Defective Products in Japanese Sales Contracts: From "Kashi Tanpo Sekinin" to "Non-Conformity with Contract"

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

When businesses or individuals purchase goods in Japan, they do so with the expectation that the products will meet certain standards of quality, performance, and utility. But what happens when these expectations are not met, and the delivered goods turn out to be defective? Historically, Japanese law addressed this under a doctrine known as kashi tanpo sekinin (瑕疵担保責任 – warranty liability against defects in goods). However, a major reform of the Japanese Civil Code, effective from April 1, 2020, has fundamentally reshaped this area, introducing a new framework based on "non-conformity of the subject matter with the terms of the contract" (keiyaku futekigō sekinin - 契約不適合責任). This article will briefly touch upon the historical context of kashi tanpo sekinin and then focus primarily on the current legal regime governing a seller's liability for defective products in Japanese sales contracts.

I. The Historical Framework: Kashi Tanpo Sekinin under the Old Civil Code (Pre-April 1, 2020)

Before the 2020 reforms, a seller's liability for defects in goods was primarily governed by Article 570 of the former Civil Code. This provision applied by analogy the rules concerning defects in rights (old Article 566) to situations where there was a "hidden defect" (kakureta kashi) in the subject matter of a sale.

A. Key Concepts under the Old Law:

  1. "Defect" (Kashi): A "defect" was generally understood as a lack of the quality or performance that would ordinarily be expected of such goods, or a failure to meet qualities specifically agreed upon by the parties. There was an ongoing debate between an "objective defect" concept (where the goods fell below a general standard) and a "subjective defect" concept (where the goods did not meet the specific requirements of the individual contract). The prevailing view leaned towards defining defects based on the contract terms first, and in their absence, by what a reasonable person would expect for the intended contractual purpose. This could include not only physical flaws but also, in some judicial interpretations, "legal defects" such as a building violating construction codes in a way that prevented its intended use.
  2. "Hidden Defect" (Kakureta Kashi): For liability to arise under old Article 570, the defect had to be "hidden." This meant that the buyer was unaware of the defect at the time of the contract and could not have discovered it by exercising the ordinary care expected of a buyer in that transaction. Essentially, the buyer needed to be in good faith and without negligence concerning the existence of the defect. The burden of proving that the buyer knew of the defect or was negligent in not discovering it often fell upon the seller seeking to avoid liability.
  3. The "Statutory Liability" vs. "Contractual Liability" Debate: A significant theoretical debate surrounded the nature of kashi tanpo sekinin:
    • Statutory Liability Theory (Hōtei Sekinin Setsu): This was the dominant view before 2020. It posited that the liability under old Article 570 was a special liability imposed directly by statute, distinct from the general rules of contractual default (saimu furikō). Under this theory, if a seller delivered a specific, identified item (e.g., a particular used machine), they were deemed to have "performed" the delivery obligation even if the item was defective. The kashi tanpo sekinin was an additional, separate remedy for the buyer. Key implications were that this liability applied most clearly to specific goods. For generic goods, if a seller delivered defective items, it was often treated as a failure in the "specification" process or an incomplete performance, allowing the buyer to demand conforming goods under general default rules rather than relying on Article 570. Remedies under Article 570 were typically limited to damages (often interpreted as reliance interest or a sum akin to a price reduction) and termination of the contract if the defect was so severe that the buyer could not achieve their contractual purpose. A right to demand repair or replacement of the defective specific good was generally not recognized under Article 570 itself.
    • Contractual Liability Theory (Keiyaku Sekinin Setsu): A minority but influential view, which ultimately informed the 2020 reforms, argued that delivering defective goods constituted a breach of the seller's fundamental contractual obligation to provide goods of the agreed quality. From this perspective, Article 570 was seen as a special set of rules within the broader framework of liability for contractual default. This theory more readily supported a buyer's right to demand remedies like repair or replacement.
  4. Buyer's Remedies and Time Limitation: Under old Article 570, if a hidden defect was found, the buyer could claim damages. If the defect was so significant that the purpose of the contract could not be achieved, the buyer could also terminate the contract. Crucially, these rights had to be exercised within one year from the time the buyer discovered the defect. This short period was a significant feature and often a point of contention.

