My Japanese Counterparty is Using Standard Form Contracts (Teikei Yakkan). What Should I Be Aware Of?

In today's fast-paced global commerce, standard form contracts are ubiquitous. They offer efficiency and predictability for businesses that engage in numerous similar transactions. In Japan, these are broadly known as Yakkan (約款), and the revised Civil Code, effective April 1, 2020, introduced specific, detailed regulations for a subset of these, termed Teikei Yakkan (定型約款) or "standardized terms and conditions." For any business, particularly international entities, encountering such contracts in Japan, understanding this legal framework is crucial to navigate potential pitfalls and ensure contractual clarity and fairness.

Understanding the Terminology: From General "Yakkan" to Regulated "Teikei Yakkan"

Before the 2020 Civil Code revisions, the term Yakkan was used generally to refer to pre-formulated sets of contract clauses prepared by one party to be used for multiple contracts. While judicial principles and industry practices provided some level of control, there was no comprehensive statutory regime in the Civil Code specifically governing their incorporation and content beyond general contract law principles like public policy (Article 90) and, for consumer contracts, the Consumer Contract Act.

The revised Civil Code introduced the specific legal category of Teikei Yakkan (Standardized Terms and Conditions) to address the unique challenges posed by these "take-it-or-leave-it" agreements.

What are Teikei Yakkan?

Article 548-2, paragraph 1 of the Civil Code defines Teikei Yakkan as "a set of clauses prepared by one party for the purpose of forming contracts with an unspecified large number of people regarding certain types of transactions (teikei torihiki), the whole or a part of the contents of which it is mutually reasonable for the parties to make uniform."

Two key elements define Teikei Yakkan:

  1. Prepared for "Standardized Transactions" (Teikei Torihiki - 定型取引): A standardized transaction is one that (a) a specific party conducts with an unspecified large number of individuals or entities, and (b) for which it is objectively reasonable for both parties that the content of the transaction, in whole or in part, be uniform. This typically includes transactions where individual negotiation of terms is impractical or inefficient, such as insurance policies, transportation agreements, banking agreements, or online service terms. Labor contracts, which are inherently individualized, are generally not considered standardized transactions.
  2. Intended to Form the Content of the Contract: The clauses must be prepared with the intention that they will constitute the terms of the contracts entered into for these standardized transactions.

The introduction of these specific rules for Teikei Yakkan aimed to strike a balance: recognizing their economic utility while ensuring that the party presented with these terms is not unfairly disadvantaged or bound by unexpected or overly onerous conditions. It's important to note that if a set of terms does not meet the definition of Teikei Yakkan (for instance, if it's a template used for individually negotiated B2B contracts where uniformity isn't mutually reasonable), these specific Civil Code rules (Articles 548-2 to 548-4) may not apply, and general contract law principles would govern.

How Standardized Terms Become Part of Your Contract: The "Deemed Agreement"

One of the most significant aspects of the Teikei Yakkan regime is how these terms are incorporated into an individual contract. Article 548-2, paragraph 1 provides for a mechanism of "deemed agreement" (minashi gōi - みなし合意). Individual clauses of the Teikei Yakkan are deemed to have been agreed to by the parties, and thus become part of their contract, under one of the following circumstances:

  1. Explicit Agreement to Use Standardized Terms: The parties have explicitly agreed that the specific Teikei Yakkan will form the content of their contract for the standardized transaction.
  2. Prior Indication by the Preparer and Subsequent Agreement to the Transaction: The party who prepared the Teikei Yakkan (the "preparer") indicated to the other party, before or at the time of concluding the contract, that those Teikei Yakkan would constitute the terms of their agreement, AND the other party then proceeded to conclude the contract for the standardized transaction. In this scenario, the other party's act of concluding the transaction after such indication is generally treated as an implicit consent to the incorporation of the Teikei Yakkan.

This "deemed agreement" simplifies the incorporation process, as it does not require proof that the adhering party read or subjectively agreed to each individual clause. However, this efficiency is counterbalanced by crucial protective measures concerning disclosure and the content of the terms.

The Importance of Transparency: The Duty to Disclose Standardized Terms

While the "deemed agreement" mechanism facilitates incorporation, the principle of fairness and informed consent underpins the Teikei Yakkan rules. This is reflected in the statutory duty of disclosure.

