My Japanese Debtor's Performance Was Delayed and Caused Further Loss: What is "Delayed Performance Damages" (Chien Baisho) and "Impossibility During Delay"?

Japanese Attorney at Law - Bengoshi L.L.

30 May 2025 • 6 min read

In commercial contracts, timely performance is often critical. When a Japanese debtor fails to perform an obligation by its due date, the creditor may suffer various losses. Japanese law provides for "Delayed Performance Damages" (Chien Baisho 遅延賠償) to compensate for such losses. Furthermore, a distinct and often stricter rule applies if performance becomes impossible while the debtor is already in delay – a concept known as "Impossibility During Delay" (Riko Chitai-chu no Funo 履行遅滞中の不能). Understanding these two facets of Japanese contract law is crucial for assessing rights and liabilities when deadlines are missed.

Understanding "Delay of Performance" (Riko Chitai) as the Prerequisite

Before damages for delay can be claimed, or the rules for impossibility during delay can apply, the debtor must first be legally in a state of "delay of performance" (riko chitai 履行遅滞). This isn't merely about the calendar date passing; it means the obligation is due, performance is still possible, but the debtor has failed to perform without a valid legal excuse.

The Japanese Civil Code (Article 412) specifies when a debtor becomes responsible for delay:

Obligations with a Fixed Due Date (Kakutei Kigen-tsuki Saimu 確定期限付債務):
- The debtor is in delay from the moment the fixed due date passes (Art. 412, Para. 1). For example, if payment is due on June 30th, delay commences on July 1st.
- Exceptions: This straightforward rule may not apply if the obligation requires prior cooperation from the creditor (e.g., if the creditor must first specify a delivery location for a toritate-saimu, an obligation where the creditor collects the goods), or for certain types of instruments like bearer instruments where presentment might be required.
Obligations with an Uncertain Due Date (Fu-kakutei Kigen-tsuki Saimu 不確定期限付債務):
- If the due date is uncertain (e.g., "upon X's return from abroad," "when the construction permit is issued"), the debtor is in delay from the earlier of:
  - (a) The time they receive a demand for performance from the creditor after the uncertain event has occurred (making the date now certain).
  - (b) The time they become aware that the uncertain event has occurred (Art. 412, Para. 2).
- Example: If a debt is due "when A graduates," and A graduates on March 15th, the debtor is in delay if, after March 15th, the creditor demands payment, or if the debtor learns of A's graduation on, say, March 20th, then delay runs from the earlier of these.
Obligations without a Due Date (Kigen no Sadame no Nai Saimu 期限の定めのない債務):
- The debtor is in delay from the time they receive a demand for performance from the creditor (Art. 412, Para. 3).
- Important Exceptions to the "Demand Rule":
  - Loans for Consumption Without a Due Date: If a loan for consumption (e.g., a monetary loan) is made without a repayment date, the lender must demand repayment by setting a reasonable period for return. The borrower is in delay only after this reasonable period has elapsed (Civil Code Art. 591, Para. 1).
  - Tort Damages: For damages arising from a tort (fuho-koi), Japanese case law holds that the obligation to pay damages is in delay from the time of the tortious act itself, without any need for a demand from the victim (e.g., Supreme Court judgment, September 4, 1962, Minshu 16-9-1834).
  - Unjust Enrichment (Futo-Ritoku): For claims of unjust enrichment, case law generally considers the obligation to be without a fixed due date, meaning delay commences upon demand by the party entitled to restitution. However, if the beneficiary was in bad faith (i.e., knew they were unjustly enriched from the outset), some scholarly opinion suggests delay should commence from the time of enrichment, analogous to torts.

It's also crucial to note that a debtor is not in delay if they have a valid legal defense for not performing, such as the right to concurrent performance (doji-riko no kobenken) in a bilateral contract (i.e., refusing to perform until the creditor tenders their own counter-performance).

Damages for Delayed Performance (Chien Baisho 遅延賠償)

Once a debtor is in riko chitai, and provided the delay is attributable to them (i.e., they cannot prove a valid excuse under Article 415, Para. 1, proviso), the creditor can claim Chien Baisho. These are damages specifically aimed at compensating for losses incurred during the period of delay, while the original performance is still possible and anticipated.

The nature of these damages is to cover the harm caused by the performance not being rendered on time. Examples include:

Rental costs for substitute equipment that the creditor had to hire due to the delayed delivery of contracted machinery.
Lost operating profits because a critical component was not supplied on schedule, halting production.
For monetary obligations, default interest (governed by Art. 419) for the period of delay.

