Japanese Contract.docx

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Outline of Contract Law in Japan

Hiroto Dogauchi (Professor of Law, University of Tokyo)

Part 1. Formation an !nter"retation of #ontracts

#ha"ter 1. $tatus of contract %aw within &a"anese Law

#ha"ter '. #ontracting "arties

$ection 1. #a"acity to ho% rights

$ection '. enta% ca"acity ca"acity to act

#ha"ter *. Formation of contracts

$ection 1. Princi"%e of consensua%ism

$ection '. anifestation of intention that is tru%y unsatisfactory

$ection *. +gency

#ha"ter . !nter"retation, revision an su""%ementation of contracts

$ection 1. anatory "rovisions an "u-%ic "o%icy

$ection '. !nter"retation an su""%ementation of contracts

$ection *. /"ane contractua% %ia-i%ity

Part '. $"ecific #ontracts

#ha"ter 0. #ontracts for transfer of "ro"erty

$ection 1. $a%e

$ection '. ifts

#ha"ter 2. #ontracts for use of "ro"erty

$ection 1. Loan

$ection '. Lease

#ha"ter 3. #ontracts for "rovision of services
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#ha"ter 4. 5ther contracts

$ection 1. #ontracts for formation of organi6ations

$ection '. Thir "arty -eneficiary contracts an others

Part *. Performance an non7"erformance of contracts

#ha"ter 8. #ontract "erformance

$ection 1. Fu%fi%%ment of o-%igations

$ection '. La"se ue to "erio of time

#ha"ter 19. :reach of contract an com"u%sory "erformance

$ection 1. !m""osi-i%ity to "erform

$ection '. Fai%ure of "ossi-%e "erformance

#ha"ter 11. ;ea%i6ation of monetary c%aims

$ection 1. The "reservation of o-%igor


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inc%ues statutes that "%ay a very im"ortant ro%e in re%ation to, for e/am"%e, the

"rocess of contract formation.

'. For "ractica% "ur"oses contract %aw is the aggregate of these statutes an

ru%es. $im"%y %ooking at the contract "rovisions an their a""%ication in the

#ivi% #oe wou% not -e sufficient for unerstaning contract %aw in &a"an.

However, at the same time, the "rovisions in the #ivi% #oe form the -asis,

an so we focus on these in the fo%%owing iscussion.

=:ack to the to"

Chapter 2. Contracting parties

Section 1. Capacity to hold rights

1. The meaning of ca"acity to ho% rights

+rtic%e * (1) of the #ivi% #oe states, >The enjoyment of private rights shall

commence at birth.? This means that a%% natura% "ersons @ua%ify as entities

ca"a-%e of rights an o-%igations. Possessing such @ua%ification is referre to

as having ca"acity to ho% rights (;echtsfAhigkeit).

This conce"t of ca"acity to ho% rights no %onger has any great meaning for

natura% "ersons e/ce"ting societies that eny s%aves the ca"acity to ho%

rights. However, this is more im"ortant for a Buriica% "erson. +rtic%e * of the

#ivi% #oe states, >A juridical person shall have rights and assume duties to

the extent of the purpose provided in the applicable articles of incorporation or

act of endowment subject to the applicable provisions of the laws and

regulations.? +""%ying this %itera%%y means, for e/am"%e, even if a stock

com"any enters into contract ty"es outsie the "ur"oses "rovie for in itsartic%es of incor"oration such stock com"any wou% not @ua%ify as an entity to

enter into such contract so such contract may -ecome inva%i.

'. &uriica% "erson


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These "rovisions are sai to have -een inf%uence -y the u%tra vires octrine

uner ng%ish %aw. However, as with the a-anonment of the u%tra vires

octrine in ng%an, this artic%e has very %imite a""%ication in &a"an.

That is to say, a c%aim -y a Buriica% "erson that entere a contract for "rofit

an now asserts the contract to -e inva%i -ecause it is outsie the "ur"oses

"rovie in its artic%es of incor"oration wou% not -e u"he% -y courts. ven

when it wou% a""ear at first g%ance to -e outsie the "ur"oses in the artic%es

of incor"oration of such Buriica% "erson, these "ur"oses in the artic%es of

incor"oration are inter"rete very wie%y. ost actions are inter"rete as

corres"oning to the artic%es of incor"oration an -eing within the "ur"oses

s"ecifie.

However, for those Buriica% "ersons not entering into a contract for "rofit therehave -een court ru%ings that state a contract is inva%i -ecause the contract is

outsie the s"ecifie "ur"ose1.

=:ack to the to"

Section 2. Mental capacity/ capacity to act

1. The origin of a contract


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However, we consier the e/am"%e of agreement -ase on an error of s"eech

from one sie. Ce certain%y cannot have true satisfactionE at such time an

this -ecomes a matter of the other "erson


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-ut that wou% not -e the case in re%ation to making a rea% estate transaction

-ase on correct Bugment. For "ersons without the ca"acity to unerstan

com"%e/ transactions, in other wors for "ersons without the ca"acity to

etermine whether or not entering into a contract is either necessary or

-eneficia% to them, there must -e "rotection even if there is menta% ca"acity.

*. #a"acity to act

For this reason the conce"t of ca"acity to act was inc%ue in the #ivi% #oe.

The ca"acity to act is not a conce"t that takes issue with each iniviua%


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constant%y %acks the ca"acity to iscern right from wrong (#ivi% #oe +rt. 3). !n

"ractice, regar%ess of the e/tent to which a "erson %acks the ca"acity to

unerstan, a "erson oes not -ecome an au%t war unti% these "roceures

are unertaken.

+n au%t war has a guarian a""ointe (#ivi% #oe +rt. 4 an +rt. 4* (1))

an guarianshi" then commences (#ivi% #oe +rt. 4*4 (')). + guarian

aministers the "ro"erty of a war an re"resents a war in Buristic acts

concerning hisher "ro"erty (+rt. 408 (1)). The war is thus "rotecte from

transactiona% society. Then, as for a minor, a Buristic act "erforme -y an au%t

war may -e rescine (+rt. 8). However, in re%ation to any act re%ating to ai%y

%ife, such as the "urchase of ai%y househo% items, the au%t war is a-%e to

continue acting a%one.

(*) Persons uner curatorshi"

+ "erson uner curatorshi" is a "erson who has -ecome, at the re@uest of

s"ecifie "ersons, su-Bect to an orer of the Fami%y #ourt for commencement

of curatorshi". Chi%e not stating that the "erson %acks the ca"acity to iscern

right from wrong (a %ackE of ca"acity wou% mean an au%t war) this a""%ies

for "ersons whose ca"acity is eeme to -e e/treme%y insufficient (#ivi% #oe

+rt.11).

+ "erson uner curatorshi" has a curator a""ointe (#ivi% #oe +rt. 432 an

+rt. 4327' (1)). + maBor Buristic act, as "rescri-e in artic%e 1* (1), such as

-orrowing an rea% estate transactions unertaken -y a "erson uner

curatorshi" without the consent of the curator is su-Bect to the "rotection of it

-eing a-%e to -e rescine (#ivi% #oe +rt. 1* ()). !n aition the curator may

rescin these actions (#ivi% #oe +rt. 1'9 (1)). However, un%ike the

aforementione guarian, the curator is, natura%%y, not eeme to have "ower

of re"resentation. everthe%ess, on the a""%ication of the "erson uner

curatorshi" or s"ecifie "ersons (this re@uires the consent of the "erson uner

curatorshi" him or herse%f) the "ower of re"resentation can -e given

concerning s"ecifie Buristic acts (#ivi% #oe +rt. 4327).


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() Persons uner assistance

ven if there is insufficient ca"acity for unerstaning, -ut not to the e/tent

that wou% meet the criteria for an au%t war or "erson uner curatorshi" this

-y itse%f wou% not mean there is a %ack of ca"acity to for e/am"%e, conc%ue

contracts. However, there are sti%% concerns a-out whether the contracts can

-e conc%ue "ro"er%y. everthe%ess, on the a""%ication of the "erson or

s"ecifie "ersons (this re@uires the consent of the "erson) the Fami%y #ourt

may orer that the consent of an assistant -e re@uire for some of the acts

"rescri-e in artic%e 1* (1) of the #ivi% #oe (the acts for which a "erson uner

curatorshi" must o-tain the consent of hisher curator). +n act which re@uires

such consent may -e rescine if it was "erforme without such consent. This

is referre to as an orer of commencement of assistance with the "ersonreferre to as a "erson uner assistance an the "erson with the "ower to

give consent referre to as the assistant. This is a reuce version of

curatorshi".

!n aition, as with curatorshi" on the a""%ication of the "erson or s"ecifie

"ersons (this re@uires the consent of the "erson uner assistance him or

herse%f) "ower of re"resentation is grante to the assistant concerning

s"ecifie Buristic acts for the "erson uner assistance (#ivi% #oe +rt. 43278).

. !n this way the #ivi% #oe aims to "rotect minors, au%t wars, "ersons

uner curatorshi", an "ersons uner assistance (co%%ective%y referre to as

"ersons with %imite ca"acity) who are eeme to %ack sufficient ca"acity for

unerstaning.

This is very -eneficia% for those su-Bect to "rotection. However, in certain

circumstances it is necessary to "rotect counter"arties an thir "arties.

everthe%ess, there is no enying the nee to "rotect those without sufficient

ca"acity to unerstan in re%ation to transactiona% society. The two re@uests

nee to -e -a%ance.

