Standard terms and conditions, known in Japanese as teikei yakkan (定型約款), are ubiquitous in modern commerce. They are sets of pre-drafted clauses prepared by one party (typically a business) to apply uniformly to a large number of similar transactions with various counterparties (often consumers or other businesses). Their use promotes efficiency, consistency, and reduces transaction costs. However, they also raise concerns about fairness, particularly regarding whether the counterparty truly understands and agrees to all the terms, and whether some terms might be unduly one-sided.

Prior to the major amendments to the Japanese Civil Code, which came into effect on April 1, 2020, there were no specific statutory provisions directly addressing standard form contracts. Their enforceability was determined by general principles of contract law, judicial precedent, and specific legislation like the Consumer Contract Act. The amended Civil Code has now introduced a dedicated chapter (Articles 548-2 to 548-4) to provide a clearer legal framework for these instruments.

Defining "Standard Form Contracts" and "Standard Transactions"

The new rules apply to "standard form contracts" used in "standard transactions." Understanding these definitions is key to determining the applicability of these provisions.

• Standard Transaction (Teikei Torihiki; 定型取引): Article 548-2, Paragraph 1 defines this as "a transaction conducted by a specific party with an unspecified large number of counterparties, where it is reasonable for both parties that the whole or a part of the transaction's content is uniform."
  • The "unspecified large number of counterparties" element means these rules primarily target mass-market transactions. Highly negotiated, bespoke contracts between specific enterprises, even if they use some pre-drafted elements, might not qualify. However, a business purchasing a standard software license from a vendor, even if both are businesses, could still fall under this if the software is offered to many on the same terms.
  • The "uniform content" aspect recognizes the efficiency rationale behind standard terms.
• Standard Form Contract / Standard Terms (Teikei Yakkan; 定型約款): These are defined as "a set of clauses prepared by that specific party for the purpose of making them the content of a standard transaction."
  • The "purpose of making them the content of a contract" is crucial. If pre-drafted clauses are merely intended as a starting point for negotiations (a "discussion draft" or tatakidai; たたき台) or a general template (hinagata; ひな形) that parties are expected to customize, they might not be considered teikei yakkan under these specific rules, even if the final contract resembles them.

How Standard Terms Become Part of a Contract (Incorporation)

Article 548-2, Paragraph 1 outlines how the individual clauses of standard terms are deemed to have been agreed upon and thus incorporated into an individual contract:

1. By Explicit Agreement to Use Standard Terms: If the parties have expressly agreed that the standard terms will form the content of their contract. This is the most straightforward method and aligns with general contract formation principles where parties consent to the terms governing their relationship (referencing, for historical context, the "will presumption theory" discussed in relation to a judgment from December 24, 1915 (Taisho 4.12.24)). For example, signing an order form that clearly states "Subject to the attached Standard Terms and Conditions."
2. By Prior Indication from the Preparer: If the party who prepared the standard terms (the "preparer" or teikei yakkan junbisha; 定型約款準備者) had, in advance of the main transactional agreement, indicated to the counterparty that those standard terms would be made the content of the contract.
   This second limb is more novel. Legal commentary suggests that a literal interpretation might imply incorporation even if the counterparty did not actively or even passively assent to the use of the standard terms, provided the preparer made the requisite prior indication. This has generated some debate, as it could be seen as a departure from traditional contract theory which emphasizes mutual consent for all terms. The practical sufficiency of the "indication" (e.g., merely making terms available on a website vs. actively drawing attention to them) and the role of any objection by the counterparty were subjects of discussion during the legislative process. It is generally understood that if the counterparty clearly objects to the incorporation of the standard terms, they would not be incorporated.

The "Gatekeeper": Exclusion of Unfair or Surprising Clauses (Article 548-2, Paragraph 2)

Even if standard terms are deemed generally incorporated under one of the above methods, Article 548-2, Paragraph 2 acts as a crucial "gatekeeper." It provides that certain individual clauses within those standard terms will be deemed not to have been agreed upon, and thus will not bind the counterparty, if they meet specific conditions.

