Hello, this is Lawyer Park Jong-han from the Cheongchul Law Firm.
In the case of a civil law association, the liabilities of the association accrue to all members in joint ownership, and the association is responsible for its assets to its creditors, as well as being personally liable for each member's debts according to their share ratios.
In the case of a joint venture model, it has the nature of a civil law association. Therefore, the members of the joint venture model have joint liability for the performance of contractual obligations to the client.
However, it can be an issue whether the members' joint liability for the client is limited to the performance of the contract alone, or whether they would also bear joint liability for obligations related to the non-performance of the contract. In this regard, it is also necessary to examine what happens if a member of the joint venture has individually issued a defect repair guarantee insurance.
[Question]
Joint venture's joint liability for defect repair obligations and the relationship with guarantee insurance
[Answer]
A joint venture in a joint execution model has the nature of a civil law association, where the association's debts are the debts of the members, and unless there are special circumstances, the creditors can exercise their rights against each member according to their share ratio or uniformly. If the association's debts arise from acts that constitute commercial transactions for all members, it is reasonable to recognize the joint liability of the members in accordance with Article 57 (1) of the Commercial Act, such that if the members of the joint venture are merchants, their obligation to perform defect repairs under the construction contract to the client is a debt incurred by the commercial activities of all members, meaning that the members of the joint venture are jointly obligated to perform defect repairs to the client (refer to Supreme Court decision 2015. 3. 26. 2012Da25432).
If a member of the joint venture has individually entered into a defect repair guarantee insurance contract according to their share ratio, and the insured party, which is the client, demands defect repairs from the insurance contracting party, if the obligation is not performed within the performance period, then the insurance accident occurs and the insurance company is obliged to pay insurance money to the insured client.
Moreover, if a different member of the joint venture, bearing joint liability, discharges the main obligation of the insurance contracting party by exempting themselves, that member may exercise the right of indemnity against the share of the insurance contracting party, who is jointly liable with them, based on Article 425 (1) of the Civil Law. Guarantee insurance is formally an insurance contract for the non-performance of the insurance contracting party but substantively has the nature of a guarantee, and is intended to produce the effects of a guarantee contract. Therefore, not only the provisions of the guarantee in the Civil Law apply, but also, within the scope of the right of indemnity, the rights pertaining to the creditor's security that automatically transfers to the payer include various forms of security like pledges, mortgages, and rights against guarantors, as well as rights that a creditor has based on special agreements to secure the performance of obligations between the creditor and debtor. Thus, a different member who performed an exempting action is able to exercise the claim for insurance reimbursement based on the defect repair guarantee insurance contract against the insurance contracting party demanding defect repairs, in accordance with Article 481 of the Civil Law, within the scope of their right of indemnity (refer to Supreme Court decision 2015. 3. 26. 2012Da25432).
Thus, if, in a joint execution model joint venture, the members are merchants, they will bear joint responsibility for the duties regarding defect repairs to the client in accordance with commercial law regulations.
If some of the joint venture members perform the repair and consequently exempt the other member from that responsibility, the member who performed the repair can seek indemnity from the other member for their share of the burden. If a different member who has not performed the repair has entered into a defect repair guarantee contract with a guarantee insurance company according to their individual share ratio, the member who performed the repair can claim insurance reimbursement from the client in place of the other member within the scope of their right of indemnity.
Thus, we briefly examined the joint liability regarding the defect repair obligations of the joint venture and the relationship with guarantee insurance. In disputes related to national contracts and public procurement, the relevant laws are very complex and frequently revised, hence knowledge and experience in these areas are essential. It is important to be well-versed not only in court rulings but also in interpretations and rulings by administrative agencies. Therefore, it is recommended to seek the assistance of Lawyer Park Jong-han, who possesses expertise in the national contract regulations and extensive experience in dispute resolution related to various national contracts and procurement.
Cheongchul Law Firm consists exclusively of lawyers from the top five large law firms in Korea—Kim & Chang, Gwangjang, Taepyeongyang, Sejong, and Yulchon—as well as from the legal teams of large corporations, and cases are handled by a team of specialized lawyers rather than by a single lawyer. Cheongchul provides comprehensive solutions for the overall business rather than just solving specific issues, focusing on achieving ultimately what the client desires through legal consulting. If you need assistance in achieving your goals, please do not hesitate to contact Cheongchul.
