Lou Jianbo

Professor, School of Law, Peking University

　　Based on publicly available cases, courts at all levels, when adjudicating disputes over the assignment of construction‑payment claims, primarily focus on two issues: first, whether notice of the assignment has been duly served on the debtor (the project owner). Where such notice has been received by the debtor and the assignment reflects the genuine intent of both parties and does not contravene any statutory prohibitions, courts generally deem the assignment valid. Second, whether the construction‑payment claim has been definitively determined. Most courts hold that, so long as the claim has arisen, any uncertainty regarding its precise amount does not preclude the assignment of the claim. In short, judicial practice broadly recognizes the validity of assignments of construction‑payment claims.

　　According to Article 547, Paragraph 1 of the Civil Code, “When a creditor assigns its claim, the assignee acquires the accessory rights related to the claim, unless such accessory rights are exclusively personal to the creditor.” The view that the assignee of a claim does not enjoy priority in repayment by virtue of acquiring the claim typically argues that the primary purpose of priority is to protect the interests of construction workers, including migrant laborers—namely, their right to remuneration from the contractor. Once the claim for payment of construction costs is assigned, the underlying policy objective of the system is no longer served, and it would be inappropriate to grant the new creditor priority. In essence, this position treats priority as a right that belongs exclusively to the contractor.

　　Based on the cases retrieved, most courts hold that the assignee of a construction‑payment claim may exercise priority rights. Judgments rejecting the assignee’s priority rights generally contend that such rights are exclusive to the contractor who has entered into a contract with the project owner, thereby rendering them personal in nature. It should be noted, however, that in some decisions, the courts did not categorically deny the transferability of priority rights; rather, when the assignee of the construction‑payment claim is the actual investor or the actual contractor of the project in question, the court ruled that, owing to their special status, the assignee cannot acquire priority rights concurrently with the assignment of the claim.

　　It cannot be denied that, while the priority right safeguards the interests of contractors, it also protects the rights and interests of construction workers; however, this does not justify rejecting the priority right of an assignee of a construction‑payment claim. Specifically: First, according to regulations issued by the relevant administrative authorities under the State Council, the scope of the priority right to payment for construction projects encompasses, in addition to labor costs (including construction workers’ wages), material costs, equipment‑use fees, enterprise management expenses, profits, statutory charges, and taxes. This means that the construction‑payment claim, as a whole, is not limited to construction workers’ remuneration; accordingly, the “personal dependency” of construction workers’ wage claims does not determine the personal dependency of the construction‑payment claim and its accessory rights. Second, even if protecting construction workers’ interests were the sole purpose of the regime, so long as the contractor obtains appropriate consideration through the assignment of the construction‑payment claim, the workers would not be placed in a less favorable position than before the assignment. More importantly, allowing the assignee to acquire the priority right often encourages the assignee to pay a higher price, thereby strengthening the contractor’s ability to remunerate construction workers. Third, prohibiting the transfer of the priority right together with the construction‑payment claim could not only restrict the circulation of the contractor’s principal claim but might also render the priority right ineffective or even extinguish it—since the contractor, having assigned the principal claim, would lose the basis for preferential satisfaction, while the assignee would be unable to exercise the priority right. Indeed, both the Maritime Law and the Civil Aviation Law expressly provide that the priority right in respect of ships (or civil aircraft) is transferred along with the assignment of the underlying claim entitled to such priority. Fourth, if the sole aim of the priority right were to protect construction workers’ interests, then, as construction workers’ wages are paid and related systems for safeguarding their rights are improved—such as the Regulations on Ensuring Payment of Rural Migrant Workers’ Wages—the very justification for the priority right could cease to exist. This point was already raised during the drafting of the Civil Code.

