My Counterparty Isn't Performing: Can I Withhold My Own Performance? Understanding the "Simultaneous Performance Defense" in Japan.

Japanese Attorney at Law - Bengoshi L.L.

28 May 2025 • 7 min read

In the course of business, contractual obligations form the bedrock of predictable and fair dealings. However, what happens when one party to a bilateral agreement in Japan fails to uphold their end of the bargain? Can the other party—the one awaiting performance—legitimately withhold their own obligations? This common predicament is addressed in Japanese law by a crucial concept: the "defense of simultaneous performance" (dōji rikō no kōbenken). Understanding this defense is vital for any entity engaged in contracts governed by Japanese law, as it provides a mechanism to ensure reciprocity and protect against unwarranted claims.

I. What is the Defense of Simultaneous Performance (Dōji Rikō no Kōbenken)?

A. Definition and Legal Basis (Civil Code Article 533)

The defense of simultaneous performance is a right granted to a party in a bilateral contract (sōmu keiyaku)—a contract where both parties have mutual obligations that are intrinsically linked as an exchange. Article 533 of the Japanese Civil Code stipulates that one party may refuse to perform their own obligation until the other party performs, or tenders performance of, their corresponding obligation.

The fundamental purpose of this defense is twofold:

Ensuring Fairness: It upholds the principle of reciprocity (kenrensei, or interconnectedness of obligations) inherent in bilateral contracts. It prevents a situation where one party is compelled to perform its part of the deal without receiving the agreed-upon counter-performance, thus safeguarding against the risk of unreciprocated loss.
Encouraging Performance: By allowing a party to withhold their performance, the defense acts as a practical incentive, pressuring the defaulting or delaying party to fulfill their contractual duties.

This defense is not about terminating the contract but rather about suspending one's own performance temporarily until the other side is ready to perform.

B. Key Requirements for Invoking the Defense

For a party to successfully invoke the defense of simultaneous performance, several conditions must typically be met:

Existence of a Bilateral Contract: The obligations of both parties must arise from the same bilateral contract. This means the contract must involve mutual promises where each party's performance is exchanged for the other's.
Interdependent (Reciprocal) Obligations: The obligation of the party seeking to invoke the defense and the unperformed obligation of the counterparty must be linked in an exchange relationship. For example, in a sales contract, the seller's duty to deliver goods and the buyer's duty to pay the price are typically reciprocal.
Counterparty's Obligation is Due: The counterparty's obligation, which has not been performed, must be due for performance. If the counterparty's performance is not yet due (e.g., if the contract stipulates that the party invoking the defense must perform first), then the defense is generally not available.
Counterparty Has Not Performed or Tendered Performance: The counterparty must have failed to perform their due obligation or, at least, failed to make a proper tender of performance. A mere delay might suffice if it signifies a failure to perform when due.

II. How Does the Defense Operate in Practice?

The defense of simultaneous performance primarily manifests in two practical scenarios: as a direct defense against a claim for one's own performance, and as a justification for non-performance when accused of breach of contract.

A. As a Defense to a Claim for Performance

Imagine a scenario where Seller A has contracted to sell goods to Buyer B. If Seller A sues Buyer B for payment of the purchase price, but Seller A has not yet delivered the goods (and delivery is due), Buyer B can raise the defense of simultaneous performance. Buyer B would essentially state that they are ready and willing to pay, but only upon Seller A delivering the goods.

Effect in Court: When this defense is successfully raised, the court will not simply dismiss Seller A's claim for payment. Instead, it typically issues what is known as an "exchange performance judgment" (hikikae kyūfu hanketsu). This judgment would order Buyer B to pay the price in exchange for Seller A delivering the goods.
Enforcement of the Judgment: For Seller A to enforce this judgment and compel Buyer B to pay, Seller A must first prove to the execution court that they have performed their part (i.e., delivered or tendered the goods) or provided the required security (Civil Execution Act, Article 31, Paragraph 1). This effectively means that even though the obligations are simultaneous, the party initially seeking enforcement might practically have to take the first step in performance to unlock the execution process.
Burden of Pleading: The party wishing to rely on the defense (Party B in this example) must plead and prove the facts that give rise to it, i.e., the existence of the bilateral contract and the reciprocal obligations, that the counterparty's obligation is due, and that the counterparty has not performed or tendered performance.

B. As a Defense Against Claims for Breach of Contract (e.g., Damages for Delay, Termination)

The defense of simultaneous performance is also crucial when a party's non-performance is alleged to be a breach of contract, such as being in default or delay (rikō chitai).

If Party A has not performed or tendered its due reciprocal obligation, Party B's refusal to perform its own obligation is justified by the defense of simultaneous performance. Consequently, Party B cannot be held liable for damages for delay, nor can Party A terminate the contract based on Party B's non-performance during the period that Party A itself has not performed. Party B is not in default because their non-performance is legally excused.

