Ensuring Contract Formalities are Met in Japan: Which Law Applies to the Form of a Juridical Act?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

When businesses engage in cross-border transactions, ensuring that a juridical act (such as a contract, a declaration of intent, or a guarantee) complies with the necessary formal requirements is paramount. Failure to adhere to prescribed formalities can, under some legal systems, render an act invalid or unenforceable. Japanese private international law, primarily through Article 10 of the Act on General Rules for Application of Laws (AGRAL) (Hō no Tekiyō ni Kansuru Tsūsokuhō, 法の適用に関する通則法), provides a framework for determining the law applicable to the formalities (hōshiki, 方式) of such acts. This framework is designed to promote the validity of juridical acts (favor negotii) while also providing a degree of certainty and predictability.

This article explores the principles governing the formal validity of juridical acts under Japanese private international law, including specific rules for acts performed between parties in different jurisdictions.

The General Principle for Formalities of Juridical Acts in Japan (AGRAL Article 10)

The "formalities" of a juridical act refer to the external manner in which the intention of the parties is expressed or manifested. This can include requirements such as the act being in writing, the need for signatures, the presence of witnesses, notarization, or registration with a public authority.

AGRAL Article 10 establishes a dual-pronged approach, offering alternative connecting factors to uphold the formal validity of an act:

  1. Primary Rule (Article 10, Paragraph 1): Governed by the Lex Causae
    "The formalities of a juridical act shall be governed by the law applicable to the formation of said juridical act."
    This means that, as a starting point, the formal requirements are determined by the law that governs the substantive creation and validity of the juridical act itself (the lex causae). For contracts, this would typically be the law chosen by the parties or, in the absence of choice, the law of the place with the closest connection (as determined by AGRAL Articles 7 and 8).
  2. Alternative Rule (Article 10, Paragraph 2): Validation by Locus Regit Actum
    "Notwithstanding the provision of the preceding paragraph, formalities that comply with the law of the place where said juridical act was performed (lex loci actus) shall be valid."
    This is a classic rule in private international law, often encapsulated by the Latin maxim locus regit actum (the law of the place governs the act). It provides an alternative ground for upholding the formal validity of an act. If the act complies with the formal requirements of the law of the place where it was physically carried out, it will be considered formally valid in Japan, even if it does not meet the formal requirements of the lex causae.

The rationale behind this alternative rule is to:

  • Promote the validity of juridical acts (favor negotii).
  • Serve the convenience of the parties, who can generally be expected to comply with the formalities of the place where they are acting.
  • Enhance the security of international transactions by reducing the risk of acts being invalidated on purely formal grounds.

Scope of AGRAL Article 10

Article 10 primarily applies to the formalities of property-related or commercial juridical acts. However, there are important exclusions and special rules:

  • Bills of Exchange, Promissory Notes, and Checks: The formalities of these negotiable instruments are governed by specific provisions in Japan's Bills of Exchange Act and Checks Act (e.g., Article 89 of the Bills of Exchange Act), which incorporate rules from uniform international conventions.
  • Consumer Contracts: Special protective rules concerning the formalities of consumer contracts are found in AGRAL Article 11, paragraphs 3 to 5. These rules prioritize the consumer's habitual residence law under certain conditions to ensure consumer protection.
  • Formalities of Acts Creating or Transferring Rights in Rem (AGRAL Article 10, Paragraph 5):
    "The provisions of paragraphs 2 to 4 shall not apply to the formalities of a juridical act that creates or transfers a right in rem with regard to a movable or immovable or any other right requiring registration."
    This is a significant carve-out. For acts that establish or transfer proprietary rights (governed substantively by AGRAL Article 13, typically the lex rei sitae – the law of the location of the property), the alternative validation by lex loci actus is not available. Such acts must comply with the formalities prescribed by their lex causae (i.e., the law governing the proprietary act, which is usually the lex rei sitae). The rationale for this stricter approach is the strong public interest in the clear and certain establishment of property rights, often linked to public registration systems, which are inherently territorial. Allowing validation by a potentially different lex loci actus could disrupt these systems and prejudice third-party rights.

