Japanese Supreme Court Clarifies Debtor's recourse against enforcement despite non-enforcement agreement

Decision Date: September 11, 2006
Case Number: 2006 (Ju) No. 13 (Supreme Court, Second Petty Bench)
Case Name: Appeal against the dismissal of an appeal against an execution appeal against an order of attachment and assignment of claim.

This article delves into a significant Japanese Supreme Court decision that clarified the proper legal procedures for a debtor árboles to challenge a compulsory execution when there is an alleged "agreement not to enforce" (hereinafter referred to as a "non-enforcement agreement"). The ruling has important implications for understanding how Japanese civil execution law balances the creditor's right to enforce a claim against the debtor's defenses based on substantive agreements.

Introduction

The case involved a dispute over the enforceability of a notarial deed related to a debt payment agreement. The creditor, Y, obtained an order of attachment and an assignment order against the assets of X (and others), who were successors to the original debtor, A. X challenged these execution measures by filing an execution appeal, arguing, among other things, that Y had either waived the right to enforce the claim or that there was a non-enforcement agreement between Y and X.

The core issue before the Supreme Court was whether a debtor can assert the existence of a non-enforcement agreement through an "execution appeal" (a procedural remedy within the execution process to challenge the legality of an execution measure) or an "execution objection" (another type of objection within execution proceedings), or if they must file a separate "action of objection to claim" (a lawsuit to dispute the enforceability of the title of obligation itself on substantive grounds).

The Supreme Court ultimately ruled that an action of objection to claim is the appropriate avenue for the debtor to assert a non-enforcement agreement. This decision overturned prior precedents from the Great Court of Cassation (the predecessor to the current Supreme Court).

Background of the Dispute

A notarial deed for a debt payment agreement was created with Y as the creditor and A as the debtor. Subsequently, Y initiated compulsory execution proceedings based on this notarial deed against X, A's successor. Y obtained an order of attachment and an assignment order for claims held by X.

In response, X filed an execution appeal. X’s grounds for the appeal included:

1. Waiver by Y of the right to enforce the claim based on the notarial deed.
2. The existence of an agreement between Y and X not to carry out compulsory execution (a non-enforcement agreement).
3. The statute of limitations had extinguished the claim.
4. The non-existence of the claim or its extinguishment by payment.
5. Defects in the procedure for creating the notarial deed.
6. Abuse of rights by Y.

The court of first instance dismissed X's execution appeal. It reasoned that all the grounds raised by X were substantive issues that should be contested through an action of objection to claim, not through an execution appeal. The court further deemed the execution appeal to have been filed solely to unreasonably delay the execution proceedings, citing Article 10, Paragraph 5, Item 4 of the Civil Execution Act.

X appealed this dismissal to the high court. X argued that established precedent allowed for a non-enforcement agreement to be a valid ground for an execution appeal, and thus the lower court's dismissal was improper. However, the high court also dismissed the appeal. It reasoned that in execution proceedings, which require swiftness, it is not appropriate for the execution court to investigate and determine the existence of a waiver of the right to enforce or a non-enforcement agreement.

X then filed a petition for permission to appeal to the Supreme Court.

The Supreme Court's Decision

The Supreme Court dismissed X's final appeal, upholding the high court's decision. The reasoning of the Supreme Court can be broken down as follows:

1. Legal Nature of a Non-Enforcement Agreement:
The Court first considered the legal nature of a non-enforcement agreement. It stated that such an agreement is a legal act that eliminates or restricts the "power of execution" – the aspect of a claim's validity that allows its content to be realized through compulsory execution proceedings. Therefore, if a non-enforcement agreement exists, compulsory execution based on that claim would be substantively improper.

2. Effect of a Non-Enforcement Agreement on Execution Proceedings:
However, the Court clarified that a non-enforcement agreement, under substantive law, merely imposes an obligation of inaction (a negative obligation) on the creditor not to file for compulsory execution. It does not directly bind the execution agency (the court or bailiff carrying out the execution). Consequently, compulsory execution carried out based on a claim subject to a non-enforcement agreement is not immediately illegal under the Civil Execution Act.

