Can "Future Claims" (Shōrai Saiken) Be Assigned Under Japanese Law, and What Are the Implications for Securing Finance?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

In modern commerce, the ability to leverage future revenue streams is a cornerstone of many financing arrangements. This often involves the assignment of "future claims" (将来債権 - shōrai saiken)—claims that have not yet come into existence or whose specific content is not yet determined at the time of the assignment agreement. Japanese law has evolved to recognize the validity of such assignments, culminating in clear provisions in the revised Civil Code. This article explores the legal framework governing the assignability of future claims in Japan, the requirements for such assignments to be effective, and their significant implications for securing finance.

What Constitutes a "Future Claim" (Shōrai Saiken)?

A "future claim" under Japanese law refers to an obligatory right (typically a right to receive payment or other performance) that, at the moment the assignment agreement is made, either:

  1. Has not yet come into existence: The underlying legal basis for the claim may exist (e.g., an ongoing lease agreement), but the specific claim for a future period (e.g., next year's rent) has not yet accrued.
  2. Has come into existence but its content is not yet fixed or determined: The basic right might exist, but the precise amount or specific details of the claim are contingent on future events or actions.

Common examples of future claims include:

  • Claims for future rent payments arising from an existing lease agreement for subsequent lease periods.
  • Claims for future sales proceeds from goods that a business expects to sell in its ordinary course of operations.
  • Claims for future fees for services that a professional or company expects to render under ongoing or anticipated service agreements (e.g., future medical consultation fees, future project milestone payments).
  • Claims that will arise from future transactions under a current account agreement or other continuous contractual relationships.

It's important to distinguish true future claims from claims that are already in existence but are merely subject to a condition precedent or have an uncertain due date. Future claims are more fundamentally "not yet existing" in their specific, assertable form at the time of assignment.

Historical Development and Judicial Recognition

Even before explicit statutory provisions were introduced in the comprehensive 2020 revision of the Civil Code, Japanese courts had progressively recognized the assignability of future claims. A landmark decision by the Supreme Court of Japan on January 29, 1999 (Minshu Vol. 53, No. 1, p. 1), was particularly influential. This case affirmed the principle that future claims could be validly assigned, provided that, at the time of the assignment agreement, the claims were sufficiently specified or identifiable as to their underlying cause, the period of their accrual, and their general nature. This ruling was often applied in contexts like the blanket assignment of future medical fees receivable by a clinic or future lease payments.

Codification in the Revised Civil Code (Article 466-6)

The revised Japanese Civil Code (effective April 1, 2020) formally codified and clarified the rules for assigning future claims in Article 466-6:

  • Paragraph 1 (Validity of Assignment): "An assignment of a claim which will arise in the future (hereinafter referred to as a 'future claim') shall be effective if the claim subject to the assignment is identifiable at the time of the assignment." This paragraph enshrines the general principle of assignability, contingent on the crucial requirement of identifiability.
  • Paragraph 2 (Timing of Acquisition by Assignee): "In the case referred to in the preceding paragraph, the assignee shall acquire the future claim when it arises." This clarifies that the assignee's ownership of the specific claim materializes only at the moment that claim actually comes into existence.
  • Paragraph 3 (Application of Perfection Rules): "The provisions of Article 467 [which governs the perfection of claim assignments against the debtor and third parties] shall apply mutatis mutandis to an assignment of a future claim." This ensures that the standard rules for making an assignment effective against the debtor and other third parties also apply to assignments of future claims.

The rationale for legally recognizing the assignment of future claims is clear: it facilitates a wide range of modern financing techniques crucial for business operations, such as factoring of future receivables, asset securitization, and project finance. It provides commercial flexibility and allows businesses to leverage anticipated income streams.

Requirements for a Valid Assignment of Future Claims

For an assignment of future claims to be valid and effective under Japanese law, several key requirements must be met:

1. Sufficient Specification (Identification) of the Claim (債権の特定性 - Saiken no Tokuteisei)

This is arguably the most critical requirement, as stipulated by Article 466-6, Paragraph 1. The future claim(s) being assigned must be identifiable at the time the assignment agreement is made. The assignment agreement must describe the future claims with enough clarity and precision to distinguish them from other potential claims of the assignor and to allow third parties (including the debtor of the future claim) to understand what has been assigned.