Formalities for Acts Inter Absentes (Between Parties in Different Jurisdictions)

AGRAL Article 10 provides specific guidance for determining the "place where the act was performed" when parties are in different jurisdictions at the time of the act:

1. Unilateral Declarations of Intent (AGRAL Article 10, Paragraph 3)

"In the case of a declaration of intent made to a person in a place governed by a different law, the place where the notice was dispatched shall be deemed to be the place where the act was performed."
For unilateral acts (e.g., giving notice, exercising an option) directed to someone in another jurisdiction, the locus actus for the purpose of formal validity under Article 10(2) is considered to be the place from which the declaration was sent (hasshin-chi, 発信地). This "dispatch principle" is adopted for the convenience of the declarant, who can rely on the formalities of their own location.

2. Contracts Concluded Between Parties in Different Jurisdictions (AGRAL Article 10, Paragraph 4)

"In the case of a contract concluded between persons in places governed by different laws, formalities of the contract that comply with either the law of the place where the notice of offer was dispatched or the law of the place where the notice of acceptance was dispatched shall be valid."
This provision offers even greater flexibility for contracts concluded inter absentes (e.g., by mail, email, or other forms of distance communication). The contract will be formally valid if it meets the requirements of the law of either the place from which the offer was sent or the place from which the acceptance was sent. This significantly increases the chances of the contract being upheld against a challenge based on formalities, reflecting a strong policy of favor contractus.

Formalities in Family Law Matters (AGRAL Article 34)

It's worth briefly noting that AGRAL Article 34 applies similar principles to the formalities of juridical acts concerning family relations (e.g., divorce by agreement, recognition of a child). Like Article 10, it allows for validation by either the lex causae of the family law act or the lex loci actus (Article 34, paragraphs 1 and 2). Specific acts like marriage and wills have their own dedicated and more detailed choice-of-law rules for formalities (e.g., AGRAL Article 24(2) and (3) for marriage; the Act on the Law Applicable to the Formalities of Wills). For acts inter absentes under Article 34, which lacks specific provisions like Article 10(3) and (4), an analogous application of the principles in Article 10(3) and (4) is generally considered appropriate, again favoring the convenience of the parties and the validity of the act.

Analyzing Scenarios

Let's examine how these rules operate in practice using adapted scenarios from the reference material's Case 30, No. 8.

Scenario 1: Oral Guarantee Contract by International Telephone Call

  • Facts: Company A in Country X requires a loan from Lender B, also in Country X. Mr. C, a Japanese resident and an external director of Company A, is asked to guarantee Company A's debt. Lender B, from Country X, calls Mr. C in Japan, and Mr. C orally agrees to provide the guarantee. The main loan contract between Company A and Lender B is governed by Country X law. Under Country X law, guarantee contracts do not require any specific form (i.e., an oral guarantee is valid). However, under Japanese law, a guarantee must be in writing to be effective (Japanese Civil Code, Article 446, paragraph 2). Lender B now sues Mr. C in Japan to enforce the guarantee, and Mr. C argues the guarantee is formally invalid because it was not in writing.
  • Analysis:
    1. Law Governing the Formation of the Guarantee (Lex Causae) (AGRAL Article 10(1)): The guarantee contract is an accessory to the main loan. Its lex causae could be Country X law (due to its connection to the main loan governed by Country X law and Lender B's location) or potentially Japanese law (due to Mr. C's residence and likely place of performance of the guarantee). If we assume the closest connection is with Country X (e.g., if the guarantee was primarily sought and negotiated there for a Country X transaction), then under Country X law, the oral guarantee is formally valid.
    2. Alternative Validation by Lex Loci Actus (AGRAL Article 10(2) and 10(4)): This is a contract concluded between parties in different jurisdictions (Mr. C in Japan, Lender B in Country X).
      • Lender B's offer (request for guarantee) was dispatched from Country X.
      • Mr. C's acceptance was dispatched from Japan.
        According to Article 10(4), the guarantee is formally valid if it complies with either Country X law (law of the place of offer dispatch) or Japanese law (law of the place of acceptance dispatch).
      • Under Country X law, an oral guarantee is formally valid.
      • Under Japanese law, it is not (requires writing).
    3. Result: Since the guarantee complies with the formal requirements of Country X law (as either the lex causae or the law of the place of offer dispatch), it is considered formally valid in Japan under AGRAL Article 10. Mr. C's defense based on lack of writing under Japanese law would likely fail.
    4. Public Policy (Kōjo, 公序 - AGRAL Article 42): Could Mr. C argue that enforcing an oral guarantee is contrary to Japanese public policy because Japanese law mandatorily requires guarantees to be in writing for evidentiary and cautionary purposes? Generally, mere differences in formal requirements are not considered to violate fundamental public policy unless they lead to a manifestly unfair or unconscionable result. In commercial contexts, or where parties are sophisticated, courts are often reluctant to invoke public policy to invalidate an act that is formally valid under its applicable foreign law. Unless there are exceptional circumstances of exploitation or severe unfairness, the Japanese requirement for written guarantees is unlikely to be considered such a strong public policy as to override the validity derived from Country X law in this international scenario.

