When Can a Debtor Make a Deposit for Performance ("Bensai Kyōtaku") in Japan and What Are Its Effects?

In the course of fulfilling obligations under Japanese law, a debtor might encounter situations where direct performance to the creditor becomes problematic. The creditor might refuse to accept a perfectly valid tender, be unable to accept it, or their identity might even be uncertain. In such circumstances, the Japanese Civil Code (Minpō - 民法) provides a formal mechanism called "Bensai Kyōtaku" (弁済供託 – often translated as "deposit for performance" or simply "deposit"), allowing the debtor to effectively discharge their obligation by depositing the subject matter of the performance with a designated public office. This system serves to protect the diligent debtor from ongoing liability and the burden of continued possession of the performance, while also safeguarding the creditor's ultimate right to receive what is due.

The Necessity and Legal Nature of "Bensai Kyōtaku"

Why is "Kyōtaku" Necessary?

The primary rationale for the "Bensai Kyōtaku" system stems from the debtor's predicament in specific scenarios. Even if a debtor makes a valid "tender of performance" (Bensai no Teikyō - 弁済の提供), which, under Article 492 of the Civil Code, relieves them from liability for default (such as default interest or contract termination by the creditor), the underlying obligation itself is not automatically extinguished. Similarly, if the creditor is in "creditor's delay" (Juryō Chitai - 受領遅滞) under Article 413, imposing certain burdens on the creditor, the original debt still persists. The debtor remains legally bound.

"Bensai Kyōtaku" offers a definitive solution. By making a valid deposit, the debtor can achieve the extinguishment of the obligation, freeing themselves from its bonds and from the practical difficulties of, for example, continuing to store goods that the creditor refuses to accept. Simultaneously, the system ensures that the creditor's interest in the performance is preserved, as the subject matter is held by a neutral state-managed entity (the deposit office or "kyōtaku-sho" - 供託所) for their eventual claim.

Legal Nature of "Kyōtaku"

The prevailing understanding of the legal nature of "Bensai Kyōtaku" is that it constitutes a special type of deposit contract for the benefit of a third party (第三者のためにする寄託契約 - daisansha no tame ni suru kitaku keiyaku). The depositor (typically the debtor or someone performing on their behalf) is one party, and the deposit office is the other. The creditor, for whose benefit the deposit is made, is the third-party beneficiary.

Upon a valid deposit:

• The original obligation owed by the debtor to the creditor is extinguished.
• The creditor (beneficiary) acquires a new, corresponding right to claim the deposited item (or its equivalent, in the case of money) directly from the deposit office. This is known as the "kyōtakubutsu kanpu seikyūken" (供託物還付請求権 - right to claim restitution of the deposited item).

Unlike typical contracts for the benefit of a third party (as generally outlined in Article 537 of the Civil Code), the creditor's explicit declaration of intent to receive the benefit (i.e., accepting the deposit) is generally not required for the primary legal effect of the deposit – the extinguishment of the original debt – to occur.

While it is fundamentally a civil law mechanism, "Bensai Kyōtaku" also possesses a significant public law dimension. Deposit offices are state institutions (typically Legal Affairs Bureaus), and their procedures are governed by public law (the Deposit Act - 供託法 - Kyōtaku-hō, and associated regulations). A Supreme Court Grand Bench decision of July 15, 1970, highlighted this dual nature, noting that while a deposit has characteristics of a private law deposit contract, the deposit officer, when handling claims for withdrawal or reclamation, acts not merely as a contractual counterparty but as an administrative body exercising public authority to ensure the proper functioning of the system and maintain legal order.

Establishment of "Kyōtaku"

A mere intention or agreement to make a deposit is insufficient to constitute a valid "Bensai Kyōtaku". Its establishment is a formal process:

1. The depositor must submit a prescribed deposit application form (供託書 - kyōtaku-sho) along with any necessary supporting documents to the competent deposit office.
2. The deposit officer (供託官 - kyōtaku-kan) reviews these documents to ensure they meet the legal requirements for deposit.
3. If the application is accepted, the depositor must then deliver or pay the actual subject matter of the performance (the "kyōtakubutsu" - 供託物) to the deposit office.
4. For monetary deposits made by bank transfer, the deposit is typically considered complete when the funds are credited to the deposit officer's designated bank account.

