2014.06.05

2012 (Ju) 908

Minshu Vol. 68, No. 5

Judgment concerning a case wherein the court ruled that, with respect to the beneficial interests in an investment trust that the rehabilitation debtor had purchased from the rehabilitation creditor before suspending payments, the rehabilitation creditor's assumption of an obligation to pay cancellation money to the rehabilitation debtor cannot be regarded as an event that arose from a "cause that had occurred before the rehabilitation creditor came to know the fact that the rehabilitation debtor had suspended payments," as referred to in Article 93, paragraph (2), item (ii) of the Civil Rehabilitation Act, and therefore a set-off of the claim relating to said obligation to pay should not be allowed

Case to seek damages, with intervention of an independent party

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

Nagoya High Court, Judgment of January 31, 2012

Where rehabilitation debtor, X, before suspending payments, had purchased beneficial interest in an investment trust created based on a trust agreement between an investment trust settlor company and a trust company, from rehabilitation creditor, Y, that had been entrusted to conduct solicitation and sale of said beneficial interests, and under said trust agreement, etc., Y was to assume an obligation to pay cancellation money to X on condition that Y would receive the delivery of said cancellation money from said trust company when a request was filed for execution of cancellation of the trust agreement concerning said beneficial interests, given the circumstances (1) to (3) below indicated in the judgment, Y's assumption of said obligation to pay by receiving the delivery of said cancellation money after coming to know Y's suspension of payments as a result of Y's filing of a request for execution of cancellation based on the obligee's subrogation right cannot be regarded as an event that arose from a "cause that had occurred before the rehabilitation creditor came to know the fact that the rehabilitation debtor had suspended payments," as referred to in Article 93, paragraph (2), item (ii) of the Civil Rehabilitation Act, and therefore a set-off of the claim relating to said obligation against Y's rehabilitation claim should not be allowed:
(1) Y filed the abovementioned request for execution cancellation after it had come to know of X's suspension of payments;
(2) X was in principle free to transfer the abovementioned beneficial interests, which were under Y’s management as beneficial interests in a book-entry investment trust in the book-entry account opened in Y’s book-entry account registry, to other book-entry accounts; and
(3) if Y sought to make the abovementioned set-off, it seemingly had no option but to file the abovementioned request for execution of cancellation, as other creditors would have to do so.

Article 93, paragraph (1), item (iii) and paragraph (2), item (ii) of the Civil Rehabilitation Act

Civil Rehabilitation Act
(Prohibition of Set-Off)
Article 93　
(1)　A rehabilitation creditor may not effect a set-off in the following cases:
(iii)　Where the rehabilitation creditor has assumed a debt to the rehabilitation debtor after the rehabilitation debtor suspended payments, and the rehabilitation creditor knew, at the time of assumption of the debt, the fact that the rehabilitation debtor had suspended payments; provided, however, that this shall not apply if the rehabilitation debtor was not unable to pay debts at the time when the rehabilitation debtor suspended payments.
(2)　The provisions of item (ii) to item (iv) of the preceding paragraph shall not apply where the assumption of a debt prescribed in these provisions arose from any of the causes listed in the following items:
(ii)　A cause that had occurred before the rehabilitation creditor came to know the fact that the rehabilitation debtor had been unable to pay debts, that the rehabilitation debtor had suspended payments or that a petition for commencement of rehabilitation proceedings, etc. had been filed

1. The judgment in prior instance is quashed with respect to the part concerning the secondary claim of the appellant of final appeal.
2. The appeal to the court of second instance filed by Appellee Y is dismissed with respect to the part mentioned in the preceding paragraph.
3. The remaining part of the final appeal of the appellant of final appeal is dismissed.
4. Appellee Y shall bear the cost of the appeal to the court of second instance and the cost of the final appeal.

Concerning Reason IV for petition for acceptance of final appeal argued by the appeal counsel, WATANABE Ippei, et al.
1. The appellant of final appeal who is a rehabilitation debtor, as his secondary claim in this suit, alleges that, in relation to the beneficial interests in an investment trust which he had purchased from P and for which he had entrusted management to P before he suspended payments (hereinafter referred to as the "Beneficial Interests"), the trust agreement concerning the Beneficial Interests was partially cancelled after his suspension of payments and before his filing of a petition for commencement of rehabilitation proceedings, and accordingly, based on the agreement for entrustment of management mentioned above, the appellant seeks payment of cancellation money from Appellee Y, which took over P by an absorption-type merger and succeeded to its rights and obligations after the rendition of the judgment in prior instance (its former trade name was Q; Appellee Y in combination with P before the merger shall hereinafter collectively be referred to as the "appellee bank"). The appellee bank, which was a rehabilitation creditor, asserts a set-off of the appellant's claim for payment of said cancellation money, alleging that a set-off should be allowed because the appellee bank's assumption of the obligation to pay said cancellation money to the appellant can be regarded as an event that arose from a "cause that had occurred before the rehabilitation creditor came to know the fact that the rehabilitation debtor had suspended payments," as referred to in Article 93, paragraph (2), item (ii) of the Civil Rehabilitation Act.

