6

General Rules and Institutions

of Private Law

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1. General

(1) The Civil Code and the Commercial Code

The Civil Code and the Commercial Code are the two pillars of Japanese private
law. Both codes were enacted in the late 1890s and are of European origin. The Civil
Code had remained unchanged for many years except for the part on Family and
Succession. However, in the 2000s there were major amendments, including the
modernisation of the wordings of the Code and amendments in relation to jurid-
ical persons. In 2005, the new Company Law was enacted, and the entire company
law part of the Civil Code was separated from the Commercial Code.
The Japanese Civil Code is a comprehensive Code which covers property law,
the law of obligations including contract law, tort law, family law, and the law of
succession. The Civil Code is divided into five Books. Book One is the General
Part which provides for the basic rules and institutions of civil law. These include
the civil law capacity of natural and juridical persons, juristic acts, and agency.
Book Two is entitled Real Rights and covers property and real security rights. Book
Three is the Law of Obligations. Tort is considered to be one of the sources from
which an obligation emerges together with unjust enrichment and is therefore in-
cluded in this part along with contract law. Book Four deals with family relations,
and Book Five covers inheritance.
The present Civil Code was enacted in 1896. While Books One to Three have
not been substantially amended since their enactment, Books Four and Five,
which deal with Family Law and Inheritance Law respectively, were almost totally
amended after the Second World War to democratise family relationships and en-
sure gender equality.
The first attempt to draft a Civil Code began soon after the fall of the Tokugawa
Shogunate in 1867 under the initiative of the minister of justice, Shinpei Etoh. In
1870, a commission for the preparation of the Civil Code was formed and the work
of translating the French Code Civil with the assistance of a French adviser began.
The initial intention of the commission was to transplant the French Code Civil
into Japan as soon as possible. The draft which came out in 1878 was almost a com-
plete copy of the French Code. The translation was very poor in quality and, what

Japanese Law. Hiroshi Oda, Oxford University Press (2021). © Hiroshi Oda. DOI: 10.1093/​oso/​9780198869474.003.0007
118 THE CIVIL CODE

was more, had not paid due attention to the issue of transplanting the French Code
to a very different soil—​pre-​industrial Japan.
The government soon realised this problem and decided to prepare a Code based
upon European legal principles, but which was also ‘practical and appropriate’.1
Gustave Boissonnade was invited as a government adviser from the University of

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Grenoble, and was commissioned to undertake this formidable task. Most of the
draft, except for family and inheritance, was worked out primarily by Boissonnade
on the basis of the French Code Civil, and to a certain extent German law, although
some innovations were added by him. Japanese members of the drafting com-
mittee had studied French law. Simultaneously with the drafting of the Civil Code,
the Commercial Code was being drafted—​although this time the leading role was
given to a German adviser. The draft Civil Code was discussed in the Senate and
the Privy Council. The parts on property, the acquisition of property, obligation,
securities, and evidence were promulgated in 1890.2
This Code—​referred to in Japan as the ‘old Civil Code’—​adopted the system of
the French Code, although in some provisions the influence of Italian, Belgian,
and Dutch Codes can be seen. Although the parts on family law and inheritance
were prepared by the Japanese, they were also inspired by the European concept
of a family based upon the equality of spouses, rather than that of the traditional
Japanese family dominated by the male head of the family.
This Code was subject to a barrage of criticism from various quarters. It was true
that the Code, being the first major legislative work by the Japanese, had shortcom-
ings and ambiguities. It was not surprising that the Code was criticised on these
technical points. However, the criticism was more deeply rooted. First, the Code
was claimed to have been drafted almost entirely on the basis of French law and
did not pay due attention to other jurisdictions, such as English or German law.
This led to factional criticism from lawyers trained in German or English Law. This
rivalry between French specialists and German and English specialists was not
merely a struggle for hegemony. The French specialists had been inspired by the
theory of natural law, while German and English specialists had studied historical
jurisprudence. The former acknowledged the universal applicability of legal prin-
ciples, while the latter emphasised the historical and social environment within
which a particular legal system had developed. Therefore, the latter were sceptical
of the possibility of transplanting the French Code into Japan.
The opponents of the Code were also associated with those who were against
rapid modernisation and who stressed that the traditional values of Japan should
not be replaced by a Christian ideology and European individualism. The family

1 For the influence of French law on the Japanese Code, see E. Hoshino, Minpō-​Ronshū (Treatise on

Civil Law), vol. 6 (Tokyo, 1980), pp. 90–​149. Translated into English in H. Tanaka, The Japanese Legal
System (Tokyo, 1976), pp. 229–​235.
2 See R. Frank, ‘The General Part’ in W. Röhl, History of Law in Japan Since 1868 (Leiden, 2005),

p.166ff.
 General Rules and Institutions of Private Law 119

law and inheritance parts of the Code especially were anathema to them. In an
opposition tract published at the time, it was pointed out that the Civil Code des-
troyed traditional morals and diminished the role of the state. Some people even
asserted that the concept of natural rights was against the Constitution. The criti-
cism was primarily concentrated on the family law part. For example, the Code

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provided that the father exercised parental rights. If the father died, the mother was
to take over those rights. This arrangement was criticised for being against Japanese
tradition, because in such cases traditionally a guardian was to be appointed.3
After a long and fierce debate, the Imperial Diet decided in 1892 to postpone
the implementation of the Code, as well as the Commercial Code. Although for-
mally the Diet merely decided to amend the Code, in fact the Government set up
another commission and instructed it to draft another Code. This Code, eventually
adopted in 1898, is the present Civil Code. It should be noted that this was adopted
two years earlier than the German Bürgerliches Gesetzbuch (BGB), but almost two
decades after the Swiss Law of Obligation.
The new Civil Code has long been considered to be based upon German law. It
is true that the Code was strongly influenced by the second draft of the German
BGB and the Saxonian Civil Code. The Code was organised on Pandekten lines
starting with the General Part which is to be applied to the rest of the Code, fol-
lowed by Property and Securities Rights and the Law on Obligations. There are
many provisions resembling the German BGB. For example, the concept of jur-
istic acts (Geschäftshandlungen/​Rechtsgeschäft) evidently came from Germany.
Taking into account that the new Code was enacted after the previous Code had
been scrapped for its strong French influence, it was not surprising that the new
Code was regarded to be close to the German Code. At that time, a German com-
mentator pointed out that when the Code was enacted it was almost entirely based
upon German law and was much clearer and simpler than the previous Code which
had been replaced by the new Code. ‘It does not look like a translation (as was the
case with the previous Code), but can be read as an original work.’4 Because of the
belief that the new Code was based on German law, Japanese academics made ef-
forts to digest German civil law theories. It was not a rare occurrence that the Civil
Code was interpreted in the same manner as the BGB.
However, contemporary research shows that the influence of French law was
still present in the new Code. In order to enact a new Code in a short time-​span,
the drafters had to rely on the abortive previous Code. Many provisions of the
previous Code have been inherited by the new. For example, the provision which
requires registration of title in order to claim a property right over immovable
property against a third party in the new Code can be found in the previous Code.

