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Part  4 Contractual liability and delictual liability

I.  Compensation41

A.The rule in the Civil Code

1.Prerequisites for contractual liability

The prerequisites for a claim to compensation for failure to perform are regulated 7 / 164 in art 415 CC. According to this provision, when the obligor does not fulfil his obligation fully in accordance with what he owes, the obligee may seek compensation

for the resulting damage. The same applies when the performance has become impossible due to circumstances attributable to the obligor.

a.Failure to perform

Article 415 CC regulates failure to perform in its first sentence and impossibility in 7 / 165 the second. However, the authors did not intend to distinguish between the two

cases. Rather, the second sentence was only added because the authors of the Civil Code feared that the expression » failure to perform « could be misunderstood if it were not clear that it included impossibility. The intention of the authors was certainly that impossibility fall within the term failure to perform.

b.Attributability to the obligor

Furthermore, the attributability to the obligor not only of the impossibility but 7 / 166 also the failure to perform in general, ie that the obligor be accountable for such,

was seen as a necessary prerequisite for liability42. Therefore, it is undisputed that the prerequisites for a compensation claim due to failure to perform include, on the one hand, the failure to perform in itself and, on the other, that this be attributable to the obligor.

41See Yamamoto, Vertragsrecht, in: Baum / Bälz ( eds ), Handbuch Japanisches Handelsund Wirtschaftsrecht ( 2011 ) 502 ff.

42On the history of the drafting of art 415 CC see Nakata, Minpô 415-jô, 416-jô ( Saimu fu-rikô ni yoru songai baishô ) [ Arts 415 and 416 CC ( Compensation for failure to perform ) ], in: Hironaka / Hoshino ( eds ), Minpô-ten no hyaku-nen III [ 100 years of the Civil Code III ] ( 1998 ) 1 ff. Cf also Kitagawa, Rezeption und Fortbildung des europäischen Rechts in Japan ( 1970 ) 37 ff.

2.Problems

7 / 167 However, the respective significance of the two prerequisites is problematic when it comes down to detail. This has been the subject of intense debate in Japanese legal theory, sometimes also under the influence of foreign legal systems. With respect to the relationship between contractual and delictual liability, it is especially the debate on the term failure to perform that is of interest here.

B.The term failure to perform

1.Differentiation according to the type of failure to perform

a.Argumentation

7 / 168 The traditional doctrine43 is based on the type of failure to perform and considers that art 415 CC regulates three types of failure to perform, specifically default, impossibility and bad performance. Bad performance is understood in this respect as including defectiveness of the deliverable, performing in a defective manner and lack of the necessary care in rendering performance.

b.Reception of the German theory

7 / 169 This doctrine is quite clearly strongly influenced by German law. The Japanese Civil Code does not distinguish, however, per se between these three forms of failure to perform but sets out uniform prerequisites for the failure to perform. Regardless of this, the traditional doctrine nonetheless interpreted the Japanese Civil Code as if it contained the same rules as the German Civil Code ( BGB ). This was generally a widespread phenomenon in Japanese legal science from the 1910s to the 1930s and is referred to as theory reception44.

2.The structure of the obligation relationship as the premise

a.Argumentation

7 / 170 In comparison, the newer theory since the 1960s does not seek to clarify the prerequisites of failure to perform on the basis of the type of failure to perform but by analysing the duties owed45. For instance, depending on the object of the duty, a

43Cf Wagatsuma, Shintei saiken sôron – Minpô kôgi IV [ General law of obligations – Textbook on civil law IV ]2 ( 1964 ) 98 ff, 143 ff, 150 ff.

44Cf Kitagawa, Rezeption und Fortbildung 23 ff, 68 ff; idem, Nihon hôgaku no rekishi to riron [ History and theory of Japanese legal science ] ( 1968 ).

