Construction by a third party on a building under construction and attribution of ownership (Article 246 of the Japanese Civil Code) ~ Attribution of ownership in a building contract (Japan Supreme Court ruling of January 25, 1979)

Civil Law Cases 100 Selections I [9th Edition] No.68

Construction by a third party on a building in the middle of construction and attribution of ownership

(Supreme Court, January 25, 1979)

This time, we have a case on "Construction by a third party on a building in the middle of construction and attribution of ownership".

Specifically, "What happens to the attribution of ownership of a completed building between a subcontractor who stops construction midway and a client who has someone else complete it?"

That's the story.

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

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Land and buildings are separate and independent real estate

First, let's confirm the "principle" that will serve as the starting point for the discussion.

That is, the principle that "land and buildings are separate and independent real estate."

It may seem obvious, but...

"Land and buildings are separate and independent real estate."

What this means is that "buildings are not attached to the land."

From this principle, it follows that "the ownership of a newly constructed building is not acquired by the client, who is the land provider, through attachment."

So, to whom will the ownership of the newly constructed building belong?

1. Ownership of buildings between parties in a contract

First, in a contract for the completion of a building, who owns the completed building, the client or the contractor?

The rule for determining ownership of the finished product in a contract for work is the "material principle."

In other words, it is said that "ownership of the finished product originally belongs to the party who provided all or a major part of the materials."

"It belongs to the person who provided all the materials, right?"

For example,

In a contract for work, "the delivery and payment of the remuneration are in a relationship of simultaneous performance."

The delivery is received and the price is paid. At that time, ownership of the completed building is transferred to the client.

That's right, isn't it? Since the price has been paid, the ownership should be transferred. . "When will it be transferred?" you may wonder.

Case law also takes the same position. (Supreme Court decision of December 26, 1914, etc.)

The wording of Article 637, paragraph 1, "from the time the subject matter is delivered" is cited as the basis for this.

That is, the ownership is transferred to the client when the subject matter is delivered, right?

The ownership of the completed building is determined by the "material principle", but...

However, it is said that "if there is a different intention between the parties (special agreement or tacit agreement), that shall be followed."

That is free under the "principle of freedom of contract".

For example, if the contract price is paid in full before the building is completed, it is presumed that there is an implicit agreement between the parties that the ownership of the building will belong to the client upon completion of the work, unless there are special circumstances. There is such a precedent. (Supreme Court decision, March 5, 1971, etc.)

Going back to the "material principle,"

Precedents also take the same position. (Supreme Court decision, May 9, 1932, etc.)

This case is a normal case, that is, "when the contractor provides all the building materials and constructs the building," so the ownership of the completed building will originally belong to the contractor who provided the materials.

However, in this case, "multiple contractors appear."

The "first contractor" builds the building halfway, and then the "other contractor" takes over and completes the building. Each contractor provides their own materials.

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

There is no contractual relationship between the two. They are different contractors.

Then the question becomes, "How does the ownership of the building belong between parties who do not have a contractual relationship?"

2. Ownership of buildings between parties without a contractual relationship

In this case, since it cannot be determined by the interpretation of the contractual relationship, it will be handled by "application of the attached provisions of the Civil Code".

Let's look at it in two different situations.

Here, the words "unfinished building recognized as an independent real estate" and "kenmae" come up.

At what point is it recognized as an independent real estate? What is kenmae?

We looked at this in No. 11 Buildings under construction.

When a building under construction becomes real estate

So, specifically, when does it become real estate?

To summarize what this case law says step by step,

When it becomes possible to register it as a building under the Real Estate Registration Act, it can be said to have come into the category of real estate.

A completed building does not need to exist in order to be able to register.

Even if the building is under construction, it is sufficient if it has a roof and surrounding walls and exists as a structure fixed to the land. It does not need to have a floor or ceiling.

In other words, the court ruled that "if it has a roof and surrounding walls and exists as a structure fixed to the land," it can be considered an independent real estate.

What does "a roof and surrounding walls are enough, not a floor or ceiling" mean?

This is referred to as "being protected from the wind and rain" or "insulated from the elements."

However, it should be noted that this case law shows the standards for "residential buildings."

Some structures that can be registered as real estate include, for example, "wall-less multi-storey car parks and platforms," ​​so "insulation from the elements" such as "roof and surrounding walls" is not always a requirement for real estate.

In the end, it seems that the question of whether or not something is considered an independent real estate should be judged individually, taking into account the general business practices, etc., depending on the type of building.

When a building under construction is not an independent real estate

In this case, the legal nature of the building under construction (the so-called "tatemae") before it becomes an independent real estate is the issue.

It sounds difficult to say what the legal nature is, but in short, what is "tatemae"?

It is not real estate. So what is it? If it is not real estate, it is movable property, right? Yes, it is movable property. That's OK.

Some academic theories consider that "tatemae" is absorbed (attached) to land ownership.

However, rather than viewing it as being absorbed by land ownership, I think it is more natural to view it as "tatemae belongs to the person who provided the materials, and the provider of the materials is the owner of the tatemae."

This case also states that "tatemae is movable property."

With this as a premise, let's look at the two scenarios above.