The distinction between specific goods (e.g., a unique antique) and generic goods (e.g., 100 tons of Grade A wheat) was also important. The statutory liability interpretation of kashi tanpo was more closely associated with specific goods. For generic goods, if a seller delivered defective items, this was often viewed as a failure to properly "specify" conforming goods from the generic stock, thus allowing the buyer to demand delivery of conforming goods under general non-performance rules. The Supreme Court of Japan, in a judgment dated December 15, 1961 (Minshū Vol. 15, No. 11, p. 2852), attempted to delineate this, suggesting that if a buyer of generic goods knowingly accepted defective items as performance, then Article 570 might apply; otherwise, general default rules, including the right to demand conforming goods, would prevail.

II. The Current Regime: Liability for Non-Conformity with the Contract (Post-April 1, 2020)

The 2020 amendments to the Japanese Civil Code have ushered in a paradigm shift, largely replacing the traditional kashi tanpo sekinin framework with a system centered on the "non-conformity of the subject matter with the terms of the contract" (keiyaku futekigō sekinin). This new regime is primarily articulated in Articles 562 to 564 and 566 of the amended Civil Code and aims to provide a more comprehensive and buyer-friendly set of remedies, aligning Japanese law more closely with international commercial standards, such as the UN Convention on Contracts for the International Sale of Goods (CISG).

A. The Core Principle: Conformity with the Contract

Under the current law, a seller is liable if the delivered subject matter—be it goods, property rights, or even digital content in some cases—does not conform to the terms of the contract with respect to its kind, quality, or quantity (Article 562, Paragraph 1).

The focus has moved from the somewhat elusive concept of "hidden defects" to a more objective (yet contract-dependent) assessment of whether the goods delivered match what was agreed upon in the contract. If the contract specifies a certain grade of steel, a particular software functionality, or a precise number of units, and the delivered goods fall short, they are "non-conforming." The buyer's knowledge of a potential non-conformity at the time of contracting may still be relevant, for instance, if they expressly or implicitly accepted goods with known deviations.

B. Buyer's Remedies for Non-Conformity

The amended Civil Code provides buyers with a more extensive and flexible range of remedies compared to the old kashi tanpo regime:

  1. Demand for Remedial Action (Cure - Tsuikan Seikyū) (Article 562):
    This is a significant innovation. The buyer now has a primary right to demand that the seller take action to make the performance conform to the contract. This can take several forms, at the buyer's choosing:However, the seller may refuse the buyer's chosen method of cure if it would impose unreasonable burdens on the seller compared to another method of cure, provided the buyer does not have a particular interest in the method they chose. If cure is impossible or the seller fails to cure within a reasonable period, the buyer can move to other remedies.
    • Repair of the goods (shūho).
    • Delivery of substitute goods (daibutsu no hik渡し). This is particularly relevant for generic goods but can also apply to specific goods if replacement is feasible.
    • Delivery of any missing quantity (fusoku-bun no hik渡し).
  2. Demand for Price Reduction (Daikingengaku Seikyū) (Article 563):
    If remedial action (cure) is not performed by the seller within a reasonable period after the buyer's demand, or if cure is impossible from the outset, or if the seller clearly refuses to provide cure, the buyer may demand a reduction in the purchase price. The buyer can also demand a price reduction if, given the nature of the contract or other circumstances, the purpose of the contract cannot be achieved unless cure is effected by a specific deadline and that deadline has passed, or if it's clear that even if cure were demanded, the seller would not perform. The amount of the reduction must be proportionate to the degree of non-conformity.
  3. Claim for Damages (Songai Baishō) (Article 564, applying Article 415):
    The buyer can claim damages for losses suffered due to the non-conformity. This right is governed by the general rules of contractual default (Article 415). Crucially, under these general rules, a claim for damages typically requires that the non-conformity (the default) is due to a cause attributable to the seller (i.e., the seller is at fault). This is a key difference from the old kashi tanpo damages, which were often seen as a form of strict or near-strict liability.
  4. Termination of Contract (Kaijo) (Article 564, applying Articles 541 and 542):
    The buyer may also terminate the contract if the non-conformity is significant. The general rules for contract termination apply:
    • If the non-conformity is not minor and the seller fails to cure it after the buyer has demanded cure within a reasonable period (saikoku), the buyer can terminate (Article 541).
    • Termination without prior demand is possible under specific circumstances outlined in Article 542, such as when cure is impossible, the seller definitively refuses to cure, or the non-conformity is so substantial that the fundamental purpose of the contract cannot be achieved by the delivered goods. As with damages, the seller's fault is generally not a prerequisite for termination due to non-conformity under the new rules.