3. Proper Procedural Remedy: Action of Objection to Claim:
The Supreme Court emphasized that the Civil Execution Act provides the "action of objection to claim" (Article 35) as the procedure for preventing compulsory execution based on substantive grounds. A non-enforcement agreement, by eliminating or restricting the power of execution, is substantively similar to other grounds for objection to a claim that suspend or limit the validity of the claim itself. Therefore, the existence of a non-enforcement agreement should be determined through the litigation procedure of an action of objection to claim, not through an execution appeal.

The Court reiterated that an execution appeal is an internal remedy within execution proceedings to challenge the illegality of the execution procedure itself. Substantive grounds, such as the existence of a non-enforcement agreement, are not valid reasons for an execution appeal. The Court also noted that, for the same reasons, an execution objection is not the proper procedure.

4. Overturning Precedent:
The Supreme Court concluded that when a debtor subjected to compulsory execution wishes to seek its preclusion by asserting a waiver of the right to enforce or a non-enforcement agreement, they must do so by filing an action of objection to claim, not by way of an execution appeal or execution objection.
Crucially, the Court explicitly stated that precedents of the Great Court of Cassation holding a different view (specifically, Great Court of Cassation, February 24, 1926 (O) No. 970, Minshu Vol. 5, p. 235; Great Court of Cassation, March 16, 1927 (O) No. 1122, Minshu Vol. 6, p. 187; Great Court of Cassation, July 9, 1935 (O) No. 952, Horitsu Shimbun No. 3869, p. 12) should be changed. These older cases had suggested that an execution objection (referred to as "objection to the method of execution" under the old Code of Civil Procedure) was the appropriate means.

The Supreme Court affirmed the high court's judgment, finding it to be consistent with this reasoning.

Significance and Analysis of the Decision

This Supreme Court decision carries significant weight in Japanese civil execution law, primarily because it definitively clarified the debtor's recourse when faced with enforcement proceedings despite an alleged non-enforcement agreement.

1. Legal Nature of Non-Enforcement Agreements: Substantive Law Prevails

A key aspect of this judgment is its clear stance on the legal nature of non-enforcement agreements. Such agreements are understood as creating substantive rights and obligations between the parties. The agreement imposes a contractual duty on the creditor not to initiate or continue execution.

Historically, there was a debate in Japanese legal scholarship and case law regarding whether a non-enforcement agreement should be viewed as a matter of substantive law or procedural law.

• The substantive law theory (実体法説 - jittai hō setsu) posits that a non-enforcement agreement affects the underlying rights and obligations of the parties. It creates a duty for the creditor not to execute.
• The procedural law theory (訴訟法説 - soshō hō setsu) would view such an agreement as directly impacting the procedural permissibility of the execution itself, making the execution procedurally flawed.

The Supreme Court, in this 2006 decision, firmly aligned with the substantive law theory. It characterized the agreement as creating an "obligation of inaction" for the creditor. This means that while the creditor should not enforce, if they do, the execution itself isn't automatically void from a purely procedural standpoint merely because of the agreement's existence. The impropriety is substantive.

This distinction is crucial. If it were a procedural issue, a simpler motion or objection within the execution proceedings (like an execution appeal) might suffice. However, because it's a substantive issue, it requires a full adjudicatory process to determine the agreement's existence, validity, and scope, which is what an "action of objection to claim" provides.

Prior to this ruling, a Supreme Court (First Petty Bench) decision on November 11, 1993 (Minshu Vol. 47, No. 9, p. 5255) had already hinted at leaning towards the substantive law theory. That 1993 case suggested that if a non-enforcement agreement is asserted during the main claim litigation (before it becomes a title of obligation), it should be adjudicated as a matter akin to the main subject matter of the lawsuit, and the judgment on it should be clearly stated in the main text of the judgment. The 2006 decision built upon this by clarifying the remedy once execution based on an existing title of obligation (like a notarial deed, as in this case) is initiated.