#onse@uent%y, first when an orer is given for commencement of guarian

shi", commencement of curatorshi", or commencement of assistance it sha%%

-e recore in the guarian registration fi%e %ocate at the Lega% +ffairs


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:ureau. Therefore, if a "erson who "%ans to transact with another "erson

re@uests the "rovision of that "erson


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=:ack to the to"

Chapter 3. Foration of contracts

Section 1. !rinciple of consensualis

1. Funamenta% non7necessity of ocumentation

+s is the case for many countries, contracts uner &a"anese %aw are forme

-y the manifestation of intention -y way of offer an acce"tance (!n fact, there

is no woring c%ear%y "rescri-ing this "oint. However, this is "resume in the

"rovisions uner #ivi% #oe +rt. 0'1.)

!n various actua% fact "atterns it is often unc%ear as to what manifestation ofintention there is in the offerE an what woring shou% -e taken to mean in

the acce"tanceE. !t is sai that +n offer is a conc%usive manifestation of

intention for the formation of contract. +n acce"tance is for the formation of

contract with the manifestation of intention in re%ation to a s"ecific offerE.

U%timate%y the success or fai%ure of a contract is etermine -y whether or not

there is agreement on the im"ortant "arts of a contract.

For &a"an the formation of contracts oes not re@uire ocumentation in

"rinci"%e. ven when %itigating a c%aim for formation of contract the evience is

not restricte to ocumentation. 5n the other han, as in the case of a rea%

estate transaction -y a housing construction -usiness o"erator there are

cases when there are %ega% o-%igations for a written contract to -e e%ivere to

the c%ient (;ea% state :usiness Law +rt. *3). !n "ractice it is fre@uent%y @uite

ifficu%t to "rove formation of contracts without ocumentation. However, for

e/am"%e even when there is a written contract for the inter"retation of

aitiona% "rovisions an written "rovisions in the contract, ora% agreement

can -e asserte with the ecision -eing reache from various ty"es of

evience.

!n aition, there are a%so cases where -oth "arties think there is no formation

of contract unti% a written contract has -een create. !n such a case the
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a-sence of formation of contract unti% a written contract has -een create is

not counter to consensua%ism.

'. 5ffer an acce"tance

The issue of %ate arriva% of offer an acce"tance is ea%t with in artic%e 0'1 an

fo%%owing of the #ivi% #oe. However, many of the "rovisions therein assume

an era when a notice might not arrive or -e consiera-%y %ater than scheu%e

even though it was is"atche. !n other wors, it assumes an era of offers an

acce"tances -eing is"atche -y "ost an there -eing "osta% e%ivery

"ro-%ems.

!n "articu%ar, artic%e 0'2 of the #ivi% #oe states that contracts -etween

"ersons far away from each other ("ersons at a istance) sha%% -e forme

u"on is"atch of the notice of acce"tance ("osta% ru%e). Uner this system a

contract sha%% -e forme even if the acce"tance oes not reach, or is

consiera-%y e%aye in reaching, the offeror. The risk of non recei"t or

e%aye recei"t is -orne -y the offeror. However, offerors who o not want to

-ear such risk can set a "erio for acce"tance of the offer. Uner such an

arrangement when a notice of acce"tance oes not arrive within the "erio

the offer ceases to -e effective. Therefore, the contract is not forme (+rt.0'1). $ince the offeror has a way to avert this ty"e of risk it means in "rinci"%e

that it is fair to eem the contract to -e forme when the acce"tance is

is"atche.

everthe%ess, where "osta% conitions are goo an in a society with very %ow

"ossi-i%ity of non recei"t or %ate recei"t there is not much nee to aBust the

"rinci"%e that the manifestation of intention first -ecomes effective on e%ivery

to the counter"arty (effective e%ivery "rinci"%e). !n "articu%ar, for contracts

using e%ectronic methos such as emai%, regar%ess of the istance se"arating

the "arties a notice sent is instant%y receive -y the counter"arty. Therefore,

the +ct on $"ecia% Provisions to the #ivi% #oe #oncerning %ectronic

#onsumer #ontracts an %ectronic +cce"tance oticeE was enacte in '991.

Uner this +ct, in cases where acce"tance is mae via emai%, on%ine entry


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(such as "urchases on the !nternet), facsimi%e, te%e/ an te%e"hone, contracts

are forme when a notice of acce"tance arrives at the counter"arty. !t was

etermine that artic%e 0'2 (1) of the #ivi% #oe wou% not a""%y.

*. :att%e of the forms

!n re%ation to the so7ca%%e -att%e of the formsE the #ivi% #oe oes not set any

"recise "rovisions. Un%ess the terms of the acce"tance an the offer are the

same there wi%% -e no va%iity as an acce"tance. This ty"e of acce"tance sha%%

-e eeme to constitute a new offer (+rt. 0'4). The "rinci"%e is the mirror7

image ru%e. everthe%ess, in theory 7 with reference to artic%e 18 of the U

#onvention on #ontracts for the !nternationa% $a%e of oos 7 even if the

acce"tance is moifieE when the moifications are not maBor the contract

sha%% -e forme with the moifie terms of acce"tance, un%ess the offeror

o-Bects.

ven if such a ru%e is not c%ear%y ao"te, in a situation in which -oth "arties

think a contract has -een forme an act accoring to that assum"tion,

notwithstaning that the offer an acce"tance are not in agreement, the court

can -e e/"ecte to recogni6e the formation of contract -y construing the

intent of the "arties to fin terms consistent with fairness -etween the "arties.

=:ack to the to"

Section 2. Manifestation of intention that is truly unsatisfactory

1. Five systems

Chen e/ecuting a s"ecific contract there are cases of tru%y unsatisfactoryE

manifestation of intention. ven so, the issue is the -a%ance of two re@ueststhat are erive from two grouns concerning the contract


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%imite ca"acityG i.e., the res"onsi-i%ity of the "erson in @uestionE an the

nee to "rotect counter"arties an thir "artiesE. Ce c%assify manifestation of

intention that is tru%y unsatisfactoryE into five categories -ase on these two

as"ects. They a""ear in the #ivi% #oe in the fo%%owing orer concea%ment of

true intention, fictitious manifestation of intention, mistake, frau, an uress.

These five systemic categories can -e consiere from various "ers"ectives.

Here, we e/"%ain them -y se"arating into two -roa grou"s. 5ne ea%s with

situations in which the "erson making the manifestation knowing%y makes a

manifestation of intention that oes not corres"on to his or her true intentEG

the secon ea%s with situations in which the "erson making the manifestation

is not aware that the manifestation of intention mae oes not corres"on to

his or her true intentE. The former inc%ues manifestations of intention -aseon concea%ment of true intention, fictitious manifestation of intention an

uress, whereas the %atter inc%ues manifestation of intention -ase on

mistake an manifestation of intent -ase on frau.

'. The "erson making the manifestation knowing%y makes a manifestation of

intention that oes not corres"on to his or her true intentE.

$ituations in which the "erson making the manifestation knowing%y makes amanifestation of intention that oes not corres"on to his true intentE can -e

further c%assifie into three categories from the "ers"ective of res"onsi-i%ity of

the "erson in @uestion an the nee to "rotect counter"arties. First, this can

-e ivie into situations in which the "erson vo%untari%y makes such

manifestation of intentionE an situations in which the "erson was com"e%%e

to make such manifestation of intentionE. Then, vo%untary situations can -e

further se"arate into situations in which manifestation was mae in concert

with the counter"arty an situations where this was not the case.

+ manifestation of intention not mae in co%%usion with the counter"arty, mae

vo%untari%y an not corres"oning to his or her true intentE is referre to as

concea%ment of true intentionEG a manifestation of intention mae in co%%usion

with the other "arty, mae vo%untari%y an not corres"oning to his or her true


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intentE is referre to as fictitious manifestation of intentionEG an a

manifestation of intention mae as the resu%t of fear ue to the threat of harm

from another "erson an not corres"oning to his or her true intentE is

referre to as a manifestation of intent mae uner uressE.

(1) #oncea%ment of true intention

anifestation of intention through concea%ment of true intention is the

manifestation of intention of a "erson who makes the manifestation knowing

that it oes not ref%ect hisher true intention. ;es"onsi-i%ity of the "erson in

@uestionE is a c%ear%y a -ig issue at such a time. !n "rinci"%e, such

manifestation of intention is consiere va%i an the counter"arty is

"rotecte. However, in a situation that the counter"arty knows themanifestation not to -e true intent or shou% o-vious%y know -ase on the

circumstances, he or she is "rotecte -ecause the manifestation of intention

is voi (#ivi% #oe +rt. 8*).

(') Fictitious manifestation of intention

Fictitious manifestation of intention is a manifestation of intention that is not

true intent, mae in co%%usion with another "arty. !t is the same as concea%ment

of true intention in the sense that the "erson who makes the manifestationknows that the manifestation is not his or her true intent. The ifference is the

manifestation of intention is mae with the consent of the other "arty. This is

the genera% efinition, -ut in contrast, there is a%so the view that this creates

the a""earance that the manifestation of intention has -een in co%%usion with

the other "arty, an there is no manifestation of intention ca%%e fictitious

manifestation of intentionE.E The %atter view is "ro-a-%y easier to unerstan.

