2013.02.28

2011 (Ju) 2094

Minshu Vol. 67, No. 2

Judgment concerning the requirement for the party who seeks set-off to assert that his/her claim which is already due and the other party's claim for which the due date is fixed are eligible for set-off

Case to seek the procedure for making a registration of cancellation of the registration of the creation of a revolving mortgage, with a counterclaim to seek repayment of loans

Judgment of the First Petty Bench, partially quashed and decided by the Supreme Court, partially quashed and remanded

Sapporo High Court, Judgment of July 8, 2011

1. In order for the party who holds a claim which is already due to assert that his/her claim and the other party's claim for which the due date is fixed are eligible for set-off, it is required not only that the party who seeks set-off is entitled to waive the benefit of time with regard to the other party's claim but also that the other party's claim is actually due as a result of the waiver or forfeiture of the benefit of time by the party who seeks set-off.

2. In order to assert a set off of a claim which has been extinguished by prescription, it is required that the claim held by the party who seeks set-off and for which extinctive prescription is invoked has been eligible for set-off against the other party's claim before the period of extinctive prescription has expired.

(Concerning 1 and 2) Article 505, paragraph (1) of the Civil Code; (Concerning 1) Article 136 of the Civil Code; (Concerning 2) Articles 145 and 508 of the Civil Code

Civil Code
(Requirements for Set-offs)
Article 505
(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.

(Benefit of Time and Its Waiver)
Article 136
(1) It is presumed that a time specified is provided for the benefit of the obligor.
(2) The benefit of time may be waived; provided, however, that such waiver may not prejudice the interest of the counterparty.

(Invocation of Prescription)
Article 145
The court may not make a judgment relying on the prescription unless the party invokes it.

(Set-offs Intended to Invoke a Claim Extinguished by Prescription )
Article 508
In cases where any claim which was extinguished by a prescription had been suitable for set-off prior to such extinguishment, the relevant obligee may effect the set-off.

1. The first paragraph of the main text of the judgment in prior instance is quashed, and with respect to the part concerning the quashed paragraph, the judgment in first instance is revoked and the claim of the appellee of final appeal is dismissed.
2. The second paragraph of the main text of the judgment in prior instance is quashed, and with respect to the part concerning the quashed paragraph, the case is remanded to the Sapporo High Court.
3. The appellee of final appeal shall bear the total court costs concerning the first paragraph.

Concerning Reason II-1 for petition for acceptance of final appeal argued by the appeal counsel, MAEDA Yoji, KUROSAWA Yukie, and NASU Yukari
1. In the principal action of this case, the appellee of final appeal alleges that the loan claim secured by a revolving mortgage created on the real properties that he owns has been extinguished for reasons such as set-off, and demands based on the ownership of the encumbered real properties that the appellant of final appeal perform the procedure for making a registration of cancellation of the registration of the creation of the revolving mortgage. In response, the appellant filed a counterclaim against the appellee to seek payment of the outstanding amount of said loan claim, 276,507 yen, with delay damages accrued thereon. The parties dispute over the effect of the set-off of claims asserted by the appellee. While the appellee argues that the set-off is valid under Article 508 of the Civil Code because both claims in question had been eligible for set-off before his claim was extinguished, the appellant argues that the set-off is invalid.

2. The outline of the facts determined by the court of prior instance is as follows.
(1) The appellee conducted a continuous transaction for monetary loans for consumption with the appellant, which was a money lending company, during the period between April 17, 1995, and October 29, 1996, at a contracted interest rate beyond the upper limit prescribed in the Interest Rate Restriction Act. As a result of this transaction, there was overpayment of 180,953 yen as of October 29, 1996 (hereinafter the claim to seek return of this overpayment as unjust enrichment shall be referred to as the "Claim for Return of Overpayment").
(2) On January 23, 2002, the appellee created a revolving mortgage on the real properties that he owned as indicated in the list of articles attached to the judgment in first instance in order to secure his obligations including that arising from the transaction for monetary loans for consumption conducted with Company A, which was another money lending company, up to seven million yen (hereinafter referred to as the "Revolving Mortgage").
On January 31, Company A loaned 4.57 million yen to the appellee. The contract for this monetary loan for consumption contains a special agreement whereby the appellee would make repayment in installments of the loan principal and interest at the contracted rate on the first day of each month during the period from March 2002 to February 2017 and he would forfeit the benefit of time by operation of law in the event of his delay in making repayment (hereinafter referred to as the "Special Agreement").
On January 6, 2003, the appellant completed the registration of its acquisition of Company A through a merger, thereby succeeding to the status of the money lender in relation to the appellee.
The appellee made continuous repayment to Company A and the appellee with respect to the principal and interest of the abovementioned loan, so that the outstanding amount as of June 2, 2010, came to 1,888,111 yen (hereinafter the claim for this outstanding amount shall be referred to as the "Claim for the Outstanding Loan"). Because of his delay in making repayment due on July 1, 2010, the appellee forfeited the benefit of time upon the passage of this day according to the Special Agreement.
(3) On August 17, 2010, the appellee expressed his intention to set off, in the same amount, his claim including the Claim for Return of Overpayment, which totals 281,740 yen, against the Claim for the Outstanding Loan. Thereafter, by November 15, 2010, the appellee had repaid the appellant 1,668,715 yen, which is equivalent to the outstanding principal and interest of the Claim for the Outstanding Loan that may remain due to be paid supposing that said set-off is valid.
(4) The principal secured by the Revolving Mortgage has been fixed, and the appellee argues that the claim to be secured by the Revolving Mortgage has been extinguished by reason of the abovementioned set-off and repayment.
(5) On September 28, 2010, the appellant expressed its intention to invoke prescription with respect to the Claim for Refund of Overpayment, arguing that this claim had been extinguished by prescription upon the passage of the period of ten years from the time of termination of the transaction mentioned in (1) above.

