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2017 (Kyo) 10

2017.12.19
2017 (Kyo) 10
Minshu Vol. 71, No. 10
Decision concerning a case in which, with regard to a lease agreement with a provision that states that a lessor may make a claim for penalty in the event that a lessee materially changes a contracting party, the said lessee’s argument that it bears no obligation relating to the claim for penalty in accordance with the aforementioned provision for the reasons that an absorption-type company split was effected is contrary to the principle of good faith and is not acceptable, when the said lessee had the status of the contracting party succeeded to by the aforementioned absorption-type company split after which the said lessee is deemed to bear no obligation
Case of an appeal with permission against the ruling of the court of second instance pertaining to provisional remedy to partially authorize an order for provisional seizure of claim against a decision to revoke such order
Decision of the Third Petty Bench, dismissed by the Supreme Court
Sendai High Court, Decision of March 17, 2017
With regard to a building lease agreement with a provision that states that a lessor, X, may terminate the agreement and make a claim for penalty in the event that a lessee, Y, materially changes a contracting party, Y’s argument against X, who terminated the aforementioned lease agreement, that it bears no obligation relating to the claim for penalty in accordance with the aforementioned provision for the reasons that an absorption-type company split was effected is not acceptable on the ground that it is contrary to the principle of good faith under the following circumstances as described from (1) to (3), when Y caused A to succeed to the status of the contracting party by the aforementioned absorption-type company split after which Y is deemed to bear no obligation. X may claim against Y for performing the said obligations even after the aforementioned absorption-type company split.

(1) It can be considered that X planned to lease the aforementioned building to Y over a long period and to collect its construction costs with rent paid by Y. It can be said that X’s purpose to include the aforementioned provision in the aforementioned lease agreement was to avoid disadvantages resulting from a change of a lessee and that Y entered into the aforementioned lease agreement understanding X’s intention as mentioned above.

(2) A’s stated capital prior to the aforementioned absorption-type company split was one million yen. A has only succeeded to assets of an amount far less than that of the aforementioned claim for penalty from Y by the aforementioned absorption-type company split and clearly lacks the ability to pay obligations relating to the said claim.

(3) It cannot be construed that X could have expressed its objection against Y under Article 789, paragraph (1), item (ii) of the Companies Act with regard to the aforementioned absorption-type company split by asserting that it had the aforementioned claim for penalty.
Article 1, paragraph (2) of the Civil Code, and Article 759, paragraph (1) and Article 789, paragraph (1), item (ii) of the Companies Act



Civil Code

(Fundamental Principles)

Article 1

(2) The exercise of rights and performance of duties must be done in good faith.

Companies Act

(Effectuation, etc. of an Absorption-type Company Split Which Causes a Stock Company to Succeed to Rights and Obligations)

Article 759 (1) A Stock Company Succeeding in an Absorption-type Split shall succeed to the rights and obligations of the Company Splitting in the Absorption-type Split, in accordance with the provisions of the Absorption-type Company Split agreement, on the Effective Day.

(Objections of Creditors)

Article 789 (1) In the cases listed in the following items, the creditors provided for in those items may state their objections to the Absorption-type Merger, etc. to the Disappearing Stock Company, etc.:

(ii) in cases of effecting an Absorption-type Company Split: creditors of the Stock Company Splitting in the Absorption-type Split who are unable to request the Stock Company Splitting in the Absorption-type Split to perform the obligations (including performance of the guarantee obligations that the Stock Company Splitting in the Absorption-type Split jointly and severally assumes with the Company Succeeding in the Absorption-type Split as a guarantor) (or, in the case where there are provisions on the matter set forth in Article 758(viii) or Article 760(vii), creditors of the Stock Company Splitting in the Absorption-type Split); and
The appeal against the ruling is dismissed.

The cost of the appeal against the ruling shall be borne by the appellant.
Reasons for the appeal against the ruling argued by the counsel for the appellant, SHIMIZU Kyosuke:

1. According to the case records, the outline of this case is as follows:

(1) The appellant is a company with the main business of engineering contracting and stated capital of 50 million yen. According to its balance sheet as of June 30, 2015, the amount of the appellant’s net assets is about 850 million yen.

