My Japanese Counterparty Won't Pay! Can They Claim 'Simultaneous Performance' Under Japan's Civil Code?

Japanese Attorney at Law - Bengoshi L.L.

• 7 min read

Navigating contractual disputes in a foreign jurisdiction can be challenging. One common scenario in Japan involves a counterparty refusing to fulfill their contractual obligations, citing the other party's non-performance. This often brings into play a crucial legal concept in Japanese contract law: the "defense of simultaneous performance" (or dōji rikō no kōbenken). Understanding this principle is vital for any business engaging in contracts governed by Japanese law, as it can significantly impact contractual remedies and enforcement.

This article delves into the intricacies of the defense of simultaneous performance under the Japanese Civil Code, exploring its legal basis, the requirements for its invocation, its effects when successfully raised, and practical considerations for businesses.

The Foundation: Article 533 of the Japanese Civil Code

The primary legal basis for the defense of simultaneous performance is found in Article 533 of the Japanese Civil Code. As revised (effective April 1, 2020), this article stipulates:

"A party to a bilateral contract may refuse to perform his/her own obligation until the other party tenders performance of his/her obligation; provided, however, that this does not apply if the other party's obligation is not yet due."

The core idea is to ensure fairness in bilateral contracts where both parties have obligations that are essentially conditional upon each other. It prevents one party from being forced to perform while the other party, whose obligation is also due, fails to perform or tender performance. The principle underpins the idea of maintaining the "equilibrium" or "give-and-take" relationship inherent in such contracts.

Historically, this defense has been a cornerstone of Japanese contract law, reflecting the principle that reciprocal obligations should, in essence, be exchanged simultaneously unless otherwise agreed. The 2020 revisions to the Civil Code, while not overhauling the fundamental concept, did clarify certain aspects, particularly regarding its scope.

Key Requirements for Invoking the Defense

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

  1. Existence of Opposing Obligations from a Single Bilateral Contract: The defense applies to obligations that arise from the same bilateral contract. Both parties must owe obligations to each other, and these obligations must be "synallagmatic," meaning they are given in exchange for one another. For example, in a contract for the sale of goods, the seller's obligation to deliver the goods and the buyer's obligation to pay the price are classic examples of such opposing obligations.
  2. The Counterparty's Obligation Must Be Due (Bensai-ki): The party asserting the defense can only do so if the other party's obligation has matured and is currently due. If the counterparty's obligation is not yet due (e.g., the payment deadline is in the future), the defense cannot be claimed.
  3. The Counterparty Has Not Performed or Tendered Performance: The defense is available when the other party has failed to perform its due obligation or has not made a valid "tender of performance" (rikō no teikyō). A tender of performance generally means that the party has done everything necessary on its part to enable the other party to receive the performance, making it clear that they are ready, willing, and able to perform.

Scope of "Performance" Broadened by Civil Code Revisions

A significant clarification under the revised Civil Code is that the "performance" which can be demanded in exchange, and the refusal of which can be justified by this defense, now explicitly includes obligations for damages that arise in lieu of the original performance.

Prior to the revision, there was some academic debate about whether the defense of simultaneous performance could be asserted against a claim for damages that substituted the original obligation (e.g., if goods to be delivered were destroyed due to the seller's fault, and the buyer then claimed damages instead of delivery). The revised Article 533, by its broader formulation and accompanying interpretative guidance, now makes it clearer that such substitute damage claims can also be subject to the defense of simultaneous performance. For example, if a seller is liable for damages because they failed to deliver goods, the buyer might still need to tender the purchase price (or a portion thereof, depending on the circumstances) if they wish to collect those damages, and the seller could assert the defense if the price is not tendered. This ensures that even when an obligation transforms into a monetary claim for damages, the underlying reciprocity of the contract is maintained.

When a party validly asserts the defense of simultaneous performance, it has several important legal consequences:

  1. No Outright Dismissal but a "Judgment Ordering Performance in Exchange": Crucially, the successful assertion of this defense does not typically lead to an outright dismissal of the plaintiff's claim. Instead, Japanese courts will usually issue a "judgment ordering performance in exchange for counter-performance" (hikikae kyūfu hanketsu). This type of judgment orders the defendant to perform its obligation, but only on the condition that the plaintiff simultaneously performs its own corresponding obligation. For example, in a sales contract dispute, the court might order the buyer (defendant) to pay the price, but only in exchange for the seller (plaintiff) delivering the goods. This unique form of judgment reflects the equitable nature of the defense.
  2. Avoidance of Liability for Delay (Ritai Sekinin): A party who rightfully refuses performance based on this defense is generally not considered to be in default or liable for damages due to delay in performance. Since their refusal is legally justified, they are not in breach for the period during which the other party fails to tender its own performance.
  3. Impact on Contract Termination Rights: The existence of a valid defense of simultaneous performance can also affect a party's right to terminate the contract due to the other party's non-performance. If a party (A) has not performed because the other party (B) has not tendered performance, B generally cannot terminate the contract based on A's non-performance without first tendering its own performance and, if necessary, giving A a reasonable period to perform (a formal demand called saikoku).