Claimant's Burden (The "Existence Effect Theory" - Sonzai Kōka Setsu): In this situation, if Party A wishes to claim that Party B is in breach (e.g., for delayed performance) and seek damages or termination, Party A bears the burden of asserting and proving not only Party B's failure to perform but also that Party A has already performed or duly tendered its own reciprocal obligation. This approach, often termed the sonzai kōka setsu, effectively means that the existence of the defense of simultaneous performance on Party B's side prevents Party B from being in default unless Party A neutralizes the defense by performing or tendering performance. The claimant must show that the conditions for Party B's justified withholding of performance no longer exist due to the claimant's own actions.

III. Scope and Extension of the Defense of Simultaneous Performance

The utility of the simultaneous performance principle is not confined to the primary exchange of performances. Its underlying rationale of fairness and reciprocity has led to its application in a broader range of situations.

A. Explicit Statutory Extensions

The Japanese Civil Code itself explicitly extends the application of Article 533 to other scenarios. Notable examples include:

Restitutionary Obligations upon Termination of a Contract (Civil Code Art. 546): When a contract is terminated (e.g., due to breach), both parties are generally obligated to restore each other to their pre-contractual positions. These mutual obligations of restitution are considered to be in a simultaneous performance relationship.
Seller's Warranty Obligations and Buyer's Payment (Civil Code Art. 571): In sales contracts, if there's a defect in the goods, the buyer's claim for damages or repair against the seller and the buyer's obligation to pay the purchase price (or a portion thereof) may be linked in a simultaneous performance relationship, depending on the specifics.

B. Judicial Extensions (Application by Analogy)

Japanese courts have also shown a willingness to extend the principle of simultaneous performance by analogy to other situations not explicitly covered by statute, where applying it would achieve a fair and equitable result. For instance, if a contract is avoided (e.g., due to mistake, fraud, or duress, leading to its invalidity ab initio), the mutual obligations of the parties to return benefits received under the now-void contract are often treated as being subject to the defense of simultaneous performance.

A related, though distinct, issue arises when one party (Party B) is contractually obligated to perform before the other party (Party A), a situation known as "prior performance obligation" (saki rikō gimu). What if, after the contract is made but before Party B is due to perform, Party A's financial condition deteriorates significantly, or other circumstances arise that cast serious doubt on Party A's ability to render the counter-performance when it eventually becomes due? Can Party B suspend its prior performance obligation?

The Japanese Civil Code does not have an explicit provision for a "defense of insecurity" or a right to demand adequate assurance of performance in such circumstances (unlike, for example, Section 2-609 of the Uniform Commercial Code in the United States). However, Japanese legal scholarship and some court precedents have recognized a limited "defense of insecurity" (fuan no kōbenken) based on the overarching principle of good faith and trust (Civil Code Art. 1, Para. 2).

This judicially crafted defense may allow the party with the duty of prior performance to temporarily refuse to perform if:

There is a significant and objective deterioration in the counterparty's creditworthiness or ability to perform that arose or became apparent after the contract was concluded.
This deterioration creates a material risk that the party obliged to perform first will not receive the counter-performance.
The risk was not reasonably foreseeable or assumed by the party obliged to perform first at the time of contracting.

Mere subjective anxiety or general economic downturns are typically insufficient. The party asserting this defense must demonstrate concrete facts pointing to a substantial likelihood of the counterparty's future default. If the defense is legitimately invoked, the other party can usually overcome it by providing adequate security or assurance that they will be able to perform. It's important to note that this defense generally only permits a suspension of performance; it does not automatically grant a right to terminate the contract or demand specific forms of security, though such outcomes might be negotiated. The courts tend to apply this defense narrowly, given the principle that parties are bound by their agreed-upon sequence of performance.

IV. Limitations and Considerations

While powerful, the defense of simultaneous performance is not without its limitations:

Agreement to Perform First: As mentioned, if a party has contractually agreed to perform their obligation before the counterparty (i.e., has a prior performance obligation), they generally cannot invoke this defense to excuse their initial non-performance.
Principle of Good Faith: The defense must be asserted in good faith. Using it to opportunistically avoid one's own obligations when the counterparty's non-performance is trivial or has been substantially remedied might be viewed as an abuse of rights.
Trivial Non-Performance by Counterparty: If the counterparty's failure to perform is minor and does not materially impair the benefit of the contract for the other party, a wholesale refusal to perform one's own substantial obligations might be considered disproportionate and contrary to good faith.

V. Conclusion

The defense of simultaneous performance under Article 533 of the Japanese Civil Code is a cornerstone of fairness in bilateral contractual relationships. It serves as both a shield, protecting a party from having to perform without receiving the due counter-performance, and as a lever, encouraging parties to meet their obligations. Its application extends beyond primary performances to include restitutionary duties upon contract termination and has influenced the development of related concepts like the defense of insecurity. For businesses and legal professionals involved in contracts governed by Japanese law, a thorough understanding of when and how this defense can be invoked is crucial for effectively managing contractual rights and obligations where reciprocal performances are key.