If a Property is Sold After a Lawsuit Has Started, Is the New Owner Bound by the Judgment in Japan?

Litigation, especially concerning property or transferable rights, can be a lengthy process. During this period, the subject matter of the dispute might change hands, or a party to the lawsuit might pass away, leading to their rights and obligations being inherited. A critical question then arises: to what extent is a third party who acquires an interest in the disputed subject matter, or who succeeds to the legal position of an original litigant, bound by a judgment rendered in a lawsuit to which they were not initially a party? Japanese civil procedure addresses this through rules on the subjective scope of res judicata (kihanryoku) and mechanisms for handling succession to a pending lawsuit.

The General Principle: Res Judicata Binds the Parties

The foundational principle regarding the binding effect of a final judgment is its relativity: res judicata generally binds only the formal parties to the litigation in which the judgment was rendered (Article 115(1)(i) of the Code of Civil Procedure - CCP). This means that, as a rule, a judgment determining rights and obligations between Plaintiff A and Defendant B does not automatically bind a third party, C, who was not involved in that lawsuit. This principle is rooted in the idea of procedural fairness – a person should not be bound by a judgment if they have not had an opportunity to be heard in the proceedings leading to it.

However, this principle of relativity is not absolute. If judgments could be easily circumvented by simply transferring the disputed asset or right to someone else, the finality and effectiveness of court decisions would be severely undermined. To address this, Japanese law provides specific exceptions where the binding effect of a judgment extends beyond the original parties.

Extension of Res Judicata to Successors After the Conclusion of Oral Argument

One of the most significant exceptions is found in Article 115(1)(iii) of the CCP. This provision stipulates that a final and binding judgment also binds any person who became a successor (shōkeinin) to a party after the conclusion of oral argument in the fact-finding instance, with respect to the claim that was the subject matter of the litigation.

Let's break down the key components of this rule:

1. "Successor" (Shōkeinin): This term typically refers to someone who has acquired the specific right, obligation, or status that was the subject of the lawsuit from one of the original parties. This most commonly involves "specific succession," such as the purchase of a disputed piece of real estate, the assignment of a contested contractual right, or the assumption of a disputed debt. It can also include "universal succession" if the event triggering it (like the death of a party leading to inheritance) occurs after the critical cut-off point.
2. "After the Conclusion of Oral Argument" (Kōtō Benron Shūketsu Go): This phrase defines the crucial temporal benchmark, often referred to as the kijunji (基準時) or standard time. Res judicata with its extended effect applies to successions occurring after oral arguments have been concluded in the final court instance responsible for fact-finding (which is usually the District Court or, on appeal, the High Court). Once the factual basis of the case is considered closed by the court, subsequent transferees are generally brought within the ambit of the forthcoming judgment.

Rationale for Extending Res Judicata to Such Successors

The extension of res judicata to successors after the conclusion of oral argument is primarily justified by the need to:

• Ensure the Effectiveness and Finality of Judgments: It prevents a losing party from rendering a judgment ineffective by simply transferring the disputed asset or right to a third party just before or after the judgment becomes final.
• Promote Legal Stability: It allows the winning party and society at large to rely on the resolution achieved by the court without fear that it can be easily undone by subsequent transactions.
• Prevent Abuse and Repetitive Litigation: Without this rule, a plaintiff who wins a case might be forced to re-litigate the same issues against a series of new owners or assignees, leading to endless legal battles and procedural inefficiency.

While the extension of res judicata serves these important policy goals, it also means that the successor is bound by a judgment from a proceeding in which they may not have directly participated. The legal system essentially considers that the predecessor's opportunity to be heard and present their case is sufficient to bind those who derive their rights from that predecessor after the factual record has closed.