3 T. Hoshino, Minpōten Ronsō-​shi (The History of the Debates Concerning the Civil Code) (Tokyo,

192), p. 234.
4 L. Lönholm, Das Bürgerliche Gesetzbuch von Japan, vol. I (Tokyo, 1896), iii–​iv.
120 THE CIVIL CODE

Incidentally, in German law registration is a requirement for the transfer of immov-

ables to take effect, while in French law the transaction is valid without registration,
although the parties may not claim their rights against a third party without regis-
tration. In this respect the present Code has clearly adopted the French approach.5
Thus, while maintaining the facade of German law, the legislature at that time kept

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certain part of the previous Code that had been influenced by the French Code. It is more
correct to say that the drafters intended to produce an ideal system by taking the best of
the German and French Codes. It should be added that some of the civil law doctrines
and institutions came from sources other than French or German law. For instance, the
doctrine of ultra vires came originally from English law, but probably via French law.6
Some laws supplementary to the Civil Code were enacted at the end of the last cen-
tury. These include the Law on the Registration of Real Property (1899) and the Law
on Deposits (1899).7 Other laws, such as the Law on the Hypothec of Factories and
laws relating to the security over enterprises and some movable property, including
cars and ships, were adopted later as the economy developed.8
The by-​product of modernisation was the emergence of socially deprived people,
primarily labourers and tenant farmers. In order to protect those who were in socially
weak positions, laws were enacted to modify the provisions of the Civil Code. Thus,
the Law on the Protection of Buildings (1907), the Law on the Lease of Houses (1921),
and the Law on the Lease of Land (1921) were enacted.9 In 1991 these three were
merged into one new law—​the Law on Lease of Land and Houses.10
In recent years, with increased risks accompanying advances in technology,
some new laws in the field of tort law have been enacted. These include the Law on
Compensation for Nuclear Damage, which provides for strict liability (1961) and
the Law on the Compensation of Losses caused by Pollution (1971), which pro-
vides for a sophisticated mechanism of compensating victims of pollution.11 The
Law on Compensation for Losses arising from Car Accidents was enacted in 1955
in order to cope with growing number of traffic accidents.12
Some developments could be seen in consumer protection. In 1994, the Product
Liability Law was enacted.13 This was followed by the Consumer Contract Law in
2000.14

5 E. Hoshino, supra, p. 99. See also S. Koyanagi, ‘Minpō-​ten no Tanjyō (The Emergence of the Civil

Code)’, in E. Hoshino and T. Hironaka (eds), Minpō-​ten no Hyakunen (Centenary of the Civil Code), vol.
1 (Tokyo, 1999), p. 3ff.
6 See the chronological table in K. Shinomiya and Y. Nomi, Minpō-​Sōsoku (The General Part of the

Civil Code), 9th edn (Tokyo, 2018), p. 7.

7 Laws No. 15 and 24, 1899.
8 Laws No. 54, 1905; No. 106, 1958; and No. 187, 1951.
9 Laws No. 40, 1909 and No. 49 and 50, 1922.
10 Law No. 90, 1991.
11 Law No. 111, 1973.
12 Law No. 97, 1955.
13 Law No. 85, 1994.
14 Law No. 61, 2000.
 General Rules and Institutions of Private Law 121

In 2006, a major reform of the system of juristic persons took place. This part
of the Code was substantially amended and a set of new laws including the Law
on General Associations and Foundations and the Law on Certification of Public
Interest Associations and Foundations were enacted.15

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(2) The reform of the Civil Code

The Japanese Civil Code was enacted in the late 1890s. Since then, except for the
post-​Second World War reform of family law and inheritance law, the Code has
not undergone major changes. The reason why the Code stayed almost intact for
over a century can be explained in several ways. First, the provisions of the Code
were general enough with a broad scope for interpretation. The intention of the
legislature was to let case law play a role in adjusting the Code to changes by way
of interpretation. Secondly, statutes which supplement the Code had been enacted
over the years. This ranges from laws on tenancy and real security rights to the
latest addition, Trust Law. Thirdly, since the 1910s, various theories and doctrines
on civil law were imported from Europe, namely Germany. In some cases, rather
than focussing on the provisions of the Code, such theories and doctrines were re-
lied upon. The literal meaning of the provisions came to carry less weight.16
On the occasion of the centenary of the enactment of the Civil Code, proposals
for the reform of the Law of Obligations were published.17 In the mid-​2000s, the
move towards a major amendment of the Civil Code gained momentum.18 It was
thought that the Civil Code, particularly contract law, was lagging behind devel-
opments in society. The reform of the law of obligations in Germany in 2002 had a
significant impact on this move.19 The development of the UNIDROIT Principles
of International Commercial Contracts and Principles of European Contract Law
also had some influence.
In 2009, the minister of justice consulted the Legislative Advisory Council to
review the provisions involving contract law in the Civil Code. The deliberation
took more than five years. In 2013, the Council published an interim reform
programme which contained various proposals for reform. Finally, in 2015, the
Council adopted the final programme of reform. The bill on the amendments to
the Civil Code, based on this programme, was submitted to Parliament in the same

15 Laws No. 48 and 49, 2006,

16 H. Nakata, Keiyaku-​Hō (Contract Law) (Tokyo, 2017), pp. 3–​5.
17 Y. Nōmi et al., Saiken-​Hō Kaisei no Kadai to Hōkō (The Task and Direction of the Reform of the Law

of Obligations) (Tokyo, 1998).

18 M. Kato, ‘Nihon minpō kaisei shian teiji no junbi no tameni (In Preparation for the Presentation of

a Tentative Draft of the Amendments to the Civil Code) (1)’, Jurist, No. 1353 (2008), pp.118–​119.
19 R. Zimmermann, The New German Law of Obligations—​Historical and Comparative Perspectives

(Oxford, 2005), pp. 5–​24.

122 THE CIVIL CODE

year. In 2016, the bill was discussed at the committee level, and in the end, in April
2017, the bill was adopted. The amendments came into effect on 1 April 2020.20
The scope of changes was significantly reduced in this process, particularly at
the stage of the interim reform programme. As one expert pointed out, ‘a number
of proposals were dropped at this stage, and the scope of reform became limited in

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comparison to the scope of reform originally envisaged’.21 Those proposals which
were dropped include proposals on the interpretation of contracts, long-​term
continuous contracts, unfair withdrawal from contract negotiation, duty to pro-
vide information in the process of negotiation, and anticipatory breach.22 Still, the
amendments were extensive, covering 324 provisions. The amendments are found
in the General Part and the Law of Obligations.
Following the amendments to the law of obligations, the part of the Code on in-
heritance law was amended a year later.

(3) The Commercial Code

The present Commercial Code is divided into the General Part, Commercial
Transactions, and Merchant Shipping and Insurance.23 There was a part on com-
pany law, but this part has been separated from the Commercial Code by the en-
actment of the Company Law in 2005 (see Chapter 11). The Commercial Code is
supplemented by various laws such as the Law on Cheques, the Law on Bills, and
the Law on Commercial Registration.24
The first Commercial Code of Japan was promulgated in 1890. It was based upon
a draft prepared by a German adviser, Herman Roesler, who consulted German,
French, and English law in the course of its preparation. The composition of the
Code was similar to that of the French Commercial Code of 1807, although in sub-
stance it could be described as a blend of German and French law. However, the
Code was caught in a crossfire of criticism together with the Civil Code, and it was
some years before it took effect. A revised Code, which is still in force, was finally
adopted in 1899. This was primarily modelled after the German Commercial Code
(Handelsgesetzbuch) of 1897, but with some French influence.25
The Code has undergone some major changes since its enactment. Japan rati-
fied the Geneva Conventions on the Unification of the Law of Bills and the Law of

20 T. Tsutsui and H. Muramatsu, Ichimon-​Ittō, Minpō-​Kaisei (Amendments to the Civil Code, Law of

Obligations) (Tokyo, 2019), pp. 5–​12.

21 Nakata, supra, pp. 10–​11.
22 Ibid.
23 Law No. 48, 1899.
24 Laws No. 57, 1933; No. 20, 1932; and No. 125, 1963.
25 F. Takakura, ‘Shōhō-​ten no Tanjō (The Emergence of the Commercial Code)’, Jurist, 1999, No.

1155, pp. 5–​15.

 General Rules and Institutions of Private Law 123

Cheques in 1930 and 1931 respectively, which resulted in the separation of the part
of the Commercial Code on bills and cheques from the rest of the Code.
The provisions of the Commercial Code are special rules in contrast to the gen-
eral law of the Civil Code, and therefore the former takes priority whenever provi-
sions of both codes apply. In the absence of relevant provisions in the Commercial

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Code, commercial custom is first applied, and only when there is no custom is the
Civil Code applied (Art. 1, Commercial Code).