Only upon completion of these steps is the deposit legally established.

Various Types of Statutory Deposits

"Bensai Kyōtaku" is one specific form of statutory deposit under Japanese law. The broader concept of "kyōtaku" encompasses several other types, serving different legal purposes. These include:

• Security Deposits ("Tanpo Kyōtaku" - 担保供託): Made to secure potential compensation for damages another party might suffer (e.g., security for costs in litigation, or in connection with provisional remedies like temporary restraining orders).
• Custodial Deposits ("Hokan Kyōtaku" - 保管供託): Made for the safekeeping of items in specific legal circumstances (e.g., under Civil Code Article 394 concerning pledges, or Article 578 concerning sales with a right of redemption; also Commercial Code Article 527).
• Execution Deposits ("Shikkō Kyōtaku" - 執行供託): Deposits made in the context of civil execution proceedings, where the execution court or agency has direct control over the disbursement of the deposited funds. These can be:
  • Voluntary Execution Deposit ("Kenri Kyōtaku" - 権利供託): When a monetary claim has been attached, the third-party obligor (who owes the debt to the judgment debtor) may deposit the full amount with the deposit office in the place of performance of the debt (Civil Execution Act, Article 156(1)). This allows the third-party obligor to discharge their obligation when faced with an attachment.
  • Mandatory Execution Deposit ("Gimu Kyōtaku" - 義務供託): If multiple creditors attach the same monetary claim, or if other creditors demand distribution from an attached claim, the third-party obligor must deposit the amount of the attached claim (Civil Execution Act, Article 156(2)). This ensures an orderly distribution among competing creditors.
  • It's worth noting that if an execution deposit exceeds the amount required to satisfy the executing creditor(s), the excess portion may effectively take on the characteristics of a "Bensai Kyōtaku" with respect to the original judgment debtor.
• Deposits related to Claims with Assignment Restrictions: The Civil Code (Articles 466-2 and 466-3) also provides for special deposit mechanisms when claims subject to assignment restrictions are nonetheless assigned, allowing the debtor to deposit the amount due under certain conditions.

Grounds for "Bensai Kyōtaku" (Art. 494 of the Civil Code)

Article 494 of the Civil Code outlines the primary circumstances under which a debtor (or other authorized performer) can make a "Bensai Kyōtaku":

1. Creditor's Refusal to Accept Performance ("Juryō Kyozetsu")

If the creditor refuses to accept a valid tender of performance, the performer can make a deposit (Art. 494(1)(i)). A common example is a landlord refusing to accept rent at the agreed amount because they are demanding a rent increase.

• Necessity of Prior Tender: The new Civil Code, by adding the phrase 「弁済の提供があった場合において」 ("when a tender of performance has been made") to Article 494(1)(i), explicitly codified what was already established case law: a prior valid tender of performance is generally required before a debtor can deposit on the ground of creditor's refusal. The rationale is that the debtor should make a genuine attempt to perform directly to the creditor before resorting to deposit.
• Exception to Tender Requirement: However, if the creditor has made it unequivocally clear that they will refuse any tender (e.g., a definitive statement of refusal, or persistent past refusals), or if the circumstances are such that demanding a formal tender would be a meaningless gesture, the requirement of prior tender may be excused under the principle of good faith. In such cases, the debtor may proceed directly to deposit. A Supreme Court decision of September 21, 1971, supports this approach.

2. Creditor's Inability to Accept Performance ("Juryō Funō")

If the creditor is unable to accept the tendered performance, the performer can also make a deposit (Art. 494(1)(i)). This inability does not need to be permanent or due to the creditor's fault; a temporary inability, such as the creditor (or their authorized agent) not being present at the agreed place of performance at the due time, can suffice. A Supreme Court decision of July 17, 1934, held that even a temporary absence of the creditor from their domicile (the place of performance) could constitute inability to accept.