Take for e/am"%e the case where e-tor + is face with having his home

sei6e -y creitors if the "resent situation continues, so he acts in co%%usion

with ac@uaintance : to "reten that the house was so% to : an transfers the

tit%e of ownershi" to :.

!n this case too, the res"onsi-i%ity of the "erson in @uestionE is great. However,

there is no nee for "rotection of the other "artyE. The other "arty knows that


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this is a manifestation of intention without a corres"oning true intent.

#onse@uent%y, artic%e 8 (1) of the #ivi% #oe sim"%y "rovies >Any fictitious

manifestation of intention made in collusion with another party (ies) shall be

void.?

However, there is the nee to "rotect thir "arties who are not irect

counter"arties. !n the a-ove e/am"%e, since the sa%es contract -etween + an

: is voi, there is no transfer of ownershi" from + to :. However, su""ose that

: fa%se%y states that he is the owner of the house an se%%s it to a thir "arty #.

# nees to -e "rotecte from situations such as # having researche the

registry to verify that : was the owner, an verifie that : was %iste as the

owner on the registry. !n aition, as a%reay state a-ove, + has great

res"onsi-i%ity.#onse@uent%y, artic%e 8 (') of the #ivi% #oe "rescri-es that >The nullity of the

manifestation of intention pursuant to the provision of the preceding

paragraph may not be asserted against a third party without knowledge.? The

term without know%egeE means not knowing the circumstancesE an may not

-e asserte againstE can -e thought of as cannot c%aimE. The fictitious

manifestation of intention -etween + an : is voi, -ut the fact that it is voi

means there cannot -e a c%aim against # (a thir "arty without know%egeE)

who i not know the manifestation of intention -etween + an : was

fictitious. !n other wors, # acte as if the house ha -een va%i%y transferre

from + to : an ac@uire ownershi" of the house -y conc%uing a sa%es

agreement with :. :asica%%y, # acte on the -asis that the transfer of this

house from + to : was va%i, an entering into a sa%es contract with : means

# can ac@uire ownershi" of this house.

(*) anifestations of intention through uress

This is the case in which the manifestation of intent is mae -y a "erson who

is su-Bect to i%%ega% uress -y another, fee%s fearfu%, an forms intent -ase on

such fear. !n this case, the res"onsi-i%ity of the "erson in @uestionE is minima%.

!n aition, in the case that the "erson e/erting uress is the other "arty to the

contract, there is no nee for "rotection of the other "artyE. #onse@uent%y,


16/92

artic%e 82 (1) of the #ivi% #oe "rovies that the "erson making the

manifestation of intent may have it rescine if it was inuce -y uress.

ven where the action can -e rescine, it is com"%ete%y va%i unti% it is

rescine. However, when it is rescine, that act is eeme voi a- initio

(retroactive%y) (#ivi% #oe +rt. 1'1). Therefore, after it is rescine the

situation wi%% -e the same as if it were voi.

$u""ose that + has not a%ternative -ut to se%% a house he owns to :, ue to

uress from :, an transfers the tit%e to :, whereu"on : se%%s the house to

thir "arty #. 5n this occasion, # checks the registry an verifies that the

owner is :, an oes not know that this was the resu%t of the sa%es agreement

entere into uner uress. # is %ike%y to nee "rotection. 5r su""ose D (a

"erson other than :) "ut + uner uress to cause + to se%% +


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-y the "erson making a manifestation.

!n cases of manifestation of intention ue to mistake, the misunerstaningE

that was the cause was not intentiona%%y -rought a-out through the act of

another "erson. +ccoring%y, the res"onsi-i%ity of the "erson in @uestionE is

great. $ince there was certain%y no true satisfactionE, such manifestation of

intention cannot -e sim"%y eeme va%i. +t the very %east, we cannot eem

any manifestation of intention cause -y any mistake to -e voiE.

#onse@uent%y, artic%e 80 of the #ivi% #oe takes a ua% a""roach to e%imiting

these cases where manifestations of intention ue to mistake are voi are

%imite to >when there is a mistake in any element of the juristic act in

question?G whi%e the "erson who mae the manifestation of intention may not

c%aim such nu%%ity when >the person who made the manifestation of intentionwas grossly negligent.?

!n terms of contract the "hrase >when there is a mistake in any element of the

juristic act in question? means >when there is a mistake in an im"ortant "art of

the contents of the contract?. Chether or not something is an im"ortant "artE

is etermine not -ase on the thinking of the "erson making the

manifestation of intention (su-Bective intent) -ut -ase on whether or not an

orinary "erson wou% -e consiere un%ike%y to make such a manifestation of

intention if there were no mistake as to that "art.

enera%%y, the motive for a manifestation of intention is not constituative of the

contents of the contract. Therefore, when there is a mistake in the motive it

genera%%y oes not fa%% uner >when there is a mistake in any element of the

juristic act in question?. However, case %aw has recogni6e >a mistake in any

element of the juristic act in question?, even where there is a mistake as to

motive when that motive has -een ec%are to the other "arty. For e/am"%e,

when a customer notifies a -ank that he nees cash to "ay a thir "arty anterminates a term e"osit contract, then even if the contract with the thir

"arty is voi an there turns out to -e no nee for "ayment of the funs, this

wou% not -e a mistake in an e%ement of the Buristic act'. However, in the

situation of the istri-ution of "ro"erty ue to ivorce, if it has -een mae

c%ear to the other "arty that the "erson istri-uting the "ro"erty etermine the
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amount of "ro"erty for istri-ution -ase on the "erce"tion that the

istri-ution wou% not -e ta/e, the case wou% -e regare as one of >a

mistake in an element of a juristic act? even though the mistake was one of

motive*.

anifestations of intention ue to mistakeE are eeme to have no effectE

uner the woring of artic%e 80 of the #ivi% #oe. That sai, the "receents

ho% that this inva%iity can on%y -e c%aime -y the "erson making the

manifestation of intention an there is no significant ifference -etween this

an cance%%ation (rescissionE).

(') anifestation of intention through frau

+s we have seen a-ove, in cases of manifestation of intention ue to mistake,-ecause the other "arty cou% suffer im"ro"er %oss if the "erson making the

manifestation were sim"%y "ermitte to c%aim inva%iity, the sco"e of such

c%aims is %imite. However, in a case of misunerstaning -y the "erson

making a manifestation of intention ue to ece"tion -y the other "arty, there

is no nee for "rotection of the other "artyE. Further, even in a case in which

the other "arty oes not irect%y eceive the "erson making the manifestation

of intention, if another "erson eceives the "erson making a re"resentation

with the know%ege of the counter"arty, there wi%% -e no nee for "rotection.

#onse@uent%y, artic%e 82 (1) of the #ivi% #oe oes not im"ose the %imit of

>mistake in an element of a juristic act? -ut sim"%y "rovies that >anifestation

of intention which is induced by any fraud ! " may be rescinded?, an further

"rovies in "aragra"h ' even in the case that any thir "arty commits any

frau inucing any "erson to make a manifestation of intention to the other

"arty, such manifestation of intention may -e rescine if the other "arty knew

such fact.

!n a situation in which for e/am"%e, as a resu%t of a manifestation of intention

mae as a resu%t of the frau, the transfer of ownershi" of %an from + to : is

registere, there wi%% -e a nee to "rotect #, a thir "arty who "urchases the

%an from :. #onse@uent%y, artic%e 82 (*) of the #ivi% #oe "rescri-es >The

rescission of the manifestation of intention induced by the fraud pursuant to


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the provision of the preceding two paragraphs may not be asserted against a

third party without knowledge.? !t is im"ortant to note here that the thir "artyE

referre to here must have a""eare "rior to the rescission. !n the a-ove

e/am"%e, #


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For an agent


21/92

effect of a contract, the "rotection of the counter"arty


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(1) +""arent authority ue to e/ceeing authority of agency

ven in a situation in which a "erson with authority of agency acts -eyon the

sco"e of such authority, when a thir "arty has reasona-%e grouns for

-e%ieving that the agent has the authorityE the "rinci"a% sha%% -ear res"onsi-i%ity

(#ivi% #oe +rt. 119).

Chat situations constitute reasona-%e grounsEI enera%%y, this can -e

e/"resse as without know%ege or free of neg%igence (-e%ieving it to -e true,

an it was not neg%igent to so -e%ieve). However, etermination of whether or

not there was neg%igence iffers accoring to the ty"e of transaction an the

ty"e of agent. For e/am"%e, with res"ect to the "urchase an sa%e of rea%

estate, the counter"arty cannot -e ca%%e free of neg%igence without e/erting

su-stantia% care. Chen a fami%y mem-er is the agent, it is very easy to use a"ersona% sea% to a%ter a "ower of attorney, so un%ess the counter"arty

e/ercises su-stantia% care he or she wi%% not -e eeme free of neg%igence.

(') +""arent authority after termination of authority of agency

This is the situation in which a "erson who ha authority of agency for a

"erio of time acts as an agent a%though the authority has terminate. Chen a

counter"arty is without know%ege or free of neg%igence in re%ation to the

termination of the authority of agency the "rinci"a% cannot say to the

counter"arty, >Don


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artic%e 11' of the #ivi% #oe an the "revious%y e/"%aine artic%e 198 of the

#ivi% #oe0. !n other wors, the counter"arty sha%% -e "rotecte when the "arty

is without know%ege an free of neg%igence with res"ect to the termination of

the authority of agency an if the counter"arty is without know%ege an free

of neg%igence with res"ect to e/ceeing the authority of agency. !t is sufficient

if the re@uirements of these two artic%es are met in se@uence.