2. Clarification of Debtor's Remedies: The Primacy of the "Action of Objection to Claim"

The most direct impact of this decision is the clear guidance on which legal path a debtor must take. The Court unequivocally stated that the "action of objection to claim" (請求異議の訴え - seikyū igi no uttae), as stipulated in Article 35 of the Civil Execution Act, is the correct procedure.

An "action of objection to claim" is a formal lawsuit initiated by the debtor. Its purpose is to seek a court judgment declaring that compulsory execution based on a specific title of obligation (e.g., a final judgment, a notarial deed) should not be permitted or should be restricted due to reasons that have arisen or become assertable after the title of obligation was established (or, in some cases, reasons that could not be asserted before).

The Supreme Court reasoned that a non-enforcement agreement functions to "eliminate or restrict" the enforceability (強制執行力 - kyōsei shikkō ryoku) of the claim. This effect is substantially similar to other grounds that would warrant an objection to the claim, such as the claim having been paid, waived, or offset after the title of obligation was created.

By channeling such disputes into an action of objection to claim, the Court ensures that:

• Due Process: The existence and scope of the alleged non-enforcement agreement are examined in a full trial procedure, with opportunities for both parties to present evidence and arguments. This is in contrast to execution appeals or objections, which are typically more summary in nature and focus on procedural irregularities of the execution measures themselves.
• Clarity and Finality: A judgment in an action of objection to claim provides a definitive ruling on the enforceability of the title of obligation in light of the alleged non-enforcement agreement.

The Court explicitly rejected the use of an "execution appeal" (執行抗告 - shikkō kōkoku) or an "execution objection" (執行異議 - shikkō igi) for this purpose. An execution appeal (Article 10 of the Civil Execution Act) is designed to challenge the legality of a disposition made by an execution court or a bailiff within the execution proceedings (e.g., an error in the procedure of attachment). An execution objection (Article 11 of the Civil Execution Act) is typically used to object to the method of execution or other procedural aspects not covered by an execution appeal. Neither is intended for resolving substantive disputes about the underlying claim's enforceability.

3. Relationship with Precedent and Academic Theories: A Shift in Doctrine

This 2006 decision marked a significant shift by expressly overturning older precedents from the Great Court of Cassation. Notably, a Great Court of Cassation decision from February 24, 1926 (Minshu Vol. 5, p. 235), had held that a non-enforcement agreement should be asserted through an execution objection (then called "objection to the method of execution" under the old Code of Civil Procedure). This older line of cases had been influential for a long time.

The academic discourse on this issue had also been divided.

• Execution Objection Theory (執行異議説 - shikkō igi setsu): This view, aligning with the older precedents, argued that a non-enforcement agreement makes the execution itself procedurally improper, thus allowing for an execution objection. Even in the era when this theory was dominant, few directly based it on the procedural law theory of non-enforcement agreements. The 1926 Great Court of Cassation ruling itself simply stated that a non-enforcement agreement "does not touch upon the right determined in the title of obligation."
• Action of Objection to Claim Theory (請求異議訴訟説 - seikyū igi soshō setsu): This view contended that non-enforcement agreements are substantive matters and should be adjudicated through an action of objection to claim. Proponents of this theory, like Dr. Hajime Kaneko, often viewed non-enforcement agreements as creating an obligation of inaction. While the obligation of inaction is a separate right from the original enforceable claim, they argued for the analogical application of Article 35 of the Civil Execution Act, as this procedure is designed for substantive review. Other scholars supporting this theory argued for direct application of Article 35, viewing the non-enforcement agreement as a substantive ground that negates the executory power of the title of obligation. Some even linked this to theories of "limitation of liability."

The 2006 Supreme Court decision clearly sided with the action of objection to claim theory. While the decision adopts the substantive law theory, its specific characterization of the non-enforcement agreement (touching upon "limitation of liability" in part I of its reasoning and "obligation of inaction" in part II) leaves some room for interpretation regarding the precise substantive nature, acknowledging the potential diversity of such agreements.

