the legitimate rights and interests of the plaintiff and upholding the dignity of the law! This case also reflects the professional philosophy of Rainbow Law Firm of "diligence and responsibility, striving for excellence" and the social responsibility of "caring for the world and shouldering a mission". On the path of pursuing fairness and justice in the rule of law, we promise to always adhere to professional ethics, serve every client with a very dedicated spirit, help every client defend their legitimate rights and interests, and promote the realization of fairness and justice in every judicial case!