2014.10.28

2012 (Ju) 2007

Minshu Vol. 68, No. 8

Judgment concerning a case wherein the court ruled that, with regard to the money paid under the contract for contribution and distribution of money which is against public policy and therefore void, it is impermissible under the principle of good faith to refuse to return the money thus paid, by reason that the payment thereof constitutes performance for illegal cause

Case to seek return of unjust enrichment, etc.

Judgment of the Third Petty Bench, quashed and decided by the Supreme Court

Tokyo High Court, Judgment of June 6, 2012

Where Y is requested to return the money paid thereto under a contract with the bankrupt, X, on the grounds that the contract is against public policy and therefore void, given the circumstances indicated in the judgment, namely [i] the money in question was paid as dividend in the business which falls within the scope of a pyramid scheme and the money contributed by other members was the source of that money, [ii] a considerable portion of the members of the business incurred losses due to the failure of X and they account for the majority of the bankruptcy creditors, and [iii] the bankruptcy trustee for X demands the return of that dividend, aiming for proper and fair liquidation by making distributions to the bankruptcy creditors, it is impermissible under the principle of good faith for Y to refuse to return said money, by reason that the payment of said dividend constitutes performance for illegal cause.
(There is a concurring opinion.)

Article 1, paragraph (2), Article 90, and Article 708 of the Civil Code, Article 78, paragraph (1) of the Bankruptcy Act, Articles 2 and 3 of the Act on Prevention of Pyramid Schemes

Civil Code
(Fundamental Principles)
Article 1　
(2)　The exercise of rights and performance of duties must be done in good faith.

(Public Policy)
Article 90　
A juristic act with any purpose which is against public policy is void.

(Performance for Illegal Causes)
Article 708　
A person who has tendered performance of an obligation for an illegal cause may not demand the return of the thing tendered; provided, however, that this shall not apply if the illegal cause existed solely in relation to the Beneficiary.

Bankruptcy Act
(Powers of Bankruptcy Trustee)
Article 78　
(1)　Where an order of commencement of bankruptcy proceedings is made, the right to administer and dispose of property that belongs to the bankruptcy estate shall be vested exclusively in a bankruptcy trustee appointed by the court.

Act on Prevention of Pyramid Schemes
(Definition)
Article 2
The term "pyramid scheme" as used in this Act means an organization for distributing money or property (including securities or certificates that represent property rights; hereinafter the same applies in this Article) wherein, based on the assumption that the number of participants who contribute money or property will increase unlimitedly, the persons who participate in the organization earlier become the seniors, and the persons who follow the seniors and subsequently participate in the organization in a manner that the number of the latter persons increases in tiers at two-fold or higher multiplication, become the subordinates according to the respective tiers they belong to, and the seniors in order of their participation receive a larger value or quantity of money or property than that they have contributed, from the money or property that their subordinates have contributed.

(Prohibition of Pyramid Schemes)
Article 3
No person may create or operate a pyramid scheme, participate in a pyramid scheme or solicit others to participate in a pyramid scheme, or carry out any act that facilitates these acts.

1. The judgment in prior instance is quashed, and the judgment in first instance is revoked.
2. The appellee of final appeal shall pay to the appellant of final appeal 21,332,835 yen, with money accrued thereon at the rate of five percent per annum for the period from June 4, 2011, to the completion of payment.
3. The appellee of final appeal shall bear the total court costs.

Concerning the reasons for petition for acceptance of final appeal argued by the appellant of final appeal and by the appeal counsel, FURUKAWA Kazunori, et al.
1. In this case, the appellant of final appeal, who is the bankruptcy trustee for the bankrupt, Company A (hereinafter referred to as the "bankrupt company"), alleged that the contract between the appellee of final appeal and the bankrupt company is against public policy and therefore void, and claimed against the appellee, who has received money paid from the bankrupt company under said contract, payment of part of the amount paid, with delay damages accrued thereon, based on the right to demand the return of unjust enrichment.

2. The outline of the facts legally determined by the court of prior instance is as follows.
(1) From around February 2010, the bankrupt company commenced the business involving contribution and distribution of money (hereinafter referred to as the "Business"). The Business is the operation of an organization for distribution of money which was designed to appropriate money that has been collected exclusively from newly recruited members for payment of dividends to persons who become members earlier, and it falls within the scope of pyramid scheme provided in Article 2 of the Act on Prevention of Pyramid Schemes.
(2) In March 2010, the appellee concluded a contract with the bankrupt company to become a member of the Business. Until December 2010, the appellee paid 8,184,200 yen to the bankrupt company as contribution under said contract, and received 29,517,035 yen from the bankrupt company as dividend (hereinafter the part of the dividend which corresponds to the amount that remains after deducting said amount received as dividend from said amount paid as contribution, 21,332,835 yen, is referred to as the "Dividend").
(3) In conducting the Business, the bankrupt company recruited at least 4,035 members and received a total of 2,561,277,750 yen as contribution from them. On February 21, 2011, the bankrupt company was given an order of commencement of bankruptcy proceedings, and the appellant was appointed as the bankruptcy trustee. In said bankruptcy proceedings, persons who incurred losses due to the Business account for the majority of the bankruptcy creditors.

3. Given the facts mentioned above, the court of prior instance dismissed the appellant's claim, holding that the payment of the Dividend constitutes performance for illegal cause and therefor the appellant may not demand the return of the Dividend, as provided in Article 708 of the Civil Code.

