2020.09.11

2018 (Ju) 2064

Minshu Vol. 74, No. 6

Judgment concerning a case in which regarding two claims, i.e., a claim for the cost of contract work based on a contract work agreement and a claim for damages that can be demanded in lieu of repairs of any defect of the subject matter of said agreement, while one of those two claims is considered as a claim made in the principal action and the other as a claim made in a countersuit and in which the Court determined, during the pendency of the principal action and the countersuit, whether a defense of set-off can be made by considering the aforementioned claim made in the principal action as an active claim and the aforementioned counterclaim as a passive claim

Case concerning a claim for the cost of contract work made in the principal action and a claim for the cost of repairs of any defect of a building made in the countersuit

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

Hiroshima High Court, Judgment of October 12, 2018

In the case where there are two claims, i.e., a claim for the cost of contract work based on a contract work agreement and a claim for damages that can be demanded in lieu of repairs of any defect of the subject matter of said agreement, while one of those two claims is considered as a claim made in the principal action and the other as a claim made in a countersuit, the plaintiff in the principal action may, during the pendency of the principal action and the countersuit, raise a defense of set-off in a countersuit by considering the aforementioned claim made in the principal action as an active claim and the aforementioned counterclaim as a passive claim.

Article 505, paragraph (1) of the Civil Code, Article 114, paragraph (2), Article 142, and Article 146 of the Code of Civil Procedure



Civil Code

(Requirements for Set-Offs)

Article 505, paragraph (1)

(1) If two persons bear an obligation to each other that has the same kind of purpose and if both obligations are due, each obligor may be relieved from the obligation by setting off the value of that obligation against the corresponding amount of the obligation of the other obligor; provided, however, that this does not apply if the nature of the obligation does not permit such a set-off.



Code of Civil Procedure

(Scope of Res Judicata)

Article 114, paragraph (2)

(2) In judging the validity or invalidity of a claim asserted for the purpose of an offset, res judicata applies to an amount of money that has been duly asserted in order to effect an offset.

(Prohibition Against the Filing of Duplicate Actions)

Article 142

It is not permitted for a party to a case pending before the court to file another action in the case.

(Counterclaims)

Article 146

(1) The defendant may file a counterclaim with the court where the principal action is pending up until such time as oral arguments have reached a conclusion, but only if the subject matter of the counterclaim is a claim with a bearing on the claim that is the subject matter of the principal action or with a bearing on the means of defense; provided, however, that this does not apply in the following cases:

(i) if the claim that is the subject matter of the counterclaim is subject to the exclusive jurisdiction of another court (excluding one determined by an agreement between the parties pursuant to the provisions of Article 11);

(ii) if the filing of a counterclaim would substantially delay litigation proceedings.

(2) If the principal action is pending before a court specified in any of the items of Article 6, paragraph (1), and the claim that is the subject matter of the counterclaim is subject to the exclusive jurisdiction of another court pursuant to the provisions of paragraph (1) of that Article, the provision of item (i) of the preceding paragraph does not apply.

(3) If the Japanese courts have no jurisdiction over a claim that is the subject matter of a counterclaim, the defendant may file a counterclaim pursuant to the provisions of paragraph (1) only if the subject matter of the counterclaim is a claim with a close bearing on the claim that is the subject matter of the principal action or with a close bearing on the means of defense; provided, however, that this does not apply if the Japanese courts have no jurisdiction over the claim that is the subject matter of the counterclaim pursuant to the provisions on exclusive jurisdiction.

(4) Counterclaims are governed by the provisions on actions.

1. The judgment in prior instance is modified as follows.

The judgment in the first instance is modified as follows.

(1) The appellee of final appeal must pay the appellant of final appeal 5,621,800 yen and the amount accrued thereon at the rate of 6% per annum for the period from August 9, 2014 to the date of completion of payment.

(2) The appellant's other claims made in the principal action are dismissed.

