My Japanese Counterparty Breached a Contract. What Are My Options for Demanding Performance Under Japanese Law?

When a commercial agreement with a Japanese counterparty is breached due to non-performance, understanding the available legal remedies is paramount. Under the Japanese Civil Code, one of the primary recourses for the aggrieved party (the creditor) is the Right to Demand Performance (履行請求権 - Rikō Seikyūken). This right allows the creditor to insist that the defaulting party (the debtor) fulfill their contractual obligations as originally agreed. This article explores the nature of this fundamental right, the conditions under which it can be exercised, and the significant limitations that may apply, particularly the concept of impossibility of performance.

The Nature and Primacy of Demanding Performance in Japan

The Right to Demand Performance is a cornerstone of Japanese contract law, reflecting a strong emphasis on holding parties to their bargains.

There are varying theoretical perspectives on the precise legal nature of the Rikō Seikyūken:

  • One traditional view posits that this right is an inherent and primary component of the underlying claim (債権 - saiken) itself. It emanates directly from the "power to demand" (請求力 - seikyūryoku) that defines a claim, making the demand for performance a direct consequence of the contract's binding force.
  • An alternative perspective, often termed the "remedy approach," views the Rikō Seikyūken not as an intrinsic part of the original claim, but as one of several remedies granted by law when non-performance occurs. In this light, it stands alongside other remedies like claims for monetary damages or the right to terminate the contract. The state, having recognized the validity of the contract, provides this means to ensure the creditor's expected contractual benefit (or its equivalent value) is achieved.

The General Primacy of Specific Performance

Regardless of the precise theoretical classification, Japanese law generally accords a certain primacy to the right to demand specific performance (Rikō Seikyūken no Yūisei), especially in the context of contractual relationships. This preference for actual performance over mere monetary compensation is supported by several rationales:

  1. Uniqueness of Contractual Benefit: The actual benefit the creditor sought by entering the contract (e.g., delivery of specific goods, performance of a unique service) is often distinct and may not be fully or adequately replaceable by monetary damages alone.
  2. Self-Determination and Responsibility: The principle that parties are responsible for the obligations they willingly undertake (jiko kettei ni yoru jiko sekinin) suggests that a debtor should be held to their promise, even if performance later becomes economically disadvantageous (barring doctrines like change of circumstances).
  3. Protection of Creditor's Expectation: When the law recognizes a claim as a "right," it implies that the creditor's legitimate expectation of receiving the actual promised benefit should be protected to the fullest extent feasible.

This preference is implicitly recognized in various provisions of the Civil Code. For instance, rules concerning damages in lieu of performance (Article 415, Paragraph 2), contract termination (Articles 541, 542), and price reduction in sales contracts (Article 563) often operate in a way that presupposes that the primary avenue is to seek actual performance or cure, with other remedies coming into play when performance is not forthcoming or is no longer a viable option.

Conditions for Exercising the Right to Demand Performance

To validly exercise the Right to Demand Performance, certain conditions must generally be met:

Arrival of the Performance Period (履行期 - Rikōki)

The creditor's right to demand performance usually crystallizes and becomes enforceable when the agreed-upon time for performance, the rikōki, has arrived. Japanese law presumes that the "benefit of time" (期限の利益 - kigen no rieki)—that is, the right not to perform before the due date—is for the debtor (Civil Code, Article 136, Paragraph 1). While a debtor can voluntarily waive this benefit and perform early, a creditor generally cannot compel performance before the stipulated due date unless the contract provides otherwise or specific circumstances (like anticipatory repudiation) apply.

