Enforcing Guarantee Agreements in Japan: What are the Creditor's Burdens of Proof?

Guarantee agreements (保証契約 - hoshō keiyaku) are a cornerstone of secured lending and commercial transactions in Japan, providing creditors with an additional layer of security against principal debtor default. However, enforcing these agreements in Japanese civil litigation requires a creditor to meticulously establish a set of "essential facts" (要件事実 - yokenjijitsu) to prove their claim. This article delves into the creditor's burden of proof when seeking to enforce a guarantee obligation (保証債務履行請求権 - hoshō saimu rikō seikyūken), outlining the necessary elements for the cause of action and addressing key considerations under Japanese law.

I. Understanding Guarantee Agreements in Japan (日本における保証契約の理解)

Under the Japanese Civil Code, a guarantee agreement is a contract whereby the guarantor (保証人 - hoshōnin) undertakes to perform an obligation owed by a principal debtor (主たる債務者 - shutaru saimusha) if the latter fails to do so (Article 446(1) of the Civil Code). The object of the claim (訴訟物 - soshōbutsu) in a suit to enforce a guarantee is typically the single guarantee obligation, which, unless specifically limited by agreement, covers the principal debt as well as associated interest and damages (Article 447(1) of the Civil Code).

A. The Crucial Formality: The Writing Requirement (書面性の要件)

A fundamental prerequisite for the validity of a guarantee agreement is its form. Article 446(2) of the Civil Code mandates that a guarantee agreement is not effective unless it is made in writing or by an electronic record (e.g., a properly executed electronic contract). This requirement is designed to protect guarantors from entering into such significant obligations hastily and to ensure clarity regarding their intention to guarantee.

While the provision states the "guarantee agreement" must be in writing, interpretations have varied. One view is that it suffices if the guarantor's intention to guarantee is clearly evidenced in a written document signed by them. Another, stricter view might suggest that the entire contractual exchange (offer and acceptance) should be memorialized in writing. From a creditor's perspective, ensuring the guarantor's obligation is unambiguously captured in a written document (or a compliant electronic record) they have executed is paramount.

B. Scope of the Guarantee Obligation (保証債務の範囲)

As mentioned, Article 447(1) of the Civil Code provides that a guarantee obligation extends to the principal obligation, interest thereon, liquidated damages, default interest, and all other charges incidental to the principal obligation, unless the guarantee agreement stipulates otherwise. If a creditor wishes to claim these ancillary amounts from the guarantor, they generally do not need to prove a specific agreement from the guarantor to cover them; rather, it is presumed. If the guarantor argues that certain elements (like interest or damages) were excluded, the burden would be on the guarantor to prove such a limiting agreement.

C. Standard Guarantee vs. Joint and Several Guarantee (通常の保証 vs. 連帯保証)

Japanese law distinguishes between a "standard" guarantee and a "joint and several" guarantee (連帯保証 - rentai hoshō). While both involve a guarantor undertaking the principal debtor's obligation, the joint and several guarantee significantly strengthens the creditor's position.

In a standard guarantee, the guarantor traditionally possesses certain "defenses of subsidiarity" (補充性の抗弁 - hojūsei no kōben), namely:

1. Defense of Notice (催告の抗弁 - saikoku no kōben): The guarantor can demand that the creditor first demand performance from the principal debtor (Article 452 of the Civil Code).
2. Defense of Search (検索の抗弁 - kensaku no kōben): If the guarantor proves that the principal debtor has sufficient assets to perform and that execution on those assets would be easy, they can demand that the creditor first levy execution against the principal debtor's assets (Article 453 of the Civil Code).

However, in a joint and several guarantee, these defenses are unavailable to the guarantor (Article 454 of the Civil Code). The guarantor is, in effect, on equal footing with the principal debtor regarding the obligation to perform towards the creditor. The creditor can demand performance from the joint and several guarantor without first pursuing the principal debtor or their assets.