(4) The location of contract law

Unlike the Code Civil or the Swiss Law on obligations, in the Japanese codes, con-
tract law provisions are not located in one place.
For many years, contract law has been categorised as the ‘special part’ of the
law of obligations. Most books on contract law were entitled ‘special part of
the law of obligations’, rather than ‘contract law’. This is, in a way, natural, since
the second chapter of Book Three of the Civil Code (Law of Obligations), fol-
lowing the first chapter on the general rules of the Law of Obligation, deals with
contracts. This chapter is divided into a general part of contract law and provi-
sions on typical contracts such as contract of sale and loan, and leases. In add-
ition, there are contracts covered by the Commercial Code such as shipping and
insurance.
Book Three of the Commercial Code deals with commercial transactions. There
is a general part, followed by provisions on typical contracts such as sale, accounts
current, anonymous associations, merchant shipping, etc.
The Commercial Code provides that certain transactions are commercial per
se. These include transactions whose purpose is the acquisition for value of mov-
ables, immovables, or securities with the intention of assignment for profit, or
the transfer of movables, immovables, or securities so acquired (Art. 501). Then
there are transactions which are commercial if effected as a business. These include
transactions relating to manufacture or processing done for other persons as well
as money-​changing and other banking transactions and insurance (Art. 502). In
addition, there are incidental commercial transactions which are effected by a mer-
chant for his business (Art. 503). A merchant is defined in the Code as a person
who, on his own behalf, effects commercial transactions by way of business (Art. 4,
para. 1). Thus, while contracts of sale are covered by both codes, provisions of the
Commercial Code have priority insofar as the contract falls within the category of
commercial transactions.
In addition to these provisions on contracts, since contracts are juristic acts,
provisions of the Civil Code on juristic acts apply to contracts. They are found in
the General Part (Book One) of the Civil Code. Thus, a contract as an outcome of a
declaration of will can be null and void or voidable on various grounds for absence
124 THE CIVIL CODE

of will, defective declaration of will, such as fraud, mistake, duress, etc., as provided
in the General Part. Agency is also covered in the General Part.
This arrangement is akin to the German system, but can be confusing to lawyers
from the common law jurisdictions.

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2. General Principles and Basic Rules

(1) Civil law rights and public welfare

It is a characteristic of the German Pandekten system that general principles and

basic rules are singled out and put at the beginning of the Code.26 The Japanese
Civil Code is no exception; these principles and rules are set out at the beginning of
the General Part of the Civil Code. They are applicable not only to civil law transac-
tions, but also to commercial transactions. The General Part begins with a general
provision on the exercise of private rights.
The Civil Code provides as follows:

1. Private rights shall conform with public welfare.

2. The exercise of rights and the performance of obligations shall be effected in a
fair manner and in good faith.
3. Abuse of rights is not permitted. (Art. 1)

This provision was added to the Civil Code after the promulgation of the pre-
sent Constitution in 1947. The first paragraph coincides with the provision of the
Constitution which states that the contents of property rights are to be regulated by
law in accordance with public welfare (Art. 29, para. 2). This provision reflects the
rejection of the sanctity and absolute inviolability of property rights.
One of the rare cases where this provision was applied involved the claim of a
landowner who let his land for use as a US military base. When the lease expired,
the landowner claimed that his property should be returned to him. The Supreme
Court ruled that the loss incurred by the state if the land was returned to the owner
would exceed the benefit receivable by the owner, and therefore the claim was con-
trary to public welfare.27
The second and third paragraphs, on good faith and fair dealing and the prohib-
ition of abuse of rights respectively, are often referred to in court judgments where
an equitable solution cannot be reached by relying on specific provisions of the

26 N. Horn, H. Kötz, and H. G. Leser, German Private and Commercial Law (translated by T. Weir)

(Oxford, 1982), pp. 66–​67.

27 Judgment of the Supreme Court, 9 March 1965, Minshū 19-​2-​233.
 General Rules and Institutions of Private Law 125

Civil Code. It should be added that the provision on public order and good morals
in the General Part (Art. 90) serves a similar purpose.

(2) The doctrine of good faith and fair dealing

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The doctrine of good faith and fair dealing (shingi seijitsu no gensoku) had long
been recognised by the courts before it was formally incorporated into the Civil
Code after the Second World War. Continental civil codes such as French and
German Codes have similar provisions.28 This doctrine is applied in various cir-
cumstances, including cases which in the UK would be covered by estoppels.
The court resorted to this doctrine in a case involving piercing the corporate
veil. In one case the lessee of a piece of land—​a company—​was sued by the lessor
for failing to pay the rent. The president of this company established another com-
pany with a similar name in order to avoid such claims. He contested a claim in the
court. Then, after a year, while the case was still pending, this person contended
that his company was a different entity from the one which had been sued, and that
the plaintiff should have sued the new company. The court rejected this argument
as being contrary to good faith and fair dealing.29
The court also applied this doctrine in order to protect the lessee of a house or
land from eviction. According to the provisions of the Civil Code, the lessor is en-
titled to terminate the contract of a lease when the lessee sublets the property, or
assigns his interest to a third party without the consent of the lessor (Art. 612). The
contract can also be rescinded when the lessee fails to pay the rent. However, the
court restricts rescission of the contract by the lessor only to cases where the act of
the lessee amounts to a destruction of mutual trust. In one case, the court refused
to terminate a lease on the ground of this doctrine; the court pointed out that the
amount of arrears was small and that the lessee was entitled to a claim for repair,
therefore the lessee could not be regarded as having acted against the doctrine of
good faith and fair dealing.30 In a similar vein, the court developed the doctrine of
unfair dismissal out of this provision (see Chapter 16).
Sometimes a claim that a certain right has been extinguished by prescription
is turned down by the courts on the ground that it is against good faith and fair
dealing. A widow who had obtained a piece of land from her eldest son (the only
heir under pre-​war family law) failed to have it registered in her own name. She
was not on good terms with the eldest son and raised her other children by farming
this piece of land. Some 20 years later she asked the eldest son to cooperate in regis-
tering the property in her name. He refused, and as a defence in court, claimed that

28 Horn et al., supra, pp. 86–​87.

29 Judgment of the Supreme Court, 26 October 1973, Minshū 27-​9-​1240.
30 Judgment of the Supreme Court, 28 July 1964, Minshū 18-​6-​1220.
126 THE CIVIL CODE

her right to demand cooperation in registration had already been extinguished

by prescription. The Supreme Court found that this defence was against fairness
and good faith.31 In a recent case, the court found that the state was not entitled
to invoke prescription in relation to a Japanese national who was a victim of the
atomic bomb in Hiroshima and who later emigrated to Brazil, against his claim for

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a benefit under the special assistance law. This was based upon the doctrine of good
faith and fair dealing.32
Since the 1960s this doctrine has come to be utilised in an even broader
manner.33 Culpa in contrahendo has been acknowledged on the basis of this pro-
vision. In some cases, based on this doctrine, the court acknowledged the duty of
a bank official and a real estate agent respectively to make certain enquiries before
effecting a transaction.34 In other cases, a party in the process of negotiation was
found to owe a certain duty to the other party involved. In other cases, the courts
have ruled that rescission or refusal to renew a long-​term, continuous contract
under certain circumstances ran counter to this doctrine (for culpa in contrahendo,
see Chapter 7).

