Impossibility of Performance in Japanese Contracts: What Are the Consequences for Damages and Termination?

Japanese Attorney at Law - Bengoshi L.L.

29 May 2025 • 6 min read

When the performance of a contractual obligation becomes impossible after the contract has been formed, Japanese law provides specific avenues of recourse for the aggrieved creditor. This situation, known as "impossibility of performance" (履行不能 - rikō funō), fundamentally alters the contractual relationship and triggers distinct legal consequences, primarily concerning claims for monetary damages and the right to terminate the contract. This article explores these consequences under the Japanese Civil Code, particularly focusing on how impossibility impacts a creditor's ability to claim damages in lieu of performance and to unilaterally end the contractual relationship.

Understanding "Impossibility of Performance" in the Japanese Context

Impossibility of performance refers to a situation where the debtor, for objective reasons, can no longer fulfill their primary contractual obligation. This can manifest in various ways:

Physical Impossibility: The subject matter of the contract is destroyed (e.g., a specific painting sold is destroyed in a fire before delivery) or a unique service can no longer be rendered (e.g., a specific performer is incapacitated).
Legal Impossibility: Subsequent legal changes render the performance illegal (e.g., a new law prohibits the export of goods that were contracted for sale).

The Japanese Civil Code, following its major revisions effective April 2020, has also clarified its stance on primitive impossibility (原始的不能 - genshiteki funō), i.e., where performance was already impossible at the time the contract was made. Traditionally, this might have led to the contract being deemed void. However, under Article 412-2, Paragraph 2, if a creditor entered into a contract for a performance that was impossible from the outset, and they knew or should have known of this impossibility, the situation can be treated similarly to subsequent impossibility arising from the debtor's fault. This means the creditor might still be able to claim damages as if it were a case of non-performance due to subsequent impossibility, rather than merely having the contract invalidated. For the purposes of claiming damages or terminating due to "impossibility," the new law often treats qualifying instances of primitive impossibility as a form of non-performance.

The focus here is on impossibility that is not attributable to the creditor. If the impossibility is due to the creditor's own actions or fault, different rules apply, often preventing the creditor from claiming these remedies (see Article 543 of the Civil Code regarding termination).

Consequence 1: Claim for Damages in Lieu of Performance

When performance of an obligation becomes impossible, the creditor's primary right to demand the actual, specific performance is naturally extinguished. However, this does not necessarily leave the creditor without monetary recourse.

Article 415, Paragraph 2, Item 1 of the Civil Code states: "In the following cases, the creditor may claim damages in lieu of performance of the obligation: (i) when performance of the obligation has become impossible."

This provision allows the creditor to seek compensation for the financial loss suffered because they did not receive the promised performance. The amount of such damages is generally calculated according to Article 416, which covers ordinary damages and special damages that were foreseeable by the parties.

The Crucial Role of Attributability for Damages:
It is critical to understand that while Article 415, Paragraph 2, Item 1 identifies impossibility as a scenario triggering the type of damage claim (i.e., damages in lieu of performance), the general prerequisite for claiming any damages for non-performance, as laid out in Article 415, Paragraph 1, still applies. This paragraph states that a creditor may demand damages if a debtor fails to perform an obligation "due to grounds attributable to the debtor" (債務者の責めに帰すべき事由 - saimusha no seme ni kisubeki jiyū), unless the nature of the non-performance is such that damages cannot be claimed under the terms of the contract or light of social customs.

Therefore, for a creditor to successfully claim damages in lieu of performance due to impossibility, it is generally necessary to demonstrate that the impossibility was attributable to the debtor. If the impossibility arose from a cause for which the debtor is not responsible (e.g., a true force majeure event that was not within the debtor's control or risk sphere, and for which the contract does not otherwise allocate risk to the debtor), then a claim for damages, including damages in lieu of performance, will typically not succeed. The burden of proving the absence of attributability generally rests with the debtor if the creditor establishes non-performance.

If impossibility occurs while the debtor is already in delay, Article 413-2, Paragraph 1 stipulates that the debtor cannot use such impossibility as a defense unless they can prove the damage would have occurred even if they had performed without delay. This effectively means the risk of supervening impossibility during delay often falls on the delinquent debtor, making them liable for damages in lieu.

Consequence 2: Right to Terminate the Contract

Beyond claiming damages, impossibility of performance can also grant the creditor the right to terminate the contract (契約の解除 - keiyaku no kaijo).