Article 548-3, paragraph 1 of the Civil Code provides that if the adhering party, before or at the time of concluding the contract, or within a reasonable period after its conclusion, requests the preparer to disclose the contents of the Teikei Yakkan, the preparer must do so without delay. The method of disclosure should be appropriate to the nature of the transaction (e.g., providing a physical copy, sending an electronic file, or directing to a readily accessible webpage).

Consequences of Failing to Disclose Upon Request:

  • If a request for disclosure is made before or at the time of concluding the contract and the preparer refuses it without justifiable grounds (e.g., a temporary communication failure), the Teikei Yakkan will not be deemed to have been agreed upon under Article 548-2, paragraph 1 (Article 548-3, paragraph 2). Essentially, the standardized terms will not form part of that specific contract.
  • If the request is made after contract conclusion and is refused without justifiable grounds, the contract itself (including the standardized terms already incorporated via "deemed agreement") generally remains valid. However, the preparer's failure to comply with this post-contractual disclosure duty could potentially lead to claims for damages if the adhering party suffers loss as a result, or in some interpretations, could estop the preparer from relying on undisclosed terms in a dispute.

The law does provide an exception: if the preparer has already delivered a document containing the Teikei Yakkan or provided them via an electromagnetic record to the other party before the conclusion of the contract, the disclosure duty upon request is not triggered (Article 548-3, paragraph 1 proviso). This acknowledges that an adequate opportunity to know the terms has already been provided.

Controlling Unfairness: When Standardized Terms Don't Bind

A cornerstone of the Teikei Yakkan regulation is the mechanism for controlling substantively unfair or surprising terms. This is primarily achieved through Article 548-2, paragraph 2.

This provision states that even if the conditions for "deemed agreement" under paragraph 1 are met, a clause within the Teikei Yakkan is not considered to have been agreed to by the parties (and thus does not become part of the contract) if it:

  1. Restricts the rights or expands the duties of the adhering party, AND
  2. Unilaterally prejudices the interests of that party in a manner contrary to the fundamental principle of good faith and fair dealing (as stipulated in Civil Code Article 1, paragraph 2), when considered in light of the nature and circumstances of the standardized transaction and common commercial practice.

This is a significant safeguard. It means that even if standardized terms are technically incorporated, individual clauses that are excessively one-sided or exploitative will not bind the adhering party. The assessment of unfairness involves a contextual analysis, considering:

  • The nature of the clause: Does it significantly alter the expected balance of rights and obligations?
  • The overall transaction: What is the purpose of the contract? What are the typical risks and expectations?
  • Common commercial practice: Is the clause standard and widely accepted in the relevant industry for similar transactions, or is it an outlier?
  • The principle of good faith (信義則 - shingisoku): This is a broad, overarching principle in Japanese law requiring parties to act honestly and fairly.

It's crucial to understand that this provision in Article 548-2, paragraph 2 operates differently from declaring a clause void under Article 90 (public order and good morals) or under specific provisions of the Consumer Contract Act. While those provisions render an already incorporated term legally ineffective, Article 548-2, paragraph 2 prevents the unfair standardized term from being considered part of the agreement in the first place.

What about "Surprising Terms" (Fuiuchi Jōkō)?
Before the Civil Code revision, Japanese courts had, in some cases, refused to enforce "surprising terms" (fuiuchi jōkō – fomentar条項) found in standard contracts if they were highly unusual, not reasonably expected by the adhering party, and not specifically brought to their attention. While the revised Civil Code's Teikei Yakkan rules do not contain an explicit, separate provision specifically labeled as a "surprising term" control, the broad wording of Article 548-2, paragraph 2 (particularly its reference to "circumstances of the standardized transaction and common commercial practice" and "good faith") is often interpreted by scholars as capable of encompassing situations where a term is so unexpected or inconspicuous that it would be contrary to good faith to deem it agreed upon. If a term is truly surprising and also unilaterally prejudicial, it would likely fall afoul of this provision.

Changing the Rules: Modification of Standardized Terms (Art. 548-4)

Businesses often need to update their standard terms due to changes in law, market conditions, or service offerings. Article 548-4 of the Civil Code provides a framework for how a preparer of Teikei Yakkan can modify them for contracts that have already been concluded using those terms. This can be done without obtaining individual consent from each contracting party, provided certain conditions are met:

A modification is permissible if:

  1. It conforms to the general interests of the other parties: For example, a change that is purely beneficial to customers or clarifies an ambiguity in a way that does not disadvantage them.
  2. It is not contrary to the purpose of the contract AND is reasonable: This "reasonableness" test is multifaceted, taking into account:
    • The necessity for the modification.
    • The appropriateness of the modified content.
    • Whether the original Teikei Yakkan contained a clause permitting modifications and the content of such a clause.
    • Other relevant circumstances pertaining to the modification.