(*) +""arent authority ue to manifestation of grant of authority of agency

This is a situation in which a thir "arty is "rotecte if + has in fact not grante

authority of agency on : -ut neverthe%ess makes a manifestation to a thir

"arty as if + ha grante authority of agency on : an the thir "arty enters

into a transactiona% re%ationshi" -e%ieving this manifestation. +rtic%e 198 of the#ivi% #oes "rescri-es >A person who manifested to a third party that he#she

granted certain authority of agency to other person(s) shall be liable for any

act performed by such other person(s) with third parties within the scope of

such authority.? This situation a%so re@uires # to -e without know%ege an

free of neg%igence.

!n fact, there are many situations in which : is given a -%ank "ower of attorney

an : com"%etes the authori6ation fie%s as agree -etween + an :, -ut :

writes in actions outsie the sco"e of the authority an acts as agent

accoring%y. This is -ecause the e%ivery of a "ower attorney with -%ank

authori6ation fie%s is taken as a manifestationE of granting authority to the

agent to fi%% in the -%ank "ortions of the ocument as the agent etermines2.

Further, the #ommercia% #oe an the #om"anies +ct contain severa% s"ecia%

ru%es "ertaining to artic%e 198 of the #ivi% #oe.

First, artic%e 1 of the #ommercia% #oe an artic%e 8 of the #om"anies +ct

"rescri-e that in a situation in which #om"any + "ermits : to conuct

transactions using the name #om"any +E, + sha%% -e Boint an severa%%y %ia-%e

for the "erformance of o-%igations from transactions conucte -y : with a

counter"arty who mistaken%y -e%ieve that the transactions were those of +.

!n aition, in re%ation to "ersons referre to uner artic%e ' of the

#ommercia% #oe as em"%oyees given >the title which holds him#her out as
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the approved chief of the business of the business office?G uner artic%e 1* of

the #om"anies +ct "ersons eeme to have authority as >Any employee with

a title which holds him#her out as the chief of the business of the head office

or any branch office of a $ompany? (for e/am"%e, the -ranch manager), an

uner artic%e *0 of the #om"anies +ct "ersons with >the title of president%

vice president or other title regarded as having authority to represent the

&tock $ompany?, a thir "arty is eeme as -eing without know%egeE to fu%fi%%

the re@uirements of "rotection for a counter"arty to an act of unauthori6e

agency. +rtic%e 198 of the #ivi% #oe inter"rets this as a re@uirement of

without knowing, free of neg%igenceE, -ut -ecause s"ee is im"ortant in

commercia% transactions an the fact that "ermitting a "erson to use a tit%e is

high%y %ike%y to inuce trust in a counter"arty, the re@uirements for "rotectionare re%a/e (in the case of commercia% transactions).

=:ack to the to"

Chapter #. $nterpretation% re&ision and suppleentation of contracts

Section 1. Mandatory pro&isions and pu'lic policy

1. anatory "rovisions

The #ivi% #oe an other +cts contain "rovisions stating that "arties are not

"ermitte to make "rescri"tions inconsistent therewith. These are referre to

as manatory "rovisions, an agreements that conf%ict with manatory

"rovisions are either inva%i or are moifie in accorance with the manatory

"rovisions.

For e/am"%e, with res"ect to a %ease of %an for the "ur"ose of owning a

-ui%ing, artic%e * of the Lan Lease an House Lease +ct "rovies that > the

duration of a land lease shall be ' years provided that when a longer term is

prescribed by contract% the term shall be !the longer one"?. This means that

even if an agreement "rescri-es a shorter term, the term sha%% -e *9 yearsE.

This is further confirme -y artic%e 8 of the Lan Lease an House Lease +ct


25/92

that states >special agreements that violate the provisions of this section and

are disadvantageous to the lessee of land shall be void.?

Therefore, with res"ect to a %ease of %an for the "ur"ose of owning a -ui%ing,

the "arties are not free to "rescri-e the term of the contract. The setting of a

term of %ess than *9 years is not "ermitte, an sha%% -e voi even if the

"arties agree to such a term.

There are @uite a few instances where-y the contents of the contract are

regu%ate -y manatory "rovisions for "ur"oses such as "rotecting the

weaker "arty inc%uing consumers. ore etai%e e/"%anation is "rovie

-e%ow when various contracts are consiere.

'. Joi ue to "u-%ic "o%icy

Thus, is it the case that any "rovision is va%i so %ong as it oes not vio%ate a

manatory "rovisionI For e/am"%e, artic%e 17' (1) of the $timu%ants #ontro%

Law "rovies that >Any person who unlawfully possesses% transfers or

receives stimulants ** shall be liable to penal servitude not exceeding +

years.? However, there is no irect "rovision K as in the a-ove e/am"%e of the

Lan Lease an House Lease +ct K that vois the contract. everthe%ess,

this oes not mean one can assert that a contract for the "urchase an sa%e ofstimu%ants is va%i.

The contract is voi -ase on the a""%ication of artic%e 89 of the #ivi% #oe.

That artic%e "rovies that >A juristic act with any purpose which is against

public policy is void%? an the a-ove contract is voi -ecause it -reaches this

"rovision. However, it is very ifficu%t to etermine s"ecifica%%y what ty"es of

contracts vio%ate "u-%ic "o%icy.

There are a%so e/am"%es in which a vio%ation of %ega% "rovision oes not cause

a vio%ation of "u-%ic "o%icy. +rtic%e 0' of the Foo $anitation +ct "rovies that

any -usiness "erson engage in the sa%e of meat sha%% o-tain a %icense from

the governor of the "refecture concerne. Therefore, what wi%% ha""en if a

"erson who has not o-taine a %icense "urchases meat for the "ur"ose of

se%%ing itI The $u"reme #ourt of &a"an he% that the Foo $anitation +ct >can


26/92

reasona-%y -e construe as nothing more than a sim"%e regu%atory "rovision,

so even if ha not o-taine the %icense to se%% meat, there is no -asis for

enying the va%iity of the transaction in @uestion -ase on the a-ove %aw3.?

5n the other han, artic%e 3' of the Practicing +ttorney Law "rovies that any

"erson who is not a "racticing attorney sha%% not, for a fee an as an

occu"ation, engage in the "ractice of %aw. !n aition the $u"reme #ourt

foun that contracts vio%ating this, s"ecifica%%y contracts where >M is manate

-y + to co%%ect c%aims, an a""ointe as an attorney to institute +


27/92

where there -eing no vio%ation of "u-%ic "o%icy without some form of vio%ation

of %aws an regu%ation this is not the case.

+ marrie man entere into a contract for future marriage with a woman who

knew that he was marrie, uner which he wou% "ay her %iving e/"enses unti%

they cou% actua%%y -e marrie. The contract itse%f i not vio%ate any %aws.

However, this ty"e of contract is -ase on the assum"tion of ivorce. !f a court

were to recogni6e the woman


28/92

meaning. This is the first stage of contract inter"retation.

The "ro-%em arises when the meanings the "arties give that e/"ression iffer.

5n this "oint, the term wi%% -e inter"rete to have the meaning the other "arty

wou% orinari%y thinkE uner the circumstances (this inc%ues the manner of

ea%ing u" to the "resent). !n this sense, this cou% -e thought of as

ascertaining the o-Bective meaning of the e/"ressionEG however, it must -e

-orne in min that this oes not constitute the meaning foun in a stanar

ictionaryE -ut the o-Bective meaning uner the circumstancesE. +ccoring%y,

factors such as the customs of the -usiness wor% in which + an : o"erate

-ecome im"ortant19.

'. $u""%ementation of the "arties< intent

U" to this "oint we have -een iscussing the inter"retation of etai%s

manifeste -y the use of certain wors -y "arties. However, in actua%ity, when

"arties contract, they o not a%ways "recise%y agree on every %itt%e etai%. !n

such situations, mere%y inter"reting their manifestations wi%% not ena-%e

"rescri"tion of the %ega% re%ationshi" -etween the "arties. There wi%% -e a nee

to su""%ement as"ects not ecie -y the "arties.

Here too, it is eeme that the "arties< intent shou% -e res"ecte. !n otherwors, the "ur"ose of the contract is consiere -y unerstaning the overa%%

manifeste intent, an the intent is su""%emente consistent with the irection

of such agree "ur"ose. Further, the transactiona% customs, contractua%

negotiations an the conuct of -oth "arties after contract formation are a%%

significant in inferring the intent of the "arties.

However, if this is taken too far, it is "ossi-%e that the Buges< o"inion that

there is no mistaking that the "arties thought thisE sha%% -e im"ose on the

"arties. #ertain stanars are re@uire to "revent su""%ementationE from

-ecoming whatever the Buges wish. #onse@uent%y, the #ivi% #oe contains

many artic%es for the "ur"ose of su""%ementing the intent of the "arties, for

each ty"e of contract.

*. $ignificance of ty"ica% contract ty"es


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#ivi% #oe Part !!! #%aims, #ha"ter ' #ontracts "rovies 1* c%assica% contract

ty"esE, an "rescri-es the rights an o-%igations of the "arties. However,

a%most a%% of the artic%es foun here are artic%es to su""%ement situations in

which the intent of the "arties is not c%ear. !n contrast to manatory "rovisions,

these are ca%%e vo%untary "rovisions.

