My Japanese Contractual Counterparty is One of Multiple Obligors. What is "Joint and Several Liability" (Rentai Saimu) and How Does It Work?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

When entering into contracts where multiple parties on one side are collectively responsible for fulfilling the same obligation, it's crucial to understand how Japanese law allocates their liability. One of the most significant concepts in this regard is "Joint and Several Obligations" (連帯債務 - Rentai Saimu), governed by Article 436 and subsequent articles of the Japanese Civil Code. This framework determines how a creditor can pursue claims against multiple obligors and how those obligors, in turn, share the burden among themselves.

What are Joint and Several Obligations (Rentai Saimu)?

Joint and Several Obligations arise when multiple debtors are each independently and fully liable to the creditor for the entire performance of the same obligation. A key characteristic is that performance by any one of the joint and several obligors will discharge the obligation for all of them, to the extent of that performance.

For example, if Companies A, B, and C jointly and severally borrow ¥30 million from a lender, the lender can demand the full ¥30 million from Company A alone, or from Company B alone, or from Company C alone, or any combination thereof, until the full sum is recovered. If Company A pays the entire ¥30 million, the obligation is extinguished for Companies B and C as well (though Company A will then have internal rights of reimbursement against B and C).

Purpose of Joint and Several Liability

The primary purpose of establishing joint and several liability is to strengthen the creditor's position and enhance the security of their claim (債権担保機能 - saiken tanpo kinō). By making each obligor responsible for the whole debt:

  1. Increased Likelihood of Recovery: The creditor has multiple parties to look to for satisfaction. If one obligor becomes insolvent or is otherwise unable to pay, the creditor can still pursue the other obligors for the full amount. (Illustrative, based on genericized CASE 606: If three companies jointly and severally guarantee a loan, and one guarantor becomes bankrupt, the creditor can still claim the entire guaranteed amount from the remaining two solvent guarantors).
  2. Simplified Enforcement: The creditor does not need to divide their claim and pursue each debtor for only a proportionate share. They can choose the most convenient or financially sound obligor(s) to target for collection.

Distinction from Other Forms of Multiple Debtor Liability

  • Divisible Obligations (分割債務 - Bunkatsu Saimu): This is the default rule under Article 427 of the Civil Code when multiple debtors owe a divisible obligation (e.g., a monetary debt). In such cases, each debtor is only liable for their respective, proportionate share of the debt. Joint and several liability is a departure from this, imposing full liability on each.
  • Indivisible Obligations (不可分債務 - Fukabun Saimu): When multiple debtors owe an obligation whose subject matter is indivisible by its nature (e.g., the delivery of a specific, unique item), Article 430 of the Civil Code states that the rules concerning joint and several obligations apply by analogy to the external relationship with the creditor. However, Rentai Saimu specifically refers to the legal structure where parties agree to, or are legally deemed to have, independent full liability for a common (even if divisible) obligation.

How are Joint and Several Obligations Established?

Joint and several liability does not arise automatically for all multi-debtor situations (unless the obligation is indivisible). It is typically established in one of two ways:

  1. By Manifestation of Intent (Parties' Agreement - 意思表示 - Ishi Hyōji):
    The most common way is through an explicit or implicit agreement among the parties (the obligors and the creditor, or among the obligors with the creditor's understanding and acceptance) that they will be jointly and severally liable. Loan agreements, guarantee agreements, or joint venture contracts often contain specific clauses stating that the multiple obligors' liability will be "joint and several." (Illustrative, based on genericized CASE 607: Three individuals co-sign a loan agreement which explicitly states their liability is "joint and several").
    An implicit agreement for joint and several liability might also be inferred from the overall circumstances and purpose of the contract if it clearly indicates an intention for each party to bear full responsibility for the entire obligation.
  2. By Operation of Specific Legal Provisions (法律の規定 - Hōritsu no Kitei):
    Certain provisions in the Civil Code or other statutes automatically impose joint and several liability in specific situations. Examples include:
    • The liability of joint tortfeasors (multiple parties who jointly commit a tortious act causing damage) under Article 719 of the Civil Code.
    • The liability that often arises when multiple parties cumulatively assume an obligation (併存的債務引受 - heizonteki saimu hikiuke), as per Article 470, Paragraph 1.
    • Various provisions in the Commercial Code or other business laws concerning the liability of partners in certain types of business associations or the liability of multiple parties on commercial instruments under specific conditions.