45Cf Kitagawa, Keiyaku sekinin no kenkyû [ Investigation of contractual liability ] ( 1963 ) 349 ff; Okuda, Saiken sôron [ General law of obligations ] ( 1992 ) 15 ff; Maeda, Kôjutsu saiken sôron [ Lec-

distinction is drawn between duties to perform, which concern the interest in the performance, and duties to protect, which are directed at the » Integritätsinteresse «, the protection of the goods of the other partner in the relationship. The former are further subdivided into duties to render performance, duties to realise the result of performance and ancillary duties.

b.Influence of German law

This theory is very obviously strongly influenced by the theory of irregularities 7 / 171 of performance ( Leistungsstörungen ), developed in Germany after World War II.

This envisages recognising » positive Forderungsverletzungen « ( violations of duties of care between the partners to a contract, other than by delay or supervening impossibility ) and breach of contract alongside default and impossibility ( which are regulated in the German Civil Code ) as irregularities of performance. This means that the crux is what the obligor had promised within the obligation relationship. The analysis of duties developed from the German theory was also integrated into the construction of failure to perform under art 415 CC in Japan.

3.From the uniform failure to perform theory to the theory of breach of contract

a.Uniform failure to perform theory

In the 1970s and 1980s, however, support grew for the view that art 415 of the Japa- 7 / 172 nese Civil Code was based on a different concept to the rule in the German Civil

Code and that there was no need to construe it according to German law46. Art 415 CC was considered instead to provide for uniform prerequisities for the external elements of failure to perform in respect of cases where the obligor does not perform in compliance with the purpose of his obligations. It was argued that there was no reason to construe this differently and to distinguish between default, impossibility and non-conforming performance. Rather, art 415 CC manifestly included non-conforming performance as well as » positive Forderungsverletzungen «, so that there was no gap to be filled. Thus, so the argument, it is not necessary to discuss whether duties to protect must be recognised as a separate category of contractual duties, besides the duties to perform. In order to apply art 415 CC, it was sufficient to examine whether the obligor had performed consistently with the purpose of his obligation or not.

ture on general law of obligations ]3 ( 1993 ) 120 ff; Shiomi, Keiyaku kihan no kôzô to tenkai [ Structure of contractual rules and their development ] ( 1991 ).

46Cf Hoshino, Minpô gairon III [ Outline of civil law III ] ( 1978 ) 45 f; Hirai, Saiken sôron [ General law of obligations ]2 ( 1994 ) 47 ff.

b.Theory of breach of contract

7 / 173 Thus, the decisive question is: what does consistency with the purpose of the obligation mean ? Within the contractual relationship, this is determined by the contract itself. If one proceeds logically from this idea, failure to perform as a prerequisite for a compensation claim under art 415 CC must be understood in the sense of a breach of contract47.

II.  Extension of the contractual duties with respect to their object – protection of the » Integritätsinteresse «48

A.Problem issue

1.Violation of the » Integritätsinteresse « within the contractual relationship

7 / 174 Within the contractual relationship, the » Integritätsinteresse « of one party may be injured by the other. In this context, the question is whether the injured party in this case may claim compensation for breach of contractual duties from the other. The crux is whether the duties to protect the » Integritätsinteresse « of the contractual partner, the so-called protective duties, must also be recognised as contractual duties.

2.Differences between delictual and contractual liability

7 / 175 If someone’s » Integritätsinteresse « is injured, this may also be seen as a case of delictual liability. According to the rules on delicts, a claim for compensation is barred, however, three years after the time when the victim gained knowledge of the damage and identity of the injuring party ( art 724 sent 1 CC ). This is a significant difference to contractual liability, according to which the compensation claim is prescribed within 10 years after the failure to perform ( art 167 para 1 CC ). For this reason it is very important in practice whether the protective duty is recognised as a contractual duty or not, in other words whether contractual liability is recognised

47Cf Shiomi, Saiken sôron I [ Law of obligations General part I ]2 ( 2003 ) 22 ff; idem, Sôron – Keiyaku sekinin-ron no genjo to kadai [ General part – Present status quo and tasks of the doctrine on contractual liability ], Jurisuto 1318 ( 2006 ) 82 ff; Yamamoto, Keiyaku no kosoku-ryoku to keiyaku sekinn-ron no tenkai [ Binding effect of the contract and development of the contractual liability theory ], Jurisuto 1318 ( 2006 ) 92 ff.

