My Counterparty is a Minor Under Japanese Law: Is Our Contract Enforceable?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

International commerce is replete with complexities, and one often overlooked aspect until a dispute arises is the legal capacity of a contractual counterparty. This issue takes on particular significance when dealing with individuals who may be considered minors. Japanese private international law provides a structured approach to determine the legal capacity of individuals, especially in cross-border transactions. Understanding these rules is crucial for businesses to mitigate risks and ensure the enforceability of their agreements.

This article explores the framework under Japanese law for assessing the validity of contracts entered into with minors, focusing on Japan's Act on General Rules for Application of Laws (AGRAL) (Hō no Tekiyō ni Kansuru Tsūsokuhō, 法の適用に関する通則法).

The starting point in Japanese private international law for determining a person's legal capacity to act (kōi nōryoku, 行為能力) is their national law (honkoku-hō, 本国法), a principle often referred to as lex patriae. Article 4, paragraph 1 of AGRAL stipulates: "The legal capacity of a person shall be governed by their national law."

The rationale behind the lex patriae principle is multifaceted. It is generally considered that a country's laws are tailored to its climate, customs, traditions, and social environment, making them suitable for determining the capacity of its nationals. Furthermore, nationality is a relatively stable connecting factor, not easily changed, which contributes to the stability of legal relationships derived from it. It is also generally easier and more certain to ascertain a person's nationality compared to other connecting factors like domicile, especially in a globalized world.

Scope of "Legal Capacity" under AGRAL Article 4

AGRAL Article 4 primarily addresses what can be termed "general legal capacity," which includes:

  1. Age of Majority: The age at which a person attains full legal capacity. In Japan, for instance, the age of majority was historically 20, though it has been lowered to 18 effective April 1, 2022, through amendments to the Civil Code. However, for conflict of laws purposes, if a foreign national's law stipulates a different age, that age is generally relevant.
  2. Effect of Acts by Minors: Whether a minor's legal acts are void, voidable (e.g., requiring the consent of a legal representative and subject to cancellation if such consent is absent), or exceptionally valid (e.g., acts merely acquiring a right or being released from an obligation, or acts permitted by a legal representative).
  3. Changes to Capacity by Marriage (Emancipation by Marriage): Some legal systems, including Japan's (Article 753 of the Civil Code ), provide that a minor who marries is deemed to have attained the age of majority (seinen gisei, 成年擬制). The question arises whether this issue falls under Article 4 AGRAL (as part of general capacity) or Article 25 AGRAL (governing the general effects of marriage). The prevailing view is that emancipation by marriage should be determined by Article 4 to ensure consistency with other capacity issues and because Article 25 could lead to less predictable outcomes due to its potentially variable connecting factors (e.g., common habitual residence, closest connection).
  4. Distinction between Property-related Capacity and Capacity for Status-related Acts: While Article 4 AGRAL governs capacity for general legal acts, particularly those concerning property and transactions, capacity for status-related acts (mibun kōi, 身分行為) such as marriage, adoption, or recognition of a child is generally considered to be governed by the specific conflict of laws rules applicable to each of those status acts themselves, not by the general rule in Article 4. AGRAL Article 4, paragraph 3 explicitly states that the protective provisions of paragraph 2 (discussed below) do not apply to "juridical acts to be governed by the provisions of family law or inheritance law." This is often interpreted as a confirmation that capacity for such acts is carved out from the general rule.

Protection of Transactions: The Lex Loci Actus Exception (AGRAL Article 4, Paragraph 2)

Strict adherence to the lex patriae principle could create uncertainty and impose significant burdens on parties entering into transactions, especially in a foreign country. A party might have to investigate the national law of every counterparty to ensure their capacity, which would increase transaction costs and potentially stifle international commerce.

To address this, AGRAL Article 4, paragraph 2 provides a crucial protective measure for transactions. It states:
"Notwithstanding the provision of the preceding paragraph, if a person who performed a juridical act was incapable under their national law but had capacity under the law of the place where the act was performed (lex loci actus), such person shall be deemed to have legal capacity, provided that all parties were present in the same jurisdiction at the time of the juridical act."

