Assignment of Claims Secured by Mortgages in Japan: What Determines Priority Against a Seizing Creditor?

Claims secured by mortgages are common and valuable assets in commercial and financial transactions. When such a claim is assigned by the original creditor (assignor) to a new creditor (assignee), and subsequently, another creditor of the assignor attempts to seize that same underlying claim (not the mortgaged property itself), a critical question of priority arises. This article examines how Japanese law determines whether the assignee or the seizing creditor has the superior right to the mortgage-backed claim.

The Accessory Nature of Mortgages in Japanese Law

Under the Japanese Civil Code, a mortgage (抵当権, teitōken) is an accessory right (随伴性, zuihansei). This means it is inextricably linked to the existence and ownership of the claim it secures. As a general rule, when the secured claim is validly assigned, the mortgage automatically transfers with the claim to the assignee. The assignee steps into the shoes of the original mortgagee.

To perfect this transfer of the mortgage interest itself against third parties who might acquire competing interests in the mortgaged property (such as a subsequent purchaser of the property or another mortgagee), the assignee typically undertakes an ancillary registration (付記登記, fuki-tōki) of the mortgage transfer in the real property register. This registration announces the assignee as the new holder of the mortgage.

The Core Conflict: Priority Over the Claim, Not the Property

It is crucial to distinguish the subject of the priority contest in this scenario. We are not discussing a conflict over the mortgaged real estate itself (e.g., between two mortgagees or a mortgagee and a purchaser of the property). Instead, the conflict is over the monetary claim that the mortgage secures. A creditor of the original mortgagee (the assignor) may seek to satisfy their own claims by seizing the mortgage-backed claim that the assignor holds against the underlying obligor (the debtor of the secured claim).

If this seizure occurs around the same time the assignor assigns the mortgage-backed claim to an assignee, the question is: whose right to the claim takes precedence?

Determining Priority: Perfection of the Claim Assignment is Key

Japanese case law and prevailing legal theory are clear: the priority between an assignee of a mortgage-backed claim and a creditor who subsequently seizes that claim is not determined by the timing of the ancillary registration of the mortgage transfer. Instead, priority hinges on the perfection of the claim assignment itself against third parties, juxtaposed with the timing of the perfection of the seizure of the claim.

Specifically, the determining factors are:

1. Perfection of the Claim Assignment: The assignment of the claim must be perfected against third parties (which includes seizing creditors of the assignor) in accordance with Article 467, Paragraph 2 of the Civil Code. This requires either:
   • Notice of the assignment from the assignor to the obligor of the secured claim, made by an instrument bearing a certified date (確定日付のある証書, kakutei hizuke no aru shōsho).
   • Consent to the assignment from the obligor of the secured claim, also made by an instrument bearing a certified date.
     The critical time here is when this notice reaches the obligor, or when the obligor's consent is definitively established via such an instrument (the "arrival time theory").
2. Perfection of the Claim Seizure: A creditor seizes a monetary claim by obtaining a seizure order from a court and serving it on the obligor of that claim (who is referred to as the "third-party obligor" in seizure proceedings). The seizure becomes effective and assertable against other third parties concerning the claim when the seizure notice (債権差押通知書, saiken sashi-osae tsūchisho) is served on and thus reaches this third-party obligor.

Priority is decided by comparing the time of perfection of the claim assignment (as per point 1) with the time of service of the seizure notice on the obligor of the claim (as per point 2).

Why Mortgage Transfer Registration Doesn't Dictate Claim Priority

The ancillary registration (付記登記, fuki-tōki) of the mortgage transfer serves a different purpose. It perfects the assignee's rights in the mortgage lien over the real property against other parties who might claim an interest in that property (e.g., subsequent purchasers or mortgagees of the property, or creditors seizing the property itself).

However, it does not serve as the perfection method for the assignment of the underlying monetary claim against creditors who are targeting that claim. The ancillary registration is primarily to ensure the assignee can smoothly exercise their rights as mortgagee (e.g., initiate foreclosure proceedings or dispose of the mortgage). It is not the act that gives the assignee priority over the claim itself when pitted against a creditor who has seized that specific claim from the assignor.

Consequences of Determined Priority

The outcome of this priority contest has significant implications:

• If the Claim Assignment is Perfected First:
  The assignee has the superior right to the mortgage-backed claim. The subsequent seizure of the claim by the assignor's creditor is ineffective against the assignee. The assignee is entitled to receive payments from the obligor, and the seizing creditor cannot intercept these payments. A long-standing precedent from the Daishin-in (Great Court of Cassation, the predecessor to the Supreme Court) on November 26, 1912 (Minroku Vol. 18, p. 1005), supports the principle that a prior perfected assignment will prevail over a subsequent seizure. In such a case, even if the seizing creditor attempts to register their seizure against the mortgage, the assignee whose claim assignment was perfected earlier can assert their superior right.
• If the Seizure Notice is Served First:
  The seizing creditor gains priority over the assignee with respect to the claim. The assignee, even if they subsequently perfect their claim assignment or register the mortgage transfer, cannot assert their assignment against the seizing creditor who has already effectively garnished the claim. The obligor would be required to pay the seizing creditor (or deposit the funds as per the seizure order). Furthermore, if the seizure of the claim is deemed to have priority, the seizing creditor may even be entitled to demand the cancellation of any ancillary registration of mortgage transfer that was subsequently made in favor of the assignee. For instance, in cases involving seizures for national tax delinquencies, courts have affirmed the priority of the seizure if it preceded the perfection of the claim assignment (e.g., Kōchi District Court, April 28, 1960, Shōmu Geppō Vol. 6, No. 5, p. 942; Matsuyama District Court, September 28, 1960, Zeishiryō No. 33, p. 1146).

Practical Implications for Parties

This legal framework underscores several critical actions for parties involved in such transactions:

• For Assignees of Mortgage-Backed Claims:
  • Prompt Perfection of Claim Assignment: The utmost priority should be to perfect the assignment of the claim by providing notice to (or obtaining consent from) the obligor using an instrument with a certified date, ensuring this happens as quickly as possible.
  • Mortgage Transfer Registration: While not determinative for priority over the claim against a seizing creditor of the assignor, timely ancillary registration of the mortgage transfer remains essential to protect the assignee's rights in the mortgage itself against third parties dealing with the property.
  • Due Diligence: Conduct due diligence on the assignor to assess the risk of existing or potential creditors who might seek to seize the claim.
• For Creditors Intending to Seize Claims:
  • Swift Service of Seizure Notice: Once a seizure order is obtained, it must be served on the third-party obligor (the debtor of the claim being seized) without delay to establish priority.
  • Inquiry: Before initiating seizure, if feasible, inquiries could be made (though often difficult in practice) about any prior assignments of the target claim.

Conclusion

In Japanese law, when an assigned mortgage-backed claim is targeted by a seizing creditor of the assignor, the battle for priority is fundamentally decided by the timing of perfection related to the claim itself, not the mortgage. The assignee who first perfects the claim assignment by notifying (or obtaining consent from) the obligor with a certified-date instrument will generally prevail over a creditor who subsequently serves a seizure notice on that obligor. Conversely, if the seizure notice is served first, the seizing creditor will typically have the superior right. The registration of the mortgage transfer, while vital for protecting rights in the mortgaged property, does not govern this specific priority contest over the assigned monetary claim. This distinction highlights the importance of meticulously adhering to the distinct perfection requirements applicable to claims and the accessory security rights that may attach to them.