How Does Agency Law Work in Japan When Acting on Behalf of a Company?

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

In today's interconnected global economy, individuals and particularly corporations frequently rely on others to act on their behalf in legal and commercial transactions. The ability to delegate authority is fundamental to efficient business operations, allowing entities to extend their reach and leverage specialized expertise. In Japan, the legal framework governing such representative actions is known as Dairi (代理), or Agency, a cornerstone of its Civil Code. Understanding the principles of Japanese agency law is crucial for any business engaging with or through representatives in Japan, as it dictates how and when the actions of one person can legally bind another. This article will delve into the general theory of agency in Japan, exploring its core concepts, essential requirements, classifications, and its indispensable societal and commercial roles.

What is "Agency" (Dairi) under Japanese Law?

At its most fundamental, agency is a legal mechanism whereby one person, designated as the "agent" (dairinin - 代理人), is authorized to perform a juridical act (a legally significant act intended to create, alter, or extinguish legal rights and obligations, such as making or receiving a manifestation of intention) on behalf of another person, known as the "principal" (honnin - 本人), in relation to a "third party" (aitegata - 相手方).

Consider a scenario where a company (the principal) authorizes one of its senior managers (the agent) to negotiate and conclude a supply contract with another company (the third party). The manager, acting as an agent, engages in discussions and signs the agreement.

The Core Effect: Direct Attribution to the Principal (Article 99, Paragraph 1, Civil Code)

The defining characteristic and primary purpose of the agency system is that if an agent acts within the scope of their proper authority and appropriately indicates that they are acting for a principal, the legal effects of the juridical act performed by the agent (e.g., the rights and obligations arising from the contract they concluded) accrue directly to the principal and the third party. Article 99, Paragraph 1 of the Japanese Civil Code states: "A manifestation of intention made by an agent who indicates that such manifestation of intention is made on behalf of the principal shall be directly effective against the principal."

In the example above, the supply contract, although negotiated and signed by the manager (agent), would legally bind the company (principal) and the supplier (third party). The manager, having acted merely as a conduit, is typically not a personal party to the contractual relationship that results from their agency act.

Essential Requirements for Effective Agency

For the effects of an agent's actions to validly bind the principal, certain fundamental requirements, beyond those necessary for any valid juridical act, must be met. These are primarily concerned with the agent's authority and the manner in which they represent the principal:

A. Existence of Authority to Act as Agent (Dairiken - 代理権)

The agent must possess the legal authority to act as an agent (dairiken - 代理権) empowering them to perform the specific juridical act in question on behalf of the principal. This authority is the legal foundation of the agency relationship and delineates the scope within which the agent can bind the principal.

If a person purports to act as an agent but lacks the necessary authority, or acts beyond the scope of the authority granted, their actions are generally considered "unauthorized agency" (muken dairi - 無権代理). Such unauthorized acts typically do not bind the principal, unless specific legal doctrines like "apparent authority" (hyōken dairi - 表見代理) or subsequent ratification (tsuin - 追認) by the principal come into play. These doctrines serve to protect third parties who may have reasonably relied on a semblance of authority.

B. Manifestation of Agency (Kenmei - 顕名)

When an agent performs a juridical act, they must indicate that they are acting on behalf of the principal (Article 99, Paragraph 1). This act of disclosure is known as kenmei (顕名), which literally means "to reveal the name" (of the principal).

The purpose of kenmei is to make it clear to the third party that the agent is not acting in their personal capacity but as a representative, and that the ensuing legal rights and obligations are intended to vest in the principal. If an agent enters into a transaction without proper kenmei, Article 100 of the Civil Code stipulates that the act is generally presumed to be for the agent themselves, and they may be held personally liable. However, this presumption can be rebutted if the third party knew, or should have known (was negligent in not knowing), that the person was acting as an agent for a principal. In such cases, the transaction will still bind the principal.

The kenmei requirement is fundamental for transparency and for allowing the third party to understand with whom they are truly establishing a legal relationship.

Classifications of Agency in Japan

Agency relationships in Japan can be classified from several perspectives, primarily based on the agent's role and the source of their authority.

Based on the Agent's Action:

  • Active Agency (Nōdō Dairi - 能動代理 or Sekkyoku Dairi - 積極代理): This occurs when the agent makes a manifestation of intention to the third party on behalf of the principal. Examples include an agent making an offer to purchase goods, signing a contract, or issuing a notice of termination for the principal.
  • Passive Agency (Judō Dairi - 受動代理 or Shōkyoku Dairi - 消極代理): This involves the agent receiving a manifestation of intention from the third party on behalf of the principal. For instance, an agent receiving an offer, an acceptance of the principal's offer, or a notice of defect from a third party. Many agents possess both active and passive agency powers concerning the same transaction.

Based on the Source of the Agent's Authority:

This is a critical distinction as it often impacts the scope of authority, the rules governing the agent's appointment, and their responsibilities.

