1990.11.26

1988 (O) 4

Minshu Vol. 44, No. 8

Judgment concerning the case regarding set-off against an employee's retirement allowance claim effected by an employer with the employee's consent and the main clause of Article 24, paragraph (1) of the Labor Standards Act (Act prior to amendment by Act No. 99 of 1987)

Case of claiming retirement allowance, etc. and intervention in claiming retirement allowance, etc.

Judgment of the Second Petty Bench, dismissed

Osaka High Court, Judgment of September 29, 1987

1. A set-off against an employee's retirement allowance claim effected by an employer with the employee's consent does not violate the main clause of Article 24, paragraph (1) of the Labor Standards Act (Act prior to amendment by Act No. 99 of 1987) if there is objectively a reasonable ground that is sufficient to find that the aforementioned consent was given based on the employee's free will.

2.In the case where, when receiving a loan for housing funds from a bank, etc., Employee Y of Company X had contracted to repay the remaining loan obligations in a lump sum with Y's retirement allowance, etc. at the time of retirement and to mandate the repayment procedure to Company X, and Company X set off Y's retirement allowance claim, etc. against the right to claim advance payment of repayment costs based on the aforementioned mandate with Y's consent, if there are circumstances as held in the judgment, such as where Y voluntarily requested the procedure for the aforementioned repayment, the aforementioned loan was made based on a contract of an installment repayment with low interest and for a considerably long period of time, and Company X took the step of bearing part of the interest, the aforementioned set-off should be considered valid on the grounds that there was objectively a reasonable ground that is sufficient to find that the aforementioned set-off was based on Y's free will.

3. In the case where, when receiving a loan for housing funds from a bank, etc., Employee Y of Company X had contracted to repay the remaining loan obligations in a lump sum with Y's retirement allowance, etc. at the time of retirement and to mandate the repayment procedure to Company X, the set-off of Y's retirement allowance claim, etc. against the right to claim advance payment of repayment costs based on the aforementioned mandate effected by Company X with Y's consent confirming the purpose of the aforementioned contract given before an adjudication of bankruptcy against Y does not become subject to exercise of the right of avoidance.

Article 24, paragraph (1) of the Labor Standards Act (Act prior to amendment by Act No. 99 of 1987), Article 91 and Article 505, paragraph (1) of the Civil Code, and Articles 72 and 98 of the Bankruptcy Act

Labor Standards Act (Act prior to amendment by Act No. 99 of 1987),Article 24, paragraph (1)
(1) Wages must be paid in currency and in full directly to employees; provided, however, that payment other than in currency may be permitted in cases otherwise provided for by laws and regulations or collective agreement, and partial deduction from wages may be permitted in cases otherwise provided for by laws and regulations or in cases where there exists a written agreement with a labor union organized by a majority of the employees of the workplace if such labor union exists or with a person representing a majority of employees if such labor union does not exist.

Civil Code
Article 91
If any party to a juristic act manifests any intention which is inconsistent with a provision in any laws and regulations not related to public policy, such intention shall prevail.

Article 505, paragraph (1)
(1) In cases where two persons mutually owe to the other any obligation with the same kind of purpose, if both obligations are due, each obligor may be relieved from his/her own obligation by setting off each value thereof against the corresponding amount of the obligation of the other obligor; provided, however, that, this shall not apply to the cases where the nature of the obligation does not permit such set-off.