(3) Abuse of rights

While the doctrine of good faith and fair dealing is applied in cases where a par-
ticular relationship—​such as a contractual one—​exists between the parties, the
prohibition against the abuse of rights is generally used in cases where there is no
such relationship. As was the case with the doctrine of good faith and fair dealing,
this doctrine had also been acknowledged by the court before it was incorporated
into the Civil Code after the Second World War. The exercise of one’s right can be
regarded as abusive if it unreasonably infringes another person’s rights. No inten-
tion to harm the other person is needed.
In a leading case, a pipeline came from a hot spring and crossed a small piece of
land which belonged to another person. The plaintiff purchased this piece of land
and required the owner of the pipeline to purchase it at a high price. When this was
not accepted, he brought an action against the owner of the pipeline, demanding
that the pipeline be removed. The court rejected the claim as an abuse of rights.35
Another case involved the trademark registration of Popeye the Sailorman.
The trademark in question was composed of the name Popeye and a figure of
this cartoon character. Someone then acquired the right to use the character as a

31 Judgment of the Supreme Court, 25 May 1976, Minshū 30-​4-​554.

32 Judgment of the Supreme Court, 6 February 2007, Minshu 61-​1-​122.
33 T. Uchida, ‘Gendai keiyaku-​hō no aratana tenkai to ippan-​jōkō (New Development of Modern

Contract Law and General Clauses) (3)’, New Business Law, No. 516 (1993), pp. 22–​28.
34 Judgment of the Supreme Court, 26 May 1961, Minshū 5-​5-​1440.
35 Judgment of the Supreme Tribunal, 5 October 1935, Minshū 14–​1965.
 General Rules and Institutions of Private Law 127

trademark from the holder of the copyright on their products. The person who had
registered the trademark in Japan sued this person for infringement of a registered
trademark. The Supreme Court found this also to be an abuse of rights.36
This provision is sometimes used in cases of public nuisance. Construction of a
two-​storey building was found to be an abuse of rights, since it seriously blocked

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sunshine and ventilation for an adjacent house. In this case, the building did not
meet the standard required by the Law on Architectural Standards.37 However,
such cases can be dealt with under tort law or property law, and the reasonableness
of resorting to this provision is being questioned.

3. Legal Capacity

(1) Physical persons

The first chapter of Book One of the Civil Code deals with the capacity of phys-
ical and juridical persons. The term ‘legal capacity’ was introduced from Germany
(Rechtsfähigkeit). It denotes the capacity to be a subject of rights and duties and is
distinguished from the capacity to act (Handlungsfähigkeit), which means the cap-
acity to obtain rights, assume duties, and incur liabilities via juristic acts. Physical
persons have legal capacity without exception. They are entitled to hold private
rights from the moment of their birth (Art. 3, para. 1). These rights also extend
to a child in the womb in relation to tort and inheritance. Thus, an unborn child
is deemed to have been born and is entitled to claim for damages (Art. 721). The
same applies to inheritance (Art. 886, para. 1).
A physical person has legal capacity until his or her death. When several people
have died and the order of death is not known, it is presumed that they have died
simultaneously (Art. 32-​3). When it is not known whether a person is dead or alive
for seven years, the family court may declare this person to be missing (Art. 30,
para. 1). In cases of war or shipwreck, a person can be declared missing one year
after the incident (Art. 32., para. 2).
Foreign citizens are also entitled to be subjects of private rights insofar as such
entitlement is not prohibited by law, ordinance, or an international treaty (Art. 3,
para. 2). In some cases, for instance, in government liability, instead of equal treat-
ment of Japanese and foreign citizens, the principle of reciprocity is applicable.
The Law on Compensation by the state provides that when the victim is a foreign
citizen, the law applies only when the law of his home country provides for equiva-
lent treatment (Art. 6). There are also laws which restrict the rights of foreign citi-
zens to obtain specific rights or operate certain businesses in one way or another.

36 Judgment of the Supreme Court, 20 July 1990, Minshū 44-​5-​876.

37 Judgment of the Supreme Court, 27 June 1972, Minshū 26-​5-​1067.
128 THE CIVIL CODE

Some transactions are subject to government permission by the Foreign Exchange

and Foreign Trade Law. Acquisition of shares of a power utility by a foreign invest-
ment fund was blocked under this Law.38
A rather obsolete Law on the Rights of Foreigners on Land provides for reci-
procity and enables the government to restrict acquisition of land in areas which

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are needed for national defence (Art. 4, para. 1). However, this Law has not been
applied for many years.39
Not every person with legal capacity can act on his own and acquire entitle-
ment and assume duties. The Civil Code previously provided for ‘incompetents’
and ‘quasi-​incompetents’. Until 1947 wives were considered to be legally incompe-
tent. In 1979, the provision which had categorised blind, deaf, or dumb persons as
quasi-​incompetents was repealed.
The system of incompetency and quasi-​incompetency went through a com-
prehensive review, particularly from the viewpoint of reinforcing the right of
self-​determination and ‘normalisation’ in the late 1990s. As a result of this review,
the system of incompetence was substantially changed and a new system of adult
guardianship (seinen-​kōken seido) was introduced.40
Under the new system, the concept of ‘incompetent’ was abolished. Those whose
capacity is limited are categorised as persons with limited capacity. These include
minors, adults under guardianship, and persons under curatorship. The family
court may decide on the commencement of guardianship in relation to those who
are in a permanent state of being incapable of understanding reason as a result
of mental disturbance, upon application by the person themselves, their spouse, a
member of the family within the fourth rank, the public prosecutor, etc. (Art. 7). As
a result of this procedure (shinpan) , a guardian for adults can be assigned (Art. 8).
Acts of the person under guardianship can be rescinded (Art. 9).
For those whose capacity for understanding reason is deficient as a result of
mental disturbance, a curator can be assigned (Arts 11 and 12). Certain acts of
those who are under support, such as borrowing and guaranteeing, real estate
transactions, etc. require the consent of the curator (Art. 13, para. 1). Acts effected
without the consent of the curator where it was required can be rescinded (Art. 13,
para. 4).
Minors have limited capacity to act. A person acquires majority at the age of
20, or by marriage (Arts 4 and 753). A minor is required to obtain the consent
of his legal representative to acquire entitlement or assume duties (Art. 5, para.
1). Usually, those who have parental rights over a minor become the minor’s legal
representatives. Acts done without the consent of the legal representative can be
rescinded (Art. 5, para. 2).

38 Nikkei, 13 May 2008.

39 Law No. 42, 1925.
40 Law No. 149, 1999.
 General Rules and Institutions of Private Law 129

Although there is no statutory provision to this effect, it is considered that the

act of a person who is incapable of understanding the meaning and effects of his
action is void. For instance, if a person who is suffering from serious mental disease
but who has not yet been declared incompetent by the court concludes a contract,
that contract is void.

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(2) Juridical persons

As in other jurisdictions, juridical persons have legal capacity just as individuals—​

physical persons—​do. The Civil Code had provided for two types of juridical
persons: associations and foundations. This was followed by the 2006 Law which
provides for general associations and general foundations. An association is a
group of individuals who come together to achieve certain purposes. In con-
trast, a foundation is a set of properties endowed for a certain purpose, and has no
members.
This two-​tiered system of associations and foundations originates in the
German Civil Code, which distinguishes between Verein and Stiftung. However,
while German law divides Verein into commercial and non-​commercial associ-
ations, the Japanese Civil Code used to divide associations into profit-​making
associations and public interest associations. Profit-​making associations were
companies and were governed by the Commercial Code (now covered by
Company Law). In reality, before the reform in 2006, public interest juridical per-
sons established on the basis of the Civil Code were relatively small in number—​
12,677 associations and 12,586 foundations in 2005—​as compared to the number
of companies covered by the Company Law, which exceeded 2 million.41 Since
the Second World War a number of separate laws have been enacted, for instance
the Law on Religious Organisations and the Law on Private Schools. These laws
have special provisions as to the procedure for establishing and organising these
entities.
Since associations and foundations under the Civil Code had to involve public
interest, in order to establish such organisations, approval of the relevant admin-
istrative agency was required. Some organisations refrained from applying for
juridical personality in order to avoid the cumbersome procedures, costs, and
supervision by the administrative agency. Although obtaining approval was dif-
ficult, subsequent control by the relevant ministry was lax. In the late 1970s, in re-
sponse to mounting criticism of such public interest juridical persons for allegedly
abusing their status and being involved in profit-​making activities, the supervisory
power of administrative agencies was strengthened, but this was not really effective.