Procedural Aspects: The Defense as a "Right"

In Japanese litigation practice, the defense of simultaneous performance is considered a "substantive right" or "right-based defense" (kenri kōben). This means that the defendant must explicitly plead and assert this defense in the court proceedings. The court will not typically consider it ex officio (on its own initiative) if the defendant fails to raise it.

The burden of proof is allocated as follows:

  • The defendant (who asserts the defense) needs to establish the existence of the bilateral contract and the reciprocal nature of the obligations.
  • The plaintiff (who is seeking performance) then typically bears the burden of proving that they have performed their own obligation or have made a valid tender of performance, if they wish to overcome the defense. This often involves the plaintiff making a counter-assertion (a form of "rejoinder" or sai-kōben) that they have, in fact, performed or tendered performance.

It is also important to note that if a plaintiff is claiming not only the primary contractual performance (e.g., payment of the purchase price) but also damages for delay, the plaintiff must, as part of their initial claim (seikyū gen'in), proactively allege and prove their own performance or tender of performance. This is because the defendant would not be in default (and thus not liable for delay damages) if the plaintiff had not fulfilled their end of the bargain, allowing the defendant to rightfully withhold performance.

Common Scenarios and Practical Implications

The defense of simultaneous performance arises in various contractual settings:

  • Sales Contracts: This is the most classic scenario. The seller's obligation to deliver goods and transfer title is simultaneous with the buyer's obligation to pay the purchase price.
  • Contracts for Work (Ukeoi Keiyaku): The obligation of the contractor to complete the work and the obligation of the commissioning party to pay the remuneration are generally considered to be in a simultaneous performance relationship, especially concerning the final payment and the delivery of the completed work.
  • Lease Agreements (Chintaishaku Keiyaku): Upon termination of a lease, the lessee's obligation to vacate and return the leased property and the lessor's obligation to return the security deposit (shikikin) are often treated as being in a relationship of simultaneous performance by court precedents, although this is more a result of judicial interpretation promoting fairness rather than a direct application of Article 533 in all cases. For example, the Supreme Court of Japan ruling on September 2, 1974 (Shōwa 49) acknowledged such a relationship in certain contexts.
  • Real Estate Transactions: Similar to sales of goods, the seller's duty to deliver possession and cooperate in the registration of title transfer is typically simultaneous with the buyer's duty to pay the full purchase price.

Drafting and Negotiation Considerations for Contracts

Parties can, to some extent, modify the application of the simultaneous performance principle through contractual provisions:

  • Specifying the Order of Performance: Contracts can explicitly state which party is obligated to perform first (a "first-performance obligation" or sen-rikō gimu). If a party has a clear first-performance obligation, they cannot invoke the defense of simultaneous performance.
  • Waiver or Modification: It is theoretically possible to waive or modify the defense, though this must be done clearly and is subject to general principles of contract law, including public policy and good faith.
  • Installment Contracts: In contracts involving installment deliveries or payments, the relationship of simultaneous performance may apply to each corresponding installment, or the contract may stipulate different terms.

Brief Comparison with Common Law Concepts

While legal systems differ, the underlying principle of fairness in the exchange of performances found in Japan's defense of simultaneous performance has parallels in common law jurisdictions:

  • Constructive Conditions of Exchange: In U.S. contract law, the concept of "constructive conditions of exchange" (see Restatement (Second) of Contracts, §§237, 238) serves a similar function. Where promises are to be exchanged for an agreed exchange, performance by one party is generally a condition precedent to the other party's duty to perform, unless the language or circumstances indicate the contrary. If both performances can be rendered simultaneously, they are "due simultaneously, unless the language or circumstances indicate the contrary" (Restatement (Second) of Contracts §234(1)).
  • Uniform Commercial Code (UCC): For sales of goods, the UCC contains provisions that mirror this principle. For example, UCC §2-507(1) states that tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Conversely, UCC §2-511(1) provides that unless otherwise agreed, tender of payment is a condition to the seller's duty to tender and complete any delivery.

Despite these conceptual similarities, the procedural application, such as the issuance of an "exchange performance judgment" (hikikae kyūfu hanketsu), is a distinct feature of the Japanese (and other civil law) systems.

Conclusion: A Key Element of Contractual Fairness in Japan

The defense of simultaneous performance under Article 533 of the Japanese Civil Code is a fundamental principle that ensures equity in bilateral contracts. It allows a party to rightfully withhold its own performance if the counterparty, whose obligation is also due, fails to perform or tender performance. The 2020 revisions to the Civil Code have reinforced and clarified its scope, particularly by confirming its applicability to substitute damages claims.

For businesses operating in Japan or entering into contracts governed by Japanese law, a thorough understanding of this defense is essential. It impacts not only how contractual obligations are performed but also how disputes are resolved, the types of judgments issued by courts, and the strategies for contract negotiation and drafting. Recognizing when this defense might be invoked by a counterparty, or when it might be available to protect one's own interests, is a critical aspect of effective contract management in the Japanese legal environment.