Guarantor's Right of Reimbursement (求償権) in Japan: When Can a Guarantor Claim Against the Principal Debtor Before and After Payment?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

When an individual or entity acts as a guarantor (保証人, hoshō'nin) in Japan by securing the obligations of a principal debtor (主たる債務者, shu-taru saimusha), they undertake a significant potential liability. If the principal debtor defaults and the guarantor is called upon to fulfill the debt to the creditor, Japanese law provides the guarantor with a crucial remedy: the right of recourse or reimbursement (求償権, kyūshōken) against the principal debtor. This right allows the guarantor to recover the amounts they expended.

Primarily, this right arises after the guarantor has performed the obligation. However, in specific, limited circumstances, a guarantor who undertook the guarantee at the principal debtor's request (a "commissioned guarantor") may have a right to seek indemnification or security from the principal debtor even before making any payment to the creditor. This article explores both these post-performance and pre-performance recourse rights under the Japanese Civil Code.

Part 1: Post-Performance Right of Recourse (事後求償権, Jigo Kyūshōken)

The most common form of recourse is the jigo kyūshōken, which arises after the guarantor has discharged the principal debt or otherwise used their own assets to release the principal debtor from their obligation to the creditor.

A. General Principle and Rationale

When a guarantor makes a payment to the creditor, provides a performance in lieu (daibutsu bensai), or otherwise satisfies the principal debt through their own resources, they have effectively shouldered a burden that was, in the first instance, the responsibility of the principal debtor. The right of post-performance recourse is designed to prevent the unjust enrichment of the principal debtor at the guarantor's expense and to reallocate the ultimate financial burden back to the party primarily responsible. This right is fundamental to the concept of suretyship. Its legal basis can be seen as stemming from the mandate agreement (if the guarantee was commissioned), principles of unjust enrichment, or a form of benevolent intervention on behalf of the debtor (if uncommissioned).

B. Scope of Recourse for a Commissioned Guarantor (受託保証人, Jutaku Hoshō'nin)

A commissioned guarantor is one who provided the guarantee at the request or entrustment (itaku) of the principal debtor. Their right of recourse is more extensive:

  • General Scope (Article 459, Paragraph 1 of the Civil Code): A commissioned guarantor who has, without their own fault, performed an act to extinguish the principal debt (e.g., payment, providing security that is then realized by the creditor) or otherwise expended their own property to obtain a discharge for the principal debtor, has a right of recourse against the principal debtor for the amount of such expenditure.
  • Specific Recoverable Items (Article 459, Paragraph 2, applying Article 442, Paragraph 2 mutatis mutandis): The amount recoverable generally includes:
    1. The actual value of the property or money expended by the guarantor to obtain the discharge. If the value of property expended (e.g., in a performance in lieu) exceeds the amount of the debt discharged, recourse is typically limited to the amount of the discharged debt.
    2. Legal interest on the amount expended, calculated from the date of discharge.
    3. Any unavoidable expenses necessarily incurred in connection with obtaining the discharge (e.g., bank transfer fees, certain directly related legal costs) and legal interest on these expenses.
    4. Any other damages suffered by the guarantor that are directly attributable to the process of obtaining the discharge for the principal debtor.
  • Recourse for Premature Performance by Commissioned Guarantor (Article 459-2): If a commissioned guarantor performs the guarantee obligation before the due date of the principal debt (e.g., by waiving their own defense that the principal debt is not yet due), special rules apply to protect the principal debtor's "benefit of time" (期限の利益, kigen no rieki):
    1. The guarantor's recourse is limited to the extent the principal debtor "benefited as of the time of such act of discharge" (Article 459-2, Paragraph 1). This means if the principal debtor, at that early point, had valid defenses against the creditor (such as a right of set-off that could have been used at maturity), the recourse amount would be reduced accordingly. If the principal debtor asserts such a defense (e.g., a right of set-off against the creditor that existed before the guarantor's premature payment), the guarantor, having their recourse reduced, may then claim the amount corresponding to that set-off directly from the creditor.
    2. The principal debtor is only liable to reimburse the guarantor for interest and expenses that would have accrued or been incurred if the performance had been made after the original due date of the principal debt (Article 459-2, Paragraph 2).
    3. The guarantor can only exercise this right of recourse against the principal debtor after the original due date of the principal debt has actually passed (Article 459-2, Paragraph 3).

