Unable to Perform Due to Creditor Issues in Japan: When Can I Use "Deposit for Performance" (Bensai Kyotaku) to Discharge My Obligation?

Imagine you are a debtor in Japan, ready and willing to fulfill your contractual obligation, but you encounter a roadblock: your creditor either refuses to accept your performance, is unable to accept it, or perhaps their identity or whereabouts are unknown. In such challenging circumstances, Japanese law provides a valuable mechanism called "Bensai Kyotaku" (弁済供託), or "Deposit for Performance." This system allows a debtor to deposit the subject matter of their performance with an official depository, thereby legally discharging their obligation and mitigating further risks. This article explores when and how this useful tool can be employed.

What is "Deposit for Performance" (Bensai Kyotaku)?

Bensai Kyotaku, governed by Article 494 et seq. of the Japanese Civil Code and procedural rules in the Deposit Act (Kyotaku Ho), is a legal system that permits a debtor to be relieved of their obligation by depositing the object of performance (e.g., money, securities, or other goods) with a designated official depository, typically the Legal Affairs Bureau (Homukyoku 法務局).

The core purpose of this system is to protect a diligent debtor who is prevented from making direct performance to the creditor due to circumstances on the creditor's side or uncertainty regarding the creditor. By making a valid deposit, the debtor can:

• Achieve a definitive discharge of their debt.
• Stop the accrual of interest or damages for delay.
• Transfer the risk of loss or damage to the deposited item to the creditor.

Grounds for Making a Deposit (Japanese Civil Code Art. 494, Para. 1)

A debtor can make a deposit for performance if one of the following statutory grounds exists:

1. Creditor Refuses to Accept Performance (Juryo Kyozetsu 受領拒絶):
   This occurs when the debtor has made a proper tender of performance (either an "actual tender" or a sufficient "oral tender" as required by law), but the creditor actively rejects it without a valid reason.
   • Example: A seller attempts to deliver conforming goods on the agreed date, but the buyer refuses to take delivery.
2. Creditor Is Unable to Accept Performance (Juryo Funo 受領不能):
   This ground applies when the creditor, due to circumstances attributable to them or their sphere of control, cannot receive the tendered performance. It's not necessarily about a "refusal" but rather an objective inability.
   • Examples: The creditor is not present at the agreed place and time for delivery; the creditor's designated facility is unprepared to receive the goods (e.g., lack of storage space, personnel unavailable); the creditor is incapacitated and has no appointed representative to accept.
     These first two grounds often overlap with the concept of "Creditor's Delay in Acceptance" (Juryo Chitai).
3. Debtor Is Unable to Ascertain the Creditor Without Debtor's Own Negligence (Saikensha Fukakuchi 債権者不確知):
   This applies when the identity or whereabouts of the rightful creditor are genuinely unknown to the debtor, and this lack of knowledge is not due to the debtor's own fault or negligence. The debtor must have made reasonable efforts to identify or locate the creditor.
   • Examples:
     • The original creditor has died, and their heirs are unknown, in dispute, or their identities cannot be readily confirmed.
     • Multiple parties assert conflicting claims to the same debt (e.g., the original creditor and an alleged assignee, and the debtor cannot safely determine who is entitled to payment).
     • The creditor has moved or changed their business without providing a forwarding address or contact information, and reasonable attempts to locate them have failed.
       The phrase "without debtor's own negligence" implies that the debtor has a duty to make reasonable inquiries to ascertain the creditor. If the uncertainty is due to the debtor's failure to exercise such care, deposit on this ground may not be valid.

What Can Be Deposited?

The general rule is that the subject matter of the performance itself (kyufu mokutekibutsu 給付目的物) should be deposited. This most commonly involves:

• Money (Japanese Yen or foreign currency, subject to depository rules).
• Securities (e.g., share certificates, bonds).
• Other deliverable goods.

Special Rule for Goods Unsuitable for Deposit (Japanese Civil Code Art. 497):
If the goods to be performed are:

• Perishable (e.g., fresh produce).
• Excessively bulky, making physical deposit impractical.
• Likely to incur disproportionately high storage costs.
  The debtor can, with the permission of the court having jurisdiction over the place of performance, sell the goods through an official auction (or, if difficult, by private sale after obtaining court permission) and deposit the net proceeds from the sale. This "self-help sale" (jikko-baibai 自助売買) followed by deposit of proceeds achieves the same discharging effect.