41 <http://​www.soumu.go.jp/​s-​news/​2006/​pdf/​060815_​1_​2.pdf>.
130 THE CIVIL CODE

Furthermore, the Civil Code before 2006 left no room for associations
which were neither profit-​making associations nor public interest associations.
Organisations such as social clubs and alumni associations were not entitled to
acquire juridical personality. In 2001, the Law on Intermediate Juridical Persons
which enabled non-​profit, non-​public interest juridical persons to be established

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was enacted. However, this Law did not function well, and was repealed in 2006.
The Civil Code underwent a major reform regarding juridical persons in 200642
A new Law on General Associations and General Foundations was enacted (here-
inafter, ‘the 2006 Law’). This Law replaced the Law on Intermediate Juridical
Persons of 2001.43 Most of the provisions on juridical persons which used to be
covered by the Civil Code were transferred to the 2006 Law.
The reason why the 2006 Law refers to ‘general’ associations and foundations is
that they are contrasted to public interest associations and foundations. Founding
of general associations and foundations under the 2006 Law are not subject to gov-
ernment permission. Only if they choose to become public interest organisations,
they are required to apply for government ‘recognition (certification)’ on the basis
of the Law on the Certification of Public Interest Associations and Public Interest
Foundations which was also enacted in 2006.44 Naturally, general associations and
general foundations are entitled to be involved in public interest activities, but
without the certification of the relevant administrative agency, tax benefits as a
public interest organisation are not available.45
As a result of the 2006 reform, associations and foundations can now be set up
without the approval of the relevant administrative agency, regardless of whether
they involve public interest or not. Associations can be set up by two or more per-
sons. Articles of association must be prepared and notarized. They must be regis-
tered (Arts 10, para. 1, 13, and 22 of the 2006 Law). For foundations, in addition to
the preparation of the act of endowment and its notarisation, a contribution of as-
sets of three million yen or more is required (Arts 152, para. 1, 155, 157, 153, para.
2, and 163). There is no restriction as to the activities in which associations may be
involved. Foundations do not necessarily have to be public interest foundations,
which was previously the case.
General associations and general foundations may apply for a certificate as a
public interest association or a foundation (Law on the Certification of Public
Interest Juridical Persons, Art. 4). The certification can be revoked under certain
grounds (Art. 29, paras 1 and 2).
Since the procedure involved in applying for certification of a public interest
foundation is rather cumbersome, trusts for public interest purposes governed by

42 H. Nakata, ‘Ippan Shadan/​ Zaidan Hōjin-​Hō no Gaiyō (An Outline of the Law on General
Associations and Foundations)’, Jurist, No. 1328 (2007), p. 2 ff.
43 Law No. 48, 2006.
44 Law No. 49, 2006.
45 Y. Nōmi, Minpō-​Sōsoku (General Part of the Civil Code), 9th edn (Tokyo, 2018), pp. 105–​107.
 General Rules and Institutions of Private Law 131

trust law have begun to be used in recent years. The Law on Trust Business was sub-
stantially amended in 2004. A new Trust Law which replaced the Trust Law of 1922
was enacted in 2006.46
Under certain circumstances, organisations without juridical personality need
to be treated as juridical persons and have relevant provisions of the law applied to

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them. As for the capacity to sue and to be sued, the Code of Civil Procedure grants
these organisations such status (Art. 29). It is considered appropriate to deny at-
tachment of the assets of the organisation by the creditors of the members when
the assets of the organisation are effectively separated from those of the members.
In a similar way, there are organisations without juridical personality, whose cred-
itors may attach only the assets of the organisation and not the assets of the mem-
bers. There was a case in which a director of an association, which does not have
juridical personality, abused his power, incurred debts, and disappeared. The cred-
itor sued the members of the association for repayment. The lower court found that
the liability of members should be limited to the amount of the assets of the associ-
ation and should not extend to their individual assets. The Supreme Court upheld
this judgment.47
The Civil Code provides that a juridical person acquires entitlement and as-
sumes duties in accordance with laws and ordinances, and ‘within the scope of its
purposes as provided by the articles of association or the act of endowment’ (Art.
34). Transactions which exceed the scope of purposes set out by the articles of as-
sociation are void. This provision has evidently been influenced by the doctrine of
ultra vires. It may be relevant to public interest juridical persons, but in relation to
companies, strict implementation of this provision could disadvantage those who
enter into a transaction with the companies.
In cases involving companies, the courts tend to interpret the ‘purpose’ of the
articles broadly and to acknowledge the validity of transactions which are con-
tested to be ultra vires. In a celebrated case, a major steel company made a donation
to the ruling political party. A company shareholder brought an action against the
representative director of the company, contending that the donation was beyond
the purposes of the company. The Supreme Court repeated the precedents, in that
‘acts within the scope of purposes’ in the sense of Article 43 includes not only the
purposes explicitly stipulated in the articles of association, but also acts needed dir-
ectly or indirectly to achieve these purposes. In this particular case, the court ruled
that donations of a reasonable amount are not ultra vires insofar as they are needed
to fulfil the social role expected of the company.48

46 Law No. 108, 2006. Y. Nōmi et al eds, Shintaku-​Hō Semina (Trust Law Seminar) (1) –​(3),(Tokyo,

2013-​2015).
47 Judgment of the Supreme Court, 9 October 1973, Minshū 27-​9-​1129.
48 Judgment of the Supreme Court, 24 June 1970, Minshū 24-​6-​625.
132 THE CIVIL CODE

In comparison, in cases concerning public interest juridical persons, the court

tends to interpret the scope of purposes narrowly. In one case, an agricultural co-
operative extended a loan to a non-​member which was not allowed by the articles
of association. The loan had nothing to do with the business of the cooperative. The
Supreme Court found this transaction to be outside the scope of the cooperative’s

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business and therefore void.49
The governance structure of general juridical persons is determined by the
Law on General Associations and General Foundations. General associations
are governed by the general meeting of the members (Arts 35, para. 1). There
must be one, or two and more directors. They may establish a board of directors,
involve an auditor or a public accountant by the articles of association (Art. 60,
para. 2). Directors owe a fiduciary duty vis à vis the association or foundation
(Art. 83). Directors, auditors, or public accountants are liable to the company
for neglect of duty (Art. 111, para. 1). Juridical persons are liable for tortious
acts by the directors and other representatives in the course of their business
(Art. 78).
General foundations must have councillors, a council, directors, a board of dir-
ectors, and auditors (Art. 170, para. 1). The liability provisions regarding associ-
ations apply to foundations as well (Arts 197 and 198).

4. Piercing the Corporate Veil

In some cases juridical personality is used to shield a person behind the corporate
veil, e.g. for the purpose of avoiding attachment. In recent years a theory which de-
nies juridical personality in such cases has developed under the influence of similar
developments in the United States and Germany. In Japan there are a number of
small companies limited by shares which are actually individual businesses. The
Supreme Court ruled that when the juridical personality is abused in order to cir-
cumvent the law, or the juridical personality is merely a sham, juridical personality
can be ignored by the creditor on the basis of the doctrine of good faith and fair
dealing. In this case, businessman A ran a shop for home appliances which was
incorporated as a company limited by shares (Company Y). The shop premise was
let by X. X intended to evict A and Company Y from the property and eventually
X and A reached a settlement in court; A agreed to move out. However, A failed to
comply with the agreement, claiming that Company Y was not a party to the settle-
ment and that part of the premises used by the company need not be returned to
X. X sued Company Y. The Supreme Court ruled that although Y was a company
limited by shares, in reality it was nothing other than A as an individual. Therefore,

49 Judgment of the Supreme Court, 26 April 1966, Minshū 20-​4-​849.

 General Rules and Institutions of Private Law 133

the settlement reached between X and A in court should be regarded as an act be-
tween X and Company Y and was binding on Y as well.50
The Supreme Court commented that the corporate veil can be pierced in cases
where (i) juridical personality has been abused, or (ii) juridical personality has no
substance and the juridical person is a sham.