• No Prior Tender Required for Deposit: Crucially, when the ground for deposit is the creditor's inability to accept, the law (Art. 494(1)(ii), as interpreted in conjunction with the structure of paragraph 1) does not require the debtor to have made a prior tender of performance before depositing.
• Example – Pledged Claims: If a claim has been pledged as security, and the pledgee has perfected the pledge against the third-party obligor (the debtor of the pledged claim), the pledgor (original creditor) effectively loses the direct right to receive payment. If the pledged claim becomes due, the third-party obligor can make a deposit, citing the pledgor's "inability to accept," because payment should now flow to or be controlled by the pledgee. This protects the third-party obligor from the risk of defaulting while the pledgee's rights are ascertained.
• Distinction from Attached Claims: As mentioned, if a monetary claim is attached by the creditor's own creditors through court execution procedures, the Civil Execution Act provides specific rules for deposit by the third-party obligor (i.e., execution deposits). These execution-related deposits generally take precedence over the "Bensai Kyōtaku" mechanism under Article 494 for such situations.

3. Debtor's Inability to Ascertain the Creditor Without Own Negligence ("Saikensha Kakuchi Funō")

A deposit can also be made if the performer, without negligence on their part, is unable to definitively identify or ascertain who the rightful creditor is (Art. 494(2), main sentence).

• Common Scenarios:
  • Deceased Creditor, Uncertain Heirs: If a creditor dies and their heirs or the successors to their estate are unknown or in dispute. (However, if heirs are known but their respective shares in a divisible claim are merely unclear, deposit on the ground of an unascertainable creditor might not be permitted if the debtor could simply pay each heir according to their presumed statutory inheritance share ).
  • Disputed Assignment of Claim: If a claim has purportedly been assigned, but there is a legitimate dispute between the assignor and assignee as to whom the claim now belongs.
  • Conflicting Notices of Assignment: If the debtor receives multiple notices of assignment for the same claim, and the priority between these assignments is unclear (e.g., if notices with fixed date stamps arrive but their temporal order is uncertain). Conversely, if notices arrive simultaneously, each assignee may have a valid claim for the full amount against the debtor, and a "creditor unascertainable" deposit would typically not be the appropriate recourse for the debtor.
  • Claims with Assignment Restriction (Special Case): For most claims, even if there's an agreement restricting assignment, the new Civil Code (Art. 466(2)) states that the assignment itself is effective. The creditor is ascertainable (it's the assignee). Therefore, a deposit under Art. 494(2) for an "unascertainable creditor" is generally not applicable. Instead, Article 466-2 provides a special right for the debtor to deposit if they are hesitant to pay the assignee due to the restriction, but this is a distinct type of deposit. An exception exists for bank deposit claims with assignment restrictions, where the validity of an assignment to a knowing assignee is treated differently (Art. 466-5), potentially making Art. 494(2) applicable if the assignee's status (and thus the rightful creditor) is genuinely uncertain.
• Requirement of Debtor's Lack of Negligence: The debtor's inability to ascertain the creditor must not stem from their own negligence (Art. 494(2), proviso). The debtor must have made reasonable efforts to identify the correct creditor. The burden of proving that the depositor was negligent typically rests on the party who challenges the validity of the deposit.
• Consequences of Not Depositing: If a debtor is justifiably unable to ascertain the creditor without their own fault but fails to make a deposit, they remain liable for the obligation and may incur default interest or other consequences of non-performance. A Supreme Court decision of June 15, 1999, held a financial institution liable for default interest when it delayed payment while facing disputed claims to a deceased person's deposit, implying that deposit would have been the appropriate protective measure.

Subject Matter of Deposit ("Kyōtaku no Mokutekibutsu")

For a "Bensai Kyōtaku" to be valid and effectively discharge the underlying obligation, the item(s) deposited must strictly conform to the content of the original obligation. The creditor's right against the deposit office must be substantively identical to the original claim.

