I wrote my answer based on the case law (Japanese Supreme Court ruling of January 25, 1979) on "Construction by a third party on a building under construction and attribution of ownership" (Article 246 of the Japanese Civil Code)

This time, I will create a question and write an answer using the 100 Selected Civil Law Cases I General Principles Property Rights 9th Edition 68 "Construction by a Third Party on a Building in the Process and Attribution of Ownership" Supreme Court decision of January 25, 1979 as material.

The question is now a one-line question.

You will have to distinguish between the cases yourself and write your answer.

For more details on the case, click here → Civil Law Cases Blog "Construction by a Third Party on a Building in the Process and Attribution of Ownership"

The provisions in the answer are quoted below the answer.

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photo credit: Rosmarie Voegtli art and nature via photopin (license)

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Question

A Construction was contracted by the client A to build the building.

Furthermore, B subcontracted most of the work to A Construction and immediately began construction using his own materials.

However, all of the checks and promissory notes issued by A Construction to pay the subcontract fee were dishonored, and subcontractor B, who had no prospect of receiving payment, stopped construction midway.

Therefore, the client A terminated the contract with A Construction through negotiation and concluded a contract with C Construction for the continued construction. C Construction carried out the work using its own materials and completed the building.

Under these circumstances, B claimed ownership of the building and filed a lawsuit against A for the eviction of the building.

Can B's claim be accepted? Explain the grounds for this and consider whether the claim is accepted.

It is assumed that the above contract does not include any other agreement or special clause regarding the attribution of ownership of the completed building.

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Answer

1. B's request for eviction of the building against A is a real right claim based on the ownership of the building.

Does B have ownership of the completed building?

As a premise, the building and the land are separate and independent real estate (Civil Code Article 86), so the completed building is not attached to the land and absorbed into the land ownership.

In other words, the client A, who is the land provider, does not acquire the ownership of the completed building by attachment.

So, to whom does the ownership of the completed building belong?

First, in a contract for the completion of a building (Article 632), to whom does the ownership of the completed building belong, the client or the contractor?

2. Regarding the attribution of ownership of the completed building between the parties to a contract for the construction of a building

2.1 Since the two parties are in a contractual relationship, it will be decided by the interpretation of the contract, but I think that the ownership of the completed building originally belongs to the party who provided all or a major part of the materials. This is because it is fair and conforms to the reasonable will of the parties.

Case law also takes the same position.

2.2 However, under the principle of freedom of contract, the parties are free to make a separate agreement (special agreement) regarding the attribution of ownership, and it is valid, but in this case, the existence of a separate agreement (special agreement) is not recognized.

2.3 Therefore, in this case, where the contractor provides all of the materials, the ownership of the completed building originally belongs to the contractor.

2.4 And, we believe that the ownership is transferred to the client upon delivery of the building. This is because Article 637, paragraph 1, which stipulates that the duration of the contractor's warranty liability is one year "from the time of delivery of the subject matter," is interpreted as meaning that the ownership is transferred upon delivery. Also, it is consistent with the reasonable intention of the parties to interpret that the ownership is transferred to the client upon delivery (Article 633), which is simultaneous performance with the payment of the remuneration.

2.5 Thus, even if the ownership of the completed building originally belongs to the contractor between the parties to the contract, there are multiple contractors in this case. The first contractor is B, and the contractor that took over the construction is C. Each contractor provides their own materials, with contractor B working partway through the work, and contractor C taking over and completing the building.

In this case, who owns the completed building, BC?

3. Attribution of ownership of completed building between parties with no contractual relationship

3.1 Since there is no contractual relationship between B and C, and no agreement, attribution of ownership will be determined based on the attached provisions (Articles 242 and following).

Attachment is a system that recognizes ownership as a single object when two or more objects with different owners are combined to form a single object, on the grounds that it would be disadvantageous from a socio-economic point of view to separate and restore them. Any unfairness that arises will be resolved by a claim for compensation.

Which attached provisions apply depends on whether the building under construction by the first contractor B had come to be recognized as an independent real property, so we will consider the following scenarios separately.

3.2  If the building under construction by the first contractor B is already recognized as an independent property

3.2.1  As a premise, at what point is it recognized as an independent property?

Whether or not it is recognized as an independent property should be judged individually, taking into account the general trade practices, etc., depending on the type of building.

For residential buildings, if it has a roof and surrounding walls, it is considered to be an independent property even if it does not have a floor or ceiling. This is because if it is protected from rain and wind (insulated from the outside air), it can be recognized as existing as a single structure.

Case law also takes the same position.

3.2.2 Therefore, if the building already has a roof and surrounding walls at the stage of the first contractor B and is recognized as an independent property, it will be handled by applying Article 242, which is the provision on attachment of real property.

As a result, the first contractor B, who is the owner of the real property (the provider of materials), will acquire the ownership of the items (materials) attached by contractor C, who took over the construction (Article 242). This is because real property is usually far more valuable.

3.2.3 In this case, from the standpoint of fairness, contractor C, who has lost ownership of the materials, may claim compensation for his loss (Article 248).

3.2.4 And the ownership of the completed building, which originally belonged to the first contractor B, is transferred to the client A by the delivery of the building. As mentioned above.

3.2.5 In this case, the completed building has not been delivered from B to A. Therefore, the ownership of the completed building is still in B's possession, so B can demand the eviction of the building from A, who is occupying the building, as a real right claim based on ownership.

3.3 When the building under construction by the first contractor B has not yet been recognized as an independent real property

This is the case of so-called "premium" before it becomes an independent real property.

3.3.1 The legal nature of premium is movable property independent of the land.

Some people believe that the tenmae is absorbed (attached) to the land ownership, but rather than viewing the tenmae, which will eventually become an independent real estate, as absorbed into the land ownership, I think it is more natural to view it as belonging to the person who provided the materials, and that the provider of the materials is the owner of the tenmae. Case law also states that "the tenmae is movable property."

Therefore, in this case, where the first contractor B provides the materials for the tenmae, the first contractor is the owner of the tenmae.

3.3.2 In this case, another contractor C provides the materials himself and adds further construction to the tenmae, which is movable property owned by the first contractor B, to complete the building.

The provision on the attachment of movable property to movable property is Article 243.

However, in the construction of a building, it is not simply a case of attaching movable property to movable property, but rather the work done on the materials has special value, and the price of the completed building is significantly higher than the price of the raw materials.

If this is the case, I think it is appropriate to apply Article 246, which provides for processing (creating something new by working on someone else's movable property), rather than Article 243, which provides for the simple attachment of movable property to another.

Case law has also taken the same stance.

Therefore, in application of Article 246, if "the price of the materials provided by contractor C, who completed the work after the original work, plus the price of the work and materials provided by contractor B, exceeds the price of the original work and materials provided by contractor B," the ownership of the completed building will belong to contractor C, who completed the work after the original work.

3.3.3 In this case, from the perspective of fairness, contractor B, who lost the original ownership, may claim compensation for the loss (Article 248).

3.3.4 And the ownership of the completed building that originally belonged to contractor C will be transferred to customer A upon delivery of the building. As mentioned above.

3.3.5 In this case, B does not have ownership of the completed building, so B cannot demand the eviction of the building from A, who occupies the building, as a real right claim based on ownership.

End

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