My Japanese Guarantor Paid the Debt: What is the "Guarantor's Right of Reimbursement" (Kyushoken) Against the Principal Debtor?

Japanese Attorney at Law - Bengoshi L.L.

• 7 min read

When a guarantor in Japan steps in and pays a debt on behalf of a principal debtor who has defaulted, the guarantor is not left out of pocket without recourse. Japanese law provides such a guarantor with a "Right of Reimbursement" (Kyushoken 求償権) against the principal debtor. This right allows the guarantor to recover the amounts they expended to discharge the primary obligation. However, the existence, scope, and conditions for exercising this right, particularly the crucial notification duties, depend significantly on the circumstances under which the guarantee was provided, as outlined in Articles 459 to 463 of the Japanese Civil Code.

The Basis for the Guarantor's Right of Reimbursement

The legal foundation for a guarantor's reimbursement claim differs based on whether the guarantee was provided at the request of the principal debtor:

  1. Guarantee Provided at the Request of the Principal Debtor (Itaku o Uketa Hoshonin 委託を受けた保証人 – Art. 459, Para. 1):
    This is the most common scenario in business and personal guarantees. When a guarantor provides a guarantee based on a mandate (itaku 委託) or request from the principal debtor, their right of reimbursement stems from this underlying contractual relationship (often an implied or explicit contract of mandate or indemnity).
    • Scope of Entitlement: In this case, the guarantor is generally entitled to full indemnification for their outlay made to discharge the principal debt. This is the broadest scope of reimbursement.
  2. Guarantee Provided Without the Request of the Principal Debtor (Itaku o Ukenai Hoshonin – Art. 462):
    If a person guarantees a debt without being asked to do so by the principal debtor (e.g., a voluntary guarantee, perhaps due to a close relationship or other interest, but not a formal mandate):
    • Reimbursement Limited to Debtor's Enrichment: The guarantor's right of reimbursement is limited to the extent the principal debtor was actually enriched (gen ni rieki o ukete iru gendo 現に利益を受けている限度) by the guarantor's performance (i.e., by the discharge of their debt) at the time reimbursement is sought from the debtor. This means if the debtor had defenses that would have reduced the debt, or if the debt would have been partially extinguished anyway, the guarantor might not recover the full amount they paid.
    • Guarantee Against Debtor's Will: If the guarantee was provided not only without request but also against the explicitly stated will of the principal debtor, the reimbursement right is further restricted. The guarantor can only recover to the extent the debtor is currently enriched at the time of the reimbursement claim. This is a stricter standard, looking at the present, remaining benefit to the debtor.

Scope of Reimbursement for a Guarantor at the Debtor's Request (Art. 459, Para. 1, and Art. 442, Para. 2 applied by analogy)

For a guarantor who provided the guarantee at the principal debtor's request, the scope of what can be reimbursed is quite comprehensive:

  1. The Amount Paid to Discharge the Debt: This includes the principal sum of the debt paid by the guarantor, any part of the original principal, and any interest on the principal debt that had accrued and was paid by the guarantor.
  2. Legal Interest (Hotei Risoku 法定利息): The guarantor is entitled to legal interest on the total amount they paid out (including principal and any interest/charges they paid on the original debt). This legal interest on the reimbursement claim is calculated from the date the guarantor discharged the principal debt by their performance. The applicable statutory interest rate is the one in effect at the time of that discharge (as per Article 442, Paragraph 2, which is applied by analogy to guarantors via Article 459).
  3. Unavoidable Expenses (Sakeru Koto ga Dekinakatta Hiyo 避けることができなかった費用): Any necessary and unavoidable expenses incurred by the guarantor for the specific purpose of obtaining the common discharge of the principal debt. Examples might include reasonable costs of making a formal deposit (kyotaku) of the performance amount if the creditor refused to accept it, or necessary remittance fees for making the payment.
  4. Other Damages (Sonohoka no Songai その他の損害): Any other damages suffered by the guarantor that are directly attributable to their having provided the guarantee and the subsequent default by the principal debtor. This could include, for instance, reasonable legal costs if the guarantor was sued by the creditor and had to incur expenses to defend themselves or settle the claim.

Crucial Conditions: Notification Duties to Preserve Full Reimbursement Rights (Art. 463, applying Art. 443 by analogy – Primarily for Guarantors at Debtor's Request)

For a guarantor who provided the guarantee at the principal debtor's request, Japanese law imposes specific notification duties. Adherence to these duties is critical for preserving the full extent of their reimbursement rights. Failure to provide these notices can significantly limit or even defeat the guarantor's claim against the principal debtor. These rules are found in Article 463 of the Civil Code, which applies, with necessary modifications (mutatis mutandis), the notification duties applicable among joint and several obligors (Article 443).