Procedural Aspects: Burden of Proof Regarding Performance Period

When a creditor sues to demand performance, the allocation of the burden of proof concerning the performance period can be a point of procedural nuance:

  • Prevailing View (Defense Theory - 抗弁説 - Kōben Setsu): According to the dominant view in Japanese civil procedure theory, the creditor primarily needs to establish the existence of the underlying obligation (e.g., the formation of the contract). If the debtor wishes to argue that performance is not yet due, the burden falls on the debtor to assert and prove, as a defense, that a specific performance period was agreed upon and that this period has not yet arrived. For example, if a contract for the delivery of goods stipulates delivery by November 30, and the buyer sues for delivery in October, the seller (debtor) would raise the November 30 due date as a defense.
  • Alternative View (Denial Theory - 否認説 - Hinin Setsu): A significant minority view contends that the creditor, as part of their cause of action, must prove not only the existence of the claim but also that the performance period has indeed arrived, making the obligation currently enforceable.
  • If Rikō Seikyūken as a Remedy for Non-Performance: If one adopts the theoretical stance that the Right to Demand Performance is a remedy activated by non-performance, then the creditor might arguably need to demonstrate the existence of the contract, the arrival of the due date, the fact of non-performance itself, and that the specific performance demanded is justified under the terms of the contract.

Limitations on the Right to Demand Performance

Despite its general primacy, the Right to Demand Performance is not absolute and is subject to several important limitations.

1. Impossibility of Performance (履行不能 - Rikō Funō)

The most fundamental limitation is impossibility of performance (Rikō Funō). Article 412-2, Paragraph 1 of the Civil Code clearly states that a creditor cannot demand performance if the performance of the obligation is impossible. In such cases, the creditor must resort to other remedies, such as claiming damages or terminating the contract.

  • Original vs. Subsequent Impossibility:
    • Original Impossibility (原始的不能 - Genshiteki Funō): This refers to situations where performance was already impossible at the very moment the contract was concluded. For instance, a contract to sell a specific painting that, unknown to the parties, had been destroyed in a fire the day before the contract was signed. Under the current Japanese Civil Code (Article 412-2, Paragraph 2), a contract is not automatically void merely because its performance was originally impossible. The contract itself is considered validly formed, but the specific performance of the impossible obligation cannot be demanded. The aggrieved party would then look to damages (potentially for reliance interest if the other party was at fault for not knowing of the impossibility) or termination.
    • Subsequent Impossibility (後発的不能 - Kōhatsuteki Funō): This occurs when performance becomes impossible after the contract has been formed and the obligation has arisen. For example, if the specific painting contracted for is destroyed by an accidental fire after the contract is made but before delivery.
      Article 412-2, Paragraph 1, which denies the right to demand performance in cases of impossibility, applies to both original and subsequent impossibility.
  • Debtor's Culpability and Impossibility Defense: When a debtor raises impossibility as a defense against a claim for specific performance, the debtor's fault (or lack thereof) in causing the impossibility is generally irrelevant to the availability of this particular defense. If performance is genuinely impossible, it simply cannot be ordered, regardless of why it became impossible. For instance, if a unique item is destroyed, whether by the debtor's negligence or by an unforeseeable natural disaster, the demand for delivery of that specific item becomes untenable. The debtor's culpability will, however, be central to whether they are liable for damages for non-performance (under Article 415).
  • Assessing "Impossibility": A Contextual Judgment: The Civil Code mandates that impossibility is to be judged "in light of the contract or other cause of the obligation and common sense in transaction" (Article 412-2, Paragraph 1). This means the assessment is not limited to absolute physical impossibility but is a broader, contextual inquiry. Several types of situations can qualify as impossibility:
    • Physical Impossibility: The most obvious form, where performance is physically unachievable (e.g., the unique subject matter has been irretrievably destroyed).
    • Legal Impossibility: Where performance, though physically possible, has become prohibited by law or governmental regulation enacted after the contract was formed (e.g., a new export ban preventing the shipment of contracted goods). This is distinct from contracts that are void from the beginning due to illegal subject matter.
    • Economic Impossibility (Disproportionate Burden): Performance may be deemed impossible if the cost, effort, or hardship required of the debtor to perform would be so grossly disproportionate to the benefit the creditor would receive that compelling performance would be unreasonable or unconscionable. For instance, if a minor defect in a complex construction project would require an extraordinarily expensive and disruptive complete reconstruction to remedy, while the defect itself has only a trivial impact on the overall utility, a demand for such specific "cure" might be denied as effectively impossible or unreasonable. The principle of proportionality, as seen in other areas of the Civil Code (e.g., Article 997 concerning the cost of acquiring a bequeathed item not owned by the testator), informs this assessment.
    • Other Unreasonable Circumstances: The broad phrasing "in light of the contract... and common sense in transaction" allows for a finding of impossibility in other situations where, given the specific purpose and nature of the contract, demanding performance from the debtor would be patently unreasonable or contrary to commercial good sense.
  • Specific Scenarios Leading to Impossibility:
    • Double Sale of Real Estate: If a seller contracts to sell the same piece of real estate to two different buyers (A and then B), and buyer B perfects their title by registering the transfer first, performance of the contract with buyer A (delivery of title) generally becomes impossible for the seller. Buyer A's remedy would typically be damages. Exceptions might exist if, for example, buyer A had secured a provisional registration or if there are special circumstances allowing the seller to realistically reacquire the property from buyer B.
    • Sale or Lease of Another's Property: If a party contracts to sell or lease property they do not own (or lack the authority to dispose of), and the true owner definitively refuses to consent to the transfer or lease, performance can become impossible. The viability of performance hinges on the true owner's disposition.

