Contract Law

Supreme Court Decision of October 25, 1994, 48 Minshu 7-1303. The Court allowed consideration of a lessor’s payment of, and subsequent proposal to increase the amount of, a "departure fee" to a lessee for the purposes of determining whether the lessor was entitled to refuse to renew a lease of underlying property with a building owner under Land Lease Law Article 4(1)(prior to revision of Land Lease Law in 1991). Land Lease Law Article 4(1) prohibits a lessor of underlying property upon which the lessee has built a building from refusing to renew the lease for the statutorily required thirty (30) years absent an expression of the lessor’s own intention of using the land or "other appropriate reason." The lessor had proposed the payment of a "departure fee" while the parties were embroiled in litigation regarding the lease, but before the conclusion of oral argument. Nonetheless, there being no opposition to the "departure fee" by the lessee under Land Lease Law 6(2), the Court allowed consideration of both the "departure fee" and the lessor’s proposal to increase the amount of the "departure fee" in determining whether the lessor’s refusal to renew was based on an "appropriate reason" under the Land Lease Law Article 4(1), absent evidence that the lessor had intentionally delayed the proposal.

Supreme Court Third Petty Bench Decision of December 6, 1994, 1519 Hanji 78, 872 Hanta 174, 1414 Kinho 28. The Court overturned the lower court in holding that the maximum liability of a guarantor who had executed a guaranty agreement and security agreement was the value of the property offered pursuant to the security agreement and not the total amount of the debtor's obligation. The debtor had requested that the guarantor, the debtor's ex-wife, act as a guarantor with respect to ongoing loans of operating capital for the debtor's convenience store. The Court found that the objective circumstances of the transaction indicated that both the guarantor and the entity seeking the guaranty understood that the limit of the guarantor's liability was value of the guarantor's home which had been offered as collateral for the guaranty.

Supreme Court Second Petty Bench Decision of January 20, 1995, 1520 Hanji 87, 873 Hanta 89. The Court reversed a lower court ruling and held that a close reading of various provisions of a golf membership agreement prohibited the transfer of rights of membership despite the fact that the membership was a "deposit" type membership, and that, unlike other types of golf memberships, the transfer of "deposit" type golf memberships is not expressly prohibited. The Court found that the underlying meaning of the contract was to prohibit transfer of the rights of membership.

Supreme Court First Petty Bench Decision of June 29, 1995, 1541 Hanji 92, 887 Hanta 174. The Court reversed a lower court’s application of the Land Lease Law (prior to its revision in 1991) to a lessor’s proposed termination of a daycare center's lease of adjoining property. In 1961, the daycare center had entered into a two year renewable lease for the use of adjoining property as a playground since construction of an additional building on the daycare's property would eliminate the original playground. The lower court had interpreted the lease as governed by the Land Lease Law, which imposes specific lease terms and restrictions on termination to leases of property "for the purpose of owning a structure" (Land Lease Law, Article 1). Viewing the daycare center’s lease of the adjoining property as indivisible from its intention to own the additional building on its own property, the lower court had denied the lessor’s proposed termination and imposed, pursuant to Land Lease Law Article 2(1) a lease term of thirty (30) years. The Court disagreed, indicating that the daycare center's purpose was simply to use the adjoining property as a playground, and that, as a result, neither the lease term nor the landlord’s termination was subject to the Land Lease Law.

Supreme Court Third Petty Bench Decision of September 19, 1995, 49 Minshu 8-2805, 1551 Hanji 69, 896 Hanta 89. The Court ruled in favor of a contractor who had entered into an agreement with the lessee of a building for the performance of repair and improvement construction. The lessee had become insolvent after completion of the contracted services, and the plaintiff contractor had commenced an action against the owner of the building for restitution of the amount of unjust enrichment. The Court allowed the claim for unjust enrichment based on the fact that during the term of the lease, the owner had received the benefit of the contracted services without consideration.

Supreme Court Third Petty Bench Decision of November 12, 1996, 50 Minshu 10-2673, 1585 Hanji 21, 925 Hanta 171. The Court reversed a lower court determination regarding the cross termination of contracts. The defendant company, engaged in the construction and sale of resort condominiums, also owned and operated a sports club in the resort facility. As part of their purchase of condominiums under construction by the defendant, each of the plaintiff purchasers was also required to enter into a membership agreement for the resort sports club. The agreement provided for the termination of the membership in the event of the plaintiffs’ transfer of interest in the purchased condominium to a third party, making the club membership inextricably related to ownership of the condominium. During negotiations and in its promotional material, the defendant had listed an indoor pool among the amenities of the sports club, which was projected to be completed approximately ten months after completion of the rest of the resort facility. As, long after this projected date of completion, construction of the pool had not begun, the plaintiffs notified the defendant of their intention to rescind both the condominium sales agreement and the sports club membership agreement. The trial court (Osaka District Court Decision of December 19, 1994) found in favor of the plaintiffs, viewing the condominium sales agreement and the sports club membership agreement "indivisible" insofar as the defendant’s obligation to provide an indoor pool was an element of its obligations under both agreements. The Court of Appeals (Osaka High Court Decision of January 31, 1996) found in favor of the defendants, viewing the sports club membership agreement as only one component of the condominium sales agreement. Reversing, the Court noted that even where the obligation of the parties are memorialized in more than one agreement, where they have a mutual purpose and the performance of a parties obligation under only one of the agreements would not accomplish this purpose, exercise of rescission rights as a result of a party’s failure to perform under one agreement appropriately allows rescission of the other agreement.