Competing Claims in Japan: How is Priority Determined When a Single Claim is Assigned to Multiple Parties?

The assignment of claims is a fundamental aspect of modern commerce, facilitating financing and the transfer of economic value. However, complications can arise when a single claim is purportedly assigned to multiple assignees. In such scenarios, a clear set of rules is necessary to determine which assignee holds priority. This article delves into the Japanese legal framework governing the priority among competing assignees of the same claim, focusing on the prevailing "arrival time theory" (到達時説, tōtatsu-ji setsu) adopted by Japanese courts and legal scholarship.

The Foundation: Perfection of Claim Assignments Under the Japanese Civil Code

Under the Japanese Civil Code, the assignability of claims is a general principle. However, for an assignment to be effective against the obligor and third parties, certain perfection requirements must be met. Article 467 of the Civil Code provides the core rules for this.

1. Perfection against the Obligor: An assignment of a claim cannot be asserted against the obligor unless the assignor has given notice of the assignment to the obligor, or the obligor has consented to the assignment (Article 467, Paragraph 1). This notice or consent is crucial for the obligor to know to whom the performance is due.
2. Perfection against Third Parties (Other Than the Obligor): For an assignment of a claim to be asserted against third parties (such as other assignees or attaching creditors), the notice to, or consent from, the obligor must be made by means of an instrument bearing a certified date (確定日付のある証書, kakutei hizuke no aru shōsho) (Article 467, Paragraph 2). A certified date is typically obtained from a notary public or through the content-certified mail service of the post office.

The requirement of a certified date is intended to prevent fraudulent backdating of notices or consents, thereby ensuring a degree of certainty in transactions involving assigned claims.

The "Certified Date Theory" vs. The "Arrival Time Theory"

Historically, there was debate regarding how to determine priority when multiple assignments, each perfected with a certified date, competed for the same claim. One potential interpretation, the "certified date theory" (確定日付説, kakutei-hizuke setsu), suggested that priority should be determined simply by the chronological order of the certified dates on the respective instruments of notice or consent.

However, this theory faced criticism because it could lead to a situation where the priority of an assignment is determined by a factor unknown to the obligor at the time of notice or consent. The Japanese Supreme Court and the prevailing academic view have instead adopted the "arrival time theory."

The arrival time theory posits that priority is determined not by the mere order of the certified dates, but by the time at which the notice of assignment, made by an instrument bearing a certified date, reaches the obligor, or the time at which the obligor's consent, made by an instrument bearing a certified date, is given (or, according to some interpretations consistent with obligor's knowledge, when notice of such consent reaches the assignor or the relevant assignee). This approach aligns more closely with the underlying purpose of Article 467, Paragraph 2, which is to establish a system of perfection based on the obligor's awareness of the assignment.

The Rationale Behind the Arrival Time Theory: Focus on the Obligor's Awareness

The primary justification for the arrival time theory lies in the understanding that the perfection system for claim assignments under the Japanese Civil Code is fundamentally rooted in the obligor's awareness of the assignment. The Supreme Court of Japan has explicitly stated that "the perfection system for claim assignments stipulated by the Civil Code is established on the foundation that the obligor's awareness of the existence or non-existence of a claim assignment enables it to be manifested to third parties through said obligor" (Supreme Court judgment, November 27, 2001, Minshu Vol. 55, No. 6, at 1090).

If priority were determined solely by the certified date, a later assignee could potentially gain priority over an earlier assignee simply by obtaining an earlier certified date, even if the notice to the obligor occurred later. This would undermine the obligor’s role as a focal point for information regarding the disposition of the claim and could create instability in transactions. The arrival time theory, by contrast, emphasizes the point in time when the obligor is made aware (or is deemed to be in a position to be aware) of the assignment through a formally reliable means (i.e., a document with a certified date).

The Supreme Court, in a landmark decision on March 7, 1974 (Minshu Vol. 28, No. 2, at 174), established the arrival time theory as the prevailing rule. This decision clarified that when multiple assignments of the same claim are made, and each is perfected with a notice or consent bearing a certified date, the assignee whose notice (via an instrument with a certified date) first reached the obligor, or whose consent (via an instrument with a certified date) was first obtained, prevails.

Application of the Arrival Time Theory: Notice and Consent

Let's examine how the arrival time theory applies in cases of notice and consent:

• Notice by the Assignor: When priority is determined by notice from the assignor to the obligor, the crucial moment is the time of arrival of the notice at the obligor. The notice must be embodied in an instrument bearing a certified date. The certified date itself serves as proof of the non-falsifiability of the date of the instrument, but the priority is pinned to the arrival of this instrumented notice.
• Consent by the Obligor: When priority is determined by the obligor's consent, the situation is slightly more nuanced in academic discourse, though the courts tend to align with the principle of the obligor's definitive awareness. The PDF provided mentions that priority can be determined by "the date on which consent by means of an instrument bearing a certified date was dispatched". However, it also notes that this interpretation might seem to conflict with the core tenet of the arrival time theory, which prioritizes the obligor's awareness. To maintain consistency with the theory that the system revolves around the obligor's state of knowledge and its potential manifestation to third parties, the more aligned view with the Supreme Court's general stance would be that the consent becomes determinative for priority purposes when the obligor’s commitment becomes externally verifiable and fixed in time in a way that affects the obligor’s own understanding and subsequent actions regarding the claim. Practically, if consent is communicated, the arrival of this communication to the relevant party (e.g., the assignee or assignor) would likely be key, or at least the moment the obligor is definitively bound by such consent in a documented manner. The critical element remains that the consent is documented on an instrument with a certified date.