3. The court of prior instance upheld the appellee's claim and dismissed the appellant's counterclaim, holding as follows.
(1) The Claim for the Outstanding Loan arose at the time of providing the loan, and the appellee could have set off against this claim the Claim for Refund of Overpayment if only he had forfeited the benefit of time, so it can be said that the Claim for Refund of Overpayment and the Claim for the Outstanding Loan were eligible for set-off as of January 6, 2003, when the claims and obligations held by the appellant came to correspond to the obligations and claims held by the appellee as a result of the acquisition of Company A by the appellant.
(2) Assuming so, the appellee is entitled under Article 508 of the Civil Code to set off, in the same amount, the Claim for the Outstanding Loan and the Claim for Refund of Overpayment for which extinctive prescription is invoked, and hence, the loan claim secured by the Revolving Mortgage has been extinguished in full amount by reason of the set-off and repayment.

4. However, we cannot affirm the holdings of the court of prior instance regarding set-off, on the following grounds.
Article 505, paragraph (1) of the Civil Code provides that set-off is allowed if "both obligations are due." Literally construed, in order to allow set-off, this provision requires not only the claim held by the party who seeks set-off but also the claim held by the other party to be actually due. Furthermore, if both claims are to be regarded as being eligible for set-off because the party who seeks set-off may at any time forfeit the benefit of time for performing an obligation corresponding to the other party's claim, this would enable the party who has that obligation to have the benefit of time extinguished retrospectively after he/she has enjoyed such benefit, which is inappropriate. Consequently, in order for the party who holds a claim which is already due to assert that his/her claim and the other party's claim for which the due date is fixed are eligible for set-off, it is required not only that the party who seeks set-off is entitled to waive the benefit of time with regard to the other party's claim but also that the other party's claim is actually due as a result of the waiver or forfeiture of the benefit of time by the party who seeks set-off.

5. This reasoning can be applied in this case as follows. With regard to the Claim for the Outstanding Loan, the appellee delayed in making repayment due on July 1, 2010, and forfeited the benefit of time upon the passage of this day according to the Special Agreement. As a result, the Claim for the Outstanding Loan became due in full, and at this point of time, the Claim for Refund of Overpayment and the Claim for the Outstanding Loan became eligible for set-off. In light of the purport of Article 508 of the Civil Code to protect the parties' expectations for set-off, it is construed that in order for this clause to apply, it is required that the claim held by the party who seeks set-off and for which extinctive prescription is invoked has been eligible for set-off against the other party's claim before the period of extinctive prescription has expired. According to the facts mentioned above, with regard to the Claim for Refund of Overpayment for which extinctive prescription is invoked, since the period of extinctive prescription had already expired before the abovementioned point in time when both claims became eligible for set-off, said clause does not apply to the set-off of the Claim for Refund of Overpayment and the Claim for the Outstanding Loan, and the set-off asserted by the appellee is invalid. In that case, the loan claim mentioned in 2(2) above, which is secured by the Revolving Mortgage, still remains in existence.

6. Contrary to the above, the court of prior instance determined that the set-off asserted by the appellee with regard to the Claim for Refund of Overpayment and the Claim for the Outstanding Loan is valid, and this determination contains violation of laws and regulations that apparently affects the judgment. The appeal counsel's arguments are well-grounded, and the judgment in prior instance should inevitably be quashed. According to the explanation given above, since there is no ground for the appellee's principal claim addressed in the first paragraph of the main text of the judgment in prior instance, we revoke the judgment in first instance and dismiss the appellee's principal claim. With respect to the appellant's counterclaim addressed in the second paragraph of the main text of the judgment in prior instance, we remand the case to the court of prior instance for further examination as to the remaining amount of the loan claim mentioned in 2(2) above.

Therefore, the judgment has been rendered in the form of the main text by the unanimous consent of the Justices.

Justice YAMAURA Yoshiki
Justice SAKURAI Ryuko
Justice KANETSUKI Seishi
Justice YOKOTA Tomoyuki
Justice SHIRAKI Yu