When your business receives goods from a Japanese supplier that turn out to be non-conforming—whether in kind, quality, or quantity—it's not just a matter of identifying the problem. Japanese law, specifically the amended Civil Code effective April 1, 2020, sets out rules regarding how and when a buyer must inform the seller of such issues to preserve their legal remedies. Failing to adhere to these timeframes can, in certain situations, lead to the loss of otherwise valid claims for cure, price reduction, damages, or contract termination. This makes understanding Article 566 of the Civil Code particularly important for any business engaged in purchasing goods under Japanese law.

The Core Rule: One-Year Notification Period for Non-Conformity in Kind or Quality

The central provision governing this issue is Article 566 of the amended Japanese Civil Code. It establishes a specific notification period applicable when the delivered goods do not conform to the contract with respect to their kind or quality.

The rule states: "In cases where the seller has delivered subject matter that does not conform to the terms of the contract with respect to its kind or quality, if the buyer fails to notify the seller of such non-conformity within one year from the time the buyer became aware of it, the buyer may not demand cure of performance, demand a reduction in the price, claim damages, or terminate the contract on the grounds of such non-conformity."

Let's break down the key components of this rule:

1. Scope: Non-Conformity as to "Kind or Quality"

This one-year notification duty is specifically tied to non-conformities related to the kind of goods (e.g., receiving a different model or product than ordered) or their quality (e.g., defects in materials, workmanship, functionality, or failure to meet agreed specifications).

2. The Trigger: "From the Time the Buyer Became Aware of It"

The one-year clock starts ticking from the moment the buyer subjectively becomes aware of the non-conformity. This is not necessarily from the date of delivery, especially if the non-conformity is not immediately apparent. It requires actual awareness by the buyer.

3. The Requirement: "Notify the Seller of Such Non-Conformity"

This is a crucial change from the interpretation under the old Civil Code's "defect warranty" (kashi tanpo sekinin) provisions.

• Previous, Stricter Interpretation: Under the old regime, case law (e.g., Supreme Court, October 20, 1992 (Heisei 4.10.20)) had interpreted a similar one-year period quite stringently. It often required the buyer not just to generally inform the seller of a defect, but to go further: to "specifically state the content of the defect, manifest an intention to claim damages based thereon, and indicate the basis for calculating the amount of damages claimed, thereby clearly conveying the intention to hold the seller liable." This was perceived by many as placing an overly heavy burden on the buyer, essentially requiring them to nearly fully formulate their legal claim within that initial year.
• New, More Lenient Notification Standard: The amended Article 566 requires only that the buyer "notify the seller of such non-conformity." This is now generally understood to mean that the buyer simply needs to inform the seller of the existence and the nature of the non-conformity they have discovered. It does not necessitate a formal demand for specific remedies (like repair or damages) or a detailed calculation of losses within this initial one-year notification window. This change significantly lessens the initial procedural burden on the buyer.

4. Consequence of Failure to Notify: Loss of Remedies

If the buyer fails to provide this notification to the seller regarding a non-conformity of kind or quality within one year of becoming aware of it, the general consequence is severe: the buyer loses their right to pursue any of the standard remedies for that non-conformity. This includes the right to:

• Demand cure (repair, replacement, or completion) under Article 562.
• Demand a price reduction under Article 563.
• Claim damages under Article 564 (applying Article 415).
• Terminate the contract under Article 564 (applying Articles 541 and 542).

Notification Period vs. General Prescription Period (Statute of Limitations)

It is vital to distinguish the one-year notification period under Article 566 from the general prescription period (statute of limitations) for bringing a legal action.

• Article 566 Notification Preserves the Right to Claim: Successfully notifying the seller of the non-conformity (in kind or quality) within one year of awareness preserves the buyer's underlying right to seek remedies. It keeps the door open for further action.
• General Prescription Period for Enforcing the Claim: After this notification has preserved the right, the buyer must still initiate any legal proceedings to enforce their chosen remedy within the applicable general prescription period for contractual claims. Under the amended Civil Code (Article 166), this period is typically:
  • Five years from the time the buyer became aware that they could exercise the right (e.g., aware of the non-conformity and the seller's failure to voluntarily remedy it after notification); OR
  • Ten years from the time the right could objectively first have been exercised (e.g., often from the time of delivery if the non-conformity existed then), regardless of awareness.
    The claim will be time-barred by whichever of these two periods expires earlier.

Therefore, Article 566 acts as an initial, shorter gatekeeper for claims specifically related to the kind or quality of goods. If this gate is passed by timely notification, the claim then becomes subject to the longer general prescription periods for actual enforcement through court action.

Exception to the One-Year Notification Duty: Seller's Bad Faith or Gross Negligence

The strict one-year notification rule for non-conformity in kind or quality is not absolute. The proviso to Article 566 states that this notification duty does not apply if, at the time of delivery, the seller knew of the non-conformity, or was grossly negligent in not knowing of it.

