2022.01.18

2020 (Ju) 1518

Minshu Vol. 76, No. 1

Judgment concerning the propriety of incorporating delay damages for the obligation to compensate for loss or damage based on a tort into the principal through application or application by analogy of Article 405 of the Civil Code

Case seeking compensation for loss or damage

Judgment of the Third Petty Bench, dismissed

Tokyo High Court, Judgment of May 20, 2020

Delay damages for the obligation to compensate for loss or damage based on a tort cannot be incorporated into the principal through application or application by analogy of Article 405 of the Civil Code.

Articles 405 and 709 of the Civil Code and Article 350 of the Companies Act

Civil Code

(Incorporation of Interest into Principal)

Article 405 If the payment of interest corresponding to one year or more is delayed, and if the obligor does not pay that interest notwithstanding the demand by the obligee, the obligee may incorporate that interest into the principal.

(Compensation for Loss or Damage in Torts)

Article 709 A person that has intentionally or negligently infringed the rights or legally protected interests of another person is liable to compensate for damage resulting in consequence.

Companies Act

(Liability for Damages Caused by Acts of Directors)

Article 350 A Stock Company is liable for damage caused to third parties by its Representative Directors or other representatives during the course of the performance of their duties.

The final appeal is dismissed.

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

Concerning Reason IV for a petition for acceptance of final appeal stated by the counsel for final appeal, FURUTA Shigeru, SAKATA Shingo, and SHIGA Kosuke

1. In this case, the appellant, who was the shareholder of Appellee Y1 (hereinafter referred to as the "Appellee Company"), alleges that the appellant incurred loss or damage due to a decrease in the value of held shares, which was caused by the Appellee Company's illegal issue of new shares, etc., and demands that Appellee Y2, the representative director of the Appellee Company, and the Appellee Company jointly and severally pay compensation for loss or damage and delay damages accrued thereon under Article 709, etc. of the Civil Code and under Article 350, etc. of the Companies Act, respectively.

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

(1) In March 2013, the Appellee Company issued shares for subscription by allotting them to its representative director, Appellee Y2 (hereinafter referred to as the "Issue of New Shares"). The Issue of New Shares was conducted at the initiative of Appellee Y2 solely for the purpose of eliminating the appellant from the Appellee Company, and it extremely damaged the value of the shares of the Appellee Company that the appellant held.

(2) In March 2015, the appellant argued that the Issue of New Shares was illegal and filed this action against the appellees to seek the joint and several payment of compensation for loss or damage and delay damages accrued thereon based on a tort. The complaints for the action were served to the appellees, respectively, in April of the same year.

(3) On June 25, 2015, the appellant manifested to the appellees his/her intention to incorporate delay damages that had arisen in relation to the aforementioned appellees' obligation to compensate for loss or