Conformity with the Obligation

• Exact Performance: If an obligation is to pay a sum of money including principal, interest, and default interest, depositing only the principal amount would generally render the deposit non-conforming and ineffective.
• Type of Subject Matter: Deposits can be made for monetary obligations, but also for movables and even immovables, although the latter are less common due to practical complexities.
• Self-Help Sale ("Jijo Baikyaku" - 自助売却) (Art. 497): If the subject matter of the obligation is unsuitable for physical deposit (e.g., live animals), is perishable, is likely to suffer a significant decline in market value if stored, or if its storage would entail excessive expense or other practical difficulties, the performer can petition a court for permission to sell the item by auction and deposit the net proceeds. The recent Civil Code revision expanded the grounds for such a sale to include situations where "depositing the item is difficult" for reasons beyond its physical nature, such as the lack of a suitable deposit facility at the place of performance.
• No Unilateral Conditions: The deposit generally cannot be made subject to conditions imposed unilaterally by the debtor that the creditor must fulfill before being able to claim the deposited item (e.g., "creditor can receive the funds only if they first execute a deed of mortgage cancellation"). An exception exists if the debtor has a legitimate right to demand simultaneous performance from the creditor (e.g., the mortgage cancellation in exchange for payment); in such cases, the deposit can be made conditional upon the creditor's counter-performance.

Partial Deposit ("Ichibu Kyōtaku")

• General Rule: Invalid: Depositing only a part of the amount or subject matter due under an indivisible obligation is generally not a conforming performance and, therefore, does not typically extinguish the obligation even to the extent of the partial deposit.
• Exceptions:
  • Trivial Shortfall: If the shortfall is extremely minor and insignificant, a court might, under the principle of good faith, deem the deposit substantially complete and effective to the extent of the amount deposited.
  • Multiple Partial Deposits Equaling Full Debt: A Supreme Court decision of September 21, 1971, held that if a series of partial deposits, when aggregated, cover the entirety of the debt, they can collectively be treated as a valid deposit for the full obligation.
  • Disputed Claim Amount: If the total amount of the debt is genuinely disputed, and the debtor deposits the sum they assert is correct with the clear intention that it is in full satisfaction, the creditor's unqualified acceptance of this deposited sum may be construed as an agreement to settle for that amount. However, if the creditor accepts the deposited sum but expressly reserves their right to claim the balance (by notifying both the debtor and the deposit office of this reservation), then the debt is extinguished only to the extent of the amount accepted.
  • Deposit Based on a First Instance Judgment: If a debtor, following a first-instance court judgment ordering them to pay a certain sum, deposits that exact sum with the intention of fully satisfying the judgment debt, and a higher court subsequently determines that a larger amount was actually due, the original deposit is generally considered valid to the extent of the amount deposited. The debtor would then be liable for the remainder (Supreme Court decision of July 18, 1994).
• Burden of Proof: The party asserting the validity and full effect of a deposit (typically the depositor) bears the burden of proving that the deposited amount was sufficient to discharge the entire obligation.

Parties to the Deposit ("Kyōtaku no Tōjisha")

• Depositor ("Bensai-sha" - 弁済者): This is the person making the deposit, who can be the original debtor or any other person entitled to perform the obligation (e.g., a guarantor, a third party with a legitimate interest).
• Deposit Office ("Kyōtaku-sho" - 供託所): This is the public entity receiving and holding the deposit. As noted, this is usually a Legal Affairs Bureau (法務局 - Hōmukyoku) or its branch for monetary deposits and securities, or a specifically designated warehouse operator or bank for other types of goods (Deposit Act, Arts. 1, 5).
• Beneficiary (Creditor): The creditor, in whose favor the deposit is made, is the third-party beneficiary of the deposit contract but not a direct party to the act of depositing. They acquire a right to claim the deposited item from the deposit office.

