Judicial precedent itroduction


Contract,Others

1. Right of creditors to secure property

Generally, a construction company may withhold final transfer of a completed building until all debts are cleared.

But the Tokyo High Court ruled against such refusals when executed under bad faith. In this case, a construction company already had, by handing over a set of keys to the seller, constructively delivered the property. It may not then refuse to release the property to a subsequent bona fide purchaser.

2. Right of tenant supercedes mortgagee's

The Supreme Court ruled in favor of a tenant who claimed priority over the rights of a mortgagee. In this case a landlord rented his mortgaged house to a tenant, securing a large security deposit, and subsequently defaulted on payments to the mortgagee. The mortgagee then attached the rent; and the tenant, uncertain about his fate, exercised his option to terminate the lease with a 3-month notice. When the tenant refused to pay rent to cover this period, under claims that his security deposit covered any accrued rental fees, the mortgagee sued for damages. The court supported the tenant's assertion.
3. Cap on guarantor's liability

A guarantor stood in strict surety for the debt of another. Due to its negligence, the credit association which extended the loan failed to collect from the principal debtor and sought recovery from its guarantor. The Tokyo Upper court ruled for a cap on sums recoverable, limiting the guarantor's liability to a reasonable and foreseeable amount. To rule otherwise would unjustly enrich the creditor, who was judged to have exceeded its rights while eschewing its responsibility; at the expense of the guarantor, who in good faith relied on the creditor's misrepresentations as to the primary debtor's fiscal responsibility.
4. Count mandated attachment: Rights of creditor superior to mortgagee's

Generally, a mortgagee's right to mortgaged property has priority over the right of creditors.

But in this case the Supreme Court overthrew a lower court's decision to that effect, ruling in favor of a creditor who had earlier obtained a court order attaching said property's rent; holding that the original court's judgment to attach the rent had in effect extinguished the debt. However, this decision does not extend to voluntary surrender of the rent in the part of the mortgagor, in which case the mortgagee retains superiority.
5. Right of lessee extend to sub-lessee

The Supreme Court ruled in favor of a sub-lessee who claimed rights under the lessor-lessee contract. In this case a landlord rented a building to a tenant, who in turn, as provided under the lease, sub-leased one of its units to the plaintiff. The tenant then, upon termination of the lease's term, acquiesced with landlord's request that he abandon his option to renew; whereupon the lessor sought to terminate the sub-lessee's contract. The court held that the sub-lessee had reason to rely on the lessor-lessee contract and to demand equal rights extending to, but not limited, to the option to renew.
6. Judicial Sales: Caveat Emptor

This case involves a foreclosure sale that erroneously included an unencumbered lot attached to the auctioned property.
The buyer, upon discovering said error, demanded restitution. The Tokyo District Court ruled against him, holding that in judicial sales, especially one at auction, the purchaser must exercise his right to examine, judge and test for himself; and that in this case in particular, the plaintiff could have easily checked the lot's registration prior to committing himself to its purchase.


7. Loan: Caveat Creditor

A construction company had the unusual practice of having its customers apply for a private loan, pending approval of a public loan. The defendant, wanting a home built, complied with the strange request and secured a private loan.
However, the company then appropriated these funds for private use, with full knowledge of the private lender. When the construction company went bankrupt, the private lender immediately demanded the defendant pay back its money. The Fukuoka District Court ruled in favor of the borrower, holding it unconscionable for the defendant to be held responsible for two debts on the same property; especially in view of the fact that, misappropriation of the funds was done with full knowledge and cooperation of the private lender.