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5. Juristic Acts

(1) The concept of juristic acts

The General Part of the Civil Code provides for juristic acts. The term juristic
acts came from the German term Rechtsgeschäft. It is a product of the German
Pandekten jurisprudence, which has a penchant for abstract concepts. The General
Part of the BGB has provisions on juristic acts, which comprises a concept formu-
lated out of common characteristics of contracts, wills, acts of incorporation, and
other legal acts.51 The Japanese Code has followed this model.
A juristic act is defined as an act directed towards a specific legal effect, i.e. an
act aimed at obtaining, relinquishing, or otherwise altering a right, which can be
enforced by the judicial system. Legal relationships between the subjects of law, as
well as the subjects and objects of law, emerge as a result of a juristic act. A typical
juristic act is a contract, but it also covers unilateral acts such as gifts, wills, and
joint acts such as an act of incorporation. Thus, general rules on juristic acts which
are accommodated in the General Part of the Civil Code apply to contracts to-
gether with the relevant provisions in the Part on Law of Obligations.
As Friedrich Carl von Savigny elaborated in his Theory of Will, the core of the jur-
istic act is the declaration of will, which is an expression of the will of a person dir-
ected at a specific legal effect. Specific legal effects result from the will of a person.
This presupposes the principle of private autonomy; where there is no freedom of
will, there are no grounds for juristic acts to have any legal consequences.
In the early period of the Japanese Civil Code, declaration of will and juristic
acts were not clearly distinguished from one another conceptually. The subsequent
influence of German theories led to a distinction being made between the two con-
cepts; a declaration of will is an element—​indeed the core—​of a juristic act, but it
is not a juristic act itself. Bilateral juristic acts require two or more declarations of
will to match, and are therefore more than a declaration of will; there are also acts
which require other elements, such as the licence of an official body, to be effective.

50 Judgment of the Supreme Court, 27 February 1969, Minshū 23-​2-​511. K. Egashira, ‘Kigyō no

Hōjinkaku (Juridical Personality of Corporations)’, in A. Takeuchi and M. Tastuta (eds), Gendai Kigyō-​
Hō Kōza (Contemporary Corporate Law), vol. 2 (Tokyo, 1985), p. 57ff.
51 O. Jauernig (ed.) Bürgerliches Gesetzbuch, Kommentar (Munich, 2004), S. 40–​43.
134 THE CIVIL CODE

Thus, the juristic act is understood to be a broader concept than that of the declar-
ation of will.
Whether a contract had been concluded or not is a matter of matching of the
declared will of the parties. If the declaration of will was defective in one way or
another, it will affect the validity of the contract. Once a contract has been made,

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then, ascertaining of the content of the contract is a matter of interpretation of jur-
istic acts.52

(2) Juristic acts against public order and good morals

The Civil Code, before the 2020 amendments, provided that juristic acts whose
purpose is against public order or good morals are null and void (Art. 90). The
‘purpose’ clause has been removed in line with the court decisions on this point. It
is now simply provided that juristic acts against public order and good morals are
null and void. Together with Article , which provides for the doctrine of good faith
and fair dealing, the Code gives the court broad discretion in this general provi-
sion. The courts have been fairly active in applying this provision in order to reach
fair and equitable solutions.
Classic examples are immoral contracts or contracts which infringe the integrity
of a person; they are null and void by virtue of this provision. In a case in the 1950s,
Y borrowed money from X and in return sent his daughter to work under X as a
barmaid. Half of her salary was deducted as a repayment of the father’s debt. The
daughter fled, and X claimed repayment from Y. The Supreme Court found both the
employment contract between the daughter and X, and the loan contract between
X and Y to be void on the ground of this provision.53 Also, a loan contract for gam-
bling money is null and void if the creditor was aware of the purpose of the loan.54 In
a recent case, an agreement between an employee and a trade union which deprived
the employee of the freedom to withdraw was found to be against this provision.55
Contracts concluded where one party is in a strong bargaining position and
which are excessively disadvantageous to the other can be null and void on the basis
of this provision. For example, a loan contract was concluded in which the debtor
was under an obligation to transfer to the creditor a piece of land worth eight times
as much as the amount he had borrowed in case of default. The Supreme Court
found this contract to be against public order and good morals.56

52 Nōmi, General Part of the Civil Code, supra, pp. 221–​222.

53 Judgment of the Supreme Court, 7 October 1955, Minshū 9-​11-​1616.
54 Judgment of the Supreme Court, 4 September 1986, Hanji 1215–​47.
55 Judgment of the Supreme Court, 2 February 2007, Minshū 61-​1-​. On gender discrimination on the

retirement age, judgment of the Supreme Court, 24 March 1981, Minshū 352-​300.[Mike: cannot change
the location]
56 Judgment of the Supreme Court, 18 January 1963, Minshū 17-​1-​25.
 General Rules and Institutions of Private Law 135

Juristic acts are required to comply with the law. The Code provides that the par-
ties may deviate from provisions of laws and ordinances, unless these provisions
concern public order, i.e. are mandatory provisions (Art. 91). Whether a given pro-
vision is mandatory or optional is not always explicit in the Code. Generally, Books
Four and Five—​Family Law and Inheritance, as well as Book Two—​Property

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Law—​have more mandatory provisions than Book Three—​the Law on Obligations.
However, juristic acts which are against mandatory provisions are not al-
ways null and void. This is especially significant in relation to administrative law.
Violations of the laws in this field do not necessarily make an act void, although
they may result in criminal or administrative penalties. For instance, a person who
sells goods without the necessary licence incurs an administrative penalty, but the
contract itself may still be found valid.57
This problem is also discussed in relation to the Anti-​Monopoly Law: whether
acts against the Anti-​Monopoly Law are void under this provision. In determining
the validity of the transaction in question, whether the nullification of the trans-
action itself is needed for the achievement of the goal of the mandatory provision,
and whether the nullification results in unfairness between the parties are taken
into account.
Recently, there have been cases where the court found certain transactions
which were against consumer protection laws to be null and void. In order to
achieve the goals set by laws such as the Anti-​Monopoly Law or consumer pro-
tection laws which are designed to maintain appropriate order in the market, it
has become increasingly necessary to deny the validity of transactions which are
against such laws. There is a view which suggests that a mere violation of a man-
datory provision does not necessarily make a transaction null and void, but if the
transaction is tantamount to a violation of public order, then the transaction is null
and void by virtue of Art. 90.58

(3) Defective declaration of will

It is the role of the court to interpret the will of the parties. More emphasis is placed
on the objective expression of the will as the other party would have understood it
rather than the internal will of the declarant, because those who relied on the ob-
jective expression should be protected. Normally, the intention of the declarant and
his expressed will coincide and thus, result in the intended legal effects. However,
in some cases there is a discrepancy between the two. A person may be enter into a

57 Judgment of the Supreme Court, 18 March 1960, Minshū 14-​4-​483.

58 A. Ōmura, ‘Torihiki to kōjo (Transactions and Public Order)’, Jurist, No. 1023 (1993), pp. 85–​86;
No. 1025, pp. 68–​70.
136 THE CIVIL CODE

juristic act under duress or by mistake. Such instances are denoted as defective dec-
larations of will (Willensmängel).
Following the model of the BGB, there are provisions dealing with the effects of
defective declarations of will. The Code is designed to balance the interests of the
declarant, the recipient, and the third party.

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(a) Mental reservation
The Code provides that a juristic act should not be invalidated when a party know-
ingly declares a will which does not coincide with his genuine will, ‘mental reser-
vation’ (geheimer Vorbehalt). This does not apply when the counterparty was aware
or should have been aware of the declarant’s genuine will, since in such cases there
is no need to protect the interest of the opposite party at the cost of the declarant.
For instance, a person who sold his property as a joke is nevertheless bound by his
words. However, if the counter party was aware of the declarant’s genuine will, or
should have been aware of it, the act is null and void (Art. 93 before amendment).
This provision was modified in 2020; now it is sufficient if the counterparty was
aware that the declared intention was not the genuine intention of the declarant, or
should have known that it was not the declarant’s genuined will. The counterparty
is not required to be aware of the content of the declarant’s will.
This provision did not refer to instances where a bona fide third party was in-
volved. The court practice was that invalidation of the declaration of will cannot be
set up against a bona fide third party. By the 2020 amendments to the Civil Code,
this is now explicitly provided in the Code (Art, 93, para. 2).