Bankruptcy Act
(Acts Subject to Avoidance)
Article 72
The following acts may be avoided in the interest of the bankruptcy estate:
(i) an act conducted by a bankrupt while knowing that it would prejudice any bankruptcy creditor; provided, however, that this does not apply where a person who has benefited from said act did not know, at the time of the act, the fact that it would prejudice any bankruptcy creditor;
(ii) an act concerning the provision of security or extinguishment of debt and other acts that would prejudice any bankruptcy creditor conducted by a bankrupt after suspension of payments or filing of a petition for bankruptcy; provided, however, that this applies only where a person who has benefited from said act knew, at the time of the act, the fact that the suspension of payments or filing of a petition for bankruptcy had taken place;
(iii) an act referred to in the preceding item conducted against the bankrupt's relative or a person living together with the bankrupt; provided, however, that this does not apply where the other party did not know, at the time of the act, the fact that the suspension of payments or filing of a petition for bankruptcy had taken place (this item was amended by Act No. 223 of 1947);
(iv) an act concerning the provision of security or extinguishment of debt conducted by a bankrupt after or within 30 days before suspension of payments or filing of a petition for bankruptcy, which is not included in the scope of the bankrupt's obligation in terms of the act itself or the method or time of performance of the act; provided, however, that this does not apply where the creditor did not know, at the time of the act, the fact that the suspension of payments or filing of a petition for bankruptcy had taken place nor the fact that the act would prejudice any bankruptcy creditor; and
(v) a gratuitous act conducted by a bankrupt after or within six months before suspension of payments or filing of a petition for bankruptcy and an onerous act that should be deemed to be equal thereto.

(Right of Set-off)
Article 98
Where a bankruptcy creditor owes a debt to the bankrupt at the time of an adjudication of bankruptcy, the bankruptcy creditor may effect a set-off without going through bankruptcy proceedings.

The final appeal is dismissed.
The costs of the final appeal shall be borne by the appellant of final appeal.

Reasons I and II for a final appeal stated by the appellant

The purpose of the principle of payment of wages in full provided in the main clause of Article 24, paragraph (1) of the Labor Standards Act (Act prior to amendment by Act No. 99 of 1987; the same applies hereinafter) is to prohibit employers from unilaterally making deductions from wages, thereby ensuring that employees receive their wages in full without fail and that employees' economic lives are not threatened for the purpose of protecting employees. Therefore, the principle also includes the purpose of prohibiting employers from setting off employees' wage claims against claims the employers have on the employees. However, where an employee gives consent to the aforementioned set-off based on the employee's free will, if there is obviously a reasonable ground that is sufficient to find that the aforementioned consent was given based on the employee's free will, it is reasonable to consider that the set-off effected with the aforementioned consent cannot be considered to violate the aforementioned provisions (see the judgment of the Second Petty Bench of the Supreme Court, January 19, 1973, 1969 (O) No. 1073, Minshu, Vol. 27, No. 1, at 27). However, in consideration of the purpose of the aforementioned principle of payment of wages in full, the finding and determination that the aforementioned consent was given based on the employee's free will must be, needless to say, made in a strict and careful manner.