A clause is excluded from incorporation if it satisfies two cumulative conditions:

1. It restricts the rights or expands the obligations of the counterparty, compared to what they would be under default statutory provisions or reasonable expectations; AND
2. It unilaterally harms the interests of the counterparty in a manner that is contrary to the fundamental principle of good faith and trust (as enshrined in Article 1, Paragraph 2 of the Civil Code), when considered in light of the nature and actual circumstances of the standard transaction and common commercial practices.

This provision effectively combines what other legal systems might treat as separate doctrines:

• "Surprise Term" or "Unexpected Term" Control: It targets clauses that a counterparty would not reasonably expect to find in such a contract, especially if they are disadvantageous.
• "Substantive Unfairness" or "Content Control": It also addresses clauses that, regardless of surprise, are fundamentally unfair or unduly one-sided.

The drafters opted for this integrated approach, influenced by past judicial practice where courts often used general principles like good faith or reasonable interpretation to invalidate or limit the effect of problematic standard terms, considering both procedural (how the term was presented) and substantive (the fairness of the term itself) aspects. This approach is somewhat similar in structure to Article 10 of Japan's Consumer Contract Act, which provides a general fairness control for consumer contracts.

Legal commentators noted that this unified approach received criticism during the drafting process for potentially lacking clarity on how the various elements (surprise, unfairness, nature of the transaction, good faith) should be weighed and applied. The precise application will undoubtedly be shaped by future court decisions.

Duty to Disclose Standard Terms (Article 548-3)

The amended Civil Code also introduces rules regarding the disclosure of standard terms, but it importantly decouples the general duty to disclose from the primary conditions for incorporation.

• Disclosure Not a Precondition for Incorporation (Generally): A failure by the preparer to adequately disclose the standard terms does not automatically prevent those terms from being incorporated into the contract under Article 548-2, Paragraph 1. The rationale provided during deliberations was that many counterparties do not actually read standard terms even when provided, and making strict disclosure an absolute prerequisite for incorporation could lead to commercially unreasonable outcomes (e.g., an entire set of terms being invalidated because of a temporary website malfunction preventing access).
• When is Disclosure Required? (Article 548-3, Paragraph 1): The preparer of standard terms has a duty to show the content of those terms, without delay and by an appropriate method, if requested by the counterparty. This request can be made either:
  • Before the agreement for the standard transaction is concluded; or
  • Within a reasonable period after the agreement for the standard transaction is concluded.
    This duty is excused if the preparer has already provided the counterparty with a physical copy of the terms or an electromagnetic record (e.g., a PDF file).
• Consequences of Refusing a Pre-Agreement Disclosure Request (Article 548-3, Paragraph 2):
  If the preparer refuses a counterparty's request to see the standard terms before the main transaction agreement is made, then the deeming provisions of Article 548-2, Paragraph 1 (which allow for incorporation via explicit agreement to use terms or by prior indication) will not apply. This effectively means the standard terms will likely not form part of the contract.
  However, there is an exception: if the refusal was due to a legitimate reason, such as a temporary communication failure (e.g., website down, email system malfunction), then Article 548-2 may still apply.
• Consequences of Refusing a Post-Agreement Disclosure Request:
  If the preparer refuses a request for disclosure made within a reasonable time after the main transaction agreement has already been concluded, the initial incorporation of the standard terms is not invalidated by this refusal alone. However, legal commentary suggests that the obligation to disclose upon such a post-agreement request could be considered a contractual duty arising from the concluded agreement. Therefore, a failure to comply might potentially give rise to a claim for damages for breach of contract, though it wouldn't unwind the incorporation of the terms themselves.

Changing Your Standard Terms: Modification Rules (Article 548-4)

One of the most significant introductions is Article 548-4, which provides a mechanism for the preparer to unilaterally modify existing standard terms and have those modifications apply to ongoing contracts that incorporated the original terms, without needing fresh individual consent from each counterparty. This is a powerful tool, but its use is subject to strict conditions.

