Void vs. Voidable Contracts in Japan: What's the Difference and Why Does It Matter?

Japanese Attorney at Law - Bengoshi L.L.

• 10 min read

In the intricate world of legal agreements, not all purported contracts or juridical acts (legally significant actions intended to create legal effects) stand on firm ground. Some may be flawed from their inception, while others may carry a defect that allows a party to nullify them. Japanese civil law, like many other legal systems, distinguishes between acts that are "void" (mukō - 無効) and those that are "cancellable" or "voidable" (torikeshi kanō - 取消可能). Understanding this distinction is paramount, as it dictates the legal status of an act, who can challenge its effectiveness, against whom, within what timeframe, and the ultimate consequences for the parties involved and potentially for third parties.

The Concept of a "Void" (Mukō) Juridical Act in Japan

A juridical act that is void is considered to have had no legal effect from the very beginning (ab initio). It is a legal nullity, meaning that, in the eyes of the law, it never came into existence as a valid act capable of producing its intended legal consequences.

Grounds for Voidness

Several circumstances can render a juridical act void under Japanese law. These typically involve fundamental flaws that prevent the act from being recognized by the legal system:

  1. Lack of Mental Capacity (Ishi Munōryoku - 意思無能力): If a party lacked the requisite mental capacity to understand the nature and consequences of their actions at the time of the juridical act (e.g., due to severe intoxication or profound mental disability not covered by the formal "limited capacity" regimes), the act is generally considered void.
  2. Fundamental Indeterminacy of Content: If the content of the juridical act is so vague or ambiguous that its terms cannot be ascertained, it may be treated as void for lack of a clear agreement.
  3. Initial Impossibility of Performance (Genshi-teki Funō - 原始的不能): Historically, if the performance of a juridical act was impossible from the very outset (e.g., a contract to sell a specific item that had already been destroyed before the contract was made), the act was often considered void. However, the revised Civil Code (effective 2020) has shifted this perspective; initial impossibility alone does not necessarily render a contract void but may lead to remedies such as damages or termination.
  4. Violation of Mandatory Statutory Provisions: Acts that contravene mandatory provisions of law (rules from which parties cannot deviate by agreement) are typically void.
  5. Contravention of Public Order and Good Morals (Kōjo Ryōzoku - 公序良俗): Juridical acts that are contrary to public policy or societal moral standards are void under Article 90 of the Civil Code (e.g., contracts to commit a crime, grossly unfair or exploitative agreements).
  6. Fictitious Manifestations (Kyogi Hyōji - 虚偽表示): When parties collude to create a false appearance of a juridical act without intending it to have effect between them, the act is void (Article 94, Paragraph 1).
  7. Mental Reservation (Shinri Ryūho - 心裡留保) under Specific Conditions: If a declarant makes a manifestation of intention knowing it is not their true intent, it is void if the other party knew or was negligent in not knowing this (Article 93, Paragraph 1, proviso).
  8. (Historically) Mistake (Sakugo - 錯誤): Under the pre-2020 Civil Code, a mistake in an essential element of a juridical act rendered it void. The revised Code has changed this, making such acts cancellable instead.
  9. Unconscionable Clauses in Consumer Contracts: Specific clauses in consumer contracts that are deemed unfairly detrimental to consumers can be void under the Consumer Contract Act.
  10. Effect of Cancellation: When a cancellable juridical act is validly cancelled, it becomes void retroactively.

Effects of Voidness

  • No Legal Obligations Arise: Since a void act is a nullity from the start, it creates no enforceable rights or obligations between the parties. Performance cannot be demanded.
  • Restitution of Performance: If any performance has been rendered under a void juridical act (e.g., money paid, property transferred), the recipient has no legal basis to retain it. Such performance must generally be returned under the principles of unjust enrichment. The revised Civil Code (Article 121-2) establishes "restoration to the original state" (genjō kaifuku) as the primary principle for restitution following a void (or cancelled) act. This means parties should be returned to the position they were in before the act. Exceptions to full restoration exist, for instance, for gratuitous acts where the recipient was in good faith, or for acts by persons who lacked mental capacity or had limited capacity, whose return obligation is typically limited to their "existing enrichment."
  • Assertion of Voidness: Generally, voidness is absolute (zettai-teki mukō). This implies that its nullity can, in principle, be asserted by anyone (not just the parties to the act), against anyone, and at any time (though claims for restitution are subject to statutes of limitations, and rights might be affected by doctrines like acquisitive prescription). No specific legal action is usually required to "make" a void act void; it simply is void.
  • Relative Voidness (Sōtai-teki Mukō): However, there are important exceptions where the voidness is "relative." For example, the voidness of a fictitious manifestation cannot be asserted against a good-faith third party (Article 94, Paragraph 2). Similarly, it is often argued that voidness due to lack of mental capacity should only be assertable by the incapable person or those acting on their behalf, to protect them.
  • "Ratification" of Void Acts (Article 119): A truly void juridical act cannot be "ratified" (tsuin) in a way that makes it retroactively valid from its inception. However, if the parties who engaged in the void act later, with full knowledge of the voidness (and assuming the cause of voidness no longer exists, e.g., a party has regained mental capacity), affirm their intention to be bound by its terms, Article 119 of the Civil Code provides that this is generally considered the creation of a new juridical act with the same content, effective from the time of this new affirmation or "ratification." This is not possible if the act is void due to contravention of public order or mandatory laws that still apply.