Scenario 2: Adoption Notification by Mail from Abroad

  • Facts: Mr. and Mrs. D, a Japanese couple residing in Country C, wish to adopt Mr. F, a 22-year-old Japanese national residing in Japan. They complete an adoption notification (yōshi engumi todoke, 養子縁組届) and mail it from Country C to Mr. F's family register office (koseki madoguchi, 戸籍窓口) in Japan. Japanese family register practice generally permits such notifications by mail.
  • Analysis:
    1. Substantive Validity of Adoption: The substantive requirements for the adoption (e.g., capacity, consents) are governed by AGRAL Article 31 (primarily the law of the adopting parents, i.e., Japanese law).
    2. Formalities of Adoption (AGRAL Article 34): The formalities of this juridical act (the adoption itself, manifested through the notification) are governed by AGRAL Article 34.
      • Lex Causae (Article 34(1) referring to Article 31): The lex causae is Japanese law. Japanese law (Civil Code and Family Register Act - Kosekihō, 戸籍法) prescribes notification as the method for creating an ordinary adoption. Mailed notification is accepted in practice.
      • Alternative Validation by Lex Loci Actus (Article 34(2)):
        • If the "act" is deemed performed where the notification is filed and processed (Japan), then Japanese law applies, and it's valid.
        • If treated as an act inter absentes by analogy to AGRAL Article 10(4), the notification was dispatched from Country C, and received/processed in Japan. Compliance with either Country C's formal requirements for such an act (if any) or Japan's would suffice. Since it complies with Japanese requirements (which is also the lex causae), it's formally valid.
  • Conclusion: The adoption notification would likely be accepted as formally valid, as it meets the requirements of Japanese law, which is both the lex causae for the adoption and a permissible lex loci actus (either as the place of filing or by analogy to rules for acts inter absentes).

Practical Implications for International Contracting

  • Prioritize Favor Negotii: Japanese PIL on formalities is generally designed to uphold the validity of international juridical acts whenever reasonably possible.
  • Multiple Chances for Validity: The alternative between the lex causae and the lex loci actus (and for contracts inter absentes, between the law of the place of offer and acceptance dispatch) provides multiple avenues for satisfying formal requirements.
  • Beware of the Proprietary Acts Exception: The most significant exception is for acts creating or transferring rights in rem (AGRAL Article 10(5)), where only the lex causae (typically the lex rei sitae) for the proprietary act itself governs formalities. This is critical for real estate transactions and transfers of other registrable property rights.
  • Document Clearly: While oral agreements might be formally valid under a foreign applicable law in some cases, relying on written contracts is always advisable for clarity, evidence, and to avoid disputes over formal validity and substantive terms.
  • Electronic Transactions: For contracts concluded electronically between parties in different jurisdictions, AGRAL Article 10(4) (allowing compliance with either the law of the place of offer dispatch or acceptance dispatch) provides a flexible framework, though pinpointing the "place of dispatch" for electronic communications can sometimes present its own challenges.

Conclusion

AGRAL Article 10, along with Article 34 for family law matters, embodies a pragmatic and facilitative approach to the formal validity of international juridical acts. By offering alternative connecting factors, Japanese private international law strives to uphold the intentions of the parties and promote the security of international transactions against challenges based on mere non-compliance with one particular jurisdiction's formal requirements. However, the strict exclusion of the lex loci actus alternative for proprietary acts under Article 10(5) serves as a crucial reminder of the territorial sensitivities associated with rights in rem. Businesses and legal professionals should be mindful of these principles when structuring and executing international agreements with a Japanese connection.