In practice, most commercial guarantees in Japan are structured as joint and several guarantees to provide creditors with maximum flexibility. An agreement to be a "joint and several guarantor" is a special agreement (特約 - tokuyaku) added to the basic guarantee. If a creditor is suing a joint and several guarantor, they would typically plead the facts establishing this joint and several nature. This agreement then serves to negate the aforementioned defenses if the guarantor were to attempt to raise them.

II. The Creditor's Burden: Essential Facts to Establish the Claim (請求原因)

To successfully sue a guarantor, the creditor must allege and prove the following essential facts as their cause of action (請求原因 - seikyū gen'in):

A. Proving the Existence and Validity of the Principal Debt (主たる債務の発生原因事実)

The guarantee obligation is accessory to the principal debt (付従性 - fujūsei). Therefore, the creditor must first establish the existence and validity of the underlying obligation owed by the principal debtor. For example, if the principal debt is a loan, the creditor would need to prove the essential facts for a loan repayment claim (agreement to repay, delivery of funds, agreed repayment term, and maturity of that term).

B. Proving the Formation of the Guarantee Agreement (保証契約の締結)

The creditor must prove:

1. That the guarantor entered into an agreement with the creditor to guarantee the specific principal debt.
2. That this guarantee agreement was made in writing or by an electronic record, as per Article 446(2) and (3). This means proving the guarantor's intention to be bound is expressed in the required form.

C. Special Considerations:

1. Guarantees with Acceleration Clauses in the Principal Debt (主たる債務の期限の利益喪失約款に係る保証):
   If the principal debt includes an acceleration clause (期限の利益喪失約款 - kigen no rieki sōshitsu yakkan), and the creditor is claiming performance from the guarantor for the accelerated amount (including default interest arising from acceleration), Article 458-3 of the Civil Code imposes a notification duty on the creditor. The creditor must notify the guarantor that the principal debtor has forfeited the benefit of time (i.e., the debt has been accelerated) within two months of the creditor becoming aware of such forfeiture. Failure to provide this timely notice may prevent the creditor from claiming certain default interest from the guarantor (specifically, default interest accrued between the time of acceleration and the time notice actually reaches the guarantor, excluding amounts that would have accrued even without acceleration).
   Therefore, in such cases, the creditor may need to additionally prove:
   • Their awareness of the principal debtor's forfeiture of the benefit of time.
   • That they notified the guarantor of this fact within two months of such awareness.
     This notification requirement does not apply if the guarantor is a corporation at the time the guarantee agreement is concluded (Article 458-3(3)).
2. Guarantees Executed Through an Agent (代理人による保証契約):
   If the guarantee agreement was concluded on behalf of the guarantor by an agent (代理人 - dairinin), the creditor must prove the elements of agency in addition to the formation of the guarantee:
   • The existence of the principal debt.
   • The agent entered into the guarantee agreement with the creditor for the principal debt.
   • The guarantee agreement was in writing (or electronic record).
   • The agent indicated they were acting on behalf of the guarantor (顕名 - kenmei, disclosure of agency).
   • The guarantor had granted the agent the authority (代理権 - dairiken) to conclude such a guarantee agreement prior to the agent doing so.

III. Key Defenses Available to the Guarantor (保証人の主要な抗弁)

A guarantor can raise several types of defenses against the creditor's claim:

A. Defenses Stemming from the Principal Debt (主たる債務に関する抗弁)

Due to the accessory nature of the guarantee, any defense that the principal debtor could successfully raise against the creditor regarding the principal debt can generally also be raised by the guarantor (Article 457(2) of the Civil Code). This includes, for example:

• The principal debt has been extinguished by payment (bensai).
• The principal debt has prescribed (extinctive prescription - shōmetsu jikō).
• The contract giving rise to the principal debt was invalid or rescinded.

