When businesses procure goods, an essential expectation is that the items received will match the agreed-upon specifications, quality standards, and quantity. However, discrepancies can occur, leading to disputes and potential losses. If you've purchased goods from a Japanese supplier and they don't meet the contractual requirements, it's crucial to understand how Japanese law addresses the seller's liability. The Japanese Civil Code, significantly amended effective April 1, 2020, has revamped this area, moving away from a traditional, somewhat fragmented "defect warranty" system to a more unified concept known as "non-conformity with the contract" or keiyaku futekigō (契約不適合). This change aims to provide clearer, more comprehensive, and arguably more buyer-friendly remedies, aligning Japanese domestic law more closely with international commercial principles and general contract law.

The Paradigm Shift: From "Defect Warranty" to "Non-Conformity"

Historically, a seller's liability for deficient goods in Japan was primarily governed by the principle of kashi tanpo sekinin (瑕疵担保責任), often translated as "defect warranty liability." This system had several characteristics and complexities:

• It often focused on "latent defects" (kakureta kashi; 隠れた瑕疵) – those not discoverable by the buyer through ordinary care at the time of purchase.
• The available remedies were somewhat limited, typically to contract termination (rescission) and/or damages. The buyer's right to demand repair or replacement (cure) was not always straightforward, especially for specific (non-fungible) goods, and depended heavily on prevailing legal theories.
• There was an ongoing academic debate about the legal nature of this liability – whether it was a special statutory liability separate from general contract law (hōtei sekinin setsu; 法定責任説) or a manifestation of contractual liability (keiyaku sekinin setsu; 契約責任説). This theoretical divide could lead to different outcomes regarding requirements and remedies.

The amended Civil Code has largely adopted the contractual liability theory and, in doing so, has replaced the kashi tanpo framework with a more holistic approach centered on non-conformity with the terms of the contract.

The core principle under the new regime (primarily Article 562) is straightforward: if the delivered subject matter of the sale does not conform to the contract with respect to its kind, quality, or quantity, the seller is liable for this non-conformity. This is a more objective test based on the explicit and implicit terms of the agreement between the buyer and seller. The previously critical element of a defect being "hidden" is no longer a general prerequisite for the seller's liability concerning non-conformity. Furthermore, the buyer's mere awareness or negligence in not discovering an obvious non-conformity at the time of receipt does not automatically bar them from seeking remedies, although it might be relevant in specific contexts like the buyer causing the non-conformity.

Unification: Liability for Goods and Rights (Article 565)

Another significant simplification in the amended Code is the largely unified approach to non-conformity whether it pertains to tangible goods (mono; 物) or to rights (kenri; 権利) being sold. Previously, the Civil Code had separate, and sometimes differing, sets of rules for defects in goods versus "defects" in rights (e.g., if the seller did not possess the full rights they purported to sell).

Article 565 of the amended Code now states that the provisions concerning a seller's liability for non-conforming goods (Articles 562, 563, and 564, which detail the buyer's remedies) apply mutatis mutandis (with necessary changes) to cases where the rights transferred by the seller do not conform to the contract. This includes situations where part of a right purportedly sold actually belongs to a third party and therefore cannot be validly transferred by the seller. This unification streamlines the legal framework and promotes consistency.

Buyer's Arsenal: Remedies for Non-Conformity

When a seller delivers non-conforming goods, the amended Civil Code provides the buyer with a clearer and more structured set of remedies, reflecting a move towards general contract law principles:

1. Right to Demand Cure (Tsuikan Seikyū-ken; 追完請求権) – Article 562

This is a primary remedy. If the delivered goods do not conform to the contract in terms of kind (e.g., wrong model), quality (e.g., defective manufacturing), or quantity (e.g., short shipment), the buyer has the right to demand that the seller "cure" the non-conformity.
The legally recognized methods of cure include:

• Repair of the delivered goods (shūho; 修補).
• Delivery of substitute conforming goods (daitaibutsu no hikiwatashi; 代替物の引渡し).
• Delivery of any missing quantity (fusokubun no hikiwatashi; 不足分の引渡し).

The buyer initially chooses the method of cure. However, the seller is given some flexibility: if the method chosen by the buyer would impose an "unreasonable burden" (fusōtō na futan; 不相当な負担) on the seller compared to an alternative method of cure, the seller may perform the cure using that alternative method, provided it still adequately remedies the non-conformity from the buyer's perspective. For instance, if a minor, easily fixable issue exists, and the buyer demands a full replacement (which might be very costly for the seller), the seller might be entitled to opt for repair instead.

It's important to note that the buyer cannot demand cure if the non-conformity is due to a cause attributable to the buyer themselves (Article 562, Paragraph 2).

2. Right to Demand Price Reduction (Daikin Gengaku Seikyū-ken; 代金減額請求権) – Article 563

If the delivered goods are non-conforming, the buyer may demand a reduction in the purchase price. Typically, this right arises after the buyer has first requested the seller to cure the non-conformity within a reasonable period, and the seller has failed to do so.
However, the buyer can demand a price reduction without first demanding cure in certain situations (Article 563, Paragraph 2), such as:

• If cure is impossible.
• If the seller has clearly indicated their refusal to perform cure.
• If performance of cure by a specific time was essential due to the nature of the contract or the parties' explicit declaration, and that time has passed without cure being effected.
• If it is otherwise evident that demanding cure from the seller is unlikely to result in the non-conformity being remedied.