(b) Fictitious declaration of will by collusion (Scheingeschäft)

A fictitious (or sham) juristic act made in collusion with the counterparty is null
and void because the act does not coincide with the parties’ genuine intention.
However, the interests of a third party who relied upon that colluded declaration
of will have to be protected. Therefore, the parties may not claim that the act is void
against a bona fide third party (Art. 94, para. 2). Such fictitious acts are seen, for in-
stance, when a husband sells his property and registers it under his wife’s name in
order to avoid attachment from his creditors.
For example, X colludes with B and fictitiously sells him a piece of land. Between
X and B the sale contract is null and void, because it does not coincide with their
genuine intention. B is not entitled to claim the property against X. However, if B
sold the land to a third party, Y, who reasonably believed that B was the genuine
owner, X may not claim his rights against Y. After all, X contributed to creating the
impression that B was the owner and Y relied on it; X must accept the outcome of
his act.
The Supreme Court has further extended the application of this provision to
cases where there was no collusion between the parties. For instance, in one case
A registered in his name a piece of land which belonged to his friend X. X soon
 General Rules and Institutions of Private Law 137

found this out but left the registration unchanged. Some time afterwards A, who
had married X, sold the land to a bona fide third party, Y, without the permission of
X. Although there was no explicit collusion of will between X and A, the Supreme
Court found that X could not claim her ownership against Y, since she had left the
registration unchanged and created the appearance that A was the owner of the

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property.59

(c) Mistake
The Code had a provision to the effect that a declaration of will was null and void
when there is a mistake of any essential element. This did not apply when there was
gross negligence on the part of the declarant; the declarant is not entitled to claim
that the act is null and void. The court distinguished between mistakes on essential
elements and mistakes on the motive of the declaration of will. An example of the
latter is a case where a person purchases a piece of land, believing that there is a hot
spring there which proved to be wrong. While the former is considered to be void,
the latter does not affect the validity of the act, unless the motive is explicitly made
known to the other party.60
However, it was pointed out that the demarcation between mistakes as to essen-
tial elements and mistakes as to motive is not always clear-​cut, and that even when
the motive is not explicitly stated, there are cases where the declaration should be
found void.61
By the 2020 amendments, the provision on mistakes was streamlined. The gen-
eral rule is that declaration of will is voidable if (a) it is a mistake which lacks the
corresponding will, or if (b) the perception by the party of the circumstances which
served as the basis of the juristic act did not match the facts, and the mistake is
significant in the light of the purpose of the juristic act and the socially accepted
common sense regarding the transaction (Art. 95, para. 1). The latter (b) is applic-
able only when such circumstances are expressly declared that such circumstances
served as a basis of the given juristic act (Art. 95 para. 2).
If the mistake resulted from grave negligence on the part of the declarant, the
declaration cannot be avoided, except for cases where (a) the counterparty was
aware that there was a mistake on the part of the declarant, or was unaware of this
by gross negligence; or (b) there was a common mistake shared by the parties (Art.
95, para. 3).
Avoidance of the declaration of will cannot be set up against a bona fide third
party (Art. 95, para. 4).

59 Judgment of the Supreme Court, 22 September 1970, Minshū 24-​10-​1424.

60 Judgment of the Supreme Court, 26 November 1954, Minshū 8-​11-​2087.
61 For various views on this matter, see Shinomiya and Nōmi, General Part of the Civil Code, supra,

pp. 247–​262.
138 THE CIVIL CODE

(d) Deception and duress

Declaration of will resulting from deception or under duress is voidable (Art. 96,
para. 1). If a third party deceived the declarant in relation to the declaration of the
will vis à vis the counterparty, the declarant may avoid the declaration of will only
when the counterparty was aware of could have known of the deception (Art. 96,

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para. 2).
The declarant may avoid the declaration of will vis à visa bona fide third party
(Art. 96, para. 3).

(4) Invalidity of juristic acts

The Civil Code distinguishes between acts that are null and void on one hand, and
those that are voidable—​and which can be rescinded—​on the other. Acts which are
null and void have no legal effect whatsoever, even without a claim to that effect,
and cannot be made valid by ratification (Art. 119). Voidable acts are valid until an
entitled person rescinds the act. On rescission, the act is regarded as having been
void ab initio (Art. 121). When the act is null and void, one can claim that the act
is void at any time, whereas when the act is merely voidable, the right of rescis-
sion lapses five years after ratification became possible or twenty years after the act
(Art. 126).
A typical act which is null and void is an act against public order and good
morals (Art. 90). The act is null and void independent of the will of the declarant
or others. Acts of mental reservation and fictitious declarations are null and void.
In contrast, acts made by mistake, deception, or under duress are merely voidable.
However, as mentioned earlier, the extent to which juristic acts are to be null and
void is limited in one way or another. Theoretically, any person may claim that an
act is null and void, but for instance, in the case of mental reservation, it cannot be
claimed against a bona fide third party.
Rescission and ratification are effected by a unilateral act. If a person entitled to
rescind a juristic act performs the act fully or partly, demands performance from
the other party, renews the act, or furnishes a surety, he is deemed to have ratified
the voidable act (Art. 125).

6. Agency

Juristic acts can be effected by an agent. When an agent is authorised by a principal

to effect juristic acts on his behalf with a third party, the legal effect of such acts
is attributed to the principal. Basic rules concerning agency are provided in the
General Part of the Civil Code. The Commercial Code also has provisions on com-
mercial agency.
 General Rules and Institutions of Private Law 139

Agents can be divided into two types: agents created by agreement and agents
by statute. In the case of agents by statute, agency arises directly from provisions
of the law. For instance, minors are represented by a legal representative (Art. 5).
Parents are expected to act on behalf of minors (Art. 818). Curators are appointed
in order to represent those without capacity to act, including minors for whom no

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adult has parental rights (Art. 838). The Code also provides for the administrator
of the estate (Art. 952), the executor of a will (Art. 1015), and the administrator of
a property of an absentee. Administrators are appointed by the family court (Art.
25). Juridical persons are represented by a representative.
As for agency created by agreement, the relationship between the principal and
the agent varies. Agency arises from mandate or employment contracts, work
contracts, and partnership contracts. These contracts are regulated in Book Three
of the Code—​the Part on the Law of Obligations. No specific form is required
to create an agency. A power of attorney is often issued, but this is not manda-
tory. Provisions on agency were streamlined by the 2020 amendments to the
Civil Code.
If an agent acted within the scope of power granted by the principal, but in order
to pursue his interest or a third party’s interest, in cases where the counterparty was
aware of the purpose of the act, or could have been aware of it, the act is deemed
to be an act of an agent without the power (Art. 107). If, in the same juristic act,
the agent acted as an agent of the counterparty or represented both parties, such
an act is deemed to have been effected by a person without the power of an agent.
This does not apply in cases of performance of obligation and also when the prin-
cipal has given a consent in advance. In addition, in cases where there is a conflict
of interest between the principal and the agent, such an act is also deemed to have
been effected by a person without the power of an agent, unless an advance consent
is given by the principal (Art. 108).
An agent is required to disclose that he is acting on behalf of the principal (Art.
99, para. 1). If the agent fails to do so, the transaction has no effect upon the prin-
cipal, and the agent is deemed to have acted on his own behalf. However, this
does not apply when the opposite party was aware or should have been aware
that the agent was acting on behalf of the principal (Art. 100). In this regard the
Commercial Code provides an exception for commercial transactions. In such
transactions, even when the agent failed to reveal that he was acting on behalf of
a principal, the act is binding on the principal. If the opposite party was not aware
that the agent was acting for the principal, he may also require performance by the
agent (Art. 504).
Where the validity of a juristic act is affected because of a defective declaration of
will, such defects are to be determined by reference to the agent’s position, not the
principal’s (Art. 101, para. 1). For instance, when a principal purchases a painting
through an agent who was aware that the painting was a fake, the principal may not
invalidate the sale, even when he had not known that the painting was fake.
140 THE CIVIL CODE

In cases of agency by agreement, the scope of the agent’s authority is defined by

the agreement between the principal and the agent, a power of attorney. In order to
facilitate transaction , the Commercial Code provides that the agent in commercial
transactions may act outside the mandate, provided that it is not against the sub-
stance of the mandate (Art. 505).