Article 542, Paragraph 1, Item 1 of the Civil Code provides: "In the following cases, the creditor may immediately terminate the contract without making the demand referred to in the preceding Article [Article 541, which generally requires a demand before termination for delay]: (i) when the entire performance of the obligation has become impossible."

Key aspects of this right to terminate for impossibility include:

Immediate Termination: The creditor can terminate the contract straight away. There is no need to first make a demand (saikoku) for performance and wait for a reasonable period to lapse, which is the usual procedure for termination due to delay.
No Requirement for Debtor's Culpability (for Termination): This is a very important distinction from the damages claim. For the purpose of terminating the contract due to impossibility, the Japanese Civil Code (as revised) generally does not require that the impossibility be attributable to the debtor. As long as the entire performance has become impossible (and this impossibility is not due to the creditor's own fault, per Article 543), the creditor is granted the right to terminate. This allows the creditor to extricate themselves from a contract whose fundamental purpose can no longer be achieved, regardless of who, if anyone, was at "fault" for the impossibility.
Timing: The right to terminate arises as soon as the entire performance becomes impossible. This can be even before the originally stipulated due date for performance. For instance, if a contract is made to deliver specific goods in one month, but the goods are destroyed (making delivery impossible) one week after the contract, the buyer can terminate immediately and does not need to wait for the original delivery date.

This "no-fault" basis for termination due to impossibility reflects a legislative policy focused on allowing parties to move on from a contract that has lost its substratum, separating the act of terminating the contractual tie from the question of allocating blame for monetary compensation.

Interplay of Termination and Damages in Cases of Impossibility

The remedies of termination and damages are not mutually exclusive when performance becomes impossible. Article 545, Paragraph 4 of the Civil Code expressly states that "The exercise of a right to terminate a contract shall not preclude a claim for damages."

This means:

If impossibility IS attributable to the debtor: The creditor can (1) terminate the contract pursuant to Article 542, Paragraph 1, Item 1, and (2) also claim damages (typically damages in lieu of performance under Article 415, Paragraph 2, Item 1) for the losses suffered due to the non-performance. Termination releases both parties from their future primary obligations, and damages compensate the creditor for the loss of the bargain.
If impossibility IS NOT attributable to the debtor (e.g., force majeure): The creditor can still (1) terminate the contract under Article 542, Paragraph 1, Item 1, thereby freeing both parties from their primary performance obligations. However, in this scenario, the creditor generally (2) cannot claim damages from the debtor because the condition of attributability under Article 415, Paragraph 1 is not met. This outcome aligns with general principles of risk allocation where a party is not usually held liable for damages caused by events beyond their responsibility, though the contract itself can still be dissolved.

Practical Implications for Contracting Parties

The rules surrounding impossibility of performance have several practical implications for businesses and individuals entering into contracts under Japanese law:

Clear Definition of Obligations: Precisely defining the performance obligations is key. The more specific the obligation (e.g., delivery of a unique item versus a generic good), the clearer it will be when performance becomes "impossible."
Force Majeure and Risk Allocation Clauses: While the Civil Code provides default rules, parties are generally free to include specific clauses in their contracts addressing force majeure events and allocating the risks of impossibility. Such clauses can define what constitutes a force majeure event and outline the consequences (e.g., suspension of obligations, right to terminate, exclusion of liability for damages).
Notification and Mitigation: If performance appears to be becoming impossible, or has become impossible, prompt communication between the parties is advisable. Depending on the circumstances, a party might also have a duty to mitigate losses.
Assessing Attributability: When impossibility occurs, a careful assessment of whether it is "attributable" to the debtor is crucial, as this will determine the availability of a damages claim.
Choice of Remedy: The creditor needs to decide whether to simply claim damages (if available) or to also terminate the contract. Termination has broader consequences, such as triggering duties of restitution for any performance already rendered (Article 545, Paragraph 1).

Conclusion

Impossibility of performance is a significant event in the life of a contract under Japanese law, leading to distinct and important legal consequences. The creditor is generally empowered to terminate the contract immediately and without demand when the entire performance becomes impossible, regardless of the debtor's fault concerning the impossibility. Separately, a claim for damages in lieu of the impossible performance may be available, but this typically requires the creditor to establish that the impossibility was attributable to the debtor. This dual-track approach—separating the conditions for contract dissolution from those for monetary compensation—reflects a nuanced system aimed at both releasing parties from unviable contracts and allocating financial losses based on responsibility. Understanding these distinctions is vital for navigating contractual disruptions effectively.