C. Time Limitation for Buyer's Claims (Article 566)

The time limits for raising claims for non-conformity have also been revised:

  • The buyer must notify the seller of the nature of the non-conformity (in kind, quality, or quantity) within one year from the time the buyer became aware of such non-conformity.
  • Exception: This one-year notification period does not apply if the seller was aware of, or was grossly negligent in not being aware of, the non-conformity at the time of delivery.
  • This one-year notification is a prerequisite for the buyer to be able to exercise the remedies of demanding cure, price reduction, damages, or termination based on that specific non-conformity.
  • Failure to notify within this period generally results in the loss of these remedies, unless the seller's knowledge/gross negligence exception applies.
  • Importantly, this one-year period is for notification of the defect. The actual time limit for bringing a legal action (the statute of limitations or shōmetsu jikō) is governed by the general provisions of Article 166 of the Civil Code. This typically means the buyer can exercise their rights within 5 years from the time they became aware that they could exercise the right (e.g., after discovering the non-conformity and its implications), or within 10 years from when the right could objectively have been exercised (e.g., from the time of delivery, for non-conformities present then), whichever period expires earlier. This is a much longer effective period for legal action than the strict one-year "exercise of rights" period under the old Article 570.

It's also important to consider how this liability for non-conformity interacts with other areas of Japanese law:

  • Tort Law (Article 709) and Product Liability Act: If a defective product causes harm beyond damage to the product itself (e.g., personal injury or damage to other property – so-called "extended damages"), the buyer (or other injured parties) may have a claim in tort against the seller or manufacturer. Furthermore, the Product Liability Act provides a distinct basis for claiming compensation for harm caused by defects in manufactured products, often with a more favorable regime for claimants regarding proof.
  • Mistake (Sakugo - Civil Code Article 95): If a non-conformity is so fundamental that it constitutes a "mistake" regarding an essential element or quality of the goods that formed the basis of the parties' bargain, the buyer might also have grounds to argue for the avoidance of the contract due to mistake. The relationship between liability for non-conformity and the doctrine of mistake can be complex, though the reformed Civil Code's comprehensive non-conformity regime is intended to be the primary avenue for addressing issues related to the quality and characteristics of goods.
  • Consumer Contract Act: In transactions with consumers, the Consumer Contract Act offers additional layers of protection. It may render void certain contractual clauses that unfairly limit the seller's liability for non-conformity or restrict the consumer's remedies.

IV. Conclusion

The Japanese legal framework for addressing defective products in sales contracts has seen a significant modernization with the 2020 Civil Code amendments. The shift from the somewhat fragmented and theoretically debated kashi tanpo sekinin (focused on "hidden defects" and offering limited direct remedies like repair) to the more comprehensive keiyaku futekigō sekinin (focused on "non-conformity with the contract" and providing a clearer hierarchy of buyer's rights including cure, price reduction, damages, and termination) brings Japanese law more into harmony with international commercial norms.

Key takeaways from the current regime include the expanded set of remedies available to the buyer, a clearer distinction between the conditions for termination (generally not requiring seller's fault) and for damages (generally requiring seller's fault), and a revised system for time limitations that emphasizes timely notification by the buyer upon discovering a non-conformity, followed by general statutes of limitation for legal action. For businesses buying or selling goods in Japan, a thorough understanding of these current rules of non-conformity is vital for effectively managing their contractual rights and obligations.