"Boilerplate" in Japan: How Do Standard Form Contracts Impact Your Business Agreements?

In today's fast-paced commercial environment, standard form contracts—often referred to as "boilerplate" agreements—are a ubiquitous feature of business transactions globally. In Japan, these are known as yakkan (約款). While they offer undeniable benefits in terms of efficiency and uniformity, they also present unique legal challenges, particularly concerning the reality of consent and the fairness of pre-drafted terms. For any business, especially those engaging in cross-border dealings, understanding how Japanese law approaches yakkan is essential for managing risk and ensuring the enforceability of contractual relationships. This article delves into the legal framework governing yakkan in Japan, exploring how these standard terms become part of your agreement and the mechanisms in place to control potentially unfair clauses.

I. Understanding Yakkan (Standard Form Contracts) in the Japanese Legal Context

Yakkan are sets of pre-formulated contract clauses drafted by one party, typically a business entity, with the intention of applying them to a multitude of similar transactions. Their primary purpose is to streamline the contracting process, reduce negotiation time and costs, and ensure consistency across numerous agreements. Common examples include terms and conditions for services like insurance, transportation, banking, software licensing, online platforms, and even certain aspects of construction or supply agreements.

A key characteristic of transactions involving yakkan is that they often result in "contracts of adhesion" (fugō keiyaku). In such contracts, one party—usually the customer or a smaller business entity—is presented with the terms on a "take it or leave it" basis, with little to no practical opportunity to negotiate or modify the individual clauses. This inherent imbalance in bargaining power and the lack of individualized negotiation raise fundamental questions about whether the adhering party has truly assented to all the terms and whether their right to contractual self-determination has been adequately protected.

II. Incorporation of Yakkan into Contracts: When Do Standard Terms Become Binding?

For the terms of a yakkan to be legally binding on both parties, they must be validly incorporated into the specific contract concluded between them. Japanese legal theory and practice have evolved in their approach to determining the basis for this incorporation.

A. From Implied Custom to Intent-Based Incorporation

Historically, one line of reasoning, known as the "implied business custom theory" (mokuji no shōkanshū setsu or hakuchi shōkanshū setsu), suggested that in certain industries or types of transactions, the use of yakkan was so well-established that it formed a business custom. This custom itself was sometimes argued to provide the binding force for the yakkan. However, this view faced limitations, as it did not always accurately reflect situations where one party was unfamiliar with such customs or where the yakkan contained surprising or particularly onerous terms.

The prevailing modern view, which has been further clarified by recent legislative reforms, grounds the binding force of yakkan primarily on the parties' intention to incorporate them into their agreement. This means that even if each clause is not individually negotiated, if the parties—either explicitly or implicitly—agree that the yakkan will form the content of their contract, those terms become binding.

A critical prerequisite for recognizing such an "intent to incorporate," especially on the part of the party adhering to the yakkan, is that they must have been given a reasonable opportunity to become aware of the yakkan's contents. This implies a duty on the party proposing the yakkan (the business) to make the terms accessible. This "opportunity to know" could be satisfied by, for example, displaying the terms prominently at the place of business, providing a physical copy, or clearly referring to the terms and making them easily accessible online prior to or at the time of contracting.

The Supreme Court of Japan, in a long-standing precedent concerning insurance contracts (Judgment of December 24, 1915, Minroku Vol. 21, p. 2182), held that when parties enter into a contract without expressing an intention not to be bound by the standard insurance policy terms, they are presumed to have intended to contract in accordance with those terms, unless there is evidence to the contrary. This supports the intent-based approach but also implicitly underscores the importance of the adhering party having had the chance to be aware of these standard terms.

B. Codification under the Amended Civil Code (Effective April 1, 2020)

Recognizing the increasing importance and complexity of standard form contracts, the Japanese Civil Code was significantly amended, with new provisions specifically addressing yakkan (referred to as "standard contract terms" - teikei yakkan) coming into effect on April 1, 2020. These provisions (Articles 548-2 to 548-4 of the Civil Code) largely codify and refine principles previously developed through case law and academic theory, providing greater clarity.