　　More importantly, from the perspective of legislative intent, the view that, on the ground of protecting construction workers’ interests through priority rights, such rights may be exercised only by the contractor is unlikely to hold. First, according to the explanatory notes prepared by the Legislative Affairs Commission of the Standing Committee of the National People’s Congress—either directly or by its staff involved in the legislative process—the primary purpose of the priority right stipulated in Article 807 of the Civil Code is to safeguard the interests of contractors. For example, in the “Interpretation of the Civil Code of the People’s Republic of China,” authored by personnel from the Civil Law Division of the Legislative Affairs Commission of the Standing Committee of the National People’s Congress who participated in the legislative work, after discussing the legislative rationale for the priority right and the adverse consequences of unpaid construction payments, the text underscores the importance of effectively addressing the issue of wage arrears and ensuring the realization of claims for construction payments. Second, the “Understanding and Application of the Contract Section of the Civil Code of the People’s Republic of China,” edited by the Leading Group for the Implementation of the Civil Code of the Supreme People’s Court, while emphasizing that the purpose of the priority right is to give “priority protection to the wage rights of migrant workers and other construction laborers,” explicitly states that this protection “is mediated by the safeguarding of the contractor’s claim to payment for construction works.” Finally, Article 42 of the “Interpretation of the Supreme People’s Court on Several Legal Issues Concerning the Trial of Disputes over Construction Project Contracts (I)” permits the employer and the contractor, provided that the interests of construction workers are not prejudiced, to agree to waive or restrict the exercise of the priority right; by analogy, where the interests of construction workers are not harmed, the priority right may also be assigned.

After extensive deliberation, courts at all levels have developed a systematic adjudicatory framework for resolving disputes over the assignment of priority rights: first, they assess the validity of the agreement transferring the construction‑payment claim; next, they determine whether the priority right is transferred together with that claim; then, they ascertain the specific amount of the claim involved in the assignment agreement; and finally, they examine whether the exercise of the priority right complies with the applicable requirements.

　　From the perspective of practical outcomes, this adjudicative logic effectively resolves disputes while balancing efficiency and fairness—determining whether to proceed to the next stage based on the conclusion reached in the preceding step—thereby reducing litigation costs for the parties and preventing the wasteful use of judicial resources.

　　However, this judicial reasoning still has room for improvement: first, in reviewing substantive issues, many judgments devote considerable space to arguing the transferability of priority rights, thereby addressing the parties’ contention that such rights are exclusive to the contractor and cannot be transferred along with the assignment of claims for construction payments; second, procedurally, most cases fail to afford migrant workers and other construction laborers the opportunity to participate in litigation and assert their own rights.

　　From the perspective of resolving disputes and ensuring legal certainty, courts must address the claims advanced by the parties in the course of adjudication. To prevent parties from making futile assertions regarding the exclusivity of priority rights, legislation or judicial interpretations should promptly clarify the transferability of such rights. In this regard, among the options set forth in Article 20 of the “Interpretation (II) of the Supreme People’s Court on Several Legal Issues Concerning the Adjudication of Disputes over Construction Project Contracting” (Draft for Comments), the correct answer should be Option One, which adopts a positive stance.

　　With the improvement of relevant legal frameworks, the interests of migrant workers and other construction laborers—particularly their right to claim wages—are now afforded relatively robust protection. Nevertheless, the contractor’s priority right, as a procedural mechanism, remains of significant importance. In cases where priority rights are transferred through the assignment of claims for construction payments, if the contractor assigns such claims gratuitously or at an unreasonably low price, creditors—including construction workers—may invoke the creditor‑revocation provisions set forth in Articles 538 to 540 of the Civil Code. Moreover, if the contractor colludes with a creditor to improperly impair the legitimate rights and interests of third parties—such as those holding claims for wages—by fragmenting the construction‑payment claim and effecting payment in kind, the injured third party may, upon raising an objection, seek a declaration under Article 154 of the Civil Code that the agreement for payment in kind is void. From the perspective of reducing litigation burdens and conserving judicial resources, where disputes over the transfer of priority rights involve harm to the interests of migrant workers and other construction laborers, courts should permit these workers to participate in the proceedings as third parties.

Quan Yiying

Presiding Judge of the Third Civil Division of the Beijing No. 3 Intermediate People’s Court, Second-Level Senior Judge

　　The affirmative and the limited‑transfer theories, based on the statutory priority nature of the right and the absence of an explicit legal prohibition on its transfer, contend that the priority right to payment for construction project costs is not inherently personal. By contrast, the limited‑transfer theory holds that only those who have actually contributed the production factors—such as labor, materials, and machinery—to complete the construction and generate added value should be permitted to acquire this right. The negative view, by emphasizing the legislative intent to protect construction workers’ labor claims, argues that the right is personally dependent; allowing its transfer in conjunction with other rights would undermine the very purpose of the regime, thereby effectively recognizing its personal character.