(3) The appellee's counterclaim is dismissed.

2. The total court costs are divided into seven parts, of which, one part shall be borne by the appellant and the rest shall be borne by the appellee.

Concerning the reason for a petition for acceptance of final appeal stated by the counsel for final appeal, OHASHI Hiromi (except for the reasons excluded)

1. In this principal action, the appellant, who received a contract from the appellee for a construction work to build an extension of a building, demanded that the appellee make a payment for the contract work and also for damages for delay accrued thereon from December 4, 2013. In this countersuit, the appellee alleged against the appellant that the aforementioned extension of the building had a defect and demanded payment of damages that can be demanded in lieu of repairs of the defect and also payment of damages for delay accrued thereon from July 2, 2014.

2. The outline of facts lawfully determined by the court of prior instance is as follows.

(1) In September 2013, the appellee concluded a contract work agreement with the appellant, who was engaged in the business of designing and constructing buildings, with regard to a construction work to build an extension of the appellee's house at the cost of 7.5 million yen. After that, by November 2013, the appellee placed an order with the appellant for construction work to make additions and alterations to the aforementioned work (the agreement covering works including the aforementioned work to make said additions and alterations shall be hereinafter referred to as the "Contract Work Agreement").

(2) By December 2013, the appellant completed the aforementioned work to build an extension and work to make additions and alterations and handed over the completed extension of the appellee's house to the appellee.

(3) The cost of the contract work conducted based on the Contract Work Agreement is 8,291,756 yen. On the other hand, the aforementioned extension part had a defect and caused the appellee to suffer damage of 2,669,956 yen.

(4) The appellant filed the principal action in March 2014, while the appellee filed the countersuit in June 2014. On the date of oral proceedings of the first instance on August 8, 2014, the appellant expressed its intention to the appellee to the effect that a claim for the cost of contract work made in the principal action should be considered as an active claim, while a claim made in the countersuit in order to demand payment of damages that can be demanded in lieu of repairs of the defect should be considered as a passive claim and that the two claims should be set off against each other at the corresponding amount (the "Set-off"). The appellant proposed such Set-off as a defense against the counterclaim (the "Defense of Set-off").

3. The court of prior instance determined as summarized below based on the aforementioned facts. The court of prior instance accepted the appellant's claim made in the principal action to the extent of demanding the payment of the aforementioned cost of contract work and also accepted the appellee's claim made in the countersuit to the extent of demanding the payment of the damages for the aforementioned damage by holding that no damages for delay would arise in connection with the claim made in the principal action and the claim made in the countersuit that are subject to simultaneous performance.

If a claim is disputed as the subject matter of a previous action that it still pending, it would not be permitted to raise the defense of set-off in another lawsuit by considering said claim as an active claim. This rule would not change even if the previous action is subject to joint proceedings as long as there is a risk of conflict with the principle of res judicata. Similarly, even if the plaintiff of the principal action raises the defense of set-off by considering the claim made in the principal action as an active claim, since it is not prohibited to separate the oral proceedings for the principal action from the oral proceedings for the countersuit, the defense of set-off should not be permitted. Therefore, the appellant's act of raising the Defense of Set-off would violate the purport of Article 142 of the Code of Civil Procedure, which prohibits the filing of duplicate actions, and should not be permitted.

4. However, the aforementioned determination in the judgment in prior instance cannot be upheld for the following reasons.