48See Yamamoto, Vertragsrecht, in: Baum / Bälz ( eds ), Handbuch Japanisches Handelsund Wirtschaftsrecht 507 ff.

due to the violation of this duty. Furthermore, liability for auxiliaries is different within the contractual context than in the delictual.

B.Reasons for contractual liability

1.Structural analysis of the contractual relationship of obligation

a.Protective duties as contractual duties

In Japan, those who take their starting premise as the structural analysis of the 7 / 176 obligation relationship first argued that protective duties must be recognised as contractual duties49. In this respect they were influenced by the German theory on » positive Forderungsverletzung «.

b.Establishment of a protective duty

The idea of the protective duty is based on so-called special connections or social 7 / 177 contact relationships. The reasoning is that, in such a special relationship, each

party exposes his » Integritätsinteresse « to the influence of the other. In order to keep the relationship functioning smoothly, each party must be able to rely on his » Integritätsinteresse « being especially taken into regard by the other. For this reason, parties in such a relationship with each other have a general, mutual obligation, going beyond the duties of conduct based on the law of delicts, to have regard to the » Integritätsinteresse « of the respective other party. The parties to a contractual relationship thus have precisely this duty, which is referred to here as a protective duty.

2.Judge-made developments in law – the duty to have regard for the security of the contractual partner

Under the influence of this theory, case law has also recognised this duty to have 7 / 178 regard to the security of the contractual partner as a contractual duty.

49Cf Kitagawa, Keiyaku sekinin no kenkyû [ Investigation of contractual liability ] 357, 379 ff; Okuda, Saiken sôron [ General law of obligations ] 18 ff; Maeda, Kôjutsu saiken sôron [ Lecture on general law of obligations ]3 122 f.

a.Duty of the employer to have regard for the security of the employee

7 / 179 The existence of such a duty was first affirmed in respect of the employment relationship50. According to this school of thought, the employer is bound to have regard for the protection of the life and health of the employee against dangers in order that the employee can work in safety.

(   1  ) Justification of such duties

7 / 180 The case law invokes the above-mentioned idea of » social contact relationship « to support the argument that the duty to have regard for the security of the other is a general duty deriving from the principle of good faith, which applies to parties in such a relationship with one another. It considers this to be true of employment relationships, since it is essential that the employer take on such a duty and fulfil it for the employee to go about his work without worry.

(   2  ) Scope of the duty

7 / 181 According to the case law, however, this duty consists only in avoiding risks that are brought about by persons under the direction of the employer or equipment and does not include any general duty of care to protect the life and health of the employee51.

b.Extension to other contractual relationships

7 / 182 Subsequently, this duty to have regard for the safety of the contractual partner was also applied to the relationship between the principal in a works context and the employees of a sub-contractor52 as well as to the relationship between school and pupils in the context of a school contract53. In the case law at the lower instances, this duty was also recognised in respect of a contract for a swimming course54, an accommodation contract55 and a contract on caretaking56.

50Cf Supreme Court of 25. 2. 1975, Minshû 29, 143 ( Accident in self-defence forces ).

51Cf Supreme Court of 27. 5. 1983, Minshû 37, 477 ( Accident in self-defence forces ).

52Cf Supreme Court of 11. 4. 1991, Hanrei Jihô 1391 ( 1991 ) 3.

53Cf Supreme Court of 13. 3. 2006, Hanrei Jihô 1929 ( 2006 ) 41.

54Cf District Court Tokyo of 30. 7. 2004, Hanrei Taimuzu 1198 ( 2006 ) 193.

55Cf District Court Tokyo of 27. 9. 1995, Hanrei Jihô 1564 ( 1996 ) 34.