The deposit must generally be made at the deposit office that has jurisdiction over the place where the original obligation was to be performed (Civil Code, Art. 495(1)). If there is no suitable statutory deposit office at the place of performance, or if the goods are unsuitable for deposit there, the performer can request a court to designate a deposit office or appoint a custodian (Art. 495(2)). However, finding a suitable custodian for non-standard goods can be practically challenging.

Notice of Deposit and Delivery of Deposit Receipt

After making a deposit, the depositor is obligated to notify the creditor of the deposit without delay (Civil Code, Art. 495(3)). The deposit office will issue a deposit receipt ("kyōtaku juryō shōsho" - 供託受領証書), and the depositor should deliver this to the creditor.

However, neither the notification to the creditor by the depositor nor the delivery of the receipt are conditions for the validity of the deposit itself. If a deposit meets all substantive and procedural requirements, it is effective even if the debtor fails to give prompt notice. Such failure might, however, make the debtor liable for any damages the creditor suffers as a result of the delayed notification (e.g., if the creditor incurred costs attempting to collect a debt already discharged by deposit).

In modern practice, the deposit offices themselves usually undertake to notify the person named as the beneficiary (the creditor) of the deposit by sending a deposit notice (供託通知書 - kyōtaku tsūchi-sho). The creditor can then typically use this notice to claim the deposited item. This official notification procedure has made the debtor's independent notification duty under Article 495(3) somewhat less critical in many routine cases, though the statutory duty on the debtor remains. The timing of notice is particularly relevant for determining the starting point of the statute of limitations for the creditor's right to claim the deposited funds or items.

Effects of "Bensai Kyōtaku"

A legally valid "Bensai Kyōtaku" produces several significant legal effects:

1. Extinguishment of the Claim ("Saiken no Shōmetsu")

The primary effect is that the original obligation is extinguished from the moment the valid deposit is completed (Art. 494(1), main sentence). The debtor is thereby released from their debt.
Consequently, any accessory rights or obligations, such as security interests (mortgages, pledges) or guarantees that were tied to the original claim, are also extinguished due to their accessory nature (付従性 - fujūsei).

2. Depositor's Right to Reclaim the Deposited Item ("Kyōtakubutsu Torimodoshi Seikyūken")

Despite the deposit having been made, the depositor retains a right to reclaim or withdraw (取戻し - torimodoshi) the deposited item under certain circumstances (Art. 496(1), first part).

• Grounds for Reclamation:
  • The creditor has not yet "accepted" the deposit (e.g., by formally notifying the deposit office of their intent to receive it, or by actually claiming it). Acceptance communicated to the debtor might not be sufficient to prevent reclamation from the deposit office if the office itself is unaware.
  • A court judgment declaring the deposit to be valid and effective has not yet become final and conclusive.
  • The deposit was made due to a mistake on the part of the depositor, or the original grounds for making the deposit have ceased to exist (e.g., the creditor subsequently becomes willing and able to accept direct performance) (Deposit Act, Art. 8(2)).
• Rationale: This right of reclamation exists because the deposit system is primarily for the debtor's benefit, allowing them to change their mind (perhaps if circumstances change, or if they reach a direct settlement with the creditor) and retrieve the performance, albeit at the cost of reviving the original obligation.
• Restrictions on Reclamation (Art. 496(2)): A crucial limitation exists: if the extinguished claim was secured by a pledge (shichi-ken - 質権) or a mortgage (teitō-ken - 抵当権), the depositor cannot reclaim the deposited item. This rule protects third parties (e.g., junior mortgagees, or purchasers of the formerly encumbered property) who may have relied on the extinguishment of the senior secured claim and the associated security interest. Allowing reclamation in such cases would unfairly revive the extinguished security to their detriment. This principle has been extended by analogy to cases where a security assignment (jōto tanpo - 譲渡担保) was extinguished by the deposit.
  • However, if the original claim was secured only by a guarantee or involved co-obligors, reclamation by the depositor is generally permitted. The revival of the guarantee or the co-obligors' liabilities is not seen as unfairly prejudicing third-party property rights in the same way as the revival of a real security interest.
• Effect of Reclamation (Art. 496(1), second part): If the depositor validly reclaims the deposited item, the law deems it as if "no deposit had been made". Consequently, the original obligation, which was extinguished by the deposit, revives. This means the initial extinguishment of the debt by deposit is effectively conditional upon the depositor not exercising their right of reclamation.
• Statute of Limitations for Reclamation Right: The depositor's right to reclaim is itself subject to the general rules of the statute of limitations. A Supreme Court Grand Bench decision of July 15, 1970, held that this right is not subject to the shorter fiscal prescription periods but to ordinary civil prescription. The prescriptive period generally begins to run when the depositor no longer has a need for the deposit to secure their discharge from the obligation (e.g., if the underlying legal dispute with the creditor is definitively resolved in a way that makes the deposit unnecessary). This interpretation acknowledges that a depositor might reasonably refrain from reclaiming while the deposit still serves a protective purpose.

