Just Reporting Facts? The Legal Impact of a Third-Party Debtor's Statement in Japanese Attachment Proceedings

Date of Judgment: May 12, 1980
Case Name: Claim for Assigned Claim
Court: Supreme Court of Japan, Second Petty Bench
Case Number: 1979 (O) No. 1134

Introduction

When a creditor seeks to attach a monetary claim owed by a third party to their debtor, the legal process often involves an inquiry directed at this "third-party debtor." The court, upon the attaching creditor's request, will ask the third-party debtor about the existence and details of the claim. The third-party debtor then submits a formal statement. But what is the legal weight of this statement? If the third-party debtor acknowledges the claim and indicates an intention to pay, are they later barred from raising defenses, such as a right to set-off, that were not mentioned in the initial statement?

This critical question was addressed by the Japanese Supreme Court in a significant decision on May 12, 1980. The case explored whether a third-party debtor's statement is merely a factual report or if it carries substantive legal consequences, like an admission of debt or a waiver of defenses.

The Case in Point: A Promissory Note, a Bank Deposit, and a Contested Set-Off

The dispute involved the following parties:

• X (Plaintiff/Appellant): The holder of a promissory note.
• Y Bank (Defendant/Appellee): The bank where the issuer of the note held funds.
• A (Non-party): The issuer of the promissory note.

The sequence of events unfolded as follows:

1. Dishonored Note and Deposit: X held a promissory note issued by A, which was subsequently dishonored upon maturity. To avoid the immediate legal consequences of this dishonor (such as suspension of bank transactions), A had previously requested Y Bank to provide funds for a "protest-waiver deposit" (異議申立提供金, igi mōshitate teikyōkin) at the bill clearing house. For this purpose, A had deposited an amount equivalent to the promissory note with Y Bank.
2. Provisional Attachment and Y Bank's Statement: X obtained a provisional court order attaching A's claim against Y Bank for the return of this deposited amount. During these provisional attachment proceedings, Y Bank, responding to a court order for a statement (under the then-operative Code of Civil Procedure Art. 748 and Art. 609, corresponding to current Civil Preservation Act Art. 50(5) and Civil Execution Act Art. 147), submitted a formal declaration. Y Bank's statement read: "We acknowledge the existence of the claim. We will pay if a request for return is made by the creditor [A]."
3. Judgment and Assignment Order: X subsequently sued A on the promissory note and obtained a final judgment in its favor. Based on this judgment, X then obtained a final attachment order and, crucially, an "assignment order" (転付命令, tenpu meirei) from the court. An assignment order effectively transfers the attached claim (A's claim against Y Bank for the return of the deposit) directly to the attaching creditor (X) in satisfaction of X's claim against A.
4. Y Bank's Refusal and Set-Off Claim: When X, now the legal owner of the deposit return claim by virtue of the assignment order, demanded payment from Y Bank, the bank refused. Y Bank asserted that, subsequent to X's initial provisional attachment, A had caused another promissory note to be dishonored. As a result, Y Bank claimed it had a loan claim against A (a bill loan claim) and was now exercising its right to set off this loan claim against A's (now X's) deposit return claim.

X's Arguments and the Lower Courts' Rulings

X contested Y Bank's set-off on several grounds:

• The nature of the protest-waiver deposit was to secure payment of the specific promissory note held by X, and therefore Y Bank's set-off was either invalid or an abuse of rights.
• Y Bank's initial statement ("We acknowledge the existence of the claim. We will pay...") constituted a waiver of any right to set-off.
• X had relied on Y Bank's statement and, as a result, had not pursued other avenues to secure its claim against A. Therefore, Y Bank should be estopped (under the principle of kinhangen or estoppel) from asserting a set-off, particularly with a counter-claim that Y Bank had acquired before the provisional attachment.
• X also referenced a 1970 Supreme Court Grand Bench decision regarding the broad allowance of set-off against attached claims (the "unrestricted theory"). X argued that if banks are so thoroughly protected by this theory, they must bear a corresponding duty to make accurate and complete statements during attachment proceedings. Allowing a bank to make a seemingly positive statement and then later assert a set-off would create significant unfairness for attaching creditors.

