Buyer's Rights with Pre-Bankruptcy Provisional Land Registration in Japan: A 1967 Supreme Court Ruling

Date of Judgment : August 25, 1967 (Showa 42)
Case Name : Claim for Ownership Transfer Registration Procedures
Court : Supreme Court of Japan, Second Petty Bench

This blog post examines a 1967 Supreme Court of Japan decision. The case addressed the rights of a buyer who had secured a pre-bankruptcy "provisional registration" (仮登記 - karitōki) for the transfer of agricultural land, when the seller subsequently went bankrupt before final registration could be completed.

Facts of the Case

X (the plaintiff/appellee) purchased cultivated fields (farmland) from his nephew, A (the seller). X paid the purchase price and took possession of the land. However, a crucial step for finalizing the transfer of agricultural land in Japan is obtaining the permission of the prefectural governor. Because this permission had not yet been obtained, X, on February 28, 1961, effected a provisional registration to secure his claim for future transfer of ownership. This provisional registration was made on the grounds of a "sale reservation" (売買予約 - baibai yoyaku).

Around the time of this provisional registration, A was already experiencing financial difficulties and had effectively suspended payments. Some time after X's provisional registration was made, a bankruptcy petition was filed against A. Over a year later, on December 18, 1962, A was formally declared bankrupt (an event corresponding to a "bankruptcy proceedings commencement decision" under current law), and Y was appointed as A's bankruptcy trustee (the defendant/appellant).

X then filed a lawsuit against Y, the bankruptcy trustee, demanding that Y complete the necessary procedures for the final registration (hontōki) of ownership in X's name. Y, in response, argued that the provisional registration should be avoided (likely as a preferential perfection of rights, though the specific avoidance ground was debated in the lower courts) and filed a counterclaim demanding the cancellation of X's provisional registration.

Lower Court Rulings

• The court of first instance ruled in favor of Y (the trustee), dismissing X's claim for final registration and ordering the cancellation of the provisional registration.
• The High Court (the original instance court for the appeal to the Supreme Court) reversed this decision, ruling in favor of X (the buyer). The High Court found that the trustee could not avoid the provisional registration as a preferential perfection of rights because it had been made more than a year before A's bankruptcy declaration (referencing Article 166 of the old Bankruptcy Act, which set time limits for certain avoidance actions). Since the High Court deemed the provisional registration valid against the bankruptcy estate, it concluded that X could demand that Y complete the procedures for final registration. Y appealed this decision to the Supreme Court.

The Supreme Court's Decision

The Supreme Court dismissed Y's appeal, thereby affirming the High Court's decision in favor of X .

The Supreme Court's reasoning included the following points:

1. Effect of Agricultural Land Sale Without Governor's Permit:
   The Court acknowledged that a sale of agricultural land does not transfer ownership rights unless and until the governor's permission is obtained . However, this does not mean the sale contract itself is entirely void or without any legal effect . Barring special circumstances, the seller (A, and subsequently his trustee Y) has a contractual obligation to take the necessary steps to apply for the governor's permission . If permission is granted, the seller (or trustee) then incurs the obligation to complete the procedures for the final registration of ownership transfer in the buyer's (X's) name .
2. Provisional Registration's Effect Against the Bankruptcy Estate:
   While X only held a provisional registration at the time of A's bankruptcy (meaning the land itself became part of A's bankruptcy estate subject to Y's administration), the Supreme Court endorsed the High Court's finding that this pre-bankruptcy provisional registration was effective against the bankruptcy estate .
3. Buyer's Right to Pursue Final Registration:
   The Supreme Court affirmed the High Court's specific determination that X could demand that Y (the trustee):
   • Undertake the procedures to apply for the governor's permission for the sale of the farmland .
   • Conditioned upon obtaining that permission, complete the procedures for the final registration of ownership in X's name, based on the existing provisional registration .
4. Clarification of the Scope of X's Rights:
   The Supreme Court was careful to point out that the High Court had not ruled that X could assert perfected ownership against third parties solely based on the provisional registration, nor that X had a right of priority over other bankruptcy creditors simply by virtue of the provisional registration . The ruling recognized X's contractual pathway towards perfecting ownership, contingent on the governor's permit.
5. No Sham Transaction:
   The argument that the sale between X and A was a sham transaction was dismissed, as the Supreme Court found no error in the lower court's factual determination that it was a genuine sale .

Commentary and Elaboration

1. Provisional Registrations (Karitōki) in Japanese Real Property Law

A "provisional registration" (karitōki) in Japan is a type of registration made in the real property register to secure a claim for a future change in real property rights (e.g., ownership transfer, mortgage creation) when the formal requirements for a final registration (hontōki) cannot yet be met. Its primary effect is to preserve the priority of the claim secured by the provisional registration against any subsequent conflicting registrations or claims.