When this determination is applied to this case, the court of prior instance determined as follows: [1] On July 20, 1981, when working for Appellee Stock Company B2 (hereinafter referred to as the "Appellee Company"), Appellee B1 (hereinafter referred to as "Appellee B1") borrowed 870,000 yen from the Appellee Company and 2,630,000 yen from Bank D, respectively (hereinafter the aforementioned borrowing from the Appellee Company is referred to as the "Borrowing from the Appellee Company" and the aforementioned borrowing from Bank D is referred to as "Borrowing E") based on a contract stipulating that while the borrowings would be repaid by equal installment reimbursement the remaining amount would be repaid in a lump sum in the case of Appellee B1's retirement from the Appellant Company, in line with the Appellee Company's rules on housing asset-building loans, and on April 26, 1983, Appellee B1 also borrowed 2,000,000 yen from Workers' Credit Union H (hereinafter this borrowing is referred to as the "Borrowing from Workers' Credit Union") based on a contract to the same effect as above in line with Branch G's internal regulations (hereinafter referred to as the "Internal Regulations") concerning the operational rules on a workers' credit union of Labor Union F (hereinafter referred to as the "Union") to which Appellee B1 belongs; [2] For all of the aforementioned borrowings, no mortgage was created at the time of the borrowings, and the borrowings were conducted by Appellee B1 as housing funds based on a contract of an installment repayment with low interest and for a considerably long period of time, and for the Borrowing from the Appellee Company and Borrowing E, the Appellee Company took such steps as bearing part of the interest; [3] Out of the aforementioned borrowings, repayment of the Borrowing from the Appellee Company was supposed to be processed by a method wherein the Appellee Company deducts the prescribed amount of equal installment repayment from Appellee B1's monthly salaries and semiannual bonuses (hereinafter referred to as "salaries, etc.") based on the provisions of the aforementioned rules on housing asset-building loans and a deed of contract on housing fund loans between the Appellee Company and Appellee B1, and it was contracted that Appellee B1 would immediately repay the entire amount of the remaining loans with retirement allowance and other sources when Appellee B retires from the Appellee Company; [4] Repayment of Borrowing E was supposed to be processed by a method wherein the Appellee Company first deducts the prescribed amount of equal installment repayment from the salaries, etc. of Appellee B1 and transfers the aforementioned deducted amount to a saving account in the name of the Appellee Company at Bank D based on mandate from Appellee B1, based on the provisions of the aforementioned rules on housing asset-building loans, a written agreement on the housing asset-building loans between the Appellee Company and Bank D, and Loan Contract I between Appellee B1 and Bank D, and the aforementioned written agreement stipulates that where an employee of the Appellee Company loses the status of an employee due to retirement, etc., the Appellee Company would reimburse the remaining obligations in a lump sum before maturity by transferring the relevant money by the same method as above; and Appellee B1 consented to the aforementioned contract and mandated the aforementioned reimbursement to the Appellee Company; [5] Moreover, repayment of the Borrowing from Workers' Credit Union was supposed to be processed by a method wherein the Appellee Company deducts the prescribed amount of equal installment repayment from the monthly salary of Appellee B1 and delivers the aforementioned deducted amount to the Union based on mandate from Appellee B1 and the Union pays said amount to Workers' Credit Union H based on the provisions of the collective agreement concluded between the Appellee Company and the Union, the aforementioned Internal Regulations, and a monetary IOU between Appellee B1 and Workers' Credit Union H; the aforementioned Internal Regulations provide that if a person who received a loan from a workers' credit union loses his/her status due to retirement, etc., his/her retirement allowance, etc. would be allocated to priority repayment, and the aforementioned monetary IOU provides that if Appellee B1 loses the status of a member of Workers' Credit Union H, Appellee B1 would lose the benefit of time and immediately repay obligations; Appellee B1 consented to these provisions, and mandated the Appellee Company to immediately deliver and pay to the Union the money equivalent to the entire amount of the remaining obligations of the Borrowing from Workers' Credit Union with retirement allowance, etc. and also mandated the Union to pay to Workers' Credit Union H the aforementioned money received from the Appellee Company when Appellee B1 retires from the Appellee Company; [6] Appellee B1 had repeated borrowings to allocate them to expenditures: such as social expenses, since around 1974, and fell into the state of struggling to repay debts of over 70,000,000 yen in total and having no other choice but to file a petition for bankruptcy around September 