The lower courts, however, were not persuaded by X's arguments:

• First Instance (Tokyo District Court): The court dismissed X's claim. It found that Y Bank had not treated the provisional attachment as an event triggering A's loss of the "benefit of time" (期限の利益喪失, kigen no rieki sōshitsu—an event that could make A's debts to the bank immediately due). The court held that Y Bank's statement at the time of the provisional attachment did not amount to a waiver of its right to set-off.
• High Court (Tokyo High Court): The High Court upheld the first instance decision and dismissed X's appeal. It rejected the argument that the protest-waiver deposit had a special status preventing set-off. More importantly for the subsequent Supreme Court decision, the High Court opined that a third-party debtor's statement is merely a "report of facts." Even if the statement acknowledges the debt's existence, expresses an intention to pay, and fails to mention any future intention to set off, it does not produce substantive legal effects such as an acknowledgment of the debt or a forfeiture of defenses (抗弁権の喪失, kōbenken no sōshitsu).

X then appealed to the Supreme Court.

The Supreme Court's Pronouncement: A Statement is a "Report of Facts"

On May 12, 1980, the Supreme Court dismissed X's appeal, affirming the lower courts' decisions and providing a landmark clarification on the legal nature of a third-party debtor's statement.

The Court held that the High Court's judgment was correct in its assessment: A statement made by a third-party debtor to the court (specifically, the provisional attachment court as an execution body) under the provisions of the old Code of Civil Procedure (Arts. 748 and 609) is merely a report of facts.

Consequently, the Supreme Court reasoned:

• Even if such a statement acknowledges the existence of the attached debt and expresses an intention to pay, and even if it does not mention any intention to assert a set-off in the future, this does not, by itself, result in substantive legal effects like an acknowledgment of the debt or a forfeiture of defenses.
• The third-party debtor (Y Bank) is not subsequently precluded from asserting that the debt is subject to set-off (with the attached debt as the passive claim) or that the debt has been extinguished by other means, such as prescription.

The Supreme Court also found the High Court correct in rejecting X's estoppel argument and the contention that Y Bank had waived its right to assert set-off by its conduct following the provisional attachment (such as not immediately calling A's loans or renewing bills related to Y Bank's claim against A).

Unpacking the "Report of Facts" Doctrine

This Supreme Court decision was the first to definitively address the legal nature of a third-party debtor's statement under the then-existing procedural law. The "report of facts" theory (事実報告説, jijitsu hōkoku-setsu), which the Court endorsed, has significant implications.

What "Report of Facts" Means:
It means the statement is informational and does not, in and of itself, alter the substantive legal relationship between the third-party debtor and the original debtor, nor does it create new obligations or waive existing rights in relation to the attaching creditor. It is not, for example, equivalent to:

• A formal acknowledgment of debt in court proceedings that can lead to a consent judgment (Code of Civil Procedure Art. 266).
• An "acceptance without reservation" in the context of a claim assignment, which, under former Civil Code Art. 468(1), could prevent the debtor from asserting defenses against the assignee that they had against the assignor.

This view was consistent with the trend in prior lower court decisions and the prevailing academic opinion at the time.

Rationale Behind the Doctrine:
Several reasons underpin the "report of facts" theory:

• Recipient of the Statement: The statement is made to the court (as an execution body), not directly to the attaching creditor or the original debtor.
• Lack of Intent for Substantive Effect: A third-party debtor, when providing the statement, typically does not intend to make a legally binding admission that would alter their substantive rights or defenses.
• Consistency: It aligns with the legal consequences (or lack thereof) when a third-party debtor fails to make any statement.
• Strength of Certain Defenses: Some defenses, like set-off, are considered very strong in Japanese law and are not easily forfeited—not even by the res judicata effect of a final judgment that doesn't address the set-off.
• Procedural Position of the Third-Party Debtor: Perhaps most fundamentally, third-party debtors are involuntarily drawn into execution proceedings concerning a dispute that is not their own. They are often required to investigate and respond within a short timeframe. They are not accorded a procedural status or empowerments (like full discovery or adversarial hearing rights at the statement stage) that would justify holding them strictly to their initial statement as if it were a final, binding declaration of their legal position. It is considered essential that they retain the possibility of later disputing the existence or extent of the attached claim in a proper forum, on an equal footing with the attaching creditor (e.g., if the attaching creditor sues them for payment of an assigned claim).

The Purpose of the Third-Party Debtor Statement System

The system requiring a third-party debtor to make a statement upon an attaching creditor's request (now governed by Civil Execution Act Art. 147) serves a crucial practical purpose: it aims to provide the attaching creditor with essential information to make informed decisions about how to proceed with the execution.