Current law does not provide a detailed definition of the criterion of personal exclusivity in the context of assignment of claims; however, a systematic interpretation may be drawn by reference to analogous normative principles. Article 34 of the “Interpretation of the Supreme People’s Court on Several Issues Concerning the General Provisions of the Contract Section of the Civil Code of the People’s Republic of China” adopts a “listing plus catch-all” approach to offer judicial guidance on the “exclusively belonging to the debtor himself/herself” category set forth in Article 535 of the Civil Code—rights that are excluded from the application of the creditor’s right of subrogation. The rights enumerated therein are generally linked to personal dependency, subsistence security, and public order and good morals. Both the assignment of claims and the exercise of subrogation are modes of transfer, sharing a common value rationale, and thus lend themselves to comparative analysis. An examination from three perspectives leads to the conclusion that this right does not possess personal exclusivity:

　　First, the object of this right is not subject to personal dependency. The physical object of the priority right to payment for construction project costs is the “construction project” itself, with the subject matter being the proceeds from the sale of that project—thus, it pertains to property interests. The funds invested in the construction work merely serve as the basis for the emergence of the claim for construction‑project payments; the right is attached to that claim rather than to the contractor, and therefore lacks the requisite element of personal dependency. Even after the assignment of the claim for construction‑project payments, its enforceability continues to depend on the valuation or auction of the “construction project,” and the evidence required—such as proof of the project’s compliance with quality standards—is based on objective facts, not on the contractor’s exclusive status. In light of the determination that the claim for construction‑project payments does not possess personal dependency, logical consistency should be maintained all the more rigorously.

　　Second, the public‑interest value of the legislation can be further realized through the ancillary transfer of the right. As the dissenting view points out, the legislative intent behind the priority right to payment for construction project costs is to ensure that construction workers receive their labor claims. This right is linked to the social public interest in safeguarding construction workers’ subsistence rights; however, its protection of those rights is indirect. Allowing ancillary transfer would enhance the right’s marketability and improve the efficiency of debt repayment, thereby better serving the goal of protecting construction workers’ subsistence interests.

　　Third, statutory rights should be governed by the principle that “anything not prohibited by law is permitted.” The priority right to payment for construction project costs differs from personal rights arising from special status or exclusive skills. As a statutory real security interest, in the absence of explicit prohibitive provisions, it should be subject to the general rules applicable to real security interests, and its legal effect as being transferable together with the claim for construction project payments should be recognized.

　　The limited‑transfer theory and the negation theory raise three main concerns: First, once a contractor assigns its claim to construction‑project payments, its economic interests have already been realized, so there is no need to preserve a right that serves to protect construction workers’ interests. Second, transferring such a right together with other claims may sever it from the actual employer, thereby weakening the obligation to pay workers’ wages and potentially triggering systemic wage arrears. Third, granting ordinary creditors priority status—without a public registration system—would increase transaction costs, give rise to moral hazards such as collusive misconduct, undermine the reasonable reliance of mortgagees, and jeopardize transactional security. Admittedly, these risks are objectively present; however, restricting or prohibiting the joint transfer of such rights is not a sound solution, as it would instead lead to the hollowing out of rights and the erosion of the institutional framework.

　　From a macro perspective of the construction market, the simultaneous transfer of rights and obligations can effectively unlock asset value. Cash‑flow constraints are a major challenge in the construction industry; if the priority right to payment for construction works cannot be transferred together with the underlying contract, the economic value of such claims diminishes, leaving contractors either forced to accept low‑price assignments or trapped in a deadlock over receivables—conditions that readily give rise to cascading payment defaults. Moreover, upon identifying risks in fund disbursements, contractors may adopt a passive approach to construction, exacerbating quality issues and undermining the healthy functioning of the construction market.

　　For construction workers, the assignment of claims in a bundled transfer helps ensure that they receive their wages promptly and in full. Following such an assignment, the liquidity and enforceability of construction‑project payment claims are strengthened, providing a more robust pool of funds to satisfy the labor‑related claims of downstream construction workers and fostering a virtuous cycle of tiered payment.

