Through the consultation procedure for unifying divergent legal opinions, the Taiwan Supreme Court clarified the scope of a contractor’s right under Article 513 of the Civil Code to request registration of a mortgage securing unpaid construction fees (Supreme Court Civil Judgment No. 1418 of 2024). 

The Supreme Court’s Grand Chamber consultation procedure refers to a mechanism whereby, if a panel of the Supreme Court (the “consulting panel”), in hearing an individual case, reaches through deliberation a legal opinion serving as the basis for its judgment that is inconsistent with the Supreme Court’s prior rulings, the panel must first consult the Supreme Court’s other panels on that legal issue. If the other panels adopt the view and the panels’ opinions converge, the consulting panel may directly apply that legal opinion in its judgment on the case before it, and must explain in that judgment the process and conclusion of the consultation procedure, thereby notifying the public that the Supreme Court’s prior precedent has been changed through the consultation procedure. 

The case concerned the construction of a factory. After completion of the building and its initial ownership registration in the project owner’s name, the contractor sought to register a mortgage over the building to secure unpaid construction fees. The owner objected, arguing that certain work remained incomplete and that amounts for defects, defective workmanship, delay, and contractual penalties should be deducted from the outstanding fees, leaving no outstanding debt to secure with a mortgage. 

The Supreme Court held that, when reviewing a contractor’s request for mortgage registration under Article 513, the court must determine whether a valid construction contract exists. The secured amount is limited to the agreed remuneration determined when the contract was concluded or remaining unpaid when registration is requested. However, disputes concerning deductions for defects, repair costs, defective workmanship, delays, or contractual penalties relate to the actual amount ultimately payable and need not be examined in proceedings concerning the mortgage registration. 

This decision facilitates contractors’ prompt registration of security and preservation of their priority for repayment. Companies investing in the construction of factories, offices, or other facilities in Taiwan should note that disputes over defects, delays, or contractual penalties may not, by themselves, prevent a contractor from registering a mortgage. Construction contracts should therefore carefully address acceptance procedures, payment terms, liability for breach, and security rights.