The appellee is a company with the purpose of selling school equipment and supplies, educational materials, etc.

(2) In May 2012, the appellant and the appellee entered into an agreement (hereinafter referred to as the “Lease Agreement”) in which the both parties agreed to the effect that the appellee would construct a building used for a nursing home (hereinafter referred to as the “Building”) based on the appellant’s design etc., and the appellant would rent the Building from the appellee for the purpose of using it as a charged nursing home etc. In summary, the Lease Agreement has the following provisions:

(a) The lease shall be 20 years from the date of delivery of the Building. The monthly rent shall be 4,990,000 yen (however, 4,500,000 yen for the initial five years) and the rent for the next month shall be paid at the end of each month.

(b) The appellant shall not assign to a third party all or part of rights under the Lease Agreement and shall not sublease to a third party all or part of the Building unless it obtains the appellee’s written approval.

(c) In principle, the appellant shall not terminate the Lease Agreement since the appellee has invested in the Building based on the assumptions that the Building will be used for a nursing home and will be difficult to be converted for other forms of use and that the Lease Agreement will continue for 20 years.

(d) The appellee may terminate the Lease Agreement without notice in a case such as when the appellant materially changes the contracting party of the Lease Agreement (this provision hereinafter referred to as the “Termination Clause”).

(e) The appellant shall pay the amount of 15 years’ rent from which the amount of the paid rent is deducted to the appellee as a penalty if the appellee terminates the Lease Agreement according to the Termination Clause before 15 years has passed from the commencement of the Lease Agreement (this provision hereinafter referred to as the “Penalty Clause”).

(3) The appellee spent about 600 million yen to construct the Building and delivered it to the appellant in October 2012. The appellant began to run a business of operating a charged nursing home (hereinafter referred to as the “Business”) in the Building in November of the same year.

(4) The performance of the Business was poor from the very beginning and continued to be so. The appellant planned to cause another company to succeed to the Business by company split around April 2016. It notified the appellee to that effect and asked for its approval. However, the appellee did not approve it.

(5) On May 17, 2016, Silver Life Research Co., Ltd. (hereinafter referred to as “Silver Life”) was established by the appellant’s full contribution of its stated capital of one million yen.

(6) On May 26, 2016, the appellant and Silver Life entered into an absorption-type company split agreement with an effective date of July 1 of the same year, stating that Silver Life succeeded to the deposit claim of 19 million yen as well as rights and obligations in connection with the Business (including the contractual status and the rights and obligations under the Lease Agreement; the same applies hereinafter) from the appellant (hereinafter referred to as the “Absorption-type Company Split Agreement” and the company split in accordance with the Absorption-type Company Split Agreement shall hereinafter be referred to as the “Absorption-type Company Split”). In the Absorption-type Company Split Agreement, there is a provision that the appellant bears no responsibility for rights and obligations in connection with the Business after the Absorption-type Company Split.

(7) On May 27, 2016, the appellant gave public notice of matters listed in each item of Article 789, paragraph (2) of the Companies Act (hereinafter referred to as the “Act”), such as statements that the Absorption-type Company Split would be effected and that creditors could express their objections within one month from the next day of the public notice, in the official gazette and a daily newspaper. There was no creditor who expressed its objection within the period of the aforementioned one month.

(8) On July 1, 2016, the Absorption-type Company Split was effected.

(9) The appellant fully paid the rent under the Lease Agreement until July 2016. However, Silver Life did not pay the majority of the aforementioned rent after the Absorption-type Company Split. The total amount due as of November 30 of the same year was 14.5 million yen.

(10) The appellee manifested its intention to terminate the Lease Agreement in accordance with the Termination Clause to the appellant and Silver Life for the reasons such as that the appellant materially changed the contracting party of the Lease Agreement.