2. Other Defenses Limiting Performance Claims

Apart from impossibility, a debtor may have other valid defenses against a demand for performance. While not detailed in this section of the textbook, common examples referenced elsewhere in contract law include:

  • Defense of Simultaneous Performance (同時履行の抗弁権 - Dōji Rikō no Kōbenken): In bilateral contracts, a party can refuse their own performance until the other party tenders their counter-performance.
  • Defense of Insecurity (不安の抗弁権 - Fuan no Kōbenken): A party may be entitled to suspend performance if there is a clear and serious indication that the other party will be unable to perform their counter-obligation when due.
  • Defense Based on Change of Circumstances (事情変更の抗弁 - Jijō Henkō no Kōben): In exceptional cases, a fundamental and unforeseen change in circumstances that makes performance extraordinarily onerous might allow for modification or refusal of performance.

"Damages in Lieu of Performance" and "Right to Claim a Substitute"

When specific performance is impossible or justifiably not forthcoming, the creditor is not left without recourse.

  • Damages in Lieu of Performance (填補賠償 - Tenpo Baishō): Article 415, Paragraph 2 of the Civil Code allows the creditor to claim "damages in lieu of performance" (rikō ni kawaru songai baishō, also known as tenpo baishō) in cases of impossibility, definitive refusal by the debtor to perform, or upon contract termination due to non-performance. This effectively converts the claim for actual performance into a monetary claim for the value of that lost performance.
  • Right to Claim a Substitute (代償請求権 - Daishō Seikyūken): Even if the original specific performance is impossible, if the debtor has, as a result of the same event that caused the impossibility, acquired a substitute benefit or right (e.g., insurance proceeds for a destroyed specific item, or damages from a third party who caused its destruction), the creditor may have a "right to claim that substitute" under Article 422-2. This claim is generally limited to the extent of the creditor's own loss and is available irrespective of the debtor's fault in the original impossibility. If, for instance, a unique painting sold to a buyer is destroyed by a third party's negligence before delivery, and the seller receives damages from that third party, the buyer might be able to claim those damages from the seller as a substitute for the painting.

Practical Approach for Creditors

When faced with non-performance by a Japanese counterparty, a creditor should generally:

  1. Verify the Performance Period: Ensure that the obligation is actually due.
  2. Formally Demand Performance: Clearly communicate the demand for performance to the debtor. This is often a prerequisite for further remedies.
  3. Assess for Limitations: Consider whether the debtor has valid grounds for non-performance, such as true impossibility or other legitimate defenses.
  4. Evaluate Alternative Remedies: If specific performance is not forthcoming or is legally untenable, the creditor should assess their options for claiming damages (including damages in lieu of performance or for delay), terminating the contract, or pursuing other available remedies like the Daishō Seikyūken.

Conclusion

The Right to Demand Performance is a significant and often primary remedy for breach of contract under Japanese law, reflecting a legal tradition that values the actual fulfillment of promises. However, this right is not absolute. The doctrine of impossibility of performance, judged contextually "in light of the contract and common sense in transaction," provides a crucial limitation. For businesses dealing with Japanese contracts, understanding the robust nature of the Rikō Seikyūken, alongside its clearly defined boundaries, is essential for effectively asserting their rights and navigating situations of non-performance.