Procedural Requirements for Modification:
If a preparer intends to modify Teikei Yakkan, they must:

  • Determine the effective date of the modification.
  • Publicize the fact that the terms will be modified, the content of the modified terms, and the effective date, by appropriate means (e.g., posting on a website, sending notifications) before the modification takes effect.

If the modification does not conform to the general interests of the other parties (i.e., it relies on the "reasonableness" test under Art. 548-4, Para. 1, Item 2), this publicization must occur before the effective date for the modification to be valid (Art. 548-4, Para. 3).

This mechanism allows for necessary updates but includes safeguards to prevent arbitrary or unfair changes to existing contractual relationships. The presence of a modification clause in the original terms is a factor in assessing reasonableness but is not, by itself, sufficient to validate any and all changes.

Key Exclusions and Considerations

Individually Negotiated Terms (個別合意条項 - Kobetsu Gōi Jōkō):
It is a fundamental principle that terms individually negotiated between the parties take precedence over any conflicting clauses in Teikei Yakkan. If a specific point is discussed and agreed upon, that individual agreement will govern, even if it deviates from the standard terms. Such individually negotiated terms are not considered part of the Teikei Yakkan themselves and are not subject to the special rules of Articles 548-2 to 548-4. Their validity and interpretation fall under general contract law principles.

Main Obligations and Consideration (Core Terms - 給付・対価条項 - Kyūfu Taika Jōkō):
A point of ongoing discussion among legal scholars is whether the core terms of a contract – such as the specific goods or services to be provided (main obligation) and the price (consideration) – can truly be incorporated through the "deemed agreement" mechanism of Teikei Yakkan. The argument is that these fundamental elements usually require explicit, conscious agreement from both parties and should not be buried in standard terms. While the text of Article 548-2 does not explicitly exclude such core terms from its definition of Teikei Yakkan, many commentators suggest that, in practice, if these core terms are not clear, prominently displayed, and genuinely reflect a meeting of minds, their inclusion solely via the Teikei Yakkan mechanism might be challenged, potentially under the unfair terms provision (Art. 548-2, Para. 2) if their presentation is misleading or results in a fundamentally unfair bargain, or simply because no true gōi on these essentialia was ever reached. The transparency and conspicuousness of such core terms within a standard form contract are therefore critical.

Practical Pointers for Businesses

When dealing with Teikei Yakkan in Japan, consider the following:

  • If presented with Teikei Yakkan by a Japanese counterparty:
    • If the terms are not readily available, do not hesitate to request their disclosure (Art. 548-3).
    • Carefully review the terms, especially those that limit the counterparty's liability, impose significant obligations on your side, or seem unusual for the type of transaction.
    • Be aware that certain "unfair" terms may not be binding even if technically incorporated (Art. 548-2, Para. 2).
    • Understand that the terms may be unilaterally modified by the preparer under certain conditions (Art. 548-4).
    • If specific terms are critical, ensure they are individually negotiated and clearly documented as such, as these will override the standard terms.
  • If your business uses Teikei Yakkan for transactions in Japan:
    • Ensure your terms are drafted clearly and fairly, avoiding clauses that could be deemed unilaterally prejudicial under Article 548-2, paragraph 2.
    • Make the terms easily accessible to counterparties before or at the time of contracting.
    • Be prepared to disclose the terms promptly upon request.
    • If you need to modify the terms for existing contracts, strictly follow the procedural and substantive requirements of Article 548-4, including reasonable publicization.

Conclusion

The Japanese Civil Code's provisions on Teikei Yakkan represent a significant development in regulating the use of standard form contracts. They seek to achieve a pragmatic balance, facilitating the efficiency these contracts offer while providing crucial protections against unfairness and lack of transparency. For businesses, both Japanese and international, a proactive understanding of these rules is essential for drafting, negotiating, and operating under contracts governed by Japanese law. Being aware of how standardized terms are incorporated, what makes a term potentially unenforceable, and how terms can be modified will contribute to smoother commercial relationships and reduce the risk of disputes.