4. However, we cannot affirm the holdings of the court of prior instance mentioned above, on the following grounds.
The Dividend was paid to the appellee in the course of the Business which falls within the scope of pyramid scheme in which no person is allowed to be involved, and due to the mechanism of the Business, the money that other members contributed was the source of the Dividend. A considerable portion of the members of the Business incurred losses due to the failure of the bankrupt company, without receiving money that is equivalent to the amount of money they contributed, and they account for the majority of the bankruptcy creditors who have been unable to receive remedies for their damage. Given such facts, it would serve the principle of equity for the appellant, who is the bankruptcy trustee for the bankrupt company, to seek the return of the Dividend from the appellee and aim for proper and fair liquidation by using the Dividend to make distributions through the bankruptcy proceedings to the bankruptcy creditors including those members who incurred losses. If the appellee were allowed to refuse to return the Dividend to the bankruptcy trustee, this would be equal to endorsing the appellee retaining unjust profit based on the losses incurred by other members who are victims. Such consequence is far from being considered reasonable.
Consequently, under the abovementioned circumstances, it is appropriate to construe that it is impermissible under the principle of good faith for the appellee to refuse to return the Dividend, by reason that the payment of the Dividend constitutes performance for illegal cause.

5. For the reasons stated above, the determination of the court of prior instance that dismissed the appellant's claim without considering the point mentioned above contains violation of laws and regulations that apparently affects the judgment. The appeal counsel's arguments are well-grounded in this meaning, and the judgment in prior instance should inevitably be quashed. According to the abovementioned facts and the explanation given in 4. above, there are grounds for the appellant's claim for payment of the amount equivalent to the Dividend, i.e. 21,332,835 yen, with delay damages accrued thereon at the rate of five percent per annum under the Civil Code for the period from June 4, 2011, which was after the demand for the return was made, to the completion of payment. Hence, the judgment in first instance that dismissed this claim should be revoked and said claim should be upheld.

Therefore, the judgment has been rendered in the form of the main text by the unanimous consent of the Justices. There is a concurring opinion by Justice KIUCHI Michiyoshi.

The concurring opinion by Justice KIUCHI Michiyoshi is as follows.
I am in agreement with the court opinion that, given the facts of the case, it is impermissible under the principle of good faith for the appellee to refuse to return the money paid thereto, by reason that the payment of the money constitutes performance for illegal cause. However, I would like to state my opinion regarding the connection between the fact that the person who demands the return of the money in question is the bankruptcy trustee, and the principle of good faith.
In a business such as a pyramid scheme, which is designed to collect contribution of money by promising dividends at an unrealistically high interest rate and to attempt to collect more contribution of money by using payment of such dividends as an incentive, the majority of contributors would inevitably be unable to receive compensation for their contributions. Such a business brings profit only to a limited number of persons who receive more dividends than their contributions, whereas other contributors of the money, from which such profit arises, incur losses and become creditors to the party who conducts the business.
When the party who conducts the business goes bankrupt, and the bankruptcy trustee demands the return of payment (profit), such demand cannot be considered to be made on behalf of the bankrupt. The purpose of the bankruptcy system is to "ensure proper and fair liquidation of debtors' property, etc." (in the case of an individual's bankruptcy, "securing the opportunity for rehabilitation of their economic life" is also included in the purpose). In order to achieve this purpose, the bankruptcy trustee makes the demand for the return of payment in the course of performing the mission vested thereto, i.e. "appropriately coordinate the interests of creditors and other interested persons and the relationships of rights between debtors and creditors" (Article 1 of the Bankruptcy Act).
The assets obtained in the course of performing the mission of the bankruptcy trustee belong to the bankruptcy estate, and they are not delivered to the bankrupt, except in a rare case where there is any surplus after all of the claims on the estate including procedural costs and bankruptcy claims are paid. As a matter of course, bankruptcy proceedings are discontinued when the bankruptcy estate becomes insufficient for paying expenses for bankruptcy proceedings. In practice, it is usually the case that the bankruptcy trustee tries to convert all realizable property into cash and appropriate the cash to satisfy the claims on the estate including procedural costs, and then if there is any shortage, the bankruptcy trustee petitions for the discontinuation of the proceedings. It is practically unthinkable that any property that the bankruptcy trustee has recovered from a third party is returned to the bankrupt as a result of the discontinuation of bankruptcy proceedings.
If distributions are made to the bankruptcy creditors including the members of the business, the bankrupt's debts would be reduced by the amount thus distributed. However, within the basic framework of the bankruptcy system, the bankruptcy debts owed by the bankrupt become extinct or become natural obligations when, if the bankrupt is a legal person, its legal personality is lost upon termination of the bankruptcy proceedings, or if the bankrupt is an individual, the individual is granted a discharge, regardless of whether any distribution is made through bankruptcy proceedings. Hence, even when any payment is returned to the bankruptcy trustee, this does not immediately lead to the extinction of the bankrupt's debts. Thus, it cannot be said that permitting the bankruptcy trustee to demand the return of unjust enrichment could result in providing legal protection to the bankrupt who has been engaged in an unethical business.
From the viewpoint explained above, as the court opinion points out, if the bankruptcy trustee is not permitted to demand the return of the money in question in this case, this would be equal to allowing the person who has obtained a considerable amount of profit in the Business to retain such profit based on the losses incurred by other members. On the other hand, the bankruptcy trustee in this case demanded the return of the money in order to avoid such consequence and appropriately coordinate the rights of the bankruptcy creditors including other members who incurred losses and other interested persons. Therefore, it should be considered to be impermissible under the principle of good faith for the appellee to refuse to return the money paid thereto, by reason that the payment of the money constitutes performance for illegal cause.

Justice KIUCHI Michiyoshi
Justice OKABE Kiyoko
Justice OTANI Takehiko
Justice OHASHI Masaharu
Justice YAMASAKI Toshimitsu