8. Loan; Caveat Creditor U

A man, claiming to represent a friend, approached a major lending institution for a personal loan amounting to \50 million. When the bank sent its own representative to investigate the matter, he found the purported borrower sitting silently in a wheelchair; apparently unable to follow any of the proceedings. The wife, who was present and sitting next to her husband, though not silently; was asked for reassurance that her husband did in fact wish to undertake a loan and understood the commitment the documents represented. With hanko in hand, the wife vouched for her husband's competence; and secured the loan. Shortly after, the "friend" presented himself at another branch of the very same lending institution, this time for a loan of \150 million. Again a bank's representative was dispatched to the husband's home, with similar outcome. This time, however, the wife guaranteed her husband's competence in writing; at the request of the lender. When the husband died, the bank demanded its money. The wife refused, claiming that, at the time the loan was extended, her husband had been incompetent; and as such could not be held responsible for its payment, and therefore, neither could she. The Tokyo District Court split its decision, ruling in favor of the widow for the initial loan of \50 million, but holding her in part responsible for the second loan of \150 million; and the bank forced to assume 70% of the dept. The "friend" was never seen nor heard of again.

9. Fiduciary duty to disclose all terms under a contract between its client and a third party

Plaintiff bought a plot of land from realtor, R, in a residential area in which to build his home. However, plaintiff's efforts to obtain a building permit failed owing to the single fact that the only road granting access to his property was in private land; with no foreseable public access. Plaintiff sued F, the financial institution that advanced him the loan to buy said property, claiming that defendant F had a fiduciary duty to explain all terms and ramifications of the contract, prior to granting of the loan.
The Lower Court ruled against the plaintiff, ruling that F had no obligation to ascertain itself of the terms of the contract between its client and realtor.
On appeal, the Osaka Upper Court ruled in favor of the plaintiff claiming that the financial institution granting the loan had a legal obligation to assure the plaintiff lender understood the teams and consequences of the real estate contract being financed by said institution. The Upper Court held that the sales contract between the plaintiff and R on the one hand, the loan contract between the plaintiff and F on the other hand, were as interrelated as the two sides of a coin; purchase of the property by the plaintiff was tied to F's granting of the loan.
On last appeal, the Supreme Court upturned the Upper Court's dicision, upholding the Lower Court's original decision. It ruled that a third party is under no special obligation under the terms of contracts between its clients and other parties. To hold otherwise would impute duties beyond the scope of its own contracts with clients.
A third party has no fiduciary duty concerning contracts between its client and a separate party.



10DStockbroker's responsibility in respondent superior

Defendant is executive in a stock company dealing with the issuing, selling and redemption of bonds. Plaintiff claimed that the stock company sold him bonds with no marketable value as these were issued above market price. Plaintiff bought the bonds on November and December of 1997, and on September of the following year the brokerage firm went officially bankrupt; it had apparently issued too many such bonds above market price that it was unable to redeem them. Due to firm's bankruptcy, plaintiff sought redress directly from its director, clamming that company employees dealt in non-marketable bonds directly under the supervision of its director, that the director had full knowledge of the rules governing the dealing of bonds under the Security Association Executive Board guidelines, and that the director was therefore responsible for any deviation from said rules.
The Tokyo District Court ruled in favor of the plaintiff, holding the director responsible under respondeat superior, the duty of a director, or supervisor for torts committed by company employees during the course of their employment.
The director is directly responsible to the plaintiff and must compensate plaintiff for its loss out of his own assets.

11. Security company's responsibility to make clear details concerning its financial products


Securities company sold financial products to plaintiff client, without going into detail as to the meaning and system of bond trading, specifically that the value of these could fall below purchase price. The company's salesman simply sent an explanatory pamphlet to the plaintiff, contacted him once without explaining the workings of the system and likely devaluation, and over-all failed to confirm the plaintiff's knowledge in these financial matters. The supreme Courts ruled in favor of the plaintiff and demanded that defendant pay damages in restitution to plaintiff.

12. Parent's liability to victim of their children's tort

This case deals with a group of junior high school students who routinely bullied their victim, through beatings and threats, into stealing or surrendering money. The parents ware well aware that their children had formed a gang that engaged in anti-social and non-conforming behavior that could foreseeably lead to the harm of others, yet failed to hold any supervision over their actions. The Saitama District Court ruled that the parents of the gang members had a legal obligation to supervise their children and in failing to do so breeched their duty to the plaintiff victim and thus were directly liable to him for damages. The court ordered that the parents of the delinquent boys pay consolation money to the victim and thus re directly liable to him for damages. The court ordered that the parents of the delinquent boys pay consolation money to the victim and all legal fees.