  1. Voluntary Agency (Nin'i Dairi - 任意代理):
    In voluntary agency, the authority to act as an agent is conferred upon the agent by a manifestation of intention from the principal. This is typically done through an "act of bestowing authority" (jukan kōi - 授権行為), which can be an explicit agreement or implied from the circumstances. This is the most common form of agency in business contexts, where a company (principal) authorizes an employee, director, or an external party (e.g., a lawyer or broker) to conduct specific transactions or perform certain legal acts on its behalf. The scope of the agent's authority is primarily determined by the terms of the principal's grant. While the Civil Code sometimes uses the term "agency by mandate" (inin ni yoru dairi), reflecting an early view that such authority typically arose from a contract of mandate (inin keiyaku), it is now widely accepted that voluntary agency authority can also stem from other underlying contractual relationships like employment or partnership.
  2. Statutory Agency (Hōtei Dairi - 法定代理):
    In statutory agency, the agent's authority is conferred not by the direct will of the principal but by operation of law – i.e., based on provisions in statutes. The agent is often appointed by a court or derives their status from a specific legal relationship. Classic examples include:
    • Parents acting as legal representatives for their minor children (Civil Code, Article 818, etc.).
    • Guardians appointed by the Family Court for adult wards (seinen hiken-nin) or minors without parental authority.
    • Curators (hosa-nin) or assistants (hojo-nin) appointed by the Family Court for adults with diminished mental capacity, who may be granted specific powers of agency.
    • Administrators of an absentee's property appointed by the court.
      The scope and nature of a statutory agent's authority are primarily defined by the relevant laws.
  3. Agency for Juridical Persons (Hōjin no Dairi - 法人の代理):
    Juridical persons (legal entities such as corporations) are, by their nature, artificial constructs and cannot act physically. They must operate through natural persons who act as their representatives. These representatives include directors (riji - 理事 for general incorporated associations/foundations, torishimariyaku - 取締役 for stock companies) and representative directors (daihyō riji/torishimariyaku - 代表理事/取締役).
    While these representatives are typically appointed by the juridical person itself (e.g., by shareholders or the board, sharing a feature with voluntary agency), the fundamental scope of their authority to represent and bind the entity, as well as limitations thereon, are often prescribed by the specific statutes governing that type of juridical person (e.g., the Companies Act for stock companies, the General Incorporated Associations and Foundations Act for those entities). This blend of internal appointment and statutory definition gives agency for juridical persons a somewhat unique character, distinct from purely voluntary or purely statutory agency concerning individuals.

The Indispensable Societal and Commercial Role of Agency

The agency system is not merely a technical legal construct; it is a vital mechanism that underpins a vast range of activities in modern society and is particularly indispensable for commerce.

1. Facilitating and Expanding Individual Activities:

  • Overcoming Factual Limitations: Individuals are inherently limited by their physical presence (one cannot be in multiple places simultaneously) and their personal capacity to handle numerous or complex affairs. Voluntary agency allows individuals to overcome these limitations by delegating tasks and empowering others to act on their behalf, thereby expanding their sphere of action. This can range from appointing a real estate agent to sell a property to authorizing a lawyer to conduct litigation.
  • Overcoming Legal Limitations: For individuals whose capacity to perform juridical acts is legally restricted for their protection (such as minors or adults under formal guardianship due to diminished mental capacity), statutory agency is essential. It provides a means for their affairs to be managed and for them to participate in legal life through their appointed representatives, ensuring their rights are protected and their needs are met.

2. Enabling Corporate and Business Action:

The role of agency is arguably most pronounced in the context of juridical persons, especially business corporations.

  • Corporations Act Through Agents: A company, as an artificial legal person, can only interact with the world, enter into contracts, and conduct its operations through the actions of human agents. Its directors, officers, and employees, when acting within the scope of their authority, are all functioning as agents of the corporate principal.
  • Facilitating Complex Operations: Modern businesses often involve complex organizational structures and a wide array of transactions. Agency allows for the efficient delegation of decision-making and executive functions, enabling specialized departments and individuals to act on behalf of the company in their respective areas of expertise.
  • Inter-Company Transactions: When companies deal with each other, they do so through their respective agents (e.g., sales representatives, procurement officers, legal counsel). The entire framework of B2B commerce relies heavily on the principles of agency.

Key Considerations When Appointing or Dealing with Agents in Japan

Given the direct legal consequences that flow from an agent's actions, several points warrant careful attention:

  • Clarity of Kenmei (Disclosure of Principal):
    • If you are an agent acting for a company (principal), it is crucial to clearly disclose that you are acting in a representative capacity and to identify your principal. This avoids personal liability.
    • If you are a third party dealing with someone who might be an agent, ensure the agency status and the identity of the principal are clear. Lack of proper kenmei can lead to the agent being personally bound (Article 100).
  • Verification of Dairiken (Authority to Act as Agent):
    • When engaging in significant transactions through an agent, it is prudent for third parties to take reasonable steps to verify the existence and scope of the agent's authority. This might involve requesting a formal Power of Attorney (ininjō - 委任状) or, in some cases, seeking confirmation directly from the principal.
    • For principals, clearly defining the scope of authority granted to an agent in the instrument of appointment or internal corporate resolutions is essential to prevent unauthorized actions.
  • Scope of Authority for Corporate Representatives:
    • While representatives of a company, such as a Representative Director, generally have broad authority to act on behalf of the company in its ordinary course of business (e.g., Article 349, Paragraph 4 of the Companies Act for representative directors of stock companies), certain highly significant transactions may require specific internal approvals (e.g., a board of directors' resolution) as stipulated by law or the company's articles of incorporation. Third parties dealing with corporations should have a general awareness that such internal limitations might exist, although specific statutory provisions often protect third parties who are unaware of such internal restrictions if they are not publicly registered or otherwise made known.

The law of agency (Dairi) in Japan provides the essential legal infrastructure that allows individuals and, critically, juridical persons like companies, to operate effectively in a complex world. By enabling one person to act on behalf of another and have those actions legally bind the principal, agency facilitates an enormous range of transactions and legal relationships. Its core principles, centering on the agent’s authority (dairiken) and the proper disclosure of the principal (kenmei), aim to balance the principal's ability to delegate, the agent's role as a representative, and the third party's need for clarity and reasonable reliance. A sound understanding of these general principles is a prerequisite for navigating many aspects of Japanese civil and commercial law.