1983; therefore, Appellee B1 decided to retire from the Appellee Company, and on September 7, 1983, Appellee B1 informed the Appellee Company of the intention to retire from the Appellee Company and requested the Appellee Company to take the procedure of repaying the remaining obligations of the aforementioned borrowings with retirement allowance, etc. with the intention of repaying at least the remaining obligations of the aforementioned borrowings with his/her own retirement allowance and salaries, etc. in accordance with the aforementioned contracts because if the remaining obligations of the aforementioned borrowings, for which the obligation of lump-sum reimbursement arises due to retirement as mentioned above, are not repaid, it will cause trouble to the Appellee Company, for which Appellee B1 worked for many years, and a colleague who serves as a jointly and severally liable guarantor for the Borrowing from Workers' Credit Union; and the Appellee Company accepted Appellee B1's request; [7] The Appellee Company had conventionally handled such cases in a manner wherein the Appellee Company obtains, from a retiring employee, consent on deducting the amount of lump-sum repayment of the relevant borrowings from retirement allowance, salaries, etc. and allocating it to repayment to the Appellee Company and financing institutions on a case-by-case basis and has the retiring employee leave the repayment procedure entirely to the Appellee Company; therefore, the Appellee Company decided to process this case in accordance with the aforementioned practice, and on September 14, 1983, the Appellee Company accepted a letter of retirement setting the desired retirement date as September 15, 1983, from Appellee B1 and also received submission of a power of attorney (hereinafter referred to as the "Power of Attorney") stating that "I have no objection to leaving all of my own claims, such as retirement allowance and salaries, entirely up to the company along with my retirement for the purpose of repayment of the obligation to the company (balance of housing loans) and obligation to the workers' credit union", which was prepared to the effect that Appellee B1 confirms the purposes of the aforementioned contracts with respect to the aforementioned borrowings and gives consent to the Appellant Company's undertaking of the procedure for lump-sum repayment of the aforementioned borrowings with retirement allowance, etc. in accordance with the aforementioned contracts; [8] The Appellee Company set the retirement date of Appellee B1 as September 15, 1983, and then conducted the following liquidation procedures: the Appellee Company allocated the retirement allowance of 3,921,222 yen as of September 20, 1983 (the pay day for August), and salary for August of 228,311 yen, deducted the amount of lump-sum repayment of the Borrowing from the Appellee Company of 696,791 yen and the amount of lump-sum repayment of Borrowing E of 2,295,134 yen from the allocated amount on September 20, 1983, and paid the aforementioned deducted amount by transferring it to an account in the name of the Appellee Company at Bank D; on September 22, 1983, the Appellee Company deducted 1,157,608 yen out of the amount of lump-sum repayment of the Borrowing from Workers' Credit Union, added Appellee B1's farewell gift money for withdrawal from a mutual aid association of 40,000 yen and part of Appellee B1's salary for September of 99,546 yen thereto, and delivered 1,297,154 yen in total to the Union;, and the Union paid this amount to Workers' Credit Union H; [9] On October 6, 1983, Appellee B1 filed a petition for bankruptcy with the Osaka District Court, and the same court gave an adjudication of bankruptcy against Appellee B1 on October 19, 1983, and appointed the appellant as the bankruptcy trustee; [10] Around late November 1983, the Appellee Company's person in charge delivered a description of the aforementioned liquidation procedures to Appellee B1 and requested Appellee B1 to sign and seal a retirement allowance statement and receipts of salaries, etc. for paperwork needs, and on this occasion, Appellee B1 also accepted the request without objection. Based on the aforementioned facts, the court of prior instance determined that the aforementioned liquidation procedures were to set off Appellee B1's right to claim payment of retirement allowance and salaries, etc. against the right to claim lump-sum repayment of the Borrowing from the Appellee Company, which the Appellee Company came to have on Appellee B1 due to Appellee B1's retirement based on the aforementioned contracts, and the right to claim advance payment of repayment costs (Article 649 of the Civil Code), which is based on the Appellee Company's acceptance of the mandate of lump-sum repayment of the remaining obligations with respect to Borrowing E and the Borrowing from Workers' Credit Union, on a corresponding amount basis with Appellee B1's consent (hereinafter the aforementioned set-off is referred to as the "Set-off"). The aforementioned findings and determination are legitimate and can be accepted in light of the evidence indicated in the judgment in prior instance, and the process thereof contains no illegality as argued by the appellant.

