Hello, I am Attorney Baek Gi-hyung from Cheongchul Law Firm.

According to the Basic Construction Industry Act, construction businesses can only operate if they are registered, and the client or contractor is required to award contracts or subcontracts only to construction businesses that are registered in the relevant field corresponding to the construction details.

For this reason, so-called unlicensed construction contractors who have not registered often borrow the name of registered construction contractors to enter into construction contracts.

The Basic Construction Industry Act imposes criminal penalties on those involved in name lending in the construction industry and states that the registration may be revoked or operations may be suspended.

Then, in cases of name lending in the construction industry, besides criminal punishment or administrative sanctions, how is the legal relationship of the actual parties to the contract determined?

①     Who among the name lender (the lender of the name) and the actual constructor (the borrower of the name) is the party to the contract? ② What responsibilities do the lender and borrower of the name bear? ③ Is the validity of the construction contract concluded through the lending of the name valid? ④ What is the validity of the name lending contract in the construction industry, and are agreements for the payment of lending fees or introduction commissions valid? ⑤ If a name transfer contract in the construction industry is made as a means of name lending, does this constitute illegal compensation for the construction industry license, and should agreements for return also be deemed invalid? There are various issues to consider.

In today’s posting, I will first look into ① 'Who is the party to the contract in name lending in the construction industry?'

[Question]

In cases of name lending in the construction industry, who among the lender and borrower of the name is the party to the contract?

[Answer]

The Supreme Court stated, “When an actor engages in a legal act in the name of another person, regarding who shall be regarded as the party to the contract between the actor or the name holder, if the intentions of the actor and the opponent agree, the actor or the name holder must be confirmed as the party to the contract according to that agreement, and if the intentions do not align, the parties should determine who should be understood as the party to the contract based on the specific circumstances before and after the conclusion of the contract”, suggesting that who the party to the contract is may vary depending on the case, along with certain criteria for judgment (Supreme Court Decision 2007. 9. 6. 2007Da31990).

Particularly, in cases where criminal penalties due to name lending in the construction industry were in question, the Supreme Court interpreted that “the act of allowing others to use one’s name or trade name to carry out construction work is interpreted as being consented to use one's name or trade name for that purpose while knowing that another person will impersonate a qualified construction contractor” and, thus, “even if a construction project subcontracted in the name of a construction contractor is largely undertaken by another person (hereinafter referred to as the ‘constructor’), if that construction contractor has a real intent to engage in that construction work and has been substantially involved in that construction process, it cannot be regarded as name lending.” This ruling strictly recognizes name lending (Supreme Court Decision 2003. 5. 13. 2002Do7425, Supreme Court Decision 2007. 5. 11. 2005Do6668).

In summary, if both the ordering party (the contractor) and the supplier are not aware of the fact that name lending is taking place, it can be significantly likely that the lender of the name will be deemed as the party to the contract.

Attorney Baek Gi-hyung works at the Ministry of National Defense and in the construction/real estate team of a large law firm. He provides legal advice on large-scale construction projects, national defense facility projects, SOC construction projects, as well as all processes related to government contracts and construction projects, and possesses extensive experience and skills in resolving related litigations, so please feel free to contact him if you need assistance related to government construction projects, private construction projects, public procurement contracts, state property, local property, and public property.

Cheongchul Law Firm is composed solely of attorneys from Korea’s top four law firms: Kim & Chang, Gwangjang, Taepyeongyang, and Sejong, and we form a team of specialized attorneys related to a case rather than a single attorney. Cheongchul provides comprehensive solutions that go beyond solving specific issues, focusing on ultimately achieving what the client desires in legal consulting. If you need assistance in achieving your goals, please do not hesitate to contact Cheongchul.