1. Guarantor's Duty of Pre-Performance Notification to the Principal Debtor (Art. 463(1) applying Art. 443(1))

  • The Duty: Before a guarantor makes a payment or performs any other act to discharge the principal debt (e.g., upon receiving a demand from the creditor), they should notify the principal debtor of the creditor's demand and their intention to perform.
  • Rationale: This notification serves several vital purposes:
    • It gives the principal debtor an opportunity to inform the guarantor if they (the principal debtor) have any valid defenses against the creditor (e.g., the underlying contract is invalid, the debt has already been partially paid, the debtor has a right of set-off against the creditor).
    • It allows the principal debtor to inform the guarantor if they have already paid or otherwise discharged the debt, preventing a redundant payment by the guarantor.
  • Consequences of Non-Notification: If the guarantor fails to give this prior notice to the principal debtor and proceeds to perform:
    • If the principal debtor did have a valid defense against the creditor that they could have asserted (which would have reduced or eliminated the need for payment), the principal debtor can assert that same defense against the guarantor's subsequent claim for reimbursement. The guarantor's reimbursement will then be limited to what would have been properly due from the debtor had that defense been raised against the creditor.
    • Similarly, the principal debtor can set off against the guarantor's reimbursement claim any claim they (the debtor) had against the original creditor which they could have used to extinguish or reduce the principal debt.
      Essentially, the guarantor's failure to notify shifts the risk of unknown defenses onto the guarantor.

2. Guarantor's Duty of Post-Performance Notification to the Principal Debtor (Art. 463(1) applying Art. 443(2))

  • The Duty: After the guarantor has performed the obligation and thereby discharged the principal debt (obtaining a common discharge for the debtor), they must notify the principal debtor of this fact without delay.
  • Rationale: This is to prevent the principal debtor, who might be unaware of the guarantor's payment, from mistakenly making a second, redundant payment to the creditor.
  • Consequences of Non-Notification: If the guarantor fails to give this post-performance notice:
    • And the principal debtor, acting in good faith and without knowledge of the guarantor's payment, subsequently performs the same obligation to the creditor (or otherwise obtains a discharge at their own expense, e.g., by their own set-off), the principal debtor can treat their own performance or discharge as valid.
    • In this scenario, the guarantor who failed to notify may lose their right of reimbursement against the principal debtor. The guarantor's recourse would then be to seek recovery from the creditor who received double payment, typically through a claim for unjust enrichment.

3. Principal Debtor's Duty to Notify the Guarantor (Art. 463, Para. 2)

The notification duties are not solely on the guarantor; the principal debtor also has a corresponding duty:

  • The Duty: If the principal debtor themselves performs the obligation or otherwise obtains a discharge of the debt (e.g., through their own set-off, or by the creditor releasing them), they must notify any guarantor who provided the guarantee at their request of this fact without delay.
  • Rationale: This is to prevent the guarantor, unaware of the principal debt's discharge, from mistakenly making a payment to the creditor for a debt that no longer exists.
  • Consequences of Non-Notification: If the principal debtor fails to notify the guarantor of the discharge:
    • And the guarantor, acting in good faith and unaware that the debt has already been satisfied by the debtor, subsequently performs to the creditor.
    • The guarantor can treat their own performance as valid and consequently claim full reimbursement from the principal debtor.
      The principal debtor, by failing to notify, effectively bears the risk of this "double payment" situation from their perspective (having paid the creditor and now having to reimburse the guarantor).

Pre-Discharge Right of Reimbursement (Jizen no Kyushoken – Art. 460) (For Guarantors at Debtor's Request)

Under specific, somewhat exceptional circumstances, a guarantor who provided the guarantee at the principal debtor's request may have a right to seek indemnification or "prior reimbursement" from the principal debtor before the guarantor has actually paid the creditor. Article 460 of the Civil Code allows this if:

  1. The principal debtor becomes subject to bankruptcy proceedings (commencement of bankruptcy, rehabilitation, or reorganization proceedings).
  2. The principal debt has become due (even if the creditor has not yet made a demand on the guarantor).
  3. The guarantor has, without their own negligence, been held liable by a court judgment requiring them to perform the guarantee obligation to the creditor.

This jizen no kyushoken is not a right to immediate payment from the debtor to the guarantor, but rather a right for the guarantor to demand that the principal debtor provide them with funds to make the payment to the creditor, or provide security for the guarantor's eventual reimbursement claim, or take other measures to indemnify the guarantor against the impending liability.

Relationship with Subrogation by Performer (Bensaisha Dai'i)

The guarantor's right of reimbursement (kyushoken) is the underlying substantive claim they have against the principal debtor for the amounts they paid. The "subrogation by performer" (bensaisha dai'i), as discussed in a previous article, is a mechanism that secures this right of reimbursement. By being subrogated, the guarantor steps into the original creditor's shoes and acquires the original claim along with any security interests (e.g., mortgages, pledges) that the creditor held. This significantly strengthens the guarantor's ability to recover their reimbursement.

Conclusion

A guarantor in Japan who honors their commitment by paying the principal debtor's obligation generally possesses a robust right of reimbursement (Kyushoken) against that debtor. The scope of this reimbursement is most comprehensive when the guarantee was originally provided at the debtor's request, covering the amount paid, legal interest, and unavoidable expenses. However, the preservation of this right, particularly for requested guarantors, is intricately linked to the diligent observance of statutory notification duties – both before and after performance by the guarantor, and also by the principal debtor if they discharge the debt themselves. Failure to comply with these notification requirements can severely limit or even extinguish the right to reimbursement. Therefore, both guarantors and principal debtors must be acutely aware of these obligations to communicate to protect their respective financial interests.