The price reduction must be proportionate to the degree of non-conformity. This remedy, which was previously available only in limited circumstances (like quantity shortfalls under the old law), is now a general remedy for qualitative non-conformities as well. It aims to rebalance the value exchanged between the parties and, importantly, its availability does not depend on whether the seller was at fault for the non-conformity. Similar to the right to demand cure, the buyer cannot demand a price reduction if the non-conformity is due to a cause attributable to the buyer (Article 563, Paragraph 3).

3. Right to Claim Damages (Songai Baishō Seikyū-ken; 損害賠償請求権) – Article 564

The buyer’s exercise of their rights to demand cure or a price reduction does not prevent them from also claiming monetary damages for any losses suffered as a result of the non-conformity (Article 564).
This claim for damages is governed by the general provisions on damages for breach of contract (Article 415 of the Civil Code). This means that the seller will be liable for damages unless they can prove that the non-conformity (the breach) was not due to any cause attributable to them – effectively placing the burden on the seller to demonstrate their lack of fault. This is a key element aligning the seller's liability for non-conformity with the general regime of contractual liability.

4. Right to Terminate the Contract (Kaijo-ken; 解除権) – Article 564

In addition to the above, the buyer may also have the right to terminate (rescind) the sales contract due to the seller's delivery of non-conforming goods (Article 564). This right is governed by the general rules on contract termination found in Articles 541 and 542 of the Civil Code.

• Termination after Demanding Cure (Article 541): Generally, if the seller fails to perform its obligation (which includes delivering conforming goods), the buyer must first set a reasonable period and demand performance (cure). If the seller still fails to perform within that period, the buyer can terminate the contract. However, an important proviso exists: if, at the time the period for cure has expired, the seller's non-performance (i.e., the remaining non-conformity) is "trivial" (keibi; 軽微) in light of the contract and common sense in transactions, the buyer cannot terminate.
• Termination Without Prior Demand (Article 542): Termination without first demanding cure is possible in more severe cases, such as when performance (cure) is entirely impossible, when the seller has definitively refused to perform, or when the non-conformity is so substantial that the fundamental purpose of the contract cannot be achieved by the buyer.
  A significant aspect of the amended rules on termination is that the seller's fault is generally not a prerequisite for the buyer's right to terminate due to non-conformity. This distinguishes termination from a claim for damages, where the seller's lack of attributable fault can be a defense.

Time Limits for Buyer's Claims Regarding Non-Conformity (Article 566)

The amended Code sets a specific time limit for the buyer to notify the seller of certain types of non-conformity. This is crucial for preserving the buyer's rights.

• For Non-Conformity in Kind or Quality: Article 566 stipulates that if the seller has delivered goods that do not conform to the contract in terms of their kind or quality, the buyer must notify the seller of this non-conformity within one year from the time the buyer became aware of it.
• Consequence of Failure to Notify: If the buyer fails to give this one-year notice, they will generally lose their right to claim cure, demand a price reduction, seek damages, or terminate the contract based on that particular non-conformity in kind or quality. This is a critical deadline. It's important to understand that this is a period for notification to the seller to preserve the remedies, not a statute of limitations for filing a lawsuit (which would be governed by the general prescription periods for contractual claims, typically 5 years from knowledge of the right to claim or 10 years from when the right could be exercised, under Article 166).
• Exception to the Notification Duty: The one-year notification requirement does not apply if the seller, at the time of delivery, knew of the non-conformity or was grossly negligent in not knowing of it. In such cases, the buyer is not penalized for late notification.
• No Specific Notification Period for Quantity or Rights Issues: It's important to note that Article 566's one-year notification rule is specifically for non-conformity as to "kind or quality." It does not apply to non-conformity in quantity (e.g., short delivery) or issues related to rights (e.g., if the seller did not have full title to the goods). For these types of non-conformity, the buyer's remedies would be subject only to the general statute of limitations for contract claims.

Seller's General Duties in a Sales Contract

Beyond liability for non-conformity, the Civil Code also outlines other fundamental duties of a seller:

• Duty to Transfer Rights and Enable Perfection (Article 560): The seller is obligated to transfer the agreed-upon property rights to the buyer and must also take necessary steps to enable the buyer to perfect these rights against third parties (e.g., by cooperating in the registration process for real estate sales).
• Duty in Sale of Another's Rights (Article 561): If a seller contracts to sell rights that, at the time of the contract, belong to a third party (e.g., selling goods they intend to acquire), the seller has an obligation to acquire those rights and then duly transfer them to the buyer.

Conclusion: A More Modern and Buyer-Centric Approach

The transition from the old kashi tanpo sekinin to the new keiyaku futekigō framework in the amended Japanese Civil Code represents a significant modernization of sales law. By focusing on conformity with the contract rather than just latent defects, and by providing a clearer and more comprehensive suite of remedies including cure and price reduction, the law offers enhanced protection and flexibility for buyers who receive goods that do not meet specifications. The alignment of this liability with general principles of breach of contract also brings greater coherence to the legal system.

For businesses purchasing goods from Japanese suppliers, understanding these new rules is vital. Key takeaways include the importance of clearly defining specifications in the sales contract, the availability of a tiered set of remedies, and the critical one-year notification period for non-conformities related to kind or quality to preserve those remedies. This reformed system, while providing more robust buyer protection, also underscores the seller's fundamental obligation to deliver exactly what was promised in the contract.