Regarding prescription of the principal debt:

• If the principal debt's prescription period is renewed (e.g., by the principal debtor's acknowledgment), this renewal is also effective against the guarantor (Article 457(1)).
• Similarly, if the completion of the prescription period for the principal debt is postponed, this postponement also benefits the guarantor.
• However, if the principal debtor waives the benefit of prescription after it has completed, this waiver does not prevent the guarantor from invoking the prescription of the principal debt.

B. Independent Defenses of the Guarantor (保証人固有の抗弁)

The guarantee obligation itself is subject to its own extinctive prescription period. The guarantor can invoke the completion of this period even if the principal debt has not prescribed (e.g., if its prescription was renewed by an act of the principal debtor that did not also renew the guarantee's prescription).

C. Guarantor's Right to Refuse Performance based on Principal Debtor's Rights (主たる債務者の権利による履行拒絶)

If the principal debtor has a right of set-off (相殺権 - sōsaiken), rescission (取消権 - torikeshiken), or termination/cancellation (解除権 - kaijoken) against the creditor with respect to the principal debt, the guarantor can refuse to perform their guarantee obligation to the extent that the principal debtor would be relieved of their obligation by exercising such right (Article 457(3) of the Civil Code). The guarantor would need to prove the facts giving rise to the principal debtor's right (e.g., the existence of a claim the principal debtor holds against the creditor for set-off).

IV. Special Protections for Individual Guarantors of Business Debts (事業に係る債務の個人保証人の特別保護)

The amended Civil Code introduced significant protections for individuals who act as guarantors for business-related debts (事業に係る債務 - jigyō ni kakaru saimu), specifically for loans or obligations arising from discounting bills undertaken for the purpose of a business (Article 465-6(1)).

A. The "Notarized Deed" Requirement (公正証書作成の要件)

A guarantee contract for such business debts, where the guarantor is an individual (not a corporation), is void unless, within one month before concluding the guarantee agreement, the guarantor has expressed their definite intention to guarantee the specific debt in a notarized deed (公正証書 - kōsei shōsho) prepared by a notary public (Article 465-6(1) and (2), Article 465-7).
This is a powerful protection aimed at preventing individuals from unthinkingly shouldering substantial business liabilities. If the creditor sues such an individual guarantor, the guarantor can raise the defense that the guaranteed debt was for business purposes and the notarized deed formality was not met.

B. Creditor's Rebuttal / Exceptions to the Notarized Deed Requirement

The creditor can counter this defense by proving:

1. The notarized deed expressing the guarantor's intent was indeed properly prepared within the specified timeframe.
2. The guarantor was a corporation at the time of concluding the guarantee agreement (as the rule applies to individual guarantors) (Article 465-6(3)).
3. The guarantor falls under certain exceptions where the notarized deed is not required (Article 465-9). These exceptions generally cover individuals who have a close connection to the business of the principal debtor, such as:
   • If the principal debtor is a corporation: its directors, executive officers, or persons in similar positions.
   • If the principal debtor is an individual: persons who jointly conduct business with the principal debtor, or the principal debtor's spouse who is actually engaged in the principal debtor's business.

C. Implications for Creditors

Creditors lending to businesses and seeking individual guarantees must be acutely aware of these notarization requirements. Failure to comply can render the guarantee entirely unenforceable against individuals who are not exempted. This necessitates careful due diligence on the guarantor's status and adherence to the formal notarization process when applicable.

Conclusion (結論)

Enforcing a guarantee agreement in Japan requires creditors to meticulously prove the existence of the principal debt and the valid formation of the guarantee contract, including adherence to crucial formalities like the writing requirement. Furthermore, creditors must be prepared to address various defenses available to guarantors, which can stem from either the principal debt or the guarantee obligation itself. The introduction of special protections for individual guarantors of business debts, notably the notarized deed requirement, has added another layer of complexity that creditors must navigate carefully. A thorough understanding of these burdens of proof and defensive issues is essential for effectively utilizing guarantees as a security device in Japanese commercial dealings.