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If a person without authority acts ostensibly on behalf of the principal then, as a
rule, the act has no effect on the principal. However, the scope of authority given to
the agent is not always apparent from outside. It is often not even precisely defined
by the principal. This may confuse the third party, and therefore a safeguard to pro-
tect those who mistakenly believed that an agent was acting within his authority
was needed. This can be justified by the idea that the principal has contributed in
one way or another to the creation of such an appearance. Therefore, under certain
circumstances the principal may be bound by the act of his agent, although the
agent did not have such a power.
First, if a person declares to others that he has granted another person au-
thority to act on his behalf, he is liable for the acts of that person (Art. 109, para. 1).
Therefore, once the principal has made known to others that he had given authority
to another person, he may not deny the effect of the act done by the agent, insofar as
it is within the scope of the authority the principal declared to have granted to the
agent. For example, if X allows A to use his name or seal in a transaction without
intending to allow A to act on his behalf, X may nevertheless be bound by A’s act
with a third party. The court applied this provision in a case where A issued prom-
issory notes in the name of Y, using Y’s seal. A third party Ⅹ erroneously believed
that A was authorised by Y to do so. The Supreme Court found the promissory note
to be valid on the ground of Article 109.62
In another case, the Tokyo District Court was held liable for a transaction
concluded by an association of court employees which had an office in the court
building and used the name of the ‘welfare department’ of the district court.
The plaintiff had sold stationery to this organisation, but the latter defaulted. He
brought a suit against the state, arguing that the district court, and ultimately the
state, was liable. Although there was no formal relationship between the court and
this organisation, the Supreme Court found that the district court had created the
appearance that this organisation was part of the court and was therefore liable for
the transaction.63
This rule is also applicable in cases where the agent acted beyond the power
granted by the principal, if the third party had a justifiable ground to believe that
the agent had such a power (Art. 110). Such an act is nevertheless binding on the
principal, provided that the third party justifiably believed that the agent had acted
within his power. It is necessary that at least some power was granted to the agent.

62 Judgment of the Supreme Court, 7 February 1957, Minshū 11-​2-​227.

63 Judgment of the Supreme Court, 21 October 1960, Minshū 14-​12-​2661.
 General Rules and Institutions of Private Law 141

For example, there was a case where the principal authorised an agent to register a
piece of land which he owned. The agent was given the title deed and the principal’s
seal. Instead of registering the property, the agent sold it to a third party. The third
party filed a suit against the principal in order to have the property transferred. The
Supreme Court acknowledged that Article 110 was applicable in such a case.64

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Blank powers of attorney are often issued in Japan. This can also be regarded as a
grant of authority, and if the person receiving such a wide power abuses it, this is a
matter governed by the same provision. When a representative of a juridical person
exceeds his power, this provision is also applicable.
In a recent case, the court applied this provision in conjunction with the provi-
sion on declaration of will by collusion (Art. 94, para. 2) in a rather flexible way in
order to protect a bona fide third party. A registered real property which belonged
to X in A’s name by using X’s registered signet and the application form for registra-
tion signed by X. Y believed without fault that A was the real owner, since the prop-
erty was registered in A’s name. The Supreme Court ruled that the contribution of
X to the creation of the appearance that A was the genuine owner of the property
was tantamount to cases where X was knowingly involved in the creation of such
an appearance, or where X had left the situation unchanged after becoming aware
of it, and concluded that by the application of the above provisions by analogy, X
was not entitled to claim that A had not acquired the property from X.65 This is an
application by analogy, since in Article 94, the collusion of A and X is required, and
in Article 110, A must be an agent of X, which was not the case here.
It is not uncommon in commercial practice for a person to allow another to use
his own or his company’s name in a commercial transaction in order to raise this
person’s credibility, or to do business which is subject to licence without one. In
such cases, the Commercial Code provides that the principal and the person who
uses the principal’s name are jointly liable in any related transaction (Art. 23).
The Civil Code did not always explicitly require that a counterparty who had
dealings with an unauthorised agent must be a bona fide party in order to be pro-
tected. However, those who were aware or should have been aware that an agent
was not authorised need not be protected at the cost of the principal. There is case
law to the effect that the counterparty should be bona fide and not negligent in be-
lieving that the person was authorised.66 This rule was reflected in the Code by the
2020 amendments.
Agency comes to an end by agreement between the principal and the agent. In
addition, agency is terminated by the death of the principal. Death, total loss of
capacity, or bankruptcy on the part of the agent also end the relationship (Art. 111).

64 Judgment of the Supreme Court, 3 June 1971, Minshū 25-​4-​455.

65 Judgment of the Supreme Court, 23 February 2006, Minshū vol. 60-​2-​546.
66 Judgment of the Supreme Court, 22 April 1966, Minshū 20-​4-​752.
142 THE CIVIL CODE

However, the death of the principal does not terminate the power of the agent in
commercial transactions (Commercial Code, Art. 506).
The lapse of an agent’s authority cannot be set up against a bona fide third party
who was not aware of it. This does not apply if the third party was not aware of it
by fault (Art. 112, para. 1). Therefore, even after the termination of agency, if the

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former agent acted as though he was still authorised to act as an agent, the former
principal may be held liable for the former agent’s act.
TA contract entered into by an agent without authority is not binding on the
principal, unless the principal ratifies it (Art. 113, para. 1). Ratification should be
addressed to the counterparty, not to the agent. The counterparty may give notice
to the principal and ask him to decide whether he wishes to ratify the act or not
within a fixed period of time (Art. 114). Until the principal ratifies the act, the other
party is entitled to rescind the transaction (Art. 115). A person who acted on behalf
of another person, but fails to prove his authority is liable for damages or must per-
form the obligation at the option of the other party, unless tis person ratifies the act
(Art. 117, para. 1).

7. Prescription

The General Part of the Civil Code provides for extinctive prescription and ac-
quisitive prescription. This arrangement resembles French law and differs from
German law (on acquisitive prescription see Chapter 8). The raison d’être of ex-
tinctive prescription is first that those who do not exercise their rights for a long
period do not necessarily deserve protection, and secondly, that after a long period
it becomes difficult for the debtor to prove that he had performed his obligation,
and such debtors need protection. As mentioned earlier, the invoking of prescrip-
tion may be found to be against the doctrine of good faith and fair dealing.
Provisions on extinctive prescription were substantially amended in 2020. The
general rule is that the claims expire by prescription when:

(i) The creditor did not exercise his claim within five years after he became
aware that he was entitled to do so;
(ii) The creditor failed to exercise the claim for ten years after the claim became
possible to exercise.

Proprietary rights other than claim or ownership expire if not exercised for twenty
years (Art. 166, paras 1 and 2).
 General Rules and Institutions of Private Law 143

The Code used to provide for short-​term prescription of three years, two years,
and one year for some categories of rights arising from obligational relations.
Short-​term prescriptions are now abolished.
On the other hand, claim for damages for the harm on life and health of a person
based upon the law of obligation is set at 20 years (Art. 167). If the claim is based

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upon tort, the claim needs to be exercise within five years after the harm and the
culprit was known (Art. 724-​2).