$o in orer for the intent of the "arties to -e su""%emente -y such vo%untary

"rovisions, it must first -e mae c%ear what ty"e of contract is at issue as a

who%e. For e/am"%e, su""ose that uner a certain contract, + e%ivere

"ossessions to :. This cou% a%so arise in the situation in which : -orrowe

the item from +, -ut it cou% a%so arise in the situation in which, say, + e"osits

%uggage with :, a for7fee %uggage storage o"erator. $u""osing that there was

no agreement with res"ect to the "ayment of a fee, such that su""%ementationis necessary. !n the former case su""%ementation wou% -e re@uire to "rovie

for : "aying a fee to +. #onverse%y in the %atter, su""%ementation wou% -e

re@uire to "rovie for + "aying a fee to :. #onse@uent%y, un%ess the nature of

the agreement is c%arifie first, the etai%s to -e su""%emente cannot -e

etermine.

#onse@uent%y, the #ivi% #oe "rovies 1* contract ty"esE an c%ear%y

"rescri-es the nature of the contract (ru%ing on nature) as the first ste".

Therefore, contracts "rovie as contract ty"es uner the #ivi% #oe are

referre to as c%assica% contract ty"esE. The ne/t ste" is to su""%ement the

contract with vo%untary "rovisions "rovie for the ty"e of contract concerne.

There is one "ro-%em if we consiering the framework of ru%ing on nature (of

contracts)E N a""%ication of contract ty"eE N $u""%ementation with vo%untary

"rovisionsE as in the a-ove. The issue is whether a%% of the various contracts

actua%%y in use in society can -e ae@uate%y c%assifie into 1* ty"es.

However, the intent of the "arties, inc%uing custom, is "ursue even if acontract comes uner the "urview of a given contract ty"e. !n aition, when

the actua% contract oes not e/act%y match a contract ty"e, there wi%% -e more

times when it is foun that the intent of the "arties iffers from each artic%e.

Chatever the case, fitting a contract to one of the 1* contract ty"es "rovie


30/92

for in the #ivi% #oe an su""%ementing with vo%untary "rovisions wi%% -e the

%ast ste".

. Princi"%e of goo faith an a-use of rights

!n aition, when etermining the rights an o-%igations of the "arties to a

contract, the "rinci"%e of goo faith in artic%e 1 (') of the #ivi% #oe (>The

exercise of rights and performance of duties must be done in good faith.?) can

-e use as the %ast ste" when a reasona-%e reso%ution cannot -e reache

using agree su""%ementation through agree inter"retation an vo%untary

"rovisions. !n aition,

Further, even where a right is recogni6e, there can -e a certain restriction on

the e/ercise thereof. +rtic%e 1 (*) of the #ivi% #oe "rovies that >,o abuse of

rights is permitted.?

=:ack to the to"

Section 3. ()panded contractual lia'ility

1. The c%assica% conce"t of contract

The c%assica% e/"%anation with res"ect to the grouns for a contract


31/92

two. That is to say, there has -een a tem"ora% e/"ansion as we%% as a

@uantitative e/"ansion of contractua% %ia-i%ity.

'. Pre7contractua% effect Ty"e 1

The tem"ora% e/"ansion of contractua% %ia-i%ities can -e further ivie into

two categories. $"ecifica%%y, these are the affirmation of "re7contractua% effect

an the affirmation of "ost contractua% effect.

First the affirmation of a %ia-i%ity referre to as neg%igence in formation of the

contract can -e cite as an e/am"%e of an affirmation of "re7contractua% effect.

The traitiona% thinking is that a contract is com"%ete%y voi if the "erformance

of the re@uire o-%igations of a "arty is a%reay consiere im"ossi-%e when

the contract is forme. For e/am"%e, when a contract is forme for "urchase

an sa%e of a house an that house ha a%reay -een estroye -y fire it

wou% -e im"ossi-%e for the se%%er to "erform his or her e%ivery o-%igation. $o,

the "urchase an sa%e contract itse%f is eeme to -e com"%ete%y voi.

However, the -uyerconc%ue the contract thinking it to -e va%i, an in some

cases may have -orrowe funs from the -ank, an may have arrange to

se%% the house he or she is current%y %iving in. This means they have a%reay

incurre e/"enses. ven so, if the contract is eeme voi ue to im"ossi-i%ityfrom ince"tion it wou% -e har to a%%ow that "arty to suffer without a remey.

This wou% -e "articu%ar%y the case where, the se%%ershou% have known, -y

conucting "ro"er ins"ection, at the time the contract was conc%ue that the

house ha a%reay -een estroye -y fire.

Lia-i%ity for neg%igence in contract formation seeks to aress this "ro-%em.

!n other wors, the "arties to a contractua% negotiation have im"ose u"on

them, at the stage of contract negotiation, the uty of care so as not to cause

a %oss to the other "arty. !n the a-ove e/am"%e, then, in a situation in which

the se%%erwou% have known that the house ha -een estroye -y fire if he

ha use "ro"er care, the se%%er wou% -e in -reach of his uty of care an

wou% have to com"ensate the -uyer for harm suffere there-y.


32/92

Thinking in this way a-out the neg%igence %ia-i%ity in conc%uing a contract as

-eing the %ia-i%ity arising from a -reach of o-%igation where negotiating "arties

to a contract are su-Bect to uty of care not to cause the other "arty to incur a

%oss when negotiating a contract, the sco"e of a""%ication is not %imite to

cases in which conc%ue contracts are voi. +n e/am"%e is the situation in

which contract negotiations -egin an a comforta-%e stage is reache where a

"arty thinks >we sti%% have to iscuss some etai%e terms, -ut the ea% itse%f is

not going to -e -roken?, -ut suen%y the other "arty says, >! am not going to

contract.? 5f course, each "arty is free to ecie whether or not to conc%ue a

contract. However, the inter"retation is as fo%%ows :ecause "ersons who have

commence a transaction an entere the stage of contract negotiation are in

a c%ose re%ationshi" su-Bect to the "rinci"%e of goo faith, un%ike there%ationshi" -etween citi6ens in genera%, regar%ess of whether or not the

contract is su-se@uent%y conc%ue, they shou% -e su-Bect to mutua%

o-%igations uner the "rinci"%e of goo faith not to harm the character or

"ro"erty of the other "artyG if a "arty -reaches this o-%igation an harms the

other "arty, it is reasona-%e to recogni6e %ia-i%ity for amages as contractua%

%ia-i%ity even where the contract is not conc%ue.

There are many case ecisions recogni6ing %ia-i%ity with res"ect to this sort of

im"ro"er termination of contractua% negotiations11.

*. Pre7contractua% effect Ty"e '

The e/am"%e of neg%igence in conc%uing a contract was an e/am"%e of how

even where a contract is not voi, %ia-i%ity can -e im"ose for -reach of

o-%igation in the negotiation "rocess. !n the same way, a -reach of o-%igation

in the negotiation "rocess can -ecome a "ro-%em su-se@uent%y even where

the contract is forme.

+n o-%igation for a s"ecia%ist to give fu%% e/"%anation to a consumer is

sometimes recogni6e in re%ation to the negotiation "rocess. For e/am"%e, in

aition to the o-%igation for securities com"anies that se%% high risk financia%

"roucts to consumers to "rovie sufficient e/"%anation, in the first "%ace, it is


33/92

esira-%e for such com"anies to take care in "romoting investments that -est

conform to the c%ient


34/92

e/ercise safety). There are severa% $u"reme #ourt cases on this.

$uch o-%igations of security o not mean the "arties have mae such an

agreement in avance. 5-%igations of safety are not "rescri-e in the artic%es

in the #ivi% #oe concerning %a-or su""%y contracts. However, "receents are

e/"aning the o-%igations im"ose on the "arties -ase on the "rinci"%e of

goo faith (#ivi% #oe +rt 1 (')).

The tren with res"ect to s"ecifie %ega% re%ationshi"s towar im"osing

o-%igations on the "arties that are -roaer than agree to can a%so -e seen as

"art of the rea%m referre to as s"ecia%ists< %ia-i%ity.

+t "resent, the tenency has -een to consier, in a situation in which one

"arty to a contract trusts the a-i%ity of the other "arty as a s"ecia%ist an

entrusts certain matters thereu"on, that the "arty, as a s"ecia%ist, is o-%igateto consier the interests of the other "arty -eyon the sco"e of the

agreement.

This means o-%igations are im"ose to a -roa e/tent necessary to com"%y

with the trust of the other "arty uner the sco"e of their res"ective fie%s of

s"ecia%ty. This o-vious%y a""%ies to s"ecia%ists with "u-%ic certifications such as

octors, attorneys, architects, an a%so a""%ies to securities com"anies in

re%ation to securities transactions an -anks in re%ation to -anking

transactions.