C. Scope of Recourse for an Uncommissioned Guarantor (委託を受けない保証人, Itaku o Ukenai Hoshō'nin)

An uncommissioned guarantor is one who provided the guarantee without a formal request from the principal debtor. Their recourse rights are more limited (Article 462):

  • Guarantee Provided Not Against the Principal Debtor's Will (Article 462, Paragraph 1): If the guarantee was given without the principal debtor's commission but not against their express will, the guarantor has a right of recourse to the extent the principal debtor "was enriched as of the time of the act of discharge." This effectively applies the same limitations as for a commissioned guarantor who performs prematurely (i.e., Article 459-2, Paragraphs 1 and 3 apply mutatis mutandis). The guarantor can typically recover the principal amount of the debt they discharged but not necessarily interest from their date of payment or all associated expenses, as their intervention was not formally requested.
  • Guarantee Provided Against the Principal Debtor's Express Will (Article 462, Paragraph 2): If the guarantee was given against the express will of the principal debtor, the guarantor's right of recourse is even more restricted. They can only seek reimbursement to the extent the principal debtor is "still enriched as of the time the demand for reimbursement is made" by the guarantor. This is a very narrow right, akin to a claim for currently existing unjust enrichment. Furthermore, if the principal debtor had a right of set-off against the creditor that existed prior to the guarantor's demand for reimbursement, the principal debtor can assert that right of set-off against the guarantor's claim.

D. Notification Duties and Their Impact on Recourse Rights (Article 463)

Article 463 of the Civil Code (which applies provisions from the rules on joint and several obligors mutatis mutandis) establishes crucial notification duties that can impact a guarantor's recourse rights, particularly for commissioned guarantors:

  • Prior Notification by Commissioned Guarantor to Principal Debtor (Article 463, Paragraph 1, applying Article 443, Paragraph 1 mutatis mutandis):
    A commissioned guarantor, before performing the guarantee obligation (e.g., upon receiving a demand from the creditor), should generally notify the principal debtor. The purpose is to give the principal debtor an opportunity to raise any defenses they might have against the creditor (e.g., that the debt has already been paid, is void, or is subject to set-off).
    If the commissioned guarantor performs without giving this prior notification (and the principal debtor did not already know of the creditor's demand), the principal debtor can then assert against the guarantor's recourse claim any defense they could have asserted against the creditor. For example, if the principal debtor had a valid claim against the creditor which they could have used for set-off, they can raise this to reduce the guarantor's recourse amount. In such a case, the guarantor whose recourse is thus reduced may then have a claim against the creditor for the amount that should have been covered by the principal debtor's defense.
  • Post-Performance Notification by Principal Debtor to Commissioned Guarantor (Article 463, Paragraph 2, applying Article 443, Paragraph 2 mutatis mutandis):
    Conversely, if the principal debtor themselves performs the debt (or otherwise obtains a discharge from the creditor), they must notify their commissioned guarantor of this fact.
    If the principal debtor fails to give such notice, and the commissioned guarantor, acting in good faith (i.e., without knowledge of the debtor's prior performance) and without negligence, subsequently performs the (already discharged) guarantee obligation, the guarantor’s performance is deemed effective for the purpose of their recourse claim against the principal debtor. In this situation, the principal debtor bears the burden of seeking recovery of their redundant payment from the creditor (who received double payment).
  • Guarantees Against the Principal Debtor's Will (Article 463, Paragraph 3):
    If a guarantor who provided the guarantee against the principal debtor's will makes a payment to the creditor, and the principal debtor, prior to receiving a demand for recourse from this guarantor, also makes a payment or otherwise obtains a discharge from the creditor, the principal debtor can deem their own act of discharge as the valid one. This effectively protects the principal debtor from recourse by an unwanted guarantor who pays a debt the debtor themselves intended to (and did) handle.
  • Uncommissioned Guarantors (Not Against Debtor's Will): The primary notification duties restricting recourse in Article 463 are structured around the commissioned guarantee relationship. For uncommissioned guarantors whose actions are not against the debtor's will, their recourse is already inherently limited by the "extent enriched" rules of Article 462, which allows the debtor to effectively raise defenses that would diminish the enrichment.

These notification rules are designed to ensure fairness and prevent parties from being unduly prejudiced by actions taken by others without their knowledge. These provisions are generally considered non-mandatory and can be modified or waived by agreement (e.g., in institutional guarantee agreements).