Attaching creditors often initiate execution without precise knowledge of the existence, amount, or any encumbrances on the claim they are targeting. The execution court itself typically issues an attachment order without conducting a preliminary hearing with the debtor or the third-party debtor. Therefore, the third-party debtor's statement helps the attaching creditor assess:

• Whether the attachment is likely to be successful ("hit or miss").
• If the attachment is a "miss," the creditor may need to quickly look for other assets.
• If successful, whether there are prior ranking rights, competing attachments, or other defenses that might affect the actual amount recoverable.
• Which method of collection would be most appropriate (e.g., seeking an assignment order or a collection order).

The system relies on the third-party debtor's cooperation to furnish this information, thereby aiding the efficiency and effectiveness of the execution process.

Life After the Statement: Can a Third-Party Debtor Assert Unmentioned Defenses?

Yes. The Supreme Court's 1980 ruling makes it clear that because the statement is merely a report of facts, the third-party debtor is not barred from later raising defenses (like set-off or prescription) that were not mentioned in the statement. This means that even if Y Bank's statement initially sounded positive for X, Y Bank retained the right to later assert its set-off claim against A's deposit when X sued for collection.

This gives third-party debtors a degree of protection from being inadvertently trapped by an initial, possibly hurried, statement.

What If the Statement Is Misleading or Incomplete? Safeguards and Sanctions

While third-party debtors are not substantively bound by their statements in terms of forfeiting defenses, the system is not without safeguards against irresponsible or misleading declarations. If statements were consistently unreliable, the entire purpose of the system would be undermined.

Duty Under Current Law:
The Civil Execution Act (which came into full force about five months after this Supreme Court judgment) and its implementing rules have clarified the expected content of a third-party debtor's statement. Specifically, Civil Execution Rules Art. 135(1)(ii) requires the statement to include "reasons for not making payment" of the attached debt. This implies that:

• If a third-party debtor intends to exercise a right of set-off at the time of making the statement, this should be declared as a reason for non-payment.
• If the third-party debtor possesses a counter-claim against the original debtor but is undecided about whether to use it for set-off, this fact should also be mentioned.

Liability for Damages (Civil Execution Act Art. 147(2)):
If a third-party debtor, intentionally or through negligence, fails to make a statement or makes a false or incomplete statement, they can be held liable for damages sustained by the attaching creditor as a result (Civil Execution Act Art. 147(2)). Such damages could theoretically include:

• Costs incurred by the attaching creditor in obtaining a fruitless assignment order or in pursuing a collection lawsuit based on the misleading statement.
• Losses incurred if the creditor, relying on the statement, forwent opportunities to attach other available assets of the debtor, which subsequently became unavailable.

However, in practice, successful claims for damages under this provision (or its predecessor under the old law) have been rare. The commentary in the PDF mentions a Yokohama District Court case (Showa 61.10.31) where damages for non-statement were awarded, but this decision was reportedly overturned on appeal by a judgment (Showa 63.1.19) that denied damages.

The Role of Estoppel or the Principle of Good Faith (信義則, shingisoku):
Beyond statutory damages, can a third-party debtor who makes a seriously misleading statement upon which the creditor relies be prevented from asserting a defense based on general principles like estoppel or good faith?

• The commentary references a Tokyo High Court decision (Showa 52.9.20) which, while ultimately denying its application in that specific case, mused that if an attaching creditor, relying on the third-party debtor's statement of unconditional willingness to pay, immediately secured an assignment order, only to be unexpectedly confronted with a set-off, there might be "special grounds to deny the assertion of the set-off's effect based on the principle of good faith."
• Legal commentators approach this cautiously. Using a broad principle like good faith to effectively cause a forfeiture of defenses introduces uncertainty and depends heavily on the specific facts of each case. However, some suggest that in exceptional circumstances—such as when a third-party debtor acts with clear malice to obstruct execution proceedings or to intentionally mislead and cause delay—the principle of good faith might be invoked to bar a late-asserted defense.

Conclusion: Balancing Information and Fairness

The May 12, 1980, Supreme Court decision firmly established that a third-party debtor's statement in attachment proceedings is a "report of facts." It does not, by itself, strip the third-party debtor of substantive defenses like set-off, even if those defenses were not initially disclosed. This ruling protects third-party debtors from being unfairly bound by statements made under pressure and with limited information.

For attaching creditors, this means that while the third-party debtor's statement is a valuable source of information, it cannot be taken as an absolute guarantee. Creditors must be aware that defenses might still be raised later. The primary recourse for a misleading or incomplete statement lies in the (albeit rarely successful) claim for damages under the Civil Execution Act, or in very exceptional cases, an argument based on the principle of good faith. The judgment underscores the careful balance the Japanese legal system attempts to strike between facilitating effective debt collection and ensuring fairness to third parties drawn into such proceedings.