In the absence of such an agreement or a specific statutory provision, the default rule for multiple debtors of a divisible obligation is that their liability is separate and proportionate, not joint and several.

External Effects of Joint and Several Obligations (Creditor-Obligor Relationship)

The "external effects" (taigaiteki kōryoku) concern the relationship between the creditor and the group of joint and several obligors.

Creditor's Right to Demand Performance (Article 436)

The creditor has broad discretion: they can demand performance of the whole obligation or any part of it from any one of the joint and several obligors, or from several of them, or from all of them simultaneously or successively. Each obligor remains individually liable for the entire debt until it is fully satisfied by one or more of them. (Illustrative, based on genericized CASE 608: A creditor holding a joint and several claim can choose to sue only the wealthiest or most accessible obligor for the full amount).

Effects of Events Concerning One Obligor on the Others

This is a complex area that was significantly revised by the 2020 amendments to the Japanese Civil Code. The revisions generally moved away from a principle of "absolute effect" (絶対効 - zettaikō), where an event concerning one obligor automatically affected all others, towards a principle of "relative effect" (相対効 - sōtaikō) for many events. The underlying idea is that, unless an event by its very nature extinguishes the common debt for everyone, or unless the law specifically provides for an absolute effect, an occurrence related to one joint and several obligor should generally only affect that particular obligor and not the others.

Article 441 of the Civil Code now states the general principle: "Except as otherwise provided..., an event that has occurred with respect to one of the joint and several obligors shall not affect the other joint and several obligors."

However, certain events, by their nature, continue to have an absolute effect, binding all obligors:

  • Performance (弁済 - Bensai) by one obligor: If one obligor performs the obligation (in whole or in part), this discharges the obligation for all obligors to the extent of that performance (Article 438). This is inherent in the concept of a single, shared obligation.
  • Deposit in Lieu of Performance (代物弁済 - Daibutsu Bensai) or Formal Deposit (供託 - Kyōtaku): If one obligor validly discharges the debt through an agreed substitute performance or by making a formal deposit with a depository, this has the same effect as direct performance and benefits all (Article 438).
  • Set-Off (相殺 - Sōsai) by one obligor (Article 439):
    • If one joint and several obligor holds a claim against the creditor and validly effects a set-off, this extinguishes the common debt to the extent of the set-off amount, and thus benefits all other co-obligors (Article 439, Paragraph 1).
    • Furthermore, while the other co-obligors' claims are not automatically set off, they can, for their part, assert the set-off that was available to the first obligor, but only to the extent of that first obligor's internal burden share (Article 439, Paragraph 2). (Illustrative, based on genericized CASE 611).
  • Novation (更改 - Kōkai) or Merger (混同 - Kondō): If the creditor agrees to a novation (replacement of the old debt with a new one) with one of the obligors, or if the claim and obligation merge in the person of one obligor (e.g., creditor inherits from one obligor), the original common debt is extinguished for all (Article 438).

Conversely, the following events now generally have only relative effect, or a modified absolute effect under the revised Civil Code:

  • Demand for Performance (請求 - Seikyū) against one obligor: A demand made to one obligor (e.g., for the purpose of interrupting the statute of limitations or putting that obligor in default) does not automatically have the same effect on the other co-obligors (Article 441).
  • Release (免除 - Menjo) of the obligation granted to one obligor (Article 440, revised from former Article 437): This is a significant change. Under the revised law, if a creditor releases one joint and several obligor from the debt, this release now only extinguishes the obligation of the other co-obligors to the extent of the internal burden share (負担部分 - futan bubun) that the released obligor was meant to bear. The other obligors remain jointly and severally liable for the remaining balance of the debt. This differs from older interpretations where a release of one could sometimes have a broader absolute effect on the entire debt. (Illustrative, based on genericized CASE 612).
  • Completion of Prescription (Statute of Limitations) (時効の完成 - Jikō no Kansei) in favor of one obligor (Article 441, applying Article 439(2) concept, revised from former Article 439): Another key change. If the statute of limitations runs out for the creditor's claim against one joint and several obligor, this does not automatically mean the other co-obligors can also invoke prescription if their own prescription periods have not run. However, the remaining co-obligors are relieved of liability to the extent of the internal burden share of the obligor for whom prescription has completed. This is because their ability to seek reimbursement from that time-barred obligor is lost. (Illustrative, based on genericized CASE 616).
  • Judgments, acknowledgments of debt, waivers of prescription benefits, etc., concerning one obligor: These generally only affect the obligor directly involved, unless specific circumstances or agreements dictate otherwise (Article 441).