56Cf High Court Tokyo of 29. 9. 2003, Hanrei Jihô 1843 ( 2004 ) 173; District Court Yokohama of 22. 3. 2005, Hanrei Jihô 1895 ( 2005 ) 91.

3.The theory of breach of contract

a.Determination of the contents of the contract

tionship. This is the case, for instance, of the principal in the context of works and the employees of a subcontractor. In all other cases the issue can be reduced to

57The case law would be bound to require a valid contract as in the case of culpa in contrahendo ( see below under III. ) it only advocates applying the law of delicts given the lack of a contract ( see Supreme Court of 22. 4. 2011, Minshû 65–3, 1405 ).

58Cf Shiomi, Saiken sôron I [ Law of obligations General part I ]2 102 ff.

the question of whether the protection of the » Integritätsinteresse « became part of the contractual agreement.

III.  Extension of contractual duties in the chronological context – culpa in contrahendo59

A.Nature of the liability

1.Culpa in contrahendo

7 / 187 The idea that legal protection corresponding to contractual liability must be recognised on the basis of good faith when a party sustains injury in the course of contract negotiations as a result of conduct attributable to the other party is also known in Japan as the theory of culpa in contrahendo60.

2.Necessity for culpa in contrahendo in Japan

a.Possibility of categorising it as delictual liability

7 / 188 Nonetheless, it is hardly necessary in Japan to construe such liability as contractual liability. In the Japanese Civil Code, liability for torts is subject to the general and uniform external elements establishing liability under art 709 CC, so that there is nothing to hinder the categorisation of culpa in contrahendo under liability for tort61.

b.Practical significance of the different prescription periods

7 / 189 There are certainly differences with respect to prescription between non-con- tractual liability on the basis of tortious conduct and contractual liability, namely three years from knowledge of damage and the injuring party in the case of the former ( art 724 CC ) as compared to ten years from the time when the right may be exercised in the case of the latter ( art 166 para 1 and art 167 para 1 CC ). In business

59Yamamoto, Vertragsrecht, in: Baum / Bälz ( eds ), Handbuch Japanisches Handelsund Wirtschaftsrecht 472 ff.

60Kitagawa, Keiyaku sekinin no kenkyû [ Investigation of contractual liability ] 194 ff, 339 ff; Shiomi, Saiken sôron I [ Law of obligations General part I ]2 529 ff.

61The Supreme Court ( of 22. 4. 2011, Minshû 65–3, 1405 ) decided in a case in which the information that would have been necessary in order to decide about concluding a contract was not conveyed to the contractual partner prior to conclusion of the contract that, with respect to the damage which this contractual party sustained by concluding the contract, there was a duty to compensate based on the law of delicts but not due to failure to perform duties under the contract.

relationships, however, liability is usually asserted quickly and this is also reasonable to expect. Therefore, at least in this respect there is hardly any practical necessity to extend the prescription period by qualifying liability for culpa in contrahendo as contractual liability. It would only make a significant difference insofar as liability for auxiliaries is involved.

B.Groups of cases when the contract is not concluded

Culpa in contrahendo firstly comes into question when no contract is concluded. 7 / 190 In this context, two groups of cases can be distinguished:

1.Breaking off of the contract negotiations

In one group of cases, contract negotiations have been started but later broken 7 / 191 off again.

a.Case law

According to the case law62, the parties already have duties of care towards the per- 7 / 192 son and assets of the other party even at the stage of contract negotiations, these

duties arising out of the principle of good faith. If one party violates these duties and the other sustains damage as a consequence, the former has a duty to compensate. Accordingly, a party that induces the other to rely on something by its conduct and thus causes this other party to undertake unnecessary expenses or efforts or make legal dispositions on this basis must compensate the damage that the other party suffers as a consequence of this disappointment of its reliance, ie reliance damages.

b.Theory of » degree of maturity of the contract «

The more recent theory, however, sees such liability when the contract negotia- 7 / 193 tions are broken off nonetheless as the consequence of an agreement in a broader sense63. According to this, it is usual at least in the case of financially significant agreements that the final contract is accomplished by means of a sequence of

62Cf Supreme Court of 18. 9. 1984, Hanrei Jihô 1137 ( 1985 ) 51; Supreme Court of 30. 8. 2004, Minshû 58, 1763.