4. Diversity of Non-Enforcement Agreements and Procedural Guarantees

It is important to recognize that "non-enforcement agreements" can vary widely in their content and form, as they are based on the parties' intentions. As legal commentary often points out, these agreements can range from:

• Absolute agreements not to execute at all.
• Agreements not to execute until a certain condition is met or a certain time has passed (akin to granting a moratorium).
• Agreements restricting execution to certain assets (similar to a liability limitation agreement, especially for monetary claims).
• Agreements on the order of attachment of different assets.
• Agreements to permit attachment but not the subsequent sale (conversion into cash) of the assets.

Given this diversity, determining the exact nature, scope, and validity of such an agreement often requires a thorough examination of the facts and the parties' intentions. An action of objection to claim, being a full lawsuit, provides the necessary procedural guarantees for such a detailed inquiry, including discovery, witness examination, and comprehensive argumentation. A more summary procedure like an execution appeal might not be adequate for resolving complex factual disputes surrounding these agreements.

The Supreme Court's choice to consolidate such claims into the action of objection to claim, despite the potential variety of agreements, can be seen as prioritizing robust procedural safeguards. If swiftness is required (e.g., to temporarily halt execution while the action of objection is pending), other mechanisms within the Civil Execution Act, such as a motion for a temporary stay of execution (Article 36), can be utilized alongside the action of objection to claim.

5. Related Issue: Effect of Preclusion (Res Judicata) in Case of Final Judgments

Although the present case involved a notarial deed (an "execution deed," not a court judgment), a related important issue arises when the title of obligation is a final and binding court judgment. If a non-enforcement agreement was concluded before the court judgment became final, can the debtor still raise this agreement in an action of objection to claim? Article 35, Paragraph 2 of the Civil Execution Act generally precludes the assertion of objections that could have been raised during the original lawsuit that led to the judgment (a form of res judicata or estoppel).

Scholarly opinions differ on this:

• Negative Theory: Argues that Article 35, Paragraph 2 does not apply, and the agreement can always be raised, as non-enforcement is an issue concerning the execution stage. The 1993 Supreme Court decision mentioned earlier seems to lean this way, albeit in obiter dictum.
• Affirmative Theory: Argues that preclusion applies if the agreement could have been raised in the original proceedings.
• Intermediate Theory: Suggests preclusion applies only if the non-enforcement agreement was actually raised and adjudicated in the original lawsuit.

If one adopts both the approach of the 1993 Supreme Court decision (that non-enforcement agreements should be stated in the main text of the judgment if raised during the claim litigation) and the affirmative theory of preclusion, then for titles of obligation that are final judgments, a pre-judgment non-enforcement agreement would either be reflected in the judgment (and any execution contrary to it would be illegal, challengeable by execution appeal) or it would be precluded by Article 35, Paragraph 2. In such a scenario, the scope for using an action of objection to claim for pre-judgment non-enforcement agreements would be limited. However, applying preclusion to agreements that establish a mere "obligation of inaction" can be complex, as the original claim and the obligation not to enforce it are distinct legal relationships.

Conclusion

The Supreme Court's decision of September 11, 2006, represents a landmark clarification in Japanese civil execution law. By mandating that debtors assert non-enforcement agreements through an "action of objection to claim," the Court has:

• Affirmed the substantive legal nature of such agreements.
• Streamlined the procedural avenues for challenging enforcement based on these agreements.
• Prioritized thorough substantive review and due process for determining the existence and effect of such agreements.
• Explicitly overturned outdated precedents, bringing greater certainty and consistency to this area of law.

This ruling underscores the Japanese legal system's approach to balancing the creditor's right to enforce a valid claim with the debtor's right to have substantive defenses, including agreements altering enforcement, properly adjudicated. It directs disputes over the content and effect of such agreements to a forum designed for substantive dispute resolution, rather than relying on the more limited scope of procedural objections within the execution process itself.