13. Bank's duty to depositor client.

Generally, a bank client may present his passbook savings to any branch and be allowed to withdraw all funds. In this case,
the bank was presented with a stolen passbook savings, and in surrendering the funds, the bank teller failed to assure the proper identity of the individual withdrawing the funds; the teller failed to carefully check the validity of the seal mark, to ask for valid form of identification, or to ask for confirmation of the account secret code. This case is typical of one involving stolen passbook savings, where the thief can gain easy access to the victim's funds by simply presenting this savings document to any bank branch and demanding a withdrawal on the morning following the theft, upon opening of the bank. The Supreme Court ruled in favor of the legal owner of the savings account and declared that the bank should
assume the risk of surrendering the funds to the wrong party, as it failed to protect its client.


14. Duty of owner of property gained under adverse possession.

The plaintiff held land in adverse possession for 20 years, after which time he gained the right to register the land. However, before plaintiff exercised his right, and while in adverse possession, defendant registered a mortgage against the property.
Plaintiff claimed that defendant's mortgage against the property was invalid as, at the time defendant filed the mortgage, plaintiff had already met all conditions that gained him ownership of the property under adverse possession.
The Supreme Court denied the plaintiff's claim and ruled that plaintiff's full rights as legal owner of the property did not accrue until after he registered as the right and legal owner, under the laws of adverse possession. Therefore, plaintiff was liable for monies due against the property.
15. Bank's duty to inform of its limitations of liability

The plaintiff's saving's passbook was stolen along with his car. The following day, soon after the opening of the banks, the thief withdrew a total of \8 million in a series of withdrawals at different branches. The bank refused to surrender the plaintiff his assets, claiming that it could not be expected to pay the disputed amount twice; once to the thief, then again to the rightful owner. Also, the bank claimed to have instituted a safety system which included an unreadable pin code on both passbook and cash card, thus it could not be faulted for unauthorized withdrawals. The owner of the account sued, holding the bank responsible for the safety, and thus accountable for the loss, of his savings. More to the point, the plaintiff had been given no notice by the bank of the extent and limitation of its liability concerning passbook savings. The lower courts judged against the plaintiff, but their rulings were reversed by the Supreme Court, holding that although the bank had followed adequate safety measures as per general standards, in failing to dully give notice to its client concerning any provisions of liability, it could not now disclaim liability.

16. Architect's duty to clearly inform the full extent of his responsibilities

Defendant, an architect, upon submission of architectural plans for board approval, officially represented in said documents, both that he was the architect who drafted the plans, and the one to ensure the project proceed in accordance to these officially approved plans. Although the contract between defendant and owner did not cover the architect's role as overseer, the court held defendant under strict obligation to take due care not to mislead any party involved; be it owner potential buyer, or financial institution, in believing he would be responsible party in charge; as might be believed if the representations in the documents presented to, and approved by, the authorities were to be relied upon. Thus, any damages incurred by a third party overseer are the responsibility of the architect who misrepresented himself as that overseer. This latest judgment brings architects under the strict duty for full disclosure imposed on specialists such as doctors or lawyers.

17. Binding power of promises under preliminary negotiations of rental agreement

Promises made during preliminary negotiations for a lease contract of property under construction can generally be amended by either party. However, if both parties have mutually agreed to certain clauses under the contract, deemed important to either party, and supported by consideration in the form of a deposit, then neither party can change any of these agreements without consent of the other party. Specifically, the Tokyo District Court ruled that if, during preliminary negotiations, the exact location of the premises to be leased has been determined, the owner is to be held liable for breech of contract should promised property be leased to a third party.