Conditions for Unilateral Modification:

The preparer can modify standard terms, and the modified terms will be deemed to have been agreed to by the counterparties, if one of the following two conditions is met:

1. The modification is suitable for the general interests of the counterparties (Article 548-4, Paragraph 1, Item 1). This would cover changes that are clearly beneficial to the counterparties or are purely administrative without adverse effect.
2. The modification is not contrary to the purpose for which the original contract was made, AND it is "reasonable" (Article 548-4, Paragraph 1, Item 2). Reasonableness here is judged by comprehensively considering:
   • The necessity for the modification.
   • The appropriateness of the content of the modified terms.
   • Whether the original standard terms contained a clause permitting such modifications, and the content of that clause.
   • Other circumstances pertaining to the modification. This is a multifaceted test requiring careful justification.

Procedural Requirements for Modification:

For a modification to be effective under Article 548-4:

• The preparer must set an effective date for the modified terms.
• The preparer must make known to the public (e.g., by posting on their website or using other appropriate methods) the fact that the standard terms are being modified, the content of the modified terms, and their effective date.
• Crucially, for modifications relying on the "reasonableness" test (Item 2 above), this public notification must be given before the designated effective date of the modification. If this advance notice is not provided, the modification will not take effect.

Non-Application of the Unfair/Surprising Clause Rule to Modifications:

Article 548-4, Paragraph 4 specifies that the rule in Article 548-2, Paragraph 2 (which excludes unfair or surprising clauses from initial incorporation) does not apply when assessing the validity of a modification made under Article 548-4. The rationale is that the stringent substantive conditions for modification set out in Article 548-4, Paragraph 1 (general benefit or reasonableness) already provide a sufficient safeguard against unfair changes.
However, it's important to note that if the original standard terms themselves contained a specific clause detailing how future modifications could be made, the initial incorporation of that particular modification clause would have been subject to scrutiny under Article 548-2, Paragraph 2 at the time the original contract was formed.

Practical Steps for Businesses Using Standard Terms in Japan

1. Define Scope: Determine if your transactions and terms fall under the definitions of "standard transaction" and "standard form contract."
2. Review Existing Terms: Scrutinize your current standard terms for any clauses that might be vulnerable to non-incorporation under Article 548-2, Paragraph 2 (i.e., clauses that restrict counterparty rights or increase their obligations and could be deemed unilaterally harmful against good faith principles).
3. Incorporation Practices: Ensure your contracting process clearly incorporates your standard terms. This can be via explicit reference and acceptance in a main agreement, or by clearly indicating in advance to counterparties that your standard terms will apply. Providing easy access to the terms (e.g., a readily available copy or a persistent hyperlink) is advisable.
4. Disclosure Procedures: Be prepared to provide the content of your standard terms promptly if requested by a counterparty, both before and after the agreement. Failure to do so pre-agreement can prevent incorporation.
5. Modification Strategy: If you anticipate needing to modify your standard terms for existing contracts, understand the strict conditions of Article 548-4. Ensure any modifications meet either the "general interest" test or the comprehensive "reasonableness" test, and meticulously follow the public notification procedures, especially the advance notice for reasonableness-based changes.

Conclusion

The introduction of specific rules for standard form contracts (teikei yakkan) in the amended Japanese Civil Code represents a significant development, bringing much-needed statutory guidance to a ubiquitous feature of modern commerce. These provisions attempt to strike a balance between the operational efficiencies that standard terms offer to businesses and the need to protect counterparties—whether consumers or other businesses—from unexpected, unfair, or unilaterally imposed conditions. While the framework provides greater clarity on incorporation, disclosure, and modification, some areas, such as the precise application of the unfair/surprising clause exclusion, will continue to be shaped by judicial interpretation and evolving business practices. Businesses utilizing standard terms in their Japanese operations must carefully review these new rules and adapt their practices accordingly to ensure enforceability and manage contractual risk effectively.