In the case of a contract work agreement, the orderer's obligation to pay the cost of the contract work and the contractor's obligation to deliver the subject matter should be considered to be subject to simultaneous performance in a compensatory manner. Based on this legal relationship, the orderer, who received a defective subject matter, is entitled to have a claim against the contractor for damages that can be demanded in lieu of repairs of the defect. From the practical and economic perspective, the right to demand damages has the function of reducing the payment for the contract work and thereby equalizing the amount of obligation shouldered by each of the parties to the contract work agreement. Moreover, the contractor's claim against the orderer for the cost of contract work and the orderer's claim against the contractor for damages that can be demanded in lieu of repairs of the defect can be considered to be monetary claims based on the same underlying relationships. In consideration of such relationships, it can be said that, in the case of the aforementioned two claims, although they are subject to simultaneous performance, no special benefits exist for actually having them mutually performed. Even if a set-off between the two claims is permitted, it would not cause any disadvantage to either party. A settlement by set-off would contribute to the convenience and fairness for both parties by simplifying legal relationships (1977 (O) No. 1306, No. 1307, judgment of the First Petty Bench of the Supreme Court of September 21, 1978, Saibanshu Minji No. 125, at 85).

In light of the relationship between the claim for the cost of contract work and the claim for damages that can be demanded in lieu of repairs of the defect as described above, in the case where one of the two claims is considered to be the claim made in the principal action and the other as the claim made in the countersuit, during the pendency of the principal action and the countersuit, if the plaintiff of the principal action raises the defense of set-off in the countersuit by considering the aforementioned claim made in the principal action as an active claim and the aforementioned counterclaim as a passive claim, the aforementioned settlement by set-off would be desirable. However, in the case where the oral proceedings for the principal action is separated from the oral proceedings of the countersuit, there is a risk of causing contradiction or conflict with a determination concerning the existence or absence of the aforementioned claim made in the principal action and also causing diseconomy as a result of overlapping proceedings. In such case, the separation of oral proceedings should not be permitted. As long as joint proceedings are conducted for the principal action and the countersuit, even if a determination is made with regard to the aforementioned Defense of Set-off, the aforementioned risk would not arise. Thus, an act of raising the aforementioned Defense of Set-off would not violate the purport of Article 142 of the Code of Civil Procedure, which prohibits the filing of duplicate actions.

Therefore, it would be reasonable to interpret that, if there are two claims, i.e., a claim for the cost of contract work based on a contract work agreement and a claim for damages that can be demanded in lieu of repairs of any defect of the subject matter of said agreement, while one of those two claims is considered as a claim made in the principal action and the other as a claim made in a countersuit, during the pendency of the principal action and the countersuit, the plaintiff in the principal action may raise a defense of set-off in a countersuit by considering the aforementioned claim made in the principal action as an active claim and the aforementioned counterclaim as a passive claim.

5. For the reasons described above, the determination of the court of prior instance to the effect that the act of raising the Defense of Set-off is not permissible contains violation of laws and regulations that obviously affects the judgment. The counsel's arguments are well-grounded.

If the intention is expressed to the effect that a set-off can be made between the claim for the cost of contract work, which is considered as an active claim, and the claim for damages that can be demanded in lieu of repairs of any defect, it can be interpreted that the orderer is responsible for any delay in paying the contractor the remaining amount of the cost of contract work from the day following the date of expression of the intention of set-off (1993 (O) No. 2187, 1997 (O) No. 749, judgment of the Third Petty Bench of the Supreme Court of July 15, 1997, Minshu Vol. 51, No. 6, at 2581). Based on the explanations made above, the claim made in the principal action is well-grounded to the extent of demanding the payment of 5,621,800 yen, which is the remaining amount of the cost of contract work after the set-off, and the payment of damages for delay accrued thereon at the rate of 6% per annum for the period from August 9, 2014, which is the date following the date of expression of the intention of the Set-off, to the date of completion of payment. Therefore, it should be found that the claim made in the principal action is acceptable to the aforementioned extent and that the rest of the claims made in the principal action and the countersuit should be dismissed because they lack grounds. Thus, the judgment in prior instance is modified as stated in paragraph 1 of the main text.

Therefore, the Court unanimously decides as set forth in the main text.

Justice MIURA Mamoru

Justice KANNO Hiroyuki

Justice KUSANO Koichi

Justice OKAMURA Kazumi