One Law Partners, LLC successfully represented a trust company in a dispute concerning the direct payment of construction costs arising from a managed land trust project, securing a complete victory.

This decision is significant because it confirms that, even where a direct payment agreement exists, the contractual provisions governing the order of fund disbursement under the trust agreement operate as conditions precedent and take priority.

1. Case Overview

A subcontractor that had been engaged to perform elevator installation work for a logistics warehouse development project within an industrial complex sought payment of approximately KRW 40 million in outstanding construction costs from the trust company.

The subcontractor argued that, pursuant to a three-party direct payment agreement among the trust company, the contractor, and the subcontractor, it had a direct right to demand payment from the trust company.

The trust company, however, maintained that no payment obligation had arisen because the order of fund disbursement prescribed under the trust agreement had not yet been reached.

2. Key Issues

The central issue was whether the direct payment agreement executed among the trust company, the contractor, and the subcontractor took precedence over the provisions of the trust agreement governing the order of fund disbursement.

3. Legal Strategy

Attorneys Eun-young Jung and Jeong-min Ha of One Law Partners, LLC argued that the provisions governing the order of fund disbursement under the special terms of the trust agreement were not merely procedural payment provisions.

Instead, they contended that such provisions constituted conditions precedent, under which payment obligations with respect to lower-priority claims arise only after higher-priority obligations have been satisfied. The attorneys supported this position by relying on relevant Supreme Court precedents.

They further argued that, unless the subcontractor could establish that all higher-priority obligations had been fully satisfied, no payment obligation on the part of the trust company could arise.

The attorneys also acknowledged the existence of the direct payment agreement but emphasized that the agreement contained no express language excluding or overriding the provisions governing the order of fund disbursement under the trust agreement.

Accordingly, the direct payment agreement alone could not nullify the core provisions of the trust agreement.

4. Significance of the Decision

The court accepted all of the trust company's arguments.
The court held that the provisions governing the order of fund disbursement under the trust agreement constituted conditions precedent.

The court further found that, even in the context of a subcontractor's statutory direct payment claim under the Framework Act on the Construction Industry, the trust company could assert against the subcontractor the defense that the conditions for fund disbursement had not yet been satisfied.

Because the subcontractor failed to prove that the higher-priority obligations had been discharged, the court concluded that the trust company had no obligation to pay the construction costs to the subcontractor notwithstanding the existence of the direct payment agreement.

Accordingly, the court rejected all of the subcontractor's claims.