Partial Voidness vs. Total Voidness

If a ground for voidness affects only a part of a juridical act (e.g., a single illegal clause within an otherwise valid contract):

  • Partial Voidness of a Clause: Sometimes, only the offending part of a specific clause might be void, allowing the remainder of the clause to stand if it is severable and makes sense independently (e.g., if a liquidated damages clause sets an excessively high amount, only the excessive portion might be struck down).
  • Voidness of a Clause Affecting the Entire Act: The general principle (often drawn from the spirit of former Article 130, though not directly applicable to all partial voidness) is that if a part of a juridical act is void, the remainder of the act is, in principle, still valid. However, if the void part was an essential and inseparable component of the agreement, such that the parties would not have entered into the juridical act at all without that void part, then the entire juridical act will be deemed void (total voidness - zenbu mukō). For example, in certain exploitative historical contracts like geishōgi keiyaku (indentured prostitute contracts), the illegal servitude component was often deemed inseparable from an associated loan component, rendering the entire arrangement void. Courts aim to uphold the parties' presumed intentions to the extent possible, severing only the void portion unless doing so would fundamentally alter the nature of the agreement or defeat its core purpose.

The Concept of a "Cancellable" (Torikeshi Kanō) Juridical Act

A cancellable (or voidable) juridical act is one that is initially valid and effective but contains a specific defect that gives one or more of the parties the legal right to cancel it (torikeshi-ken - 取消権). Until this right of cancellation is exercised, the juridical act remains valid and binding (this state is sometimes described as "uncertainly valid" - fu kakutei-teki yūkō or fudō-teki yūkō).

Grounds for Cancellation

The grounds for cancellation are specifically enumerated by law and typically involve situations where a party's consent was not freely or properly given, or where a party lacked full legal capacity:

  1. Acts by Persons with Limited Legal Capacity (Seigen Kōi Nōryoku-sha - 制限行為能力者): Juridical acts made by minors, adult wards, persons under curatorship (hosa-nin), or persons under assistance (hojo-nin) without the necessary consent or in contravention of the limitations on their capacity are generally cancellable (Civil Code, Articles 5, 9, 13, 17).
  2. Flawed Manifestations of Intention:
    • Mistake (Sakugo - 錯誤): Under the revised Civil Code (Article 95), a manifestation of intention based on a material mistake can be cancelled, subject to certain conditions (such as the mistake not being due to the declarant's gross negligence, unless specific exceptions apply).
    • Fraud (Sagi - 詐欺): A manifestation of intention induced by fraud can be cancelled (Article 96).
    • Duress (Kyōhaku - 強迫): A manifestation of intention induced by duress can be cancelled (Article 96).
  3. Specific Grounds under the Consumer Contract Act: This Act provides consumers with rights to cancel contracts entered into as a result of certain misleading or coercive practices by businesses, or in cases of excessive quantity contracts.

The Act of Cancellation

  • Who Can Cancel (Article 120): The right to cancel is granted to specific individuals:
    • In cases of limited capacity: The person with limited capacity themselves (even if still under limitation, provided they have mental capacity to understand the act of cancellation), their legal representative (agent), successor, or a person who had the right to consent to the original act.
    • In cases of flawed manifestation (mistake, fraud, duress): The person who made the flawed manifestation, their agent, or successor.
  • Method of Cancellation (Article 123): Cancellation is effected by a unilateral manifestation of intention by the person holding the right to cancel, addressed to the other party of the original juridical act. No court order is initially required to effect the cancellation itself, though a court might later be involved if the cancellation or its effects are disputed.

Effects of Cancellation

  • Retroactive Voidness (Article 121): Upon valid cancellation, the juridical act is deemed to have been void from the beginning. Its initial validity is retrospectively extinguished.
  • Restitution: As with void acts, any performance already rendered under the cancellable act must be returned. The principles of "restoration to original state" under Article 121-2 apply. There is a special protective rule for persons with limited capacity: when their act is cancelled due to their limited capacity, their obligation to make restitution is limited to the extent of their "existing enrichment" (Article 121-2, Paragraph 3 of the revised Civil Code).
  • Protection of Third Parties: The effect of cancellation on third parties who acquired interests before the cancellation varies depending on the ground for cancellation:
    • Mistake (Article 95, Paragraph 4): Cancellation cannot be asserted against a third party who was in good faith and without negligence.
    • Fraud (Article 96, Paragraph 3 - Revised): Cancellation cannot be asserted against a third party who was in good faith and without negligence.
    • Duress: Cancellation due to duress can be asserted even against a third party who was in good faith and without negligence. The victim of duress receives stronger protection.