The commentary provided with this case discusses provisional registrations in the context of Bankruptcy Act Article 49, Paragraph 1 (current version), which primarily deals with the validity of registrations made after the commencement of bankruptcy proceedings based on a cause that arose before commencement. This article distinguishes between:

• Type 1 Provisional Registrations (不動産登記法105条1号の仮登記 - fudōsan tōki-hō 105 jō 1 gō no karitōki): These are typically made when the substantive right (e.g., a concluded sales agreement) exists, but some formal requirement for final registration is still pending (like obtaining a necessary permit, or if documents are not yet complete). Under Article 49(1), if such a Type 1 provisional registration is made post-commencement based on a pre-commencement cause, it cannot be asserted against the bankruptcy proceedings unless the person making the registration did so without knowledge of the bankruptcy commencement.
• Type 2 Provisional Registrations (同法105条2号の仮登記 - 2 gō karitōki): These are typically made to secure a claim for a right that is not yet fully formed or is conditional (e.g., based on a sale reservation, an option to purchase, or a contract subject to a condition precedent). The commentary suggests that Bankruptcy Act Article 49, Paragraph 1 does not apply to Type 2 provisional registrations made post-commencement, meaning their effect generally cannot be asserted against the bankruptcy estate even if made without knowledge of the bankruptcy. The rationale for this distinction often relates to the nature and maturity of the underlying claim being secured.

The provisional registration was based on a "sale reservation" (baibai yoyaku), which often falls under the category of Type 2 provisional registrations, or at least shares characteristics with them, especially given the pending governor's permit as a significant condition.

2. The Core Issue: Enforcing Pre-Bankruptcy Karitōki Against the Bankruptcy Trustee

The case itself, however, deals with a provisional registration made before the commencement of bankruptcy proceedings. The central question is whether the holder of such a pre-existing karitōki can compel the bankrupt seller's trustee to proceed with final registration.

• For Type 1 Karitōki (Pre-Bankruptcy): It is established by long-standing case law (a Daishin-in (Great Court of Cassation) judgment from 1926) and prevailing academic theory that the holder of a Type 1 provisional registration made before bankruptcy can generally demand that the bankruptcy trustee complete the procedures for final registration. This is because the underlying substantive right to the transfer is considered to have already arisen.
• For Type 2 Karitōki (Pre-Bankruptcy): There has been more academic debate regarding Type 2 provisional registrations:
  • Negative View: This view argues that final registration cannot be demanded from the trustee because, unlike with a Type 1 karitōki, the substantive conditions for the final transfer of the right had not fully materialized before the bankruptcy commencement.
  • Positive View (now considered the majority): This view, which the commentary states is the current majority academic opinion, argues that final registration can be demanded. It emphasizes that both Type 1 and Type 2 provisional registrations serve the crucial function of preserving priority against intervening third-party dispositions or encumbrances. Therefore, there is no compelling reason to treat them differently concerning the right to seek final registration from the trustee, provided any outstanding conditions (like the governor's permit) can be met.

The Supreme Court's 1967 decision, by upholding the High Court's judgment which allowed X to pursue the steps towards final registration (contingent on obtaining the governor's permit), is interpreted by the commentary as implicitly supporting the positive view. It suggests that even for a pre-bankruptcy provisional registration that might be characterized as Type 2 (due to its basis in a "sale reservation" and the pending permit), the buyer retains a pathway to perfect their ownership against the bankruptcy estate, provided the necessary conditions are fulfilled.

(The commentary also notes a dissenting academic view from Professor Junichi Matsushita, who argues against allowing demands for final registration from the trustee even for Type 1 provisional registrations, advocating for a more restrictive approach to protect the bankruptcy estate ).

Conclusion

The Supreme Court's 1967 decision affirmed the right of a buyer, who held a pre-bankruptcy provisional registration for the purchase of agricultural land based on a sale reservation, to require the bankrupt seller's trustee to undertake the necessary procedures to obtain a vital third-party permit (from the governor) and, upon its issuance, to complete the final ownership registration. While the land became part of the bankruptcy estate, the provisional registration provided the buyer with a recognized pathway to perfect their title, contingent on fulfilling all legal requirements for the land transfer. This judgment is understood to align with the prevailing view that holders of pre-bankruptcy provisional registrations, including those securing claims for future rights (like Type 2 karitōki), generally retain the ability to pursue final registration against the bankruptcy trustee, provided any outstanding conditions can be satisfied.