Theoretical Perspectives on "Succession"

Legal scholars in Japan have discussed the precise theoretical basis for this extension. While older theories focused on a "succession to procedural standing" (tekikaku shōkei setsu), contemporary prevailing views often describe it as a "succession to the status of a party to the dispute" concerning the resolved matter. This means the successor is seen as stepping into the legal position of their predecessor with respect to the adjudicated claim. Another influential perspective, the "dependence relationship theory" (izon kankei setsu), emphasizes that the successor's rights are substantively derived from and dependent on the predecessor's rights; if the predecessor's claim to a right was invalid, the successor generally cannot acquire a better title.

The Important Caveat: Successor's Own Independent Legal Grounds

A critical question arises when the successor possesses their own independent legal basis for claiming the right or for resisting the effects of the prior judgment—a basis that was not, and perhaps could not have been, litigated by their predecessor.

Consider a scenario analogous to that discussed in Japanese legal commentaries:

• X claims true ownership of a piece of land and sues B, who is the registered owner following a transaction with A (the original owner before X's alleged acquisition). X alleges the A-B transfer was a sham or otherwise void.
• X wins against B, and the judgment (concluding that X is the owner or that the A-B transfer is void) becomes final after the conclusion of oral argument.
• Subsequently, B sells the land to Y, who registers ownership. Y claims to be a bona fide third party who acquired the land from B without knowledge of the sham transaction between A and B, and who is therefore protected under Article 94(2) of the Civil Code (which shields bona fide third parties from the invalidity of fictitious expressions of intent).
  Is Y, as a successor to B after the conclusion of oral argument in the X vs. B suit, bound by the judgment in X's favor, or can Y assert their independent status as a protected bona fide purchaser?

Japanese law generally permits the successor to raise such an independent, personal defense. While the judgment in X vs. B would establish the legal situation as between X and B (e.g., that the A-B transfer was void as between them), Y might still be able to prevail against X if Y can prove the elements of their own independent statutory protection (e.g., being a bona fide purchaser under Article 94(2) of the Civil Code).

The theoretical explanation for this outcome varies:

• The Formal Theory (Keishiki Setsu): This is the majority academic view. It posits that Y is bound by the res judicata of the X vs. B judgment regarding the matters actually decided between X and B (e.g., the invalidity of the A-B transfer). However, Y's assertion of their own status as a bona fide purchaser under Civil Code Article 94(2) is considered a "new matter" or a claim/defense based on a distinct legal ground that was not, and could not have been, part of the soshōbutsu of the X vs. B litigation. Therefore, this new assertion is not precluded by the prior judgment's res judicata.
• The Substantive Theory (Jisshitsu Setsu): This view argues that a person who possesses such an independent legal ground is not truly a "successor" within the intended meaning of CCP Article 115(1)(iii) for the purpose of being absolutely bound in a way that negates their independent right. Concerning that specific independent right, they stand outside the direct preclusive scope of the prior judgment. Some Supreme Court decisions, such as that of June 21, 1973 (Minshu Vol. 27, No. 6, p. 712) and June 2, 1966 (Hanrei Jiho No. 464, p. 25), are sometimes interpreted by commentators as leaning towards this substantive approach, though this interpretation is not universally accepted.

Regardless of the precise theoretical construction, the practical outcome is generally that a successor who has a genuinely independent legal basis for their claim or defense—one that is personal to them and not merely derivative of the predecessor's already litigated position—is allowed to assert it. The prior judgment establishes the baseline legal situation for the predecessor, but the successor may have their own distinct shield or sword.

Succession During Pending Litigation (Before Conclusion of Oral Argument)

The rules are different if the succession (e.g., transfer of the disputed property) occurs while the litigation is still actively pending and before oral arguments have concluded. In such cases, the issue is not primarily about the extension of res judicata under Article 115(1)(iii), but rather about how the existing lawsuit should proceed with potentially new parties. This is governed by the rules on "assumption of litigation" (soshō shōkei):