2. The outline of the facts legally determined by the court of prior instance is as follows.
(1) The investment trust to which the Beneficial Interests pertain was created based on the trust agreement entered into between an investment trust settlor company, as the settlor, and the trust company, as the trustee. Said investment trust settlor company entered into an agreement with the appellee bank for entrustment of solicitation and sale of the Beneficial Interests, and the appellee bank was engaged in the sale, etc. of the Beneficial Interests under this agreement.
(2) The appellant entered into an agreement with the appellee bank to entrust the bank to conduct management, etc. of beneficial interests in an investment trust (hereinafter referred to as the "Agreement for Entrustment of Management"), and during the period from January 2000 to March 2007, the appellant purchased the Beneficial Interests in succession from the appellee bank.
(3) According to the Agreement for Entrustment of Management as well as the trust agreement and the agreement for entrustment of solicitation and sale mentioned above, the appellant was supposed to undergo the following procedures in order to apply for cancellation with respect to the Beneficial Interests.
A. The appellant files a request to the appellee bank to execute the cancellation of the abovementioned trust agreement concerning the Beneficial Interests (hereinafter referred to as a "request for execution of cancellation").
B. The appellee bank notifies the investment trust settlor company of the filing of a request for execution of cancellation.
C. The investment trust settlor company partially cancels the abovementioned trust agreement, and the trust company transfers cancellation money to the appellee bank.
D. The appellee bank pays said cancellation money to the appellant at the appellee bank's business office, etc.
(4) From January 2007, the appellee bank had managed the Beneficial Interests as beneficial interests in a book-entry investment trust as defined in Article 121-2, paragraph (1) of the Act on Book-Entry Transfer of Company Bonds, Shares, etc., by recording them in the appellant's account opened in the book-entry account registry prepared by the appellee bank, as an account management institution. Under the Agreement for Entrustment of Management, the appellant was in principle free to transfer the Beneficial Interests to other book-entry accounts (including not only those opened with the appellee bank but also those opened with other account management institutions).
(5) The appellee bank had acquired by November 2008 a claim against the appellant for the performance of the guarantee obligation. The outstanding amount of the claim was 59,542,964 yen as of March 31, 2009.
(6) The appellee suspended payments on December 29, 2008. The appellee bank came to know this fact on the same day.
(7) On March 23, 2009, in order to preserve said claim for the performance of the guarantee obligation, the appellee bank, based on the obligee's subrogation right and on behalf of the appellant, filed a request for execution of cancellation with respect to the Beneficial Interests, which the appellant was originally supposed to file against the appellee bank, and it notified the investment trust settlor company of the filing of a request for execution of cancellation.
(8) Upon said notification, the trust agreement concerning the Beneficial Interests was partially cancelled, and on March 26, 2009, cancellation money of 7,173,909 yen (hereinafter referred to as the "Cancellation Money") was transferred from the trust company to the appellee bank. As a result, the appellee bank assumed the obligation to pay the Cancellation Money (hereinafter referred to as the "Obligation") to the appellant based on the Agreement for Entrustment of Management.
(9) On March 31, 2009, the appellee bank manifested its intention to the appellant to set off the claim pertaining to the Obligation against the corresponding amount of the abovementioned claim for the performance of the guarantee obligation (hereinafter referred to as the "Set-off").
(10) On April 28, 2009, the appellant filed a petition for commencement of rehabilitation proceedings, and on May 12, 2009, he was given an order of commencement of rehabilitation proceedings.

3. Given the facts mentioned above, the court of prior instance dismissed the appellant's secondary claim, holding that the Set-off should be allowed because, although the appellee bank's assumption of the Obligation corresponds to the case "where the rehabilitation creditor has assumed a debt to the rehabilitation debtor after the rehabilitation debtor suspended payments," as referred to in the main clause of Article 93, paragraph (1), item (iii) of the Civil Rehabilitation Act, it can be regarded as an event that arose from a "cause that had occurred before the rehabilitation creditor came to know the fact that the rehabilitation debtor had suspended payments," as referred to in paragraph (2), item (ii) of said Article. The grounds for such holdings are as follows.
The Obligation arose on condition that, upon the partial cancellation of the trust agreement concerning the Beneficial Interests, cancellation money will be delivered to the appellee bank based on the Agreement for Entrustment of Management, and the appellee bank assumed the Obligation when this condition was fulfilled after the appellant suspended payments. However, since the Beneficial Interests were under management of the appellee bank according to the Agreement for Entrustment of Management that had been entered into before the appellant suspended payments and they were subject to the scheme wherein the appellant would be unable to receive payment of cancellation money by any means other than via the appellee bank even when he filed a request for execution of cancellation with respect to the Beneficial Interests, the appellee bank's assumption of the Obligation can be regarded as an event that arose from a cause that had occurred before the appellee bank came to know the fact that the appellant had suspended payments.