The purpose of this provision is to protect the security of transactions conducted within a single legal territory.

Key Requirements and Features of Article 4(2):

  • Incapacity under National Law, Capacity under Lex Loci Actus: The person must be deemed incapable by their national law but capable by the law of the place where the transaction occurred.
  • Presence of All Parties in the Same Jurisdiction: This is a critical condition. "Jurisdiction" (hō o onajiku suru chi, 法を同じくする地) here generally means a territory with a unified legal system for the matter at hand (e.g., a country, or a state within a federal system like the U.S. for many civil matters). If the parties are in different jurisdictions at the time of the act (e.g., a contract concluded online between parties in different countries), this protective provision does not apply. The rationale is that if parties are in different jurisdictions, the party dealing with a potentially incapable person should be more cautious and cannot simply rely on the law of their own location to validate the transaction against an unsuspecting incapable person.
  • No Requirement for Face-to-Face Transaction: As long as all parties are physically within the same jurisdiction when the juridical act is performed, Article 4(2) can apply even if the transaction is conducted via telephone, fax, or the internet. The "place where the act was performed" in such cases would be that common jurisdiction.
  • Subjective State of Mind (Good Faith/Bad Faith) is Irrelevant: Article 4(2) applies regardless of whether the other party knew or should have known about the person's incapacity under their national law. Even if both parties are nationals of the same foreign country, and one party knows the other is a minor under their shared national law, if the transaction occurs in Japan and Japanese law (as the lex loci actus) considers the "minor" to have capacity (e.g., if the foreign minor meets Japan's age of majority or an exception applies), the transaction can be upheld under this provision.

Exception to the Protection: Real Estate and Family/Succession Law Matters (AGRAL Article 4, Paragraph 3)

AGRAL Article 4, paragraph 3 carves out important exceptions to the protective rule in paragraph 2. It states:
"The provision of the preceding paragraph shall not apply to juridical acts concerning real property located in a jurisdiction different from the place where the act was performed, nor to juridical acts to be governed by the provisions of family law or inheritance law."

  • Real Estate Transactions: The primary rationale for excluding real estate transactions from the lex loci actus protection (when the real estate is in a different jurisdiction than where the transaction occurs) is that real property is generally of high value, and parties are expected to exercise greater caution and diligence. The need to protect transactional security based on the lex loci actus is considered to be outweighed by the importance of the law of the location of the real property (lex rei sitae).
  • Family Law or Inheritance Law Matters: As mentioned earlier, the reference to family law and inheritance law acts in this paragraph is largely seen as a confirmatory note, reiterating that capacity for such acts is governed by their own specific conflict of laws rules, not the general capacity rules or their exceptions in Article 4.

Analyzing Scenarios: How AGRAL Article 4 Operates

Let's consider a few hypothetical scenarios, inspired by the problems presented in Case 30 of the reference material, to illustrate these principles.

Scenario 1: Minor Contracts for a Classic Car Abroad

  • Facts: A, a 17-year-old Japanese national, while in Country X, enters into a contract with B, a local dealer, to purchase a classic car. A pays a deposit. The age of majority in Japan is 18 (formerly 20, but let's assume 18 for this modern context), while in Country X, it is 16. When B sues A in Japan for the remaining payment, can A assert minority to cancel the contract?
  • Analysis:
    • Under AGRAL Article 4(1), A's capacity is governed by their national law, Japanese law. As a 17-year-old, A is a minor under Japanese law and generally can cancel contracts made without parental consent.
    • However, AGRAL Article 4(2) comes into play. The juridical act (contract) was performed in Country X. At the time of the contract, both A and B were present in Country X (the same jurisdiction). Under the law of Country X (lex loci actus), A, being 17, has legal capacity (as the age of majority is 16).
    • Therefore, A is deemed to have legal capacity for this transaction. The contract is not for real estate located outside Country X.
  • Conclusion: A cannot cancel the contract based on being a minor.