1. Universal Succession (e.g., Death of a Party): If an individual party dies, the proceedings are suspended by law (CCP Article 124). The deceased party's universal successor (e.g., their heir) can then formally "assume" the litigation, stepping into the procedural shoes of the deceased.
2. Specific Succession (e.g., Transfer of Disputed Property): If the subject matter of the litigation (like a piece of land or a contractual claim) is transferred to a third party during the proceedings:
   • Intervention by the Successor (Participation Assumption - Sanka Shōkei; CCP Articles 49, 51): The transferee (the new owner/rightholder) may, if they meet certain conditions, intervene in the pending lawsuit to protect their newly acquired interest by taking over the litigation from their predecessor.
   • Impleader of the Successor (Assumption by Impleader - Hikiuke Shōkei; CCP Articles 50, 51): An existing party to the lawsuit (e.g., the plaintiff, if the defendant has transferred the disputed property) can file a motion to have the court order the transferee to assume the litigation with respect to the transferred interest.

If a successor validly assumes the litigation, they are generally bound by the procedural acts performed and the state of the litigation as it existed at the time of assumption (though they typically have the right to make their own arguments going forward). The aim is to continue the existing lawsuit with the new party, ensuring that the prior efforts are not wasted and that the ultimate judgment will bind the currently relevant interest holder.

Enforcement of Judgments Against Successors

A related but distinct issue concerns the enforceability of a judgment against a successor. Article 23(1)(iii) of the Civil Execution Act provides that the executory force of a judgment extends to a person who became a successor to the obligor (the losing party) after the conclusion of oral argument. This allows the judgment creditor to obtain an "execution clause" (shikkō-bun) against the successor and levy execution.

However, if the successor possesses an independent defense (like the bona fide purchaser status discussed earlier), they are not without remedy. They can challenge the enforcement by filing a "third-party objection suit" (daisansha igi no uttae) under Article 38 of the Civil Execution Act, or, if they are directly named as the obligor in the execution clause issued against them, a "claim objection suit by an obligor" (seikyū igi no uttae) under Article 35 of that Act. There has been academic debate about whether the judgment creditor must preemptively show the absence of the successor's independent right when seeking an execution clause, or whether the burden falls entirely on the successor to raise their independent right in an objection suit. The latter view, placing the onus on the successor, appears more prevalent in practice.

Strategic Implications for Parties and Transferees

These rules have significant practical consequences:

• For Plaintiffs: When litigating over transferable property or rights, be vigilant about potential transfers by the defendant. To secure your position during potentially lengthy litigation, consider seeking provisional remedies from the court, such as an injunction against transfer of title (shobun kinshi no kari-shobun) or an injunction against transfer of possession (sen'yū iten kinshi no kari-shobun). If a transfer occurs after the conclusion of oral arguments, you can generally rely on CCP Article 115(1)(iii) to ensure the judgment binds the new owner.
• For Defendants: Understand that transferring the subject matter of litigation, especially late in the proceedings, will likely not allow you or the transferee to escape the preclusive effects of an adverse judgment.
• For Potential Transferees/Successors: If you are considering acquiring property or rights that are, or might become, the subject of ongoing or concluded litigation, thorough due diligence is essential. You must understand how any existing or potential judgment might affect your acquired interest. If you have independent grounds to assert your right, be prepared to do so, potentially in a new proceeding or in response to enforcement actions.

Conclusion

Japanese civil procedure aims to ensure that court judgments are effective and provide meaningful, final resolution to disputes. The extension of res judicata to those who succeed to the subject matter of litigation after the conclusion of oral argument (CCP Article 115(1)(iii)) is a vital component of this objective, preventing the circumvention of judgments through conveniently timed transfers. However, this principle of extending preclusion is carefully balanced against the protection of successors who may have their own independent, legally recognized grounds for asserting a right that were not and could not have been addressed in the prior litigation involving their predecessor. While the precise theoretical articulation of how these independent rights are accommodated continues to be refined, the practical outcome is that such successors are generally given an opportunity to litigate their distinct claims. For all parties involved in transactions concerning assets or rights that could be entangled in litigation, a clear understanding of these rules is crucial for assessing risks and protecting their interests.