It's important to note that while the arrival time is paramount for determining priority among competing assignees, the certified date itself is not rendered meaningless. It retains significant evidentiary value, particularly in proving that the notice or consent instrument existed at or before the certified date and was not fabricated or backdated after a dispute arose.

Practical Implications and Hypothetical Scenarios

Understanding the arrival time theory is crucial for parties involved in transactions where claims are assigned. Consider these scenarios:

• Scenario 1: Sequential Notices
  • Claimant G assigns a claim against Obligor S to Assignee A. G sends a notice with a certified date of May 1st to S, which arrives on May 5th.
  • Subsequently, G assigns the same claim to Assignee B. G sends a notice with a certified date of May 3rd (earlier than A's certified date but later than A's instrument creation) to S, which arrives on May 10th.
  • Under the arrival time theory, Assignee A would have priority because their notice reached Obligor S first (May 5th), despite Assignee B's instrument potentially bearing an earlier certified date if the instrument itself was created later but certified earlier. The focus is on the arrival of the notice bearing a certified date.
• Scenario 2: Consent Preceding Notice
  • Claimant G assigns a claim against Obligor S to Assignee A. Obligor S provides consent to this assignment via an instrument with a certified date of June 1st, and this consent is communicated to Assignee A on June 3rd.
  • Later, Claimant G assigns the same claim to Assignee B. G sends a notice with a certified date of June 5th to S, which arrives on June 10th.
  • Assignee A would likely have priority, as the obligor's consent (perfected with a certified date) was established and communicated before Assignee B's notice arrived.

The Role of the Obligor in the Perfection System

The arrival time theory underscores the pivotal role of the obligor in the Japanese system for perfecting claim assignments against third parties. The obligor, upon receiving notice or giving consent, becomes the reference point for third parties seeking to ascertain the status of the claim. This system aims to prevent the "hidden" transfer of claims that could prejudice those who later deal with the original claimant or the claim itself.

The Supreme Court's reasoning emphasizes that the system is designed so that third parties can, by inquiring with the obligor, determine whether the claim has been assigned and to whom. If priority depended on factors unknown to the obligor (like the exact certified date on an instrument not yet received), this foundational aspect of the system would be weakened.

Assignment of Claims Secured by Mortgages

The principles of the arrival time theory also extend to more complex situations, such as the assignment of claims secured by mortgages. If a mortgage-backed claim is assigned, the mortgage, due to its accessory nature (随伴性, zuihansei), generally transfers with the claim to the assignee. The perfection of this transfer of the mortgage itself involves a registration (typically an ancillary registration, 付記登記, fuki-tōki).

However, if a conflict arises between the assignee of the mortgage-backed claim and a creditor who has subsequently seized the claim (not the mortgaged property itself), the priority is determined by the perfection of the claim assignment (i.e., notice to or consent from the obligor with a certified date) versus the timing of the service of the seizure notice on the obligor (who is the third-party obligor from the perspective of the seizing creditor). The priority is not determined by the chronological order of the registration of the mortgage transfer and the registration of the claim seizure. The ancillary registration of the mortgage transfer is for the assignee to smoothly exercise or dispose of the mortgage; it is not the perfection requirement for the acquisition of the mortgage against the seizing creditor of the claim. If the claim assignment takes precedence, the seizing creditor cannot assert the effectiveness of the seizure of the mortgage against the assignee. Conversely, if the seizure takes precedence, the seizing creditor can demand the cancellation of any mortgage transfer registration already made in favor of the assignee.

Conclusion

In Japan, the priority among competing assignees of the same claim is determined by the "arrival time theory." This means that the assignee whose notice (bearing a certified date) first reaches the obligor, or whose consent from the obligor (bearing a certified date) is first established in a definitive manner, will generally prevail. This rule, firmly established by the Supreme Court, is based on the rationale that the Japanese system for perfecting claim assignments is centered on the obligor's awareness, enabling the status of the claim to be ascertainable by third parties. While the certified date on the instrument is a prerequisite for perfection against third parties, serving an important evidentiary function to prevent fraud, it is the timing of the effective communication to, or definitive action by, the obligor that ultimately dictates priority in a contest between multiple assignees. Understanding this principle is essential for any party involved in the assignment of claims governed by Japanese law, as it directly impacts the security and enforceability of their rights.