According to the aforementioned facts, Appellee B1 voluntarily requested the Appellee Company's person in charge to take procedures for repaying the remaining obligations of the aforementioned borrowings with retirement allowance, etc., and there were no circumstances that constitute compulsion in the process of preparing and submitting the Power of Attorney. Even after the completion of the aforementioned liquidation procedures, Appellee B1 accepted the request from the Appellee Company's person in charge without objection and signed and sealed the retirement allowance statement and receipts of salaries, etc. In addition, for all the borrowings in question, no mortgage was created at the time of the borrowings, and Appellee B1 conducted the borrowings as housing funds based on a contract of an installment repayment with low interest and for a considerably long period of time. In particular, for the Borrowing from the Appellee Company and Borrowing E, the Appellee Company took such steps as bearing part of the interest from the perspective of employees' welfare, which was beneficial to Appellee B1. Appellee B1 also seems to have sufficiently recognized the nature of the aforementioned borrowings and the aforementioned contracts to the effect that the remaining obligations would be repaid in a lump sum with retirement allowance, etc. when Appellee B1 retires from the Appellee Company. In light of the aforementioned points, it should be said that there was obviously a reasonable ground that is sufficient to find that Appellee B1's consent in the Set-off was given based on Appellee B1's free will.

In that case, based on the aforementioned facts, the determination of the court of prior instance to the effect that the Set-off does not violate the main clause of Article 24, paragraph (1) of the Labor Standards Act is legitimate and can be accepted. The judgment in prior instance contains no illegality as argued by the appellant. The arguments made by the appellant are not acceptable.

Reason III for a final appeal stated by the same

The following findings and determination of the court of prior instance are legitimate and can be accepted in light of the evidence indicated in the judgment in prior instance: The Power of Attorney which Appellee B1 submitted to the Appellee Company was not to indicate Appellee B1's intention to give rise to the aforementioned right to claim lump-sum repayment and right to claim advance payment of repayment costs, but was prepared to the effect that Appellee B1 confirms the purposes of the aforementioned contracts on the aforementioned borrowings and gives consent to the Appellee Company's undertaking of the procedure for lump-sum repayment of the aforementioned borrowings with Appellee B1's own retirement allowance, etc. in accordance with the aforementioned contracts; the aforementioned right to claim lump-sum repayment and right to claim advance payment of repayment costs which the Appellee Company came to have against Appellee B1 occurred due to the fact of Appellee B1's retirement based on the aforementioned contracts concluded at the stage of the borrowings, and it became possible to set off Appellee B1's right to claim payment of retirement allowance and salaries, etc. against the aforementioned claims before the adjudication of bankruptcy. The judgment in prior instance contains no illegality as argued by the appellant.

According to the aforementioned facts, the Set-off should be considered to be based on Appellee B1's consent to the Appellee Company's exercise of the right of set-off by the aforementioned right to claim lump-sum repayment and right to claim advance payment of repayment costs based on Appellee B1's free will. As the creditor's exercise of the right of set-off should be considered not to be subject to exercise of the right of avoidance both before and after the adjudication of bankruptcy of the debtor (see the judgment of the Second Petty Bench of the Supreme Court, April 8, 1966, 1964 (O) No. 1158, Minshu, Vol. 20, No. 4, at 529), the Appellee Company's exercise of the right of set-off in the Set-off itself should be considered not to be subject to exercise of the right of avoidance. In light of the aforementioned purpose and content of the Power of Attorney, which Appellee B1 submitted to the Appellee Company, the consent by the Power of Attorney should be considered to leave no room for making the consent subject to exercise of the right of avoidance under the Bankruptcy Act. The determination of the court of prior instance to the same effect is legitimate and can be accepted, and the judgment in prior instance contains no illegality as argued by the appellant. Out of the appellant's arguments, the part to the effect that the findings and determination of the court of prior instance that permitted the Set-off contains the illegality of the erroneous interpretation and application of Article 104 of the Bankruptcy Act is only alleging illegality of the judgment in prior instance based on facts that go against the findings of the court of prior instance, and the judicial precedents cited in the appellant's arguments are irrelevant in this case because they addressed a different type of facts. All the arguments made by the appellant are not acceptable.

Accordingly, in accordance with Articles 401, 95, and 89 of the Code of Civil Procedure, the Court unanimously decides as set forth in the main text.

Justice FUJISHIMA Akira

Justice KAGAWA Yasukazu

Justice NAKAJIMA Toshijiro

Justice KIZAKI Ryohei