1. Definition and Conditions for Incorporation (Article 548-2, Paragraph 1):
The amended Civil Code defines "standard form transactions" as those conducted with an unspecified large number of persons, where the contents of the transaction are uniform for efficiency. For the standard contract terms (teikei yakkan) prepared for such transactions to become part of the agreement, one of the following conditions must be met:

• The parties have agreed that the teikei yakkan will constitute the contents of their contract.
• The party that prepared the teikei yakkan has indicated to the other party in advance that those teikei yakkan will constitute the contents of the contract.

2. Non-Incorporation Despite Indication:
Even if the preparing party indicates the teikei yakkan will apply, individual clauses that unilaterally restrict the rights or expand the duties of the other party, in a manner contrary to the fundamental principle of good faith (Article 1, Paragraph 2) and exceeding the scope normally envisioned for that type of transaction, are not deemed to have been agreed upon and thus are not incorporated (Article 548-2, Paragraph 2). This is a crucial mechanism for controlling unfair "surprise" terms, discussed further in Section III.

3. Duty of Disclosure (Article 548-3):
If the adhering party, either before the contract is concluded or within a reasonable period thereafter, requests disclosure of the contents of the teikei yakkan, the party that prepared them must comply without delay. Failure to do so without a legitimate reason (or an outright refusal to disclose) can result in the teikei yakkan not being considered as agreed upon, effectively preventing their incorporation. However, if the preparing party had already delivered a document containing the teikei yakkan or provided them via information communication technology, this disclosure duty is deemed fulfilled unless a specific request for a written document is made.

These Civil Code amendments aim to strike a balance between facilitating efficient mass transactions and protecting adhering parties from unknowingly binding themselves to unfair or unread terms.

III. Judicial and Legislative Control of Unfair Terms in Yakkan

Even if yakkan are validly incorporated into a contract, specific individual clauses within them may still be challenged and deemed unenforceable if they are found to be substantively unfair. Japanese law provides several layers of control.

A. The General Principle of Public Order and Morality (Civil Code Article 90)

The broadest and most fundamental control mechanism is Article 90 of the Civil Code, which states that a juridical act (which includes a contract or a contract clause) whose object is contrary to "public order or good morals" is null and void. This principle serves as an overriding check on any contractual term, including those found in yakkan, that is deemed excessively one-sided, exploitative, or otherwise offensive to fundamental societal values. While its application requires a high threshold, it remains a potent tool for invalidating particularly egregious clauses.

B. The Consumer Contract Act (CCA - Shōhisha Keiyaku Hō)

For business-to-consumer (B2C) transactions, the Consumer Contract Act provides more specific and robust protections against unfair contract terms. This Act, enacted in 2000 and subsequently amended, aims to rectify the informational and bargaining power disparities between businesses and consumers.

Article 10 of the CCA is a cornerstone provision. It renders void any consumer contract clause that unilaterally impairs the consumer's interests and contravenes the principle of good faith and trust (as set forth in Article 1, Paragraph 2 of the Civil Code), when compared to the application of non-mandatory provisions of the Civil Code or other laws. This effectively means that if a yakkan clause significantly disadvantages the consumer beyond what is normally expected or permissible under default legal rules, it can be nullified. Examples include clauses that:

• Unreasonably exempt the business from liability for damages.
• Impose excessive cancellation fees on the consumer.
• Unilaterally grant the business the right to determine or alter essential contract terms.

The CCA contains other articles targeting specific types of unfair clauses as well (e.g., Article 8 concerning clauses that fully exempt a business from liability for its own default or torts, or Article 9 concerning excessive liquidated damages or penalty clauses).