3. Creditor's Right to Claim Delivery of the Deposited Item ("Kyōtakubutsu Kanpu Seikyūken")

Once a valid deposit is made, the creditor (or other rightful beneficiary) acquires a direct right to claim the deposited item (or its monetary equivalent) from the deposit office (Art. 498(1) of the Civil Code; Art. 8(1) of the Deposit Act). This "kyōtakubutsu kanpu seikyūken" is, in substance, the replacement for their original claim against the debtor.

• Counter-Performance by Creditor (Art. 498(2)): If the creditor themselves owed a counter-performance to the debtor that was a condition for, or was to be performed simultaneously with, the debtor's original obligation (e.g., in a bilateral contract), the creditor must fulfill their own counter-obligation before they are entitled to receive the deposited item from the deposit office (also Deposit Act, Art. 10).
• Proof of Entitlement for Unascertainable Creditor Deposits: If the deposit was made because the creditor was unascertainable, any person claiming the deposited item must furnish the deposit office with documents that sufficiently prove their entitlement to it (Deposit Act, Art. 8(1); Deposit Rules, Art. 24(1)(i)).
• Statute of Limitations: The creditor's right to claim the deposited item is also subject to a statute of limitations. The period typically begins to run when the creditor receives notice of the deposit.

4. Transfer of Ownership of the Deposited Item ("Shoyūken no Iten")

The effect of the deposit on the ownership of the subject matter depends on its nature:

• Monetary Deposits: When money is deposited, it is treated as a "deposit for consumption" (消費寄託 - shōhi kitaku) under Article 666 of the Civil Code. This means ownership of the specific currency notes or coins passes to the deposit office (or the State). The creditor then acquires a claim against the deposit office for the payment of an equivalent sum of money, not for the return of the identical currency.
• Deposits of Specific Things: If a specific, non-fungible thing is deposited (e.g., a particular piece of artwork), ownership of that thing generally transfers from the depositor to the creditor at the time the deposit contract is concluded and the item is handed over to the deposit office. The deposit office then holds the item as a custodian for the creditor, who is now the owner. Consequently, the risk of accidental loss or damage to the specific thing generally passes to the creditor from the time of the valid deposit.

Conclusion

"Bensai Kyōtaku" is an indispensable legal instrument in Japan, providing a pathway for debtors to achieve finality and discharge from their obligations when direct performance to the creditor is impeded. By understanding the specific grounds that permit a deposit—creditor's refusal, inability to accept, or the performer's non-negligent inability to ascertain the creditor—and by adhering to the procedural requirements, a debtor can effectively extinguish their debt. The system balances the debtor's need for release with the creditor's right to eventually receive the performance, albeit through the intermediary of the deposit office. The effects of a valid deposit are significant, including the extinguishment of the claim, the creation of new rights for the creditor against the deposit office, and, under certain conditions, a right for the depositor to reclaim the deposited item. For businesses and legal advisors, familiarity with this system is crucial for managing obligations effectively in challenging performance scenarios.