　　For the contractor, a bundled assignment is conducive to safeguarding the contractual relationship and accelerating the recovery of funds. By assigning the rights and obligations in a single transaction, the contractor can promptly extricate itself from creditor–debtor disputes with the employer, avoid acrimonious conflicts, alleviate pressure on its cash flow, and reduce litigation-related costs.

　　For other creditors, a joint assignment within the limits prescribed by law does not result in any substantial impairment of their rights. The information costs and risks arising from the absence of public notice have existed since the inception of such rights; moreover, the number of transfers or the identity of the parties involved in the priority right to payment for construction project costs do not affect the amount realized upon valuation or auction of the relevant construction project. Given that this right is legally entitled to priority over mortgage claims, its lawful transfer does not materially diminish the amount available to satisfy the mortgage.

　　For the contracting party, a joint transfer does not impose any additional burden. As for the compromise proposed by the limited‑transfer theory, even while rejecting the principle of personal exclusivity, it nonetheless upholds the causal chain linking direct construction inputs and seeks to attribute liability to a specific entity on that basis—yet this approach lacks both statutory authority and theoretical justification. Compared with deliberately restricting the transferee, uniformly applying the principle of privity of contract and concurrently refining the judicial review mechanism better serves the requirement of uniformity in legal application.

　　Recognition of a transfer made in conjunction with another does not amount to condoning the unregulated circulation of rights. To guard against risks such as abuse of rights, regulatory evasion, and fraudulent litigation, practice should adopt a “look-through” approach, conducting substantive review across four key dimensions—underlying claims, expressions of intent, exercise‑of‑rights deadlines, and statutory procedures—to delineate the lawful boundaries of rights transfers.

　　First, it is necessary to examine the authenticity and legality of the claim for construction project payments. The validity of the principal claim serves as the fundamental prerequisite for the transfer of accessory rights. Once such a transfer is permitted, the transferee’s claim enjoys priority in repayment; therefore, caution must be exercised to prevent the employer and contractor, or third parties, from abusing this rule through malicious collusion and the fabrication of fictitious claims, thereby harming the interests of mortgagees such as banks. During the review process, strict scrutiny should be applied to identify risks of fraudulent litigation, with particular attention paid to verifying whether the construction project has passed acceptance inspection, whether the settlement amount is clearly established, whether the claim amount is definite, and whether the underlying creditor‑debtor relationship is genuine.

　　Second, the authenticity of the expression of intent to “transfer” must be examined. Contractors and actual constructors may, by means of “transfers,” circumvent regulatory oversight on subcontracting, illegal sub‑contracting, and the use of borrowed qualifications. Moreover, contractors might engage in circular transfers of claims through a chain of subsidiaries and grand‑subsidiaries to evade qualification restrictions and other related issues. In conducting such review, the validity of the contract should serve as the foundational criterion, with a comprehensive assessment—taking into account the transaction context, the transfer consideration, the affiliative relationships among the parties, and the actual performance of the contract—to determine the true intentions of the parties.

　　Third, it is necessary to examine whether the timing of the transfer falls outside the statutory limitation period for exercising the priority right to payment of construction project costs. The statutory period for exercising this priority right is 18 months from the date on which the employer is required to pay the project price. This period is a prescriptive period; it is neither suspended nor interrupted, and upon its expiration, the right is permanently extinguished. A transfer of rights merely results in a change of the entitled party and does not alter the starting point or the duration of the period. In practice, there is ongoing dispute regarding the interpretation of “the date on which the employer is required to pay the construction project price”; such determination should be made on a case-by-case basis, with strict differentiation between the date of final settlement upon completion of the works and the date when the payment becomes due. Moreover, measures should be taken to curb practices by the parties that seek to extend the exercise period de facto through methods such as delaying settlement or backdating supplementary agreements.

　　Fourth, the legality of the procedures for exercising the priority right to payment for construction project costs must be reviewed. Upon acquiring such a priority right, the assignee shall fully assume the original contractor’s obligations and procedural requirements in exercising that right. In practice, there are disputes regarding the statutory procedural requirements. In this regard, overly stringent standards should be avoided; the focus should be on whether the duty to issue a formal notice was fulfilled promptly and whether, following such notice, the priority right was timely asserted through litigation or arbitration. If the right is negligently left unexercised until the statutory time limit expires, and the employer raises this as a defense, the assignee’s claim to priority will not be upheld.