=:ack to the to"

1Decision of the $u"reme #ourt, &u%y 1828, Jo%. '* o. 4 1*3

'Decision of the $u"reme #ourt, 18 ay 183', Jo%. '2 o. 3'*

*Decision of the $u"reme #ourt, 1 $e"tem-er 1848, Jo%. 1 o. 11 30

Decision of the $u"reme #ourt, '0 &une 1832, Jo%. *9 o. 2 220

0Decision of the $u"reme #ourt, '4 &u%y 1839, Jo%. ' o. 3 1'9*

2Decision of the $u"reme #ourt, 19 ovem-er 1823, Jo%. '1 o. 8 '13

3Decision of the $u"reme #ourt, 14 arch 1829, Jo%. 1 o. 4*

4Decision of the $u"reme #ourt, 1* &une 182*, Jo%. 13 o. 0 3

8Decision of the reat #ourt of &uicature, '* 5cto-er 18'9, Jo%. '2 33*

19Decision of the reat #ourt of &uicature, ' &une 18'1, Jo%. '3 19*4
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11Decision of the $u"reme #ourt, '3 Fe-ruary '993

=:ack to the to"

Part '. $"ecific #ontracts

Chapter *. Contracts for transfer of property

Section 1. Sale

Su'section 1. O&er&iew

1. Definition

The efinition of a sa%es contract is "rovie in +rtic%e 000 of the #ivi% #oe.

This states, >A sale shall become effective when one of the parties promises

to transfer a certain property right to the other party and the other party

promises to pay the purchase money for it.?

From this efinition, a sa%e is a -i%atera% contractE that is a contract for va%ueE.

+ contract for which "ayment is mae for the va%ue of "erformance is referre

to as a contract for va%ue, whi%e other contracts are referre to as contracts for

no va%ueE. 5ne shou% note that uner &a"anese %aw, gifts are a%so contracts

(contract for no va%ue). atura%%y, for e/am"%e, the regu%ations iffer in the case

of a efect in "erformance uner a gift, which is a contract for no va%ue, an in

the case of a efect in "erformance uner a sa%e, which is a contract for va%ue.

However, uner &a"anese %aw, the e/istence of consieration or cause is not

a conition for etermining -ining effect of a contract. This is the reason why

a gift is a%so a contract.

Further, a contract in which -oth "arties are o-%igate to "ay consieration for-enefits receive from the other "arty is referre to as a -i%atera% contract,

whi%e a contract that o-%igates on%y one "arty is referre to as a one7sie

contractE.

:i%atera% contracts for va%ue have the most significance in economic society.

$a%es are a ty"ica% e/am"%e of a -i%atera% contract for va%ueE.
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'. Funamenta% e%ements

Purchase money uner a sa%es contract shou% c%ear%y -e s"ecifie in a%%

cases. !t oes not matter whether this is s"ecifie in &a"anese yen or a

foreign currency (## +rt 9*). !n aition, it is a%so acce"ta-%e to set as twice

the ikkei ''0 +verage for the Tokyo stock market three months henceE.

$ince the su-Bect of sa%es is "ro"erty rightsE even if the contract is not for a

transfer of ownershi" of thingsE, it wi%% -e treate as a sa%es contract as

efine uner the #ivi% #oe. For e/am"%e, a contract to transfer monetary

c%aims is a sa%es contract whi%e contracts to transfer "atent rights an fishing

rights are a%so sa%es contracts. !n aition, even when the contract invo%ves

thingsE this oes not on%y mean the case of an iniviua% item -eing s"ecifie.There are cases when an item is efine -y ty"e (see ## +rt 91). !n such a

case, the o-%igation of the se%%er is referre to as a fungi-%e o-%igationE an the

c%aim of the -uyer is referre to as a fungi-%e c%aimE. !n aition, there are a%so

sa%es where the se%%er sha%% "rovie for a c%aim that is to -e ientifie -y way

of choice among more than one (see ## +rt 92) ($imi%ar%y, this is referre to

as a%ternative o-%igationE, an a%ternative c%aimE).

!t is a%so acce"ta-%e for items for which "ro"erty rightsE o not e/ist at the

"resent "oint in time. #ontracts to transfer future o-%igations have im"ortant

significance for financia% transactions. This is a%so true for futures transactions.

oreover, it can a%so a""%y to other "ersonA pre-

contract to sell or purchase made by one party shall take the effect of a sale


37/92

when the other party has manifested his#her intention to complete such sale?

(## +rt 002 (1)). However, this is in fact a%most never use in "ractice.

Take the case, for e/am"%e, where a -asic contract conc%ue -etween a

manufacturer an a s"ecia% istri-utor where there is a contract for the se%%er

to se%% an e%iver certain "roucts to the -uyer to fu%fi%% an orer from the

-uyer an for the -uyer to acce"t such e%ivery. This is sometimes referre to

as a com"rehensive commitmentEG an orer -y itse%f oes not constitute a

sa%es contract (a "re7contract of sa%e oes) an means that there is on%y an

o-%igation to enter into a contract with the other "arty. !n other wors, a se%%er

who oes not fu%fi%% an orer wou% -e in -reach of hisher o-%igation to enter

into a contract, -ut not in -reach of o-%igations uner an esta-%ishe sa%es

contract.For this kin of continuing sa%e, the conitions iffer from the usua% one7off

sa%e an there are s"ecific "ro-%ems such as uner what circumstances a

-asic contract can -e cance%%e. +-ove a%%, the criteria for the funamenta%

-reachE that is the conition for cance%%ation wi%% -e ifferent.

Su'section 2 Seller+s o'ligation

1. 5-%igation to transfer the su-Bect matter

There is no @uestion that the se%%er in a sa%es contract is o-%ige to transfer the

su-Bect matter to the -uyer. !n aition, when there are "erfection

re@uirements, for e/am"%e, %an registration, in re%ation to the transfer the

se%%er must take the necessary action to satisfy the "erfection re@uirements for

the -uyer.

'. $e%%er


38/92

e/"ecteE when there is a -reach of se%%erthe buyer may demand a reduction of the purchase

money in proportion to the value of the part in shortage? from a -a faith

se%%er. everthe%ess, there are cases such as the case of a firm commitment

of transfer from the se%%er when this artic%e oes not a""%y an the contract is

inter"rete as a regu%ar fai%ure to "erform.


39/92

:y contrast, in the case of goo faith, the -uyer oes not antici"ate non

"erformance -y the se%%er. Here, the -uyer can o-vious%y eman a reuction

of the "urchase money 7 >A buyer in good faith may cancel the contract if the

buyer would not have bought the rights if the rights consisted only of the

remaining portion? (## +rt 02* (')). Then, a c%aim for amages is a%so

"ossi-%e when amages are incurre -ecause of the eman for the reuction

in the "urchase money or cance%%ation of the contract (## +rt 02* (*)).

everthe%ess, these rights must -e e/ercise within one yearG in the case of a

goo faith "urchaser measure from the time the -uyer knew the factsE (i.e.,

the facts that the se%%er wou% -e una-%e to transfer the rights) an in the case

of a -a faith "urchaser from the time of the contractE (i.e., where the time for

fu%fi%%ing the se%%er


40/92

#ase Law'efines a sa%e inicating a @uantityE as >For a "arty to secure the

actua% @uantity of a s"ecifie o-Bect the se%%er sha%% s"ecify the area, vo%ume,

weight, num-ers an units of measurement in the contract an the sa%e sha%%

-e etermine -y "urchase monies -ase on such @uantity.? However, for

sa%e of %an it is usua% to note the imensions recore in the registry

inicating the s"ecific thing in the contract. However, even if the imensions

note in the registry for the su-Bect %an are inicate in the sa%es contract this

shou% not necessari%y mean the se%%er agree to transfer the %an of recore

imensions since it is we%% known that the imensions recore in the registry

are not a%ways the same as the actua% imensions*.

This is a%so true for the restriction of within one year from knowing the factsE

("ursuant to ## +rt 02* in accorance with +rt 020).There are im"ortant s"ecia% "rovisions concerning sa%es s"ecifying @uantity in

+rtic%e 0'2(1) of the #ommercia% #oe. The -uyer oes not have an o-%igation

to ins"ect uner the #ivi% #oe, -ut the #ommercia% #oe "rovies in the

case of sa%es -etween merchantsE that the -uyer shou% make an ins"ection

without e%ayE on recei"t of the su-Bect things an must give immeiate notice

to the se%%er if there is a shortage in @uantity.

everthe%ess, if the se%%er knows there is a shortage in @uantity (-a faith) the

aforementione s"ecia% "rovision oes not a""%y since there is no nee for

se%%er "rotection (#ommercia% #oe +rt 0'2 (')).

(*) $e%%er


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of the "urchase %an is not reuce to 6ero an a "ro"ortiona% so%ution is

ca%%e for. The e/am"%e a-ove refers to the case where the su-Bect of sa%e is

encum-ere, -ut the same is true in the o""osite case when the servitue for

the -enefit of the rea% estate that is the su-Bect matter of a sa%e (turns out) not

to e/ist.

Hence, in "rinci"%e the -uyer is %imite to on%y c%aiming amages against the

se%%er, -ut the contract can -e cance%%e on%y in the case where the "ur"ose of

the contract cou% not -e fu%fi%%e -ecause of the e/istencenon7e/istence of

such servitue.

This situation is a%so su-Bect to the one year time %imit (## +rt 022). Chen the

-uyer is in -a faith it is assume that the agreement was mae on the -asis

that the thing that was the su-Bect of sa%e was su-Bect to a %imitation of rightsan so reress is %imite to when the -uyer was aware of the e/istencenon7

e/istence of servitue etc. (the same as for #ases of $hortage in Ouantity or

Partia% Loss of 5-BectE).