Part 2: Pre-Performance Right of Recourse (事前求償権, Jizen Kyūshōken) – Article 460

In exceptional circumstances, a commissioned guarantor (this right does not extend to uncommissioned guarantors) may exercise a right of recourse against the principal debtor before actually performing the guarantee obligation. This jizen kyūshōken is not a right to receive payment for the guarantor's own immediate benefit, but rather a right to be indemnified or secured against future liability.

Rationale and Nature

The purpose of pre-performance recourse is to protect the commissioned guarantor from the risk that the principal debtor’s financial situation might deteriorate to a point where any subsequent, post-performance recourse claim would be uncollectible. It allows the guarantor to take proactive steps to secure their future reimbursement or to be released from the guarantee. Legal commentators often view this right as a specialized application of a mandatary's right to request advance payment of expenses (Article 649 of the Civil Code), but specifically limited by Article 460 to prevent guarantors from routinely demanding funds upfront, which would undermine the guarantee's purpose for the debtor.

Statutory Grounds for Pre-Performance Recourse (Article 460)

A commissioned guarantor may exercise this right only if one of the following conditions is met:

  1. Principal Debtor's Bankruptcy (No. 1): The principal debtor has become subject to a court ruling for the commencement of bankruptcy proceedings, AND the creditor has not participated in the distribution from the bankruptcy estate (i.e., has not filed a claim). This allows the guarantor to assert their contingent recourse claim in the bankruptcy.
  2. Principal Debt is Due (No. 2): The principal debt has become due and payable. (However, if the creditor granted an extension of time to the principal debtor after the guarantee contract was formed, the guarantor cannot invoke pre-performance recourse against the principal debtor based on the original, earlier due date.)
  3. Judgment Against Guarantor (No. 3): The guarantor, without their own negligence, has become subject to a court judgment ordering them to perform the guarantee obligation. (A previous ground concerning very long-term indeterminate obligations was removed in the Civil Code revision.)

Scope and Effect of Pre-Performance Recourse

The pre-performance recourse right typically entitles the guarantor to demand that the principal debtor:

  • Provide funds sufficient to cover the anticipated payment to the creditor.
  • Provide adequate security to the guarantor for their future recourse claim.
  • Take measures to have the guarantor discharged from the guarantee obligation by the creditor.

The amount involved would generally be the current amount of the principal debt, plus accrued interest and any foreseeable unavoidable costs of discharge. If the principal debtor complies with a demand for pre-payment, and the guarantor subsequently misuses these funds instead of paying the creditor, the principal debtor would have a claim against the guarantor but remains liable to the original creditor. This highlights the risk allocation inherent in the pre-performance recourse system.

Principal Debtor's Countermeasures (Article 461)

When a guarantor exercises a right of pre-performance recourse, the principal debtor is not without options to protect their own interests:

  1. Demand for Counter-Security or Debtor's Discharge (Article 461, Paragraph 1): The principal debtor can demand that the guarantor, in turn, either (a) provide adequate security to the principal debtor (to cover the risk of the guarantor misusing any funds received or failing to properly discharge the debt) or (b) use the funds/facility to obtain a discharge for the principal debtor from the creditor. This can create a dynamic of simultaneous performance.
  2. Alternative Ways for Debtor to Avoid Pre-Payment (Article 461, Paragraph 2): The principal debtor can also avoid the obligation to provide funds or security directly to the guarantor under a pre-performance claim by:
    • Depositing an appropriate sum with an official depository.
    • Providing adequate security directly to the guarantor for their future recourse claim.
    • Directly obtaining a discharge for the guarantor from the creditor (e.g., by paying the principal debt themselves or having the creditor release the guarantor).

These countermeasures aim to balance the guarantor's need for early protection with the principal debtor's interest in ensuring funds are properly applied and avoiding double payment risks.

Conclusion

The Japanese Civil Code provides guarantors with both post-performance and, for commissioned guarantors, limited pre-performance rights of recourse against the principal debtor. The scope of post-performance recourse varies significantly based on whether the guarantee was commissioned and whether it was given against the debtor's will, with notification duties playing a critical role in preserving these rights. Pre-performance recourse is an exceptional remedy designed to protect commissioned guarantors in specific high-risk situations, balanced by the principal debtor's ability to demand counter-security or take alternative steps to satisfy the guarantor's legitimate concerns. Understanding these nuanced rules is essential for both guarantors and principal debtors in navigating their respective rights and obligations within a guarantee relationship under Japanese law.