Res Judicata in Japan: What if a 'Formative Right' (Keisei-ken) is Exercised After the Judgment Becomes Final?

A cornerstone of any mature legal system is the principle of res judicata (既判力 - kihanryoku), which accords finality to court judgments. Once a judgment becomes final and binding, it generally prevents the parties from re-litigating the same claims or issues that were, or could have been, decided. In Japan, the temporal scope of res judicata is crucial: its preclusive effect typically extends to matters existing up to a specific "reference time" (基準時 - kijun-ji), which is usually the conclusion of oral arguments in the final fact-finding court instance. Facts or legal grounds that existed before this reference time and could have been raised in the prior litigation are generally barred from being asserted in a subsequent suit by the doctrine's preclusive effect (遮断効 - shadan-kō).

This leads to a complex question: What happens if a party possesses a "formative right" (keisei-ken)—a right that, by its unilateral exercise, can create, alter, or extinguish legal relationships—where the grounds for that right existed before the reference time, but the right itself is only exercised after the judgment has become final? Can the new legal situation created by this post-judgment exercise be asserted in subsequent proceedings, such as a claim objection suit to prevent enforcement of the original judgment, or is it barred by the res judicata of that judgment? This article explores this intricate intersection of substantive rights and procedural finality in Japanese civil procedure.

Understanding Formative Rights (Keisei-ken)

Formative rights are a distinct category of substantive rights in Japanese law. Their defining characteristic is that their exercise, typically through a unilateral declaration of intent by the rights-holder, directly brings about a change in legal relationships without requiring the consent of the other party or, in many cases, a new court order. Common examples include:

• The right to rescind or cancel a contract due to fraud, duress, or mistake (e.g., Civil Code Art. 96, Art. 120).
• The right to terminate a contract for breach or by exercising a contractual termination clause.
• The right to set off mutual debts (sōsai-ken, Civil Code Art. 505).
• The right to exercise an option to create or modify a contract.

The legal change (e.g., the contract becoming void ab initio upon rescission, or debts being extinguished upon set-off) occurs at the moment the formative right is validly exercised, though a court might later be called upon to confirm the validity of that exercise and its consequences if disputed.

The Claim Objection Suit (Seikyū Igi no Uttae)

When a party wishes to challenge the enforceability of a final judgment that has become a "title of obligation" (saimu meigi – an instrument upon which execution can be levied), one primary procedural vehicle is the claim objection suit, provided for under Article 35 of the Civil Execution Act. This suit allows a judgment debtor to argue that, due to events or circumstances, the claim established by the judgment no longer exists or is no longer enforceable. Crucially, Article 35(2) stipulates that the grounds for objection must have arisen after the conclusion of oral arguments in the prior litigation that produced the judgment (i.e., after the res judicata reference time).

The illustrative case in Chapter 4-13 of the reference material presents such a scenario: Party A (buyer) was ordered by a final judgment to pay the purchase price to Party B (seller). Subsequent to this judgment, A discovered that B had committed fraud in inducing the sale. A then sent B a formal notice rescinding the purchase contract based on this fraud. To prevent B from enforcing the original judgment for the purchase price, A filed a claim objection suit, arguing that the underlying debt (the obligation to pay the purchase price) had been extinguished by the post-judgment act of rescission.

The Central Dilemma: Preclusion by Res Judicata vs. Recognition of Post-Reference Time Changes

The core tension here is clear. On one hand, the res judicata of the initial judgment affirmed A's obligation to pay as of the reference time. The grounds for rescission (the fraud itself) presumably existed before this reference time, as the fraud would have occurred at or before the contract's formation. The general preclusive effect (shadan-kō) of res judicata would typically bar A from raising defenses in a subsequent proceeding that were based on facts existing prior to the reference time and could have been raised in the original suit.

On the other hand, the act of exercising the formative right of rescission—the declaration by A that extinguishes the contractual obligation—occurs after the reference time. The claim objection suit is specifically designed to address such post-reference time events that alter the enforceability of the judgment.

Historically, the Great Court of Cassation (the predecessor to the modern Supreme Court) tended to be more permissive, often allowing parties to assert legal changes that resulted from the post-reference time exercise of formative rights whose underlying grounds had pre-existed the reference time (see, e.g., Great Court of Cassation, May 28, 1909, Minroku Vol. 15, p. 528).

The Prevailing Modern View: Generally Restrictive for Most Formative Rights

However, contemporary prevailing academic theory and, more significantly, a line of Supreme Court decisions have adopted a generally more restrictive stance concerning many types of formative rights. The dominant view now is that if the factual grounds for exercising a formative right existed prior to the res judicata reference time of the initial judgment, the subsequent exercise of that right after the judgment becomes final cannot typically be used to challenge the enforceability of that judgment.