4. However, we cannot affirm the part of the holdings of the court of prior instance mentioned above in which the court ruled that the appellee bank's assumption of the Obligation can be regarded as an event that arose from a "cause that had occurred before the rehabilitation creditor came to know the fact that the rehabilitation debtor had suspended payments," as referred to in Article 93, paragraph (2), item (ii) of the Civil Rehabilitation Act. The grounds for this conclusion are as follows.
Rehabilitation proceedings aim to ensure fair and equal treatment among creditors in terms of rehabilitation claims as the basic principle. It is construed that in order to prevent such purpose of rehabilitation proceedings from being ignored, the Civil Rehabilitation Act prohibits a set-off in the main clause of Article 93, paragraph (1), item (iii), where the set-off is made with respect to a claim relating to an obligation assumed by a rehabilitation creditor against the rehabilitation debtor after the rehabilitation creditor came to know that the rehabilitation debtor had suspended payments, while, at the same time, it does not prohibit a set-off in paragraph (2), item (ii) of said Article, where the rehabilitation creditor assumed an obligation against the rehabilitation debtor due to a "cause that had occurred before the rehabilitation creditor came to know the fact that the rehabilitation debtor had suspended payments," because the rehabilitation creditor has reasonable expectations for the security function of a set-off, and protecting such expectations does not go against the abovementioned purpose of rehabilitation proceedings.
According to the facts mentioned above, it is construed that the Obligation arose under the circumstances where the appellant, before suspending payments, had purchased the Beneficial Interests from the appellee bank and entrusted the management thereof to the appellee bank under the Agreement for Entrustment of Management, and the appellee bank assumed the Obligation on condition that it would receive the delivery of cancellation money (see 2005 (Ju) No. 1461, judgment of the First Petty Bench of the Supreme Court of December 14, 2006, Minshu Vol. 60, No. 10, at 3914). At least until a request for execution of cancellation was filed, the appellant had held the Beneficial Interests against the investment trust settlor company, and all rehabilitation creditors should have expected the Beneficial Interests to serve as the appellant's non-exempt property. As a result of a request for execution of cancellation having been filed with respect to the Beneficial Interests, the appellant acquired the claim for payment of the Cancellation Money against the appellee bank. This claim can be considered to have a value substantially equivalent to the Beneficial Interests. Moreover, said request for execution of cancellation was filed after the appellee bank had come to know of the appellant's suspension of payments, and therefore, even if the appellee bank expected that it would be able to set off said claim for payment of the Cancellation Money, such expectation can hardly be said to be reasonable. In addition, the appellant was in principle free to transfer the Beneficial Interests to other book-entry accounts even during the time when the appellee bank managed the Beneficial Interests under the Agreement for Entrustment of Management. If such book-entry transfer took place, the appellee bank would have never assumed an obligation to pay cancellation money to the appellant, and hence, it cannot be said to be certain that the appellee bank would assume the Obligation to the appellant. Further according to the facts mentioned above, if the appellee bank sought to set off the claim relating to the obligation to pay cancellation money with respect to the Beneficial Interests that it was to assume to the appellant, it seemingly had no option but to file a request for execution of cancellation with respect to the Beneficial Interests based on the obligee's subrogation right and on behalf of the appellant, as other creditors would have to do so.
In that case, it cannot be said that the appellee bank had reasonable expectations for the security function of a set-off that it was to make by reason of the Obligation, and allowing such a set-off goes against the purpose of rehabilitation proceedings, in which fair and equal treatment among creditors in terms of rehabilitation claims is the basic principle. Consequently, it is appropriate to construe that the appellee bank's assumption of the Obligation cannot be regarded as an event that arose from a "cause that had occurred before the rehabilitation creditor came to know the fact that the rehabilitation debtor had suspended payments," as referred to in Article 93, paragraph (2), item (ii) of the Civil Rehabilitation Act, and the Set-off should not be allowed.

5. For the reasons stated above, the holdings of the court of prior instance that allowed the Set-off contain violation of laws and regulations that apparently affects the judgment. The appeal counsel's arguments are well-rounded, and the judgment in prior instance should inevitably be quashed with respect to the part concerning the secondary claim of the appellant. According to the explanation given above, there is a ground for the appellant's secondary claim and the judgment in first instance that upheld it is affirmable, and therefore the appellee bank's appeal to the court of second instance should be dismissed with respect to said part.
We dismiss the final appeal concerning other claims of the appellant because the reasons for petition for acceptance of final appeal were excluded by an order to accept the final appeal.

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