2. This is a case in which the appellee filed a motion for an order of provisional seizure on a claim for a contract fee that the appellant holds against a third party obligor, asserting 185.5 million yen out of the amount of a claim for penalty in accordance with the Penalty Clause (hereinafter referred to as the “Claim for Penalty”) to be a claim subject to provisional remedy. The appellant argues that it bears no obligation relating to the Claim for Penalty for the reasons that the Absorption-type Company Split was effected.

3. (1) Absorption-type company split refers to the action of causing another company to succeed to all or part of the rights and obligations that a Stock Company or Limited Liability Company holds in connection with its business undertakings (Article 2, item (xxix) of the Act). Pursuant to provisions of an agreement entered into between a company effecting an absorption-type company split (hereinafter referred to as the “Company Splitting in an Absorption-type Split”) and a company succeeding to all or part of the rights and obligations that the Company Splitting in an Absorption-type Split holds in connection with its business undertakings from the said company (hereinafter referred to as the “Company Succeeding in an Absorption-type Split”), the Company Succeeding in an Absorption-type Split succeeds to the rights and obligations of the Company Splitting in an Absorption-type Split (Article 757, Article 759, paragraph (1) and Article 761, paragraph (1) of the Act). In this case, the appellant causes Silver Life to succeed to the rights and obligations in connection with the Business by the Absorption-type Company Split.

(2) However, in the Lease Agreement, the appellee and the appellant agreed to the effect that the former spent construction costs of the Building based on the assumptions that the Building would be difficult to be converted for other forms of use and that the Lease Agreement would continue for 20 years. Therefore, it can be considered that the appellee planned to lease the Building to the appellant over a long period and to collect its construction costs with rent paid by the appellant. It can be said that the appellee, in light of the aforementioned agreement, intended to avoid disadvantages resulting from a change of a lessee by prohibiting the assignment of the right of lease etc. by the appellant, setting up the Termination Clause and the Penalty Clause, and providing that the appellee may file the Claim for Penalty in the event that the appellant materially changes the contracting party in the Lease Agreement. Furthermore, it can be said that the appellant entered into the Lease Agreement understanding the appellee’s intention as mentioned above.

Nevertheless, the appellant effected the Absorption-type Company Split that fell under the event prescribed in the Termination Clause and caused Silver Life to succeed to the rights and obligations in connection with the Business without obtaining the appellee’s approval. Silver Life’s stated capital prior to the Absorption-type Company Split was one million yen. It has only succeeded to assets of an amount far less than that of the Claim for Penalty from the appellant by the Absorption-type Company Split. If Silver Life solely bore obligations in connection with the Claim for Penalty and the appellant did not bear them after the Absorption-type Company Split, the appellee would suffer disadvantages in that it could file the Claim for Penalty only against Silver Life who clearly lacks ability to pay, while the appellant would enjoy economic advantages in that it could cause Silver Life to succeed to the Business which is performing poorly and, at the same time, it could be absolved from the said obligations.

Furthermore, although the Act has a provision that states that creditors can express their objections in order to protect those of the Company Splitting in an Absorption-type Split (Article 789), it cannot be construed that the appellee could have expressed its objections under paragraph (1), item (ii) of the said Article against the appellant with regard to the Absorption-type Company Split by asserting that it had the Claim for Penalty, because the Claim for Penalty arises by the appellee’s manifestation of intention to terminate the Lease Agreement in accordance with the Termination Clause after the effective day of the Absorption-type Company Split.

According to the background described above, the appellant’s argument that it bears no obligation relating to the Claim for Penalty for the reasons that the Absorption-type Company Split effected is not acceptable on the ground that it is contrary to the principle of good faith. It should be said that the appellee can claim for the implementation of the aforementioned obligations against the appellant even after the Absorption-type Company Split.

4. The decision by the court of prior instance concerning the appellant’s argument is acceptable as being in line with the above. The appellant’s argument is not acceptable.

Accordingly, the Court unanimously decides as set forth in the main text.
Justice TOKURA Saburo

Justice OKABE Kiyoko

Justice KIUCHI Michiyoshi

Justice YAMASAKI Toshimitsu

Justice HAYASHI Keiichi
(This translation is provisional and subject to revision.)