The Deposit Procedure

The actual procedure for making a deposit is governed by the Deposit Act and related regulations. Key steps generally include:

1. Application to the Competent Depository Office: The debtor (or their representative) must file a formal deposit application with the official depository. This is usually the Legal Affairs Bureau (Homukyoku) that has jurisdiction over the "place of performance" (saimu no rikochi 債務の履行地) of the obligation. If the contract doesn't specify a place of performance, general Civil Code rules (e.g., Art. 484) determine it.
2. Information Required in the Application: The application form requires specific details, including:
   • Name and address of the depositor (debtor).
   • Name and address of the person for whom the deposit is made (the creditor, if known).
   • The facts giving rise to the obligation (e.g., contract details).
   • The specific ground for making the deposit (e.g., creditor's refusal to accept).
   • A description of the item(s) being deposited.
3. Actual Deposit: The money or goods are then physically handed over or transferred to the depository.
4. Notification to the Creditor (Japanese Civil Code Art. 495, Para. 3):
   After making the deposit, the debtor must notify the creditor (or the person entitled to receive performance, if ascertained) of the deposit without delay. This notification is crucial for the creditor to become aware of their right to claim the deposited item.
   • While failure to provide this notice does not necessarily invalidate the deposit itself (the obligation is discharged upon valid deposit regardless of notification), it can have consequences. For example, the debtor might be liable for any damages the creditor suffers due to the lack of timely notification.

Legal Effects of a Valid Deposit (Japanese Civil Code Art. 494, Para. 1)

A valid deposit for performance has several significant legal effects:

1. Discharge of the Obligation: This is the primary and most important consequence. From the moment a valid deposit is made, the debtor's obligation is deemed to have been extinguished, just as if direct performance had been made to and accepted by the creditor.
2. Transfer of Risk: The risk of accidental loss or damage to the deposited item generally shifts from the debtor to the creditor. If the deposited goods are subsequently destroyed without fault of the depository, the loss falls on the creditor.
3. Cessation of Interest and Delay Damages: Since the obligation is discharged, interest on the principal amount and any damages for delay cease to accrue from the time of the valid deposit.
4. Creditor's Right to Claim the Deposited Item (Japanese Civil Code Art. 496, Para. 1):
   The creditor (or their rightful successor) acquires the right to claim (or "retrieve") the deposited item or money from the depository office by following the prescribed procedures (which typically involve submitting a claim form and proof of entitlement).

The Debtor's (Limited) Right to Recover the Deposited Item (Article 496)

Under certain circumstances, the debtor who made the deposit may have the right to recover (withdraw) the deposited item.

• General Rule for Recovery (Art. 496, Para. 1): The debtor can generally recover the deposited item as long as:
  • The creditor has not yet given their consent to the deposit (i.e., formally acknowledged and accepted it).
  • The creditor has not yet obtained a final and binding court judgment affirming their right to the deposited item.
  • A court has not issued a notice of attachment (e.g., by another creditor of the named recipient) on the recipient's right to claim the deposited item.
• Effect of Recovery by Debtor (Art. 496, Para. 2): If the debtor successfully recovers the deposited item, the deposit is deemed not to have been made from the beginning. This means the original obligation revives as if no deposit had occurred, and any effects like discharge or cessation of interest are nullified.
• When Recovery by Debtor is Barred (Art. 496, Para. 1, proviso): The debtor cannot recover the deposited item if a pledge or mortgage that existed on the claim (which was discharged by the deposit) has itself been extinguished as a result of the deposit being made. This protects the interests of secured parties whose security might have been affected by the deposit.

It is also important to distinguish a "deposit due to mistake" (sakugo ni yoru kyotaku), which is more akin to a provisional deposit where the depositor intended to retain control, from a true deposit for performance aiming for discharge.

Specific Considerations and Special Types of Deposit

• Deposit with Reservation (Ryuho-tsuki Kyotaku 留保付供託): A debtor may sometimes make a deposit while attaching certain conditions or reservations. For instance, in a bilateral contract, a debtor might deposit their performance (e.g., payment) on the condition that the creditor simultaneously performs their counter-obligation. The effect of discharge in such cases may be conditional upon the fulfillment of the stated reservation.
• Deposit by a Third Party: If a third party has a legitimate interest in performing the debtor's obligation (e.g., a guarantor), they can generally make a deposit for performance on behalf of the debtor.
• Distinction from Other Types of Deposits: Bensai Kyotaku should be distinguished from other types of deposits made for different legal purposes, such as:
  • Deposits for security (tanpo kyotaku), e.g., security deposits in leases.
  • Deposits for guarantee (hosho kyotaku).
  • Deposits made in the context of compulsory execution (shikko kyotaku), e.g., when a monetary claim owed by a third party to the judgment debtor is attached, that third party might deposit the sum.
• Deposit to Address Non-Conformity in Sales (Art. 567, Para. 3): A special rule exists for sales: if a seller tenders goods that are non-conforming but also offers compensation for the non-conformity, and the buyer refuses to accept both, the seller may deposit the goods and the offered compensation, thereby potentially discharging their obligation related to the non-conformity.

Conclusion

The "Deposit for Performance" (Bensai Kyotaku) system in Japan offers a crucial avenue of relief for debtors who are ready to perform but are hindered by issues attributable to the creditor or by uncertainty regarding the creditor's identity. By understanding the specific grounds that permit a deposit, adhering to the correct procedures (including notification), and being aware of the legal effects, debtors can effectively discharge their obligations, mitigate ongoing risks like interest accrual, and achieve legal finality. This mechanism underscores the Japanese legal system's approach to balancing the rights and responsibilities of both debtors and creditors in the performance of obligations.