C. Control of Unfair Standard Contract Terms under the Amended Civil Code (Article 548-2, Paragraph 2)

As mentioned briefly in the section on incorporation, the amended Civil Code itself now contains a provision directly addressing unfair clauses within teikei yakkan that can apply to both B2C and business-to-business (B2B) transactions. Article 548-2, Paragraph 2 stipulates that if a clause within a teikei yakkan is one that unilaterally restricts the rights or expands the duties of the other party in a manner that (i) contravenes the principle of good faith under Article 1, Paragraph 2 of the Civil Code, and (ii) exceeds the degree normally found in standard form transactions of that kind, then such a clause is not considered to have been agreed upon.

This provision effectively means that such an unfair "surprise" term does not become part of the contract in the first place. It provides a general standard for courts to scrutinize the substantive fairness of yakkan clauses, even outside the specific scope of the Consumer Contract Act, thereby extending a level of protection against particularly one-sided terms in B2B contexts.

D. Judicial Approach to Assessing Unfairness

When assessing whether a yakkan clause is unfair, Japanese courts typically undertake a holistic examination. They will consider:

• The specific wording of the clause.
• The nature and purpose of the contract as a whole.
• The typical practices and expectations within the relevant industry.
• The degree of one-sidedness or prejudice caused to the adhering party.
• Whether the clause is "surprising" or hidden within a lengthy document.
• Whether the adhering party had any real opportunity to understand and negotiate the term.

The overall goal is to prevent the abuse of standard form contracts while recognizing their legitimate role in commerce.

IV. Practical Considerations for Businesses

Given the legal framework surrounding yakkan in Japan, businesses should be mindful of the following:

A. For Businesses Using Yakkan in Japan:

• Clarity and Accessibility: Draft yakkan in clear, plain language. Ensure they are easily accessible to the counterparty before or at the time of contracting. This could involve providing a physical copy, clearly displaying them, or providing a stable and easily findable online link.
• Opportunity to Review: Design the contracting process to give the other party a genuine opportunity to read and understand the terms. Simply making them available is often not enough if the process rushes the adhering party.
• Consumer Contract Act Compliance: If dealing with consumers, pay meticulous attention to the requirements and prohibitions of the Consumer Contract Act. Clauses that are standard in B2B contexts may be deemed unfair and void in B2C contracts.
• Review for Fairness: Regularly review your yakkan to identify and revise any clauses that might be considered unilaterally prejudicial or contrary to good faith, especially in light of the criteria in Article 548-2, Paragraph 2 of the Civil Code and Article 10 of the CCA.
• Record Keeping: Maintain records of how and when yakkan were presented or made available to counterparties.

B. For Businesses Encountering Yakkan in Japan:

• Request and Review: If yakkan are referred to but not immediately provided, always request a full copy. Do not assume they are "standard" and therefore fair or non-negotiable.
• Scrutinize Key Terms: Pay particular attention to clauses concerning liability limitations, dispute resolution, termination, and any terms that seem unusual or particularly onerous.
• Seek Clarification: If a term is unclear, ask for clarification.
• Negotiation (Where Possible): While yakkan are often presented as non-negotiable, in some B2B contexts, especially for significant transactions, there may be room for negotiation on certain points.
• Legal Advice: If a yakkan contains terms that are concerning or appear overly one-sided, seek legal advice on their potential enforceability under Japanese law.

V. Conclusion

Standard form contracts (yakkan) are an indispensable tool in modern Japanese commerce, facilitating efficiency and predictability. However, their use is not without legal oversight. Japanese law, through the Civil Code (especially its 2020 amendments) and specific legislation like the Consumer Contract Act, strives to ensure that these pre-drafted terms are incorporated into agreements in a manner that respects the adhering party's opportunity to be aware of them, and that substantively unfair clauses do not bind parties in contravention of good faith and public order. For businesses operating in Japan, a proactive and informed approach to drafting, presenting, and reviewing yakkan is crucial for fostering sound contractual relationships and mitigating legal risks.