63Cf Kamata, Fu-dôsan baibai keiyaku no seihi [ How real property agreements come into being ], Hanrei Taimuzu 484 ( 1983 ) 21; Kawakami, » Keiyaku no Seiritsu « o megutte ( 1 ) ( 2 ) [ On » how a contract comes about « ( 1 ) ( 2 ) ], Hanrei Taimuzu 655 ( 1988 ) 11; 657 ( 1988 ) 14.

7 / 194 In the second group of cases, the rights of one party are injured by a damaging event in the course of the conclusion of the contract. However, this is nothing other than a case of tort, so that there is nothing to stop art 709 CC being applied.

C.Groups of cases when a contract is concluded

7 / 195 Liability for culpa in contrahendo is also relevant in cases where the contract has been concluded. Here too, two groups of cases must be distinguished:

1.Ineffectiveness of the contract

7 / 196 The first group includes cases in which a contract has been concluded but later turns out to be ineffective.

a.Establishment of liability

7 / 197 In this case too, the prevailing theory is that the party whose conduct caused the other to rely on the effectiveness of the contract must compensate such for the resulting damage. This is based on the idea that, owing to the principle of good faith, each party is obliged to take care during the conclusion of a contract that the other does not suffer damage as a result of an ineffective contract being concluded64.

b.Scope of liability

7 / 198 In this case the damage that the other partner sustains as a result of disappointed reliance upon the validity of the contract must be compensated, ie reliance dam-

64Cf Wagatsuma, Shintei saiken sôron – Minpô kôgi IV [ General law of obligations – Textbook on civil law IV ]2 40.

ages. This includes frustrated expenses, for example or damage that results from rejecting a different, more favourable offer.

2.Inadmissible inducement to conclude a contract

The second group includes cases where the contractual partner has been induced 7 / 199 during the course of concluding the contract in an inadmissible manner to enter

into a contract he does not desire. The culpa in contrahendo includes in this respect especially cases in which the other partner has been misled by insufficient or inappropriate information and thus caused to enter into a contract that does not correspond to his intentions.

Thus, the question is under what circumstances and for what reasons inappropriate information from the contractual partner can be regarded as a violation of the principle of good faith. In this respect two aspects must be distinguished, namely not providing false information and communicating necessary information66.

65Cf Wagatsuma, Shintei saiken sôron – Minpô kôgi IV [ General law of obligations – Textbook on civil law IV ]2 41.

66Cf Yamamoto, Minpô kôgi IV-1 [ Textbook on civil law IV-1 ] ( 2005 ) 53; further idem, Shôhi-sha keiyaku-hô to jôhô teikyô hôri no tenkai [ The Consumer Contract Law and the development of the information model ], Kin’yû Hômu Jijô 1596 ( 2000 ) 9 ff. Going further Shiomi, Saiken sôron I [ Law of obligations General part I ]2 565 ff.

b.Duty to inform as a duty not to do something

7 / 202 On the one hand, there is the situation where one party has provided incorrect information to the other. The following two considerations support the idea of a duty not to give false information:

(   1  ) Danger posed by false information

7 / 203 Firstly, a decision is automatically inappropriate when it is based on false information, even if the relevant party also understood the information provided correctly. False information creates a substantial risk that the other party will be induced as a consequence to make a wrong decision.