In such instances, where the seller has acted in bad faith or with gross negligence regarding the condition of the goods, the buyer is not penalized for failing to notify within the one-year period from their own awareness. The buyer can pursue their remedies subject only to the general prescription periods mentioned above. This exception prevents a seller who knowingly or with severe carelessness delivered non-conforming goods from unfairly escaping liability due to a buyer's somewhat delayed (but still within general prescription limits) discovery or notification.

Important Distinction: When the One-Year Notification Rule Does Not Apply

Crucially, the special one-year notification period established by Article 566 is explicitly limited to non-conformities concerning the kind or quality of the delivered goods.

This rule does not apply to:

1. Non-conformity in Quantity: For example, if the seller delivered fewer items than agreed upon (a short shipment).
2. Non-conformity Related to Rights: For example, if the seller did not have proper legal title to the goods, or if the goods were encumbered by third-party rights that were not disclosed or accounted for in the contract.

For these types of non-conformity (i.e., issues with quantity or legal rights associated with the goods), there is no special one-year notification deadline imposed by Article 566. The buyer's rights and the time limits for asserting them are solely governed by the general prescription periods for contractual claims (Article 166).

The rationale for this distinction, as suggested by legal commentary, is that non-conformities in kind or quality might not be immediately obvious and may require some time or use to become apparent. Once discovered, prompt notification allows the seller an opportunity to investigate and potentially remedy the issue efficiently. In contrast, a quantity shortfall is usually evident upon delivery or shortly thereafter. Issues related to rights might take even longer to surface and could be unfairly prejudicial to the buyer if subjected to a short notification period from the moment of subjective awareness.

Relationship with the Commercial Code

It's worth briefly noting the Japanese Commercial Code, which applies to sales transactions between merchants (shōnin; 商人). Article 526 of the Commercial Code imposes stricter and shorter obligations on a merchant buyer to promptly inspect goods upon receipt and immediately notify the seller of any discoverable defects or quantity shortfalls. For defects not discoverable by immediate inspection, notification is generally required within six months of receipt.

The legal commentary accompanying the Civil Code amendments indicates that an earlier proposal to incorporate similar strict inspection and timely notification duties for business buyers into the Civil Code was ultimately not adopted. As a result, the Civil Code's Article 566, with its "one year from awareness" notification period for kind/quality defects (and no special short period for quantity/rights issues for all buyers, including businesses), is considerably more lenient on the buyer than the Commercial Code's regime. Businesses engaged in transactions that might be classified as sales between merchants should be aware of which set of rules (Civil Code or Commercial Code) governs their specific situation, as the Commercial Code's stricter requirements, where applicable, would take precedence for merchant-to-merchant sales.

Practical Guidance for Buyers

To effectively protect your rights when dealing with potentially non-conforming goods from Japanese suppliers under the Civil Code:

1. Inspect Promptly and Thoroughly: While Article 566 links the one-year period to "awareness," it is always best practice to inspect delivered goods as soon as reasonably possible and with due diligence. Delaying inspection can make it harder to prove the non-conformity existed at the time of delivery or that you became aware of it only recently.
2. Document Everything: If you discover a non-conformity, meticulously document it. This includes taking photographs, videos, retaining samples if appropriate, noting dates of discovery, and detailing the specific nature of the problem.
3. Notify for Kind/Quality Issues Within One Year of Awareness: If the issue relates to the kind or quality of the goods, ensure a clear, written notification is sent to the seller within one year of the date you became aware of the problem. While the new law is less demanding on the content of this initial notice than old case law, the notice should, at a minimum, clearly identify the goods in question and describe the nature of the non-conformity found. Sending it by a method that provides proof of dispatch and receipt is advisable.
4. Understand the Scope of the One-Year Rule: Remember that this specific one-year notification rule is only for non-conformities of kind or quality. For short shipments or problems with title/rights, different (general prescription) time limits apply for bringing claims.
5. Consult Legal Counsel: If significant non-conformities are discovered, especially if the seller disputes the issue or is unresponsive, consult with legal counsel in Japan to understand the optimal strategy for preserving and enforcing your rights, including compliance with all applicable time limits.

Conclusion

The amended Article 566 of the Japanese Civil Code establishes an important initial hurdle for buyers wishing to pursue remedies for goods that do not conform to the contract in terms of kind or quality. The requirement to notify the seller of such non-conformity within one year of becoming aware of it is critical for preserving the full range of remedies, including cure, price reduction, damages, and termination. The shift to a more lenient standard for the content of this notification, focusing on simply informing the seller of the issue rather than demanding specific remedies, is a pro-buyer development compared to stricter interpretations under the old law.

However, businesses must remain vigilant. Failure to meet this one-year notification deadline for relevant defects can be fatal to a subsequent claim. Equally important is understanding the distinctions: this special period does not apply to quantity or rights issues, and it is separate from the longer general prescription periods for initiating legal action. Awareness of these time-sensitive requirements is essential for effectively managing contractual relationships and protecting one's interests when purchasing goods under Japanese law.