() $e%%er


42/92

!t is necessary for this to -e a %atent efectE. #ase %aw inter"rets this in

a-stract terms stating this cou% not occur if an orinary -uyer in such a

transaction took the usua% care or there is no neg%igence in the -uyer not

knowing of its e/istenceE. However, in rea%ity situations where the -uyer knows

of the efect are e/em"te. Chen the -uyer knows of the e/istence of a

efect it can -e consiere that the agreement on the sa%e of the su-Bect

matter was for things with such efect.

+s in the case of shortage in @uantity or "artia% %oss of o-BectE there are

s"ecia% ru%es for sa%es -etween merchantsE. The meaning an etai%s are the

same (#ommercia% #oe +rt 0'2).

There is e-ate a-out whether or not the ru%es for se%%ers warranty against

efects an cases of shortage in @uantity or "artia% %oss of o-BectE a""%y whenthe su-Bect matter of the sa%e is "rescri-e on%y -y ty"e (uns"ecifie things). !f

a""%ie, where there is a shortage in @uantity or a efect, the o-%igation to the

-uyer has not -een satisfie -ut the se%%er is not o-%igate to "rovie another

"ro"er thing, which can -e fu%fi%%e. !t is argue that the warranty thus a""ears

to -e %imite to the case of s"ecifie things, where the "rovision of another

"ro"er thing is im"ossi-%e.

This is a theoretica%%y a very ifficu%t issue, -ut in the case of a shortage in

@uantity there are many cases etermining that the ru%es of warranty a""%ies

to uns"ecifie things. Furthermore, for warranty of efect the case %aw states

that if the -uyer initia%%y acce"ts the "erformance as is then it -ecomes an

issue of warranty0.

Su'section 3 ,uyer+s o'ligation

1. arnest money

The -uyer


43/92

moneyE etc.

The nature of the "ayment is etermine -y the intent of the "arties. However

the fo%%owing ty"es of custom "reate the enactment of the #ivi% #oe. !n

other wors, if monies referre to as earnest moneyE are e/change on

formation of the contract the -uyer can cance% the contract -y forfeiting such

monies. #onverse%y, the se%%er can cance% the contract -y reim-ursing twice

the amount to the -uyer. !n this case there is no nee to "ay any other form of

amages.

Here, the #ivi% #oe "rovies that a "ro"ortion of the "urchase monies "ai

-y the -uyer to the se%%er at the time the contract is forme is inferre to

evience the "arties< intention in %ine with this custom (## +rt 003). However,

the contract can -e cance%%e -y either the -uyer forfeiting the earnest moneyor the se%%er reim-ursing twice the amount >unti% either "arty commences

"erformance of the contract?. The case %aw2states that the commencement of

"erformance of a contract "ursuant to +rtic%e 003 (1) of the #ivi% #oeQQQ

inicates the case when "re7conitiona% action that was necessary for the

"erformance or "artia% "erformance -ase on an o-Bective e/terna% "erce"tion

was unertakenE.

'. 5-%igation for recei"t of monies for the su-Bect matter

#an the -uyer refuse e%ivery when the se%%er tries to e%iver the su-Bect

matter of the sa%eI

+rtic%e 0' of the #ommercia% #oe states that when the -uyer refuses to

receive the o-Bect that is the su-Bect of sa%e -etween merchants the se%%er may

se%% such o-Bect at auction (sa%e through the courts). There is no c%ear woring

in the #ivi% #oe, -ut at "resent there are many scho%ar%y views that affirm the

-uyer


44/92

Section 2. -ifts

>ifts shall become effective by the manifestation by one of the parties of

his#her intention to give his#her property to the other party gratuitously% and the

acceptance of the other party thereof.? (## +rt 08). !n this way, e"ening on

the isc%ose intent agree -y the onor an the onee, gifts a%so form a

contract uner &a"anese %aw.

Therefore, the onor has an o-%igation to e%iver the "romise "ro"erty to the

onee. !n the case of encum-ere gifts, the onee sha%% a%so -e o-%igate to

"erform such encum-rance.

However, un%ike a contract where there is a va%ue re%ationshi" -etween the

"arties, in a gift contract the onee, after a%%, receives the "ro"erty at either nocost, or with Bust a s%ight encum-rance. #onse@uent%y, the nee for "rotection

is reuce to that e/tent. Here, +rtic%e 009 of the #ivi% #oe "rovies that a

gift not in writing can -e cance%%e. However, any "ortion of a gift that was not

in writing for which "erformance has a%reay -een com"%ete cannot -e

cance%%e. This is -ecause a contract in writing or a%reay "erforme "artia%%y

is %ike%y to raise efinite e/"ectations of the onee an so it is ifficu%t to

cance%, -ut at the stage of a ver-a% "romise such efinite e/"ectations are

un%ike%y. !n aition, whi%e there is no c%ear woring for encum-ere gifts,

when the onee "erforms the encum-rance the inter"retation is that it is then

too %ate for the onor to cance% the gift contract.

=:ack to the to"

Chapter . Contracts for use of property

Section 1. Loan

1. The istinction -etween %oans for consum"tion contracts an %ease

contracts%oans for use contracts

#ontracts where one "arty causes another "arty to use "ro"erty can -e

ivie into contract ty"es where the return of -orrowe goos takes the form


45/92

of things that are the same in kin, @ua%ity an @uantity, an contract ty"es

where there is return of the thing itse%f. The former is referre to as %oans for

consum"tion contractsE. The %atter contract can -e further ivie e"ening

on whether or not there is a va%ue "ai for the -orrowing (rent) into %oans for

use contractsE (things on which va%ue is not "ai) an %easesE (things on which

va%ue is "ai).

For consumer %oans, the #ivi% #oe oes not istinguish -etween contracts for

va%ue an no va%ue. This creates a "ro-%em that is iscusse %ater.

'. The nature of %oans for consum"tion contracts

The efinition of %oans for consum"tion contracts is "rovie in +rtic%e 043 of

the #ivi% #oe.

>A loan for consumption shall become effective when one of the parties

receives money or other things from the other party by promising that he#she

will return by means of things that are the same in kind% quality and quantity.?

This efinition iffers from the efinition of a sa%es contractG %oans for

consum"tion contracts wi%% not -e forme Bust -y a "romise -y -oth "arties. !n

aition to agreement, %oans for consum"tion contracts re@uire the e%ivery of

the su-Bect matter an the effectiveness of other "rovisions. #om"are to asa%es contract that is a consensua% agreement that is forme Bust through

"romises, contracts such as %oans for consum"tion contracts are referre to

as su-stantia% contracts.

Chy is this soI

!n the case of %oans for consum"tion contracts there are no regu%ations

concerning interest to su""%ement the intent of the "arties in +rtic%es 043 to

08' of the #ivi% #oe. !n other wors, the -asic form of a %oan for consum"tion

is without interest. #onse@uent%y, whatever the agreement, there is no great

nee to "rotect the trust of the -orrower in re%ation to the agreement.

Therefore, %oans for consum"tion contracts are not forme sim"%y -y

agreement an the contract -ecomes effective on the actua% e%ivery of the

thing.


46/92

However, what is of maBor significance to current transacting com"anies is

natura%%y %oans for consum"tion contracts with interest. #onse@uent%y, the

rationa%e that %oans for consum"tion contracts without interest are eeme to

-e %oans for su-stantia% contractsE is ina""%ica-%e for most contem"orary

contracts. !n other wors, there is no rationa% reason to eem these to -e

su-stantia% contracts.

Hence, uner "resent octrine there are many who "erceive that at the very

%east a %oan for consum"tion contract with interest is forme Bust -y

agreement. Therefore, from the "rinci"%e of freeom of contract, if a "arty


47/92

of interest. This is 10 "er annum for "rinci"a% amounts of 1 mi%%ion yen or

more.

=:ack to the to"

Section 2. Lease

1. Definition

+s a%reay e/"%aine, %ease contracts are %ening contracts where the %ener

receives the return of the things %ent, an the -orrower "ays a va%ue (rent) for

the -orrowing. + ty"ica% e/am"%e is a contract to %ive in a rente we%%ing on

the "ayment of rent.Lease contracts are consensua% contracts an a forme on%y -y agreement of

the "arties (## +rt 291).

'. :orrower


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#ase %aw states that in %an %essees an we%%ing %essees, even if there is

efau%t -y the %essor, un%ess such efau%t causes maBor amage to the trust

re%ationshi" -etween the %essee an the %essor, the %essor cannot terminate

the contract4. ven if the %essee oes not "ay rent for a-out 1 to ' months this

wou% not a%%ow the %essor to terminate the contract. This is referre to as the

octrine of amage to the trust re%ationshi"E.

!n aition, in terms of s"ecia% %egis%ation there is the Lan Lease an House

Lease +ctE. +n out%ine of that +ct is "rovie -e%ow.

(1) Term

The %an %ease rights a""%ica-%e uner the Lan Lease an House Lease are

the %ease rights for %an for the "ur"ose of -ui%ing ownershi" (Lan Leasean House Lease +ct +rt '71). This ty"e of %an %ease right first %imits the

minimum term (*9 years) (Lan Lease an House Lease +ct +rt *). Further, if

there is a -ui%ing e/isting after the e/"iry of the contracte term the %essee of

the %an can re@uest renewa% of the contract (ven if there is no s"ecia% intent

inicate, the ongoing use of the %an means a re@uest has -een mae). The

%essee of the %an cannot -e refuse renewa% of the contract un%ess there are

Bust an reasona-%e grouns for ismissa%E (Lan Lease an House Lease +ct

+rt 0, 2).