Key Supreme Court precedents illustrating this include:

• Supreme Court, December 12, 1961 (Minshū Vol. 15, No. 11, p. 2778)
• Supreme Court, October 23, 1980 (Minshū Vol. 34, No. 5, p. 747)

These cases, which often involved rights of rescission (torikeshi-ken), established that if the basis for rescission (e.g., fraud, mistake) was present before the close of oral arguments in the first suit, the party cannot wait until after an unfavorable judgment becomes final to exercise the rescission right and then attempt to undo the judgment's effect through a claim objection suit.

The rationale underpinning this restrictive view is multi-faceted:

1. Defect Inherent in the Original Claim: Many formative rights, such as the right to rescind a contract for fraud or duress, arise from defects or circumstances that were inherent in the very legal relationship (e.g., the contract itself) that was the subject matter of the prior litigation. The res judicata of the judgment is seen as having definitively settled the validity and enforceability of that legal relationship as of the reference time. This implies that the judgment effectively "cleanses" or resolves all pre-existing, unasserted defects or grounds for challenge that could have been raised by the parties during that litigation.
2. Consistency with Treatment of Absolute Nullity: If a contract or legal act was void ab initio (e.g., due to a fundamental lack of contractual intent or illegality), and the facts establishing this nullity existed before the reference time but were not raised as a defense, the assertion of such nullity in a subsequent proceeding would generally be barred by res judicata. It is argued that it would be inconsistent and illogical to allow a "lesser" defect—one that merely renders a contract voidable (requiring the positive exercise of a formative right like rescission)—to be raised post-judgment when a ground for absolute nullity (which requires no such exercise) would be precluded.
3. Promoting Procedural Diligence and Finality: There is a strong policy interest in the finality of judgments. Parties are expected to exercise due diligence in investigating their cases and to raise all available claims and defenses, including those predicated on potential formative rights, during the course of the original litigation. Allowing the post-judgment exercise of pre-existing formative rights to routinely undermine the stability of final judgments is viewed as contrary to principles of procedural economy and fairness to the party who obtained the judgment.

Exceptions to the Restrictive Rule

Despite this general trend, there are important formative rights for which the post-judgment exercise of a pre-existing right is permitted as a ground for a claim objection:

• Right of Set-Off (Sōsai-ken): The right to set off mutual debts (Civil Code Art. 505) is a significant exception. The prevailing view in both case law and scholarship is that a right of set-off, even if the conditions for set-off (i.e., the existence of mutual, matured debts) were met before the res judicata reference time of a prior judgment, can still be exercised after that judgment has become final. This post-judgment set-off can then be asserted as a valid ground in a claim objection suit to reduce or extinguish the judgment debt. This exception is justified by the nature of set-off: it involves the defendant asserting their own independent (counter-)claim against the plaintiff. A defendant is generally not obliged to raise their counterclaims defensively as set-offs in the plaintiff's initial suit; they retain the option to pursue them in a separate action. The special treatment of set-off is also linked to CCP Article 114(2), which specifically provides that a judicial determination on a claim asserted for set-off can have res judicata effect on that portion of the claim.
• Tenant's Statutory Right to Demand Purchase of a Building (Tatemono Kaitori Seikyū-ken): Under specific provisions of Japanese leasehold law (e.g., Article 13 of the Act on Land and Building Leases), when a lease of land for the purpose of owning a building expires and the lessor does not agree to renew it, the lessee has a statutory formative right to demand that the lessor purchase the building on the land at its then-current market value. The Supreme Court has held (e.g., decision of December 15, 1995, Minshū Vol. 49, No. 10, p. 3051) that even if the conditions for exercising this right (lease expiry, no renewal) existed before the res judicata reference time of a prior judgment ordering the lessee to remove the building and vacate the land, the lessee can still exercise this purchase demand right after the judgment becomes final. This post-judgment exercise can then be raised as a defense to the enforcement of the building removal order (typically by arguing that the obligation to remove has been superseded by the obligation to sell). This exception is rooted in the strong statutory policy of protecting lessees and ensuring they are compensated for the value of their buildings upon lease termination under these circumstances.

Academic Debates and Alternative Theories

The prevailing restrictive view, particularly concerning rights like rescission for fraud or mistake, has not been without its critics in academic circles. Several alternative theories and perspectives have been proposed:

• Critique of Inherent Defect Argument (e.g., arguments associated with Prof. Nakano): Some scholars argue that res judicata only confirms the state of the legal relationship as of the reference time. It does not, and cannot, immunize that relationship from subsequent changes, even if those changes are triggered by the exercise of a formative right whose factual basis pre-dated the reference time. The critical new event, from this perspective, is the act of exercising the formative right, which itself occurs after the reference time. Furthermore, if substantive law makes a transaction merely voidable (requiring an act of rescission or cancellation) rather than void from the outset, then the legal relationship remains valid and enforceable until that formative right is actually exercised. To preclude the effect of a post-judgment exercise, these scholars argue, can unfairly deprive a party of a substantive right, especially if, for example, the grounds for rescission (like fraud) were only discovered, or could only reasonably have been discovered, after the original judgment became final. This approach also highlights concerns that a strict preclusion rule could effectively shorten statutory limitation periods for exercising certain formative rights (e.g., the period for rescinding a contract due to fraud under Civil Code Art. 126) if litigation concludes before the party has a full opportunity to discover the grounds or decide to act. A proposed solution from this viewpoint might be to generally allow the assertion of post-judgment exercises unless substantive law itself (e.g., rules on ratification) or overarching principles of procedural good faith (e.g., if a party knew of the grounds during the first suit but deliberately withheld them, thereby implicitly ratifying the transaction through their litigation conduct) would preclude it.
• "Substantive Relationship-Based Duty to Present" Theory (Jittai Kankeiteki Teishutsu Sekinin Setsu - advocated by Prof. Ueda): This theory shifts the focus from a purely temporal analysis of res judicata to an assessment of whether the party, based on their substantive legal position and the broader demands of legal stability and efficient overall dispute resolution, had a responsibility to raise the matter related to the formative right in the prior proceeding. Preclusion would depend on a balancing of the need for legal stability against the imperative of ensuring that the outcome aligns with substantive justice.
• "Responsibility to Exercise Formative Right" Theory (Keiseiken Kōshi Sekinin Setsu - advocated by Prof. Kōno): This perspective focuses on whether substantive law itself imposes a "duty" or at least a strong expectation on the holder of a formative right to exercise it at a reasonably early stage, especially when the underlying legal relationship is already in dispute. If substantive law provides mechanisms for the other party to demand clarification of intent (e.g., under Civil Code Art. 20, allowing a party to demand whether a person with limited capacity will ratify an act, or Art. 547, allowing a demand for whether a contract will be rescinded), and the rights-holder had a clear opportunity to exercise the formative right during the prior litigation but failed to do so, then they might be deemed to have accepted a responsibility to exercise it then, and subsequent assertion could be precluded.
• "Expectation of Finality" and Procedural Good Faith: More recent theories often attempt to integrate concepts of the parties' legitimate expectations of finality arising from a judgment, and principles of procedural good faith. If a party had a full and fair opportunity to litigate all aspects of a transaction, including potential grounds for exercising formative rights, allowing them to subsequently undo the adjudicated outcome by a late exercise of such a right might be seen as contrary to good faith or as unfairly undermining the opponent's reliance on the judgment's finality. The assessment here would heavily depend on the specific conduct and knowledge of the parties during the initial litigation.

Application to the Illustrative Case (Rescission for Fraud)

In the scenario from Chapter 4-13 of the reference material—where A (buyer) seeks to use a post-judgment rescission for fraud to block enforcement of a judgment ordering payment to B (seller)—the prevailing Supreme Court case law (the 1961 and 1980 decisions concerning rescission rights) would likely lead to the conclusion that A's attempt is precluded. The reasoning would be that the fraud was a defect inherent in the original sale contract that A should have raised (by rescinding and pleading this as a defense) during the initial lawsuit where B sought payment. The judgment ordering payment is seen as having conclusively settled A's liability under that contract as of the reference time.

However, applying the alternative academic perspectives could lead to different outcomes:

• If A only discovered the fraud after the reference time and had no reasonable opportunity to do so earlier, and had not otherwise (e.g., by conduct) ratified the contract, Prof. Nakano's approach might allow the post-judgment rescission to be effective. The key would be whether A's failure to act sooner was excusable.
• Theories based on "expectation of finality" or "procedural good faith" would scrutinize whether A had a full and fair opportunity to investigate and litigate the fraud issue in the first suit. If A was aware of the fraud but deliberately chose not to raise it, preclusion would be strongly indicated. Conversely, if A was genuinely and excusably ignorant of the fraud until after the judgment, the argument for allowing the post-judgment rescission to have effect would be considerably stronger. This scenario also touches upon the possibility of seeking a retrial (saishin) if new, decisive evidence of the fraud only emerged after the judgment became final and unappealable, and other strict conditions for retrial are met.

Conclusion

The interaction between the finality of judgments (res judicata) and the subsequent exercise of pre-existing formative rights (keisei-ken) presents a sophisticated and often contentious area within Japanese civil procedure. While early jurisprudence was more inclined to recognize the effects of such post-judgment exercises, the modern Supreme Court has, for many significant formative rights like rescission, adopted a more restrictive stance. This approach generally prioritizes the finality of the initial judgment and expects parties to raise all available challenges, including those based on formative rights, during the original litigation.

Nevertheless, important exceptions exist, notably for the right of set-off and certain statutory protective rights like a tenant's building purchase demand. These exceptions reflect specific policy considerations unique to those rights. The ongoing academic debate, which explores various theoretical frameworks incorporating elements of procedural fairness, good faith, substantive legal duties, and the actual opportunities afforded to parties in the prior proceedings, demonstrates the continuing effort to strike a nuanced balance. For litigants, the overarching practical implication is the critical importance of diligently identifying and asserting all potential claims and defenses, including those predicated on formative rights, within the confines of the initial lawsuit to avoid the risk of subsequent preclusion by the powerful effect of res judicata.