(   2  ) Imputability

7 / 204 Secondly, it is natural that the party providing the information be accountable for this when he himself gave the false information.

c.Duty to inform as a duty of conduct

7 / 205 On the other hand, there is also the situation where one party does not provide the other with necessary information. In turn, two considerations in this respect support the assumption of a duty to provide the other with necessary information:

(   1  ) Prohibition on damaging others

7 / 206 One consideration concerns information regarding dangers. If it is foreseeable that the contractual partner will be exposed to a risk of damage to his legal goods, specifically his body, life or assets, it must be assumed that there is a duty to inform the contractual party about this danger. In any other case, the legal position of the contractual partner would already be impaired at the time the contract was concluded due to the lack of information.

(   2  ) Liability of experts

7 / 207 Furthermore, a duty to inform must also be assumed when it comes to the relationship between experts and laypersons, for the following reasons.

(  i  ) Restoration of the actual freedom to contract

7 / 208 Firstly, when it comes to transactions entered into between an expert party and a non-expert party, there is a gap in information, meaning there is a large risk that the layperson could enter into a disadvantageous deal without noticing it. This means that in effect the layperson sacrifices his freedom to contract in a sense. In order to actually restore the layperson’s freedom to contract, it is necessary to impose a duty to inform upon the expert partner.

d.Development from delictual to transaction-based liability

(  1   ) Solution under the law of delicts

If, as just explained above, such a duty to inform is recognised, when this duty is 7 / 210 breached, there is both wrongfulness and fault, meaning that delictual liability

can be affirmed. And indeed, the lower instances did usually find there was delictual liability in the judgments on consumer disputes that arose frequently in the 1980s and 1990s as well as on investment deals.

(  i  ) Scope of liability

The compensation awarded in this respect included the reimbursement of ex- 7 / 211 penses that were incurred due to the undesired contract which the party was in-

duced to conclude as a result of false information. Compensating this damage means the victim is restored to the position he would have been in had no contract been concluded. This is often referred to as compensation with restorative effect67. One could also say that this duty to compensate essentially negates the effectiveness of the contract.

(  ii  ) Shortcomings of the rules governing legal transactions

This approach was chosen since, due to the strict rules in the Civil Code regarding 7 / 212 legal transactions, the prerequisites for ineffectiveness or recission of the contract

in such cases seem difficult to fulfil.

(   2  ) Solution at the level of the legal transaction

(  i ) T3heoretical approach

However, there is a contradiction in values if, on the one hand, the contract is seen 7 / 213 as effective, but on the other, it is treated in the course of compensation as if it

were not. This is why the theory advocates relaxing the prerequisites in these cases as regards rescinding contracts for deceit or misrepresentation and / or by a broad

67Cf Shiomi, Keiyaku-hô to songai baishô-hô no kôsaku [ The interweaving of contract law and the law of damages ], in: idem, Keiyaku hôri no gendai-ka [ Modernisation of contract law ] ( 2004 ) 9.

(  ii  ) Solution provided by the legislator

7 / 214 Against the background of this development in case law and theory, the Consumer Contract Law promulgated in 200069 grants the consumer a right to rescind the contract if he was misled by the entrepreneur engaging in particular, positive actions ( art 4 Consumer Contract Law ). However, the Consumer Contract Law does not provide for rescission in the case of violations of the duty to inform in the sense of a duty of conduct70. At present the Consumer Contract Law is being reformed and the recognition of such a duty will be debated anew.

68Cf Yamamoto, Minpô ni okeru » Gôi no kashi «-ron no tenkai to sono kentô [ The development of the theory of the » lack of agreement « in civil law and the investigation of its significance ], in: Tanase ( ed ), Keiyaku hôri to keiyaku kankô [ Contract theory and custom ] ( 1999 ) 149 ff.

69Shôhi-sha keiyaku-hô, Law no 61 / 2000 as amended by Law no 70 / 2013.

70In art 3 Consumer Contract Act, only a duty on the part of the entrepreneur to take measures to clarify things is regulated. On the problem associcated with this provision, see Yamamoto, Das Verbrauchervertragsgesetz in Japan und die Modernisierung des Zivilrechts, in: FS Rehbinder ( 2002 ) 823 f, 831 ff.