:y contrast a minimum term for -ui%ing %eases is not "rescri-e for %eases

with "rescri-e terms of %ess than one year an those consiere not to have

a "rescri-e term (Lan Lease an House Lease +ct +rt '8). However, %eases

with efinite terms wi%% re@uire Bust an reasona-%e grouns for ismissa%E if

the %essor is to either refuse the renewa% of contract or the %essor wants to

su-mit a notice to have the %ease with no "rescri-e term terminate (Lan

Lease an House Lease +ct +rt '4).

However, %an %ease rights without renewa% of the contract term (fi/e %an

%ease rights) are a%so recogni6e uner s"ecific conitions (Lan Lease an

House Lease +ct +rt '' to '). !n aition, for house %eases a fi/e house

%ease system has -een introuce since 1888. !n the case of a fi/e term

house %ease the regu%ations concerning contract renewa% (such as the nee


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for Bust grouns for ismissa% to reBect renewa%) are e/c%ue as a%reay

e/"%aine an the house %ease contract terminates with the initia%%y contracte

e/"iry ate (Lan Lease an House Lease +ct +rt *4 (1)). However,

e"ening on what was written at the time of the contract, there are conitions

im"ose such as a reminer notice to -e given to the %essee uring the "erio

of 1 year to 2 months "rior to the e/"iry ate.

(') Perfection of %ease rights

Chen a %essor transfers the thing to -e %ease to a thir "arty the "rinci"%e is

that the %essee cannot assert a right to %ease against the new owner. However,

even on this "oint, the Lan Lease an House Lease +ct "rescri-es the

fo%%owing ty"e of regu%ation to "rotect the %essee.For a %an %ease, even if the %ease rights themse%ves are not registere, a

%essee who has entere into the %an %ease for the "ur"ose of ac@uiring the

-ui%ing thereon may, if such -ui%ing is registere, assert the %ease rights

against a thir "arty as we%% (Lan Lease an House Lease +ct +rt 19 (1)).

ven for a resientia% -ui%ing %ease, a %ease of a -ui%ing is effective against

a su-se@uent ac@uirer of the "ro"erty rights when the -ui%ing ha -een

e%ivere, even without registrationE (Lan Lease an House Lease +ct +rt *1

(1)).

=:ack to the to"

Chapter . Contracts for pro&ision of ser&ices

1. $ervice ty"es

!t is im"ossi-%e to %ive in moern society without receiving services -ase on

contract. The #ivi% #oe efines a num-er of ty"es of contracts for some form

of service to -e "rovie -y one "arty to anotherG s"ecifica%%y, contracts for

workE, em"%oymentE, manatesE, an e"ositsE. However, the criteria for

these four categories are actua%%y not very c%ear.

Three ty"es contracts for work, em"%oyment an manates are -asica%%y


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e/"%aine as fo%%ows. First, there is a ivision into whether the "ur"ose is to

"rovie %a-or itse%f or "rovie the resu%ts of %a-or (com"%etion of work). The

former is taken to -e an em"%oyment or a manate an the %atter a contract for

work. Then, amongst contracts for which the "ur"ose is the "rovision of %a-or

itse%f there is a -reakown into em"%oyment an manates -ase on whether

the "rovision of such %a-or is uner the irection of the em"%oyer

(em"%oyment) or whether unertaken on the -asis of a s"ecific iscretion of

the %a-or "roviers (manate).

However, even if this is the case, it is not c%ear which wi%% a""%y for a s"ecific

contract. !t is "refera-%e to consier how, uner the -roa conce"t of contracts

for "rovision of services, those contracts are regu%ate -y the #ivi% #oe an

whether or not there shou% -e such regu%ation.+%so, amongst contracts for "rovision of services there are those that are

su-Bect to a num-er of %aws referre to as %a-or %aws that "rovie for the

contractua% re%ationshi" -etween em"%oyers an em"%oyees (the La-or

$tanars +ct is at the core of these). These are referre to as %a-or

contracts. There are various forms of em"%oyment an a s"ecia% act ca%%e the

La-or #ontract +ctE was "romu%gate in '993.

#ontracts for "rovision of services are consensua% contracts an forme on%y

through agreement (## +rt 2'*, 2*', 2*). +greements for the "rovision of

services for custoy of things a%so form a contract even if there is no actua%

acce"tance of things. However, the %ega% re%ationshi" "ertaining to custoy of

things commences with the actua% acce"tance of things (## +rt 203).

'. ;emuneration

!f there is an agreement a-out the e/istence (or not) of remuneration an the

"ayment "erio, such an agreement o-vious%y "revai%s. The issue is when

there is no "recise agreement.

First we consier what ha""ens when there is no agreement a-out the

e/istence (or not) of remuneration. 5n this "oint the #ivi% #oe states that

em"%oyment contracts an contracts for work are contracts for va%ue an


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remuneration is recogni6e in "rinci"%e (## +rt 2'*, 2*'), -ut manate

contracts an e"osit contracts are in "rinci"%e contracts for no va%ue (## +rt

24 (1), 220).

*. $ervice "rovierif so requested by the mandatary% report the current

status of the administration of the mandated business at any time? (## +rt

20). However, when things are he% gratuitous%y a "erson sha%% >exercise

care identical to that he#she exercises for his#her own property? in res"ect ofthe thing he% (## +rt 208).

. Carranties

Chen there is a re@uest for com"%etion of a s"ecific work there is the issue of

what to o if the com"%ete work is efective. +s was e/"%aine in re%ation to

the se%%er


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efect the contract can -e cance%%e. This is virtua%%y the same as for the

se%%er


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the same at any time (## +rt 22'). !f the "arty re@uesting care s"ecifie a

term of care, the thing must -e care for uring that "erio (## +rt 22*).

2. ;egu%ations uner $"ecia% +cts

There is an infinite variety of s"ecific stances for contracts for "rovision of

services ranging from %arge sca%e items such as the unertaking to construct a

-ui%ing to the %eve% of giving an e%er%y "erson a -ath. Thus, "articu%ar

contracts for "rovision of services are su-Bect not on%y to the "rovisions of the

#ivi% #oe, -ut a%so the #ommercia% #oe an other various $"ecia% +cts.

=:ack to the to"

Chapter 0. Other contracts

Section 1. Contracts for foration of organiations

1. Partnershi" contracts

There are various organi6ations in society. + contract to create this ty"e of

organi6ation is referre to as a "artnershi" contract. +rtic%e 223 "aragra"h 1 of

the #ivi% #oe states that the etai%s of a "artnershi" contract are "rovie

>when each of the parties promises to engage in joint business by making a

contribution?. The -usinessE referre to here can -e construe as for

charita-%e "ur"oses, "rivate "ur"oses as we%% as neither of such "ur"oses.

Chen a "artnershi" is forme >The contributions of the partners and other

partnership property shall be jointly owned by all partners? (## +rt 224). Then

the "artnershi" "ro"erty is su-Bect to organi6ationa% restraints an each

"artner is una-%e to is"ose of hisher share (## +rt 232 (1)) nor seek ivisionof the "artnershi" "ro"erty -efore the "artnershi" is isso%ve an %i@uiate

(## +rt 232 (')). :y contrast, each "artner owes a se"arate res"onsi-i%ity in

"ro"ortion to the va%ue of each "artner


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'. +nonymous association contract

However, a%though the name may -e simi%ar to "artnershi" within the #ivi%

#oe, +rtic%e 0*0 of the #ommercia% #oe "rovies for anonymous

associations that are com"%ete%y ifferent ty"es of entities. These are

contracts where a "arty invests in the -usiness of another "arty with the

"romise of sharing in the "rofits arising from sai -usinessE. This is not a

formation of an organi6ation, an in terms of %oans for consum"tion contracts,

the %ent monies are restricte to the "ur"oses of running the -usiness. !n

aition, where the amount of re"ayment an timing is conucte through

istri-ution of "rofit this can -e sai to -e a matter of s"ecific agreement.

!nvestments -y anonymous association mem-ers -ecome the "ro"erty of the-usiness owner (#ommercia% #oe +rt 0*2 (1)).

=:ack to the to"

Section 2. hird party 'eneficiary contracts and others

1. 5ther ty"eE contracts

!n aition to ty"eE contracts efine in the #ivi% #oe are %ife annuities (##+rt 248) an sett%ement contracts (## +rt 280). The #ivi% #oe natura%%y

antici"ates their e/istence, -ut contracts not efine in Part * De-t, #ha"ter '

#ontractsE inc%ue insurance contracts an contracts esta-%ishing rea% rights

such as mortgages.

'. Thir "arty -eneficiary contracts

Furthermore, whi%e not a ty"eE contract one variety of contract efine in the#ivi% #oe is the thir "arty -eneficiary contract. This is a contract ty"e where

a thir "arty other than the contracting "arty o-tains rights -ase on a

contract -etween other "arties.

!n "rinci"%e a contract creates rights an o-%igations on%y -etween the "arties

to the contract, -ut rights can -e "rovie to a thir "arty -y s"ecia%
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