This is the case when, at the stage of the "first contractor," "the building already had a roof and surrounding walls and existed as a structure fixed to the land."

In this case, the matter is handled by applying Article 242 of the Civil Code, which provides for the attachment of real property.

The first contractor, who is the owner of the real property, acquires ownership of the attached things (materials).

As a result, the contractor who later adds work to the building using his own materials and completes it will be able to claim compensation for the losses. (Article 248)

This is the so-called "tatemae" before it becomes an independent real property.

The legal nature of the "tatemae" was movable property.

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

However, in the case of a building construction contract, 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 increases considerably more than the price of the raw materials."

Therefore, it is considered appropriate to handle the case by applying Article 246, which is the provision on processing, rather than Article 243 of the Civil Code, which is the provision on simple attachment of movable property to movable property.

This case falls into this category.

In other words, the first contractor completed the work partway (prefabricated), and then another contractor took over, added the work, and completed the building, each providing their own materials.

Therefore, by applying Article 246, if "the price of the materials provided by the contractor who added the work later and completed the work, plus the price incurred by the work, exceeds the price of the work and materials originally proposed by the first contractor," the ownership of the building will belong to the contractor who added the work later and completed the work.

As a result, the first contractor will be required to claim compensation for the loss. (Article 248)

Now, "between two contractors," the ownership of the building belongs to the contractor who added the work later and completed the building.

And since the contractor is the one who provides all of the building materials, the ownership of the building will belong to the contractor who is the "material provider" even between the parties of the contract, that is, the relationship between the client and the contractor. And the ownership will be transferred to the client upon delivery. That was the usual case.

However, "if there is a different intention between the parties (special agreement or tacit agreement), it shall be followed."

This was a case where there was such a special expression of intent (special agreement).

In other words, there was a special agreement between the contractor, who was the fabricator, and the client, stating that "ownership of the building would belong to the client."

Therefore, in the end, this special agreement led to the conclusion that "ownership of the completed building would belong to the client."

We have seen the general flow of the argument above.

Now, let's take a look at the details of this case and the ruling.

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Case

A Construction was contracted by the client Y to build the building in question.

Furthermore, X was subcontracted by A Construction for most of the work, and immediately started the work, completing the ridge-raising and laying of the roof underlayment using materials procured by itself.

However, all of the checks and promissory notes issued by A Construction to pay the subcontractor's fees were dishonored, and subcontractor X, who had no prospect of receiving payment, stopped the work without laying the roof tiles or painting the rough walls.

Therefore, the client Y agreed to terminate the contract with A Construction through negotiation, and concluded a contract with B Construction for the continuation of the work. The contract included a special clause stating that "ownership of the building belongs to Y."

B Construction carried out the work using its own materials, thatched the roof, and painted the rough walls.

After that, a provisional disposition for the custody of the building was executed based on the application of X, who claimed ownership of the building.

After the provisional disposition was revoked, B Construction continued the work and completed the building.

Under these circumstances, X claimed ownership of the building and filed a lawsuit against Y, demanding that the building be vacated. As the reason for this, X argued that "if Article 243 of the Civil Code (attachment of movable property) is applied based on the point in time when the prefabricated building becomes an independent real estate, the ownership of the building will belong to X."

This is the case.

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Judgment

First, in regard to the handling of "when a construction part (prefabrication) that has not yet become an independent real estate is completed by another person using his own materials to complete the work," the judgment states that "the ownership should be determined by application of Article 246, paragraph 2, which is the provision on processing, not Article 243."

And in regard to "the point in time for price comparison when determining the attribution of ownership by application of Article 246, paragraph 2," the judgment states that "the comparison should be based on the state in which the work was completed by the time of the provisional disposition, not on the time when the requirements for an independent real estate were met."

It is said that if the provisional disposition had not been executed in this case, it would have been determined to be "at the time of completion."

If you want to evaluate the value of the work, it is natural to compare prices based on "at the time of completion."

As a result of the price comparison, "between the two contractors," the ownership was attributable to B Construction, the "processor" that added the work later to complete the building.

And in this case, there was a special agreement between the fabricator B Construction and the client Y that the ownership of the building would belong to Y. The judgment concluded that "due to this special agreement, the ownership of the building would ultimately belong to the client Y."

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Summary

If we only look at the issue of "a third party's work on a building under construction and the attribution of ownership," which is the theme of this case, it is simply "dealt with by applying Article 246, Paragraph 2 of the Civil Code, which is the provision on fabrication."

But as a prerequisite,

At what point does a building under construction become an independent real estate?

What is the legal nature of the so-called "tatemae"?

In the first place, does a building become attached to the land?

There was a discussion on such issues.

In addition,

"Is it the issue of the attribution of building ownership between a client and a contractor" ~ Materialism is the most suitable for special agreements

And

"Is it the issue of the attribution of building ownership between two contractors" ~ Article 242 of the Civil Code? Article 243? Article 246, paragraph 2?

That's a different issue.

If the facts are different, the way they are handled will be different, the applicable provisions will be different, and the conclusion will be different.

Where does this case fall?

Please check again.

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That's all for now.