Making a Cancellable Act Definitively Valid or Invalid

A cancellable juridical act exists in a state of uncertainty. This uncertainty can be resolved in several ways:

1. Ratification (Tsuin - 追認) of a Cancellable Act

The party who has the right to cancel a juridical act may choose to ratify it. Ratification is a confirmation of the act, making it definitively valid and no longer subject to cancellation (Article 122 of the Civil Code).

  • Requirements for Valid Ratification (Article 124, revised):
    • It must generally be done after the situation that was the ground for cancellation has ceased. For example, a minor must typically reach the age of majority before they can validly ratify an act they made as a minor. A victim of fraud must become aware of the fraud, and a victim of duress must be free from its influence.
    • It must be done with knowledge that the act is cancellable. The revised Article 124, Paragraph 1 makes this a clear general requirement, reflecting case law under the old code (e.g., Daishin'in judgment, December 28, 1926, Minroku Vol. 22, p. 2529) which viewed ratification as a waiver of the right to cancel, thus requiring knowledge of that right.
    • Exceptions to the timing requirement exist, for instance, when a legal representative ratifies on behalf of a person with limited capacity.

2. Statutory Ratification (Hōtei Tsuin - 法定追認)

Certain actions undertaken by the person entitled to cancel, after they are in a position to validly ratify (i.e., after the ground for cancellation has ceased and, under the revised code, with knowledge of cancellability), are legally deemed to constitute ratification, unless an explicit objection or reservation of the right to cancel is made at the time of the action (Article 125 of the Civil Code). These actions include:

  • Full or partial performance of an obligation arising from the cancellable act.
  • Demanding performance from the other party.
  • Entering into a novation of the debt.
  • Providing security for an obligation under the act.
  • Transferring all or part of the rights acquired through the act.
  • Levying compulsory execution.

The rationale is that such conduct is generally inconsistent with an intention to cancel and creates a strong expectation in the other party that the act will be upheld.

3. Extinction of the Right to Cancel by Lapse of Time (Article 126)

To ensure legal stability and prevent relationships from remaining indefinitely uncertain, the right to cancel is subject to time limitations. Article 126 of the Civil Code provides that the right to cancel is extinguished by prescription if it is not exercised:

  • Within five years from the time when ratification becomes possible (e.g., from when a minor reaches majority, or fraud is discovered, or duress ends).
  • Within twenty years from the time of the juridical act itself.

Whichever of these periods expires first will extinguish the right to cancel. This period is generally considered by scholars and courts to be a "period of exclusion" (joseki kikan - 除斥期間) rather than a typical statute of limitations (shōmetsu jikō - 消滅時効). This means, among other things, that it is generally not subject to interruption or renewal (as statutes of limitations can be) and that a court may take notice of its expiry even if not specifically pleaded by a party.

Void vs. Cancellable: Why the Distinction Matters in Practice

The distinction between a void juridical act and a cancellable one is not merely academic; it has significant practical consequences:

  • Assertion: Voidness can often be asserted by a wider range of people and against a wider range of people (though with exceptions for relative voidness). The right to cancel is typically personal to specific individuals.
  • Time Limits: There is generally no time limit for asserting that an act is void (though related claims like restitution are time-barred). The right to cancel is strictly limited by the periods in Article 126.
  • Ratification: A void act generally cannot be made retroactively valid by ratification (it becomes a new act). A cancellable act can be ratified to confirm its validity from the outset.
  • Third-Party Rights: The impact on third parties often differs. While good-faith third parties receive some protection in both scenarios, the specific conditions (e.g., the "without negligence" requirement for mistake and fraud under the revised code for cancellation) and the scope of that protection can vary significantly.
  • Burden of Proof: A party claiming an act is void must prove the grounds for voidness. A party wishing to nullify a cancellable act must not only prove the grounds for cancellation but also actively exercise their right to cancel.

The Japanese Civil Code's distinction between void and cancellable juridical acts provides a structured approach to dealing with agreements or actions that are fundamentally flawed or based on tainted consent. Void acts are treated as legal nullities from inception, whereas cancellable acts remain valid until a party with the right to do so chooses to annul them. The grounds for each, the effects on the parties and third parties, and the mechanisms for confirming or nullifying such acts (like ratification or the lapse of the cancellation period) all have critical practical implications. The revisions to the Civil Code, particularly concerning mistake and the rules for restitution, have further refined this framework, generally aiming for clearer outcomes and appropriate balancing of interests. For businesses and individuals alike, understanding these distinctions is essential for assessing the enforceability of agreements and navigating the legal consequences when a juridical act's effectiveness is called into question.