Scenario 2: Minor Orders a Watch Online from Another Country

  • Facts: C, an 18-year-old Japanese national, from Japan, accesses the website of Company D in Country Y and orders an expensive watch using an uncle's credit card. C receives the watch in Country Y. The age of majority in Japan is 18, but let's assume for this scenario that certain acts by 18-year-olds might still be voidable without full consent, or alternatively, that C was 17 at the time of order. Country Y's age of majority is 18. The uncle complains, and the payment is not made. Company D's Japanese subsidiary, E, sues C in Japan. Can C claim minority?
  • Analysis:
    • AGRAL Article 4(1): C's capacity is governed by Japanese law. If C is a minor or lacks full capacity for this type of transaction under Japanese law, the contract is prima facie voidable.
    • AGRAL Article 4(2): The critical factor is where the parties were "at the time of the juridical act." The contract was concluded when C, in Japan, accessed Company D's website (Company D being in Country Y). Thus, C (in Japan) and Company D (in Country Y) were not in the same jurisdiction when the contract was formed.
    • Therefore, the protective provision of Article 4(2) does not apply.
  • Conclusion: C can likely assert their lack of capacity under Japanese law to cancel the contract. The fact that C later received the watch in Country Y does not change the analysis for the contract formation.

Scenario 3: Minor Contracts for Sale of Japanese Real Estate While Abroad

  • Facts: F, an 18-year-old Japanese national, is studying in Country Z (age of majority 18). Before returning to Japan, F, while in Country Z, contracts to sell real estate located in Japan (inherited from a grandparent) to G, a Japanese national also residing in Country Z. F now wants to cancel. If G sues F in Japan for performance, can F claim minority?
  • Analysis:
    • AGRAL Article 4(1): F's capacity is governed by Japanese law, under which an 18-year-old (assuming our prior example of 18 being an age where some acts are voidable without full consent, or if F were younger) might be able to void the contract.
    • AGRAL Article 4(2): Both F and G were in Country Z (same jurisdiction) when the contract was made. Under Country Z law (lex loci actus), F (18) has capacity. So, Article 4(2) would ordinarily deem F capable.
    • However, AGRAL Article 4(3) provides an exception. This contract concerns "real property located in a jurisdiction different from the place where the act was performed" (real estate in Japan, contract made in Country Z).
    • Therefore, Article 4(2) does not apply to this transaction due to the Article 4(3) exception.
  • Conclusion: F can assert their lack of capacity under Japanese law (AGRAL Article 4(1)) to cancel the contract for the sale of Japanese real estate.

Practical Implications for Businesses

These rules underscore several important considerations for businesses engaging in international transactions, particularly with individuals who might be young:

  1. Due Diligence: While Article 4(2) offers protection in many common scenarios where transactions occur within a single jurisdiction, it's not a universal safeguard. Ascertaining the age and, if possible, the relevant national law of a counterparty can be prudent, especially for high-value or unusual transactions.
  2. Jurisdictional Awareness: The "same jurisdiction" requirement for Article 4(2) is key. For online contracts or those negotiated across borders, this protection is generally unavailable, meaning the lex patriae of the individual will govern their capacity.
  3. Real Estate: Transactions involving real estate are a significant exception. The protective lex loci actus rule of Article 4(2) will not apply if the property is located in a different jurisdiction from where the deal is struck. The capacity will be judged more strictly, typically by the individual's national law.
  4. Contractual Stipulations: While parties can choose the governing law of a contract (under AGRAL Article 7), this choice generally does not extend to determining a party's fundamental legal capacity, which is an objective preliminary question governed by rules like AGRAL Article 4.

Conclusion

Japanese private international law, through AGRAL Article 4, provides a nuanced system for determining the legal capacity of individuals in international dealings. It balances the principle of lex patriae with the need for transactional security via the lex loci actus under specific conditions. However, businesses must be aware of the scope and limitations of these rules, particularly the "same jurisdiction" requirement for the protective measures and the significant exceptions for real estate and status-related acts. A careful understanding of these provisions can help in structuring enforceable international agreements and mitigating potential disputes arising from a counterparty's lack of legal capacity.