Drawing from pre-revision case law (like the 1999 Supreme Court decision) and the intent of the new provision, adequate specification typically involves identifying:

  • The cause or source of the claim's occurrence (発生原因 - hassei gen'in): e.g., a specific contract, a particular type of business activity.
  • The time period during which the claim is expected to arise (発生期間 - hassei kikan): e.g., "all claims arising in the next 12 months."
  • The type or nature of the claim (債権の種類 - saiken no shurui): e.g., "claims for sales proceeds," "claims for rental income."

For example, an assignment might specify:

  • "All claims for sales proceeds due to [Assignor Company] from sales of 'Product X' to [Specific Debtor Company, or 'all trade debtors arising from wholesale operations'] during the period from January 1, 2026, to December 31, 2026."
  • "All claims for rental income arising from the lease agreement dated [Date] concerning the property located at [Address] for all lease periods commencing from [Date]."

Blanket assignments of future claims (集合債権譲渡 - shūgō saiken jōto), where a pool of future receivables is assigned, are generally permissible provided the criteria defining the pool (e.g., arising from a specific business line, from specific types of customers, within a defined period) are sufficiently clear to make the assigned claims identifiable.

2. Existence of a Valid Assignment Agreement

The agreement to assign the future claims must itself satisfy the standard legal requirements for a valid contract (e.g., offer, acceptance, capacity of parties, legality of purpose).

While future claims are generally assignable, certain limitations can arise:

  • Excessive Restriction on the Assignor's Business Freedom (Article 90 - Public Policy): If an assignment of future claims is so broad in scope (e.g., assigning all future receivables from all business activities for an extremely long or indefinite period) that it effectively cripples the assignor's ability to conduct their business, unduly restricts their economic freedom, or is otherwise unconscionable, it may be challenged as contrary to public policy and good morals (Article 90 of the Civil Code) and be deemed wholly or partially void.
    Japanese courts have shown a willingness to scrutinize such overly extensive assignments. The aforementioned Supreme Court judgment of January 29, 1999, while affirming the general assignability of future medical fees, also indicated that the scope of such assignments should not unreasonably impede the medical institution's ability to operate. If an assignment effectively amounts to selling off one's entire future business viability, it may be invalidated.
  • Conflict with Higher-Priority Rights or Defenses: Even if an assignment of a future claim is validly made, the assignee's ability to actually collect that claim once it arises can be affected by:
    • The debtor of the future claim's right to set off pre-existing claims they have against the assignor.
    • The possibility that the underlying contract giving rise to the future claim is validly terminated or modified by the original parties before the claim accrues.
    • In cases of the assignor's bankruptcy, specific bankruptcy avoidance rules might affect the enforceability of certain pre-bankruptcy assignments of future claims, particularly if they are deemed preferential or fraudulent.

Assuming a valid assignment agreement and sufficient specification, the assignment of future claims has the following key legal effects:

1. Timing of Acquisition by the Assignee (Article 466-6(2))

The assignee (the party receiving the assignment) legally acquires the future claim at the moment it actually comes into existence (発生時 - hassei-ji). Before the specific claim arises, the assignee holds an expectant right or a contractual right against the assignor for the future transfer of the claim once it materializes. For example, if future monthly rental income is assigned, the assignee acquires the claim for each month's rent as that particular month's rent becomes due and payable by the tenant.

2. Perfection of the Assignment (Making it Effective Against Others - Article 466-6(3) and Article 467)

For the assignment of a future claim to be effective not just between the assignor and assignee but also assertable against the debtor of the future claim and against other third parties (such as competing assignees of the same future claim, or creditors of the assignor who might try to attach the claim), the assignment must be "perfected." The rules for perfecting an assignment of an existing claim (Article 467) apply by analogy:

  • Perfection Against the Debtor of the Future Claim: The assignment can be asserted against the debtor of the future claim (once that claim arises) if either:
    • The assignor gives notice of the assignment to that debtor.
    • That debtor consents to the assignment.
  • Perfection Against Other Third Parties: To achieve priority over other third parties (e.g., another assignee of the same future claim from the same assignor, or an attaching creditor of the assignor), the notice to the debtor or the debtor's consent must be evidenced by an instrument bearing a "fixed date" (確定日付 - kakutei hizuke). Common methods for obtaining a fixed date include using content-certified mail (内容証明郵便 - naiyō shōmei yūbin) for the notice, or having the consent document notarized.
  • Timing of Perfection Measures for Future Claims: A crucial practical aspect is that these perfection measures (notice with a fixed date or consent with a fixed date) can be undertaken before the future claim actually arises. If the perfection steps are completed in advance, the assignment's perfection and priority become effective at the very moment the future claim comes into existence. This allows assignees, such as financing institutions, to secure their position and priority regarding future receivables at an early stage.

The assignee of a future claim generally takes that claim subject to the fortunes of the underlying contract from which it is expected to arise:

  • Non-Existence or Modification: If the underlying contract is validly terminated by the original parties (the assignor and the debtor of the future claim) before the future claim accrues, or if the terms are modified in a way that diminishes or extinguishes the anticipated claim, the future claim may never arise or may arise in an altered form. This represents a significant risk for the assignee.
  • Defenses of the Debtor of the Future Claim: The debtor of the future claim can generally assert against the assignee any defenses they could have asserted against the assignor (the original creditor of that future claim) that arise from or are connected to the underlying contract. For example, if a lessor (assignor) assigns future rent claims, but then fails to maintain the leased property as required by the lease (breaching the lease), the lessee (debtor of the future rent) might be entitled to withhold rent or claim damages, and these rights could be asserted against the assignee of the future rent. (Illustrative, drawing from genericized CASE 461, 462). The assignee essentially steps into the assignor's shoes regarding the assigned future claim, including its vulnerabilities.

Implications for Securing Finance

The clear legal recognition of the assignability of future claims in Japan has profound implications for securing finance:

  • Foundation for Asset-Based Lending: It enables various forms of financing where future income streams are used as collateral or are directly sold. This includes:
    • Factoring of future trade receivables: Businesses can obtain immediate cash by selling their yet-to-be-billed or future-dated invoices.
    • Securitization: Future revenue streams (e.g., mortgage payments, credit card receivables, lease payments, intellectual property royalties) can be pooled and used to back securities sold to investors.
    • Project Finance: Lenders can secure financing for large projects based on an assignment of the future revenues expected to be generated by the completed project.
  • Functioning Like a Floating Lien/Charge: Blanket assignments of categories of future receivables can operate in a manner similar to a floating charge over a dynamic pool of assets, providing ongoing security for a lender.
  • Key Considerations for Financiers (Assignees):
    • Thorough Due Diligence: It is critical to carefully assess the specificity and identifiability of the future claims being assigned. Ambiguity can lead to disputes and unenforceability.
    • Understanding the Assignor's Business: Investigate the nature of the assignor's business operations and the underlying contracts that are expected to generate the future claims. The stability and reliability of these underlying contracts are paramount.
    • Risk Assessment: Evaluate the risk that the future claims might not materialize as expected, or might be reduced or extinguished due to issues in the underlying contractual relationships between the assignor and their debtors.
    • Prompt and Proper Perfection: Timely perfection of the assignment, especially by obtaining a "fixed date" on the notice to or consent from the debtors of the future claims, is essential to secure priority against other claimants. For assignments by corporate entities, utilizing the special registration system under the Act on Special Provisions for Assignment of Movables and Claims (動産債権譲渡特例法 - Dōsan Saiken Jōto Tokureihō) can also be a powerful perfection method for certain types of claims.

Conclusion

Japanese law, now clearly articulated in Article 466-6 of the Civil Code and supported by established case law, robustly permits the assignment of future claims (shōrai saiken). This provides a vital legal foundation for modern financing techniques that rely on the monetization of anticipated revenue streams. For such assignments to be effective, the future claims must be sufficiently specified at the time of assignment, and the assignee acquires the claim only when it actually arises. Perfection of the assignment against the debtors of these future claims and other third parties can, and often should, be undertaken in advance to secure priority. While the assignment of future claims offers significant benefits for commercial flexibility and financing, assignees must remain mindful of the inherent risks tied to the fact that these claims are not yet in existence and are dependent on the successful performance and continuation of the underlying contracts that generate them.