To be fully discharged, the debtor must not only eventually render the original performance but also compensate for these delay damages.

The Critical Rule of "Impossibility During Delay" (Riko Chitai-chu no Funo) – Article 413-2

A more stringent set of rules applies if the performance of an obligation becomes impossible while the debtor is already in culpable delay. This scenario is addressed by Article 413-2 of the Japanese Civil Code (introduced in the 2017 reforms, codifying and clarifying previous case law principles).

The General Principle (Art. 413-2, Para. 1): Increased Risk for the Debtor

The core rule is that if an obligation becomes impossible to perform during a period when the debtor is already in delay (and that delay is attributable to the debtor), and this subsequent impossibility arises from a cause not attributable to either party (e.g., a force majeure event like an earthquake, or an unforeseeable act of a third party that occurs during the delay period), then the impossibility is deemed to be attributable to the debtor.

Rationale: The underlying principle is that the debtor, by unjustifiably delaying performance, exposed the subject matter of the obligation to risks it would not have faced had performance been timely. Therefore, the law shifts this heightened risk onto the defaulting debtor.

Consequences for the Debtor:
Because the impossibility is deemed attributable to the debtor, the debtor becomes liable for non-performance due to this (deemed) attributable impossibility. In practical terms, this usually means the creditor can then claim damages in lieu of performance (tenpo baisho 填補賠償) for the value of the entire lost performance itself (under Articles 415, Paragraph 1 and Paragraph 2, Item 1), not merely damages for the prior period of delay. The claim essentially converts from one for delayed performance to one for total non-performance due to (imputed) fault.

Exceptions to Liability for "Impossibility During Delay"

This strict rule of deemed attributability is subject to important exceptions, where the debtor may be excused from liability for damages in lieu of performance (though potentially still liable for prior delay damages):

Lack of Causation between Delay and Impossibility (Implicit in Art. 413-2, Para. 1):
The debtor is not liable for the (deemed attributable) impossibility if they can prove that the performance would have become impossible even if they had performed punctually. In other words, if the delay did not, in fact, increase the exposure to the risk that ultimately caused the impossibility.
- Example: A seller is due to deliver specific goods to a buyer on Monday but delays. On Tuesday, before delivery, a widespread natural disaster (e.g., a massive, unpredicted regional flood) destroys both the seller's warehouse (where the goods were stored due to the delay) and the buyer's factory (where the goods would have been if delivered on time). Here, even if the seller had delivered on Monday, the goods would have been destroyed at the buyer's location. The delay didn't "cause" the loss in a relevant sense.
- In such a scenario, the debtor is excused from liability for damages in lieu of performance (i.e., for the value of the goods themselves). However, they would generally remain liable for any delay damages that accrued before the point of impossibility, provided the initial delay was attributable to them.
Impossibility Attributable to the Creditor:
If the supervening impossibility during the debtor's delay was directly caused by the creditor's own actions or fault.
- Example: While a contractor is late in completing a building, the client (creditor) undertakes unauthorized modifications that lead to a structural collapse, making completion impossible.
- Here, the debtor is excused from liability for damages in lieu of performance. They would typically still be liable for any delay damages incurred before the creditor-caused impossibility, assuming the initial delay was attributable to the contractor.

Interaction Between Delay Damages and Damages in Lieu of Performance

When impossibility occurs during a debtor's culpable delay and is deemed attributable to the debtor under Article 413-2, the creditor's focus generally shifts. Instead of demanding the (now impossible) original performance plus delay damages, the claim becomes one for damages in lieu of the entire unperformed obligation. These "damages in lieu of performance" are intended to compensate for the value of not receiving the performance at all and would typically encompass the losses that were accumulating due to the delay, or at least render separate claims for prior delay less relevant. The scope of these damages in lieu of performance would then be determined by Article 416 (ordinary and special damages).

Conclusion

When a Japanese debtor fails to perform on time, they enter a state of riko chitai, potentially exposing them to claims for chien baisho (delayed performance damages) for losses caused by the tardiness. More significantly, if performance becomes impossible from an external cause while the debtor is already in culpable delay, Article 413-2 of the Civil Code generally deems this impossibility to be the debtor's responsibility. This rule underscores the increased risk borne by a party already in default. However, crucial exceptions exist, particularly where the delay did not genuinely contribute to the loss, or where the creditor was responsible for the supervening impossibility. Navigating these rules requires a careful analysis of the timing of events, the cause of the delay, and the cause of any subsequent impossibility.