Internal Effects of Joint and Several Obligations (Obligor-Obligor Relationship)

While externally each obligor is liable for the full debt to the creditor, internally, among the joint and several obligors themselves (tainaiteki kōryoku), there is usually an allocation of responsibility.

Burden Shares (負担部分 - Futan Bubun)

  • Joint and several obligors typically have, either by express agreement among themselves or by legal presumption, "burden shares" that represent their respective internal portions of the total debt.
  • In the absence of any specific agreement or special circumstances determining these shares (e.g., one party received a greater benefit from the transaction giving rise to the debt), the burden shares are presumed to be equal among all the obligors. (Illustrative, based on genericized CASE 620: If three parties are jointly and severally liable for ¥9 million with no other agreement, their internal burden shares are presumed to be ¥3 million each).
  • These burden shares are crucial for determining the extent of reimbursement rights if one obligor pays more than their share.

Right of Reimbursement (求償権 - Kyūshōken) (Article 442)

If one joint and several obligor performs the obligation to the creditor, or otherwise causes the common debt to be extinguished using their own assets (e.g., through set-off), in an amount that exceeds their internal burden share, they acquire a right of reimbursement (kyūshōken) against the other co-obligors. They can demand that the other co-obligors contribute their respective burden shares of the amount paid in excess.

  • Scope of Reimbursement (Article 442, Paragraph 1): The amount that can be reimbursed typically includes:
    • The principal amount paid that exceeded the performing obligor's own burden share.
    • Statutory interest on that excess amount, calculated from the date of performance/extinction.
    • Any unavoidable expenses incurred in relation to the performance or discharge of the debt.
      (Illustrative, based on genericized CASE 621).
  • Duty to Notify Other Co-Obligors (Article 443): To protect their full reimbursement rights, a joint and several obligor who intends to perform (especially if demanded by the creditor), or who has performed without a prior demand, generally has a duty to notify the other co-obligors.
    • Failure to give pre-performance notice (when performing upon the creditor's demand) may allow a co-obligor to assert against the reimbursing obligor any defenses they could have asserted against the original creditor.
    • Failure to give timely post-performance notice (if performance was done without a prior demand from the creditor that was communicated to co-obligors) might allow a co-obligor who, in good faith and unaware of the first performance, subsequently performs to the creditor themselves, to claim that their own performance was valid. This could complicate or limit the first performing obligor's ability to seek reimbursement. (Illustrative, based on genericized CASE 624, 625).
  • Reimbursement When a Co-Obligor is Insolvent (Article 444): If one of the co-obligors from whom reimbursement is sought is insolvent and unable to contribute their share, that unrecoverable portion is then re-allocated among the remaining solvent co-obligors, including the one who originally performed and is seeking reimbursement. This re-allocation is done according to their respective burden shares. (Illustrative, based on genericized CASE 628, 629).
    • However, if the obligor seeking reimbursement was themselves negligent in failing to recover from a co-obligor who subsequently became insolvent (e.g., by unduly delaying their reimbursement claim when the co-obligor was still solvent), they might be barred from claiming this additional re-allocated portion from the other solvent co-obligors (Article 444, Paragraph 3). (Illustrative, based on genericized CASE 630).

Conclusion

Joint and Several Obligations (Rentai Saimu) represent a significant legal structure in Japanese law where multiple parties each bear full responsibility to a creditor for a single, common obligation. This primarily serves to secure the creditor's claim, offering them multiple avenues for recovery. The recent revisions to the Japanese Civil Code have substantially clarified the effects of events concerning one obligor on the others, generally shifting towards a principle of "relative effect" for many such occurrences, except where the event extinguishes the common debt itself or specific statutory provisions dictate otherwise. Internally, the concepts of burden shares and the right of reimbursement govern the relationships among the co-obligors, ensuring that the ultimate financial responsibility is allocated fairly. For businesses involved in contracts with multiple obligors, or acting as one of several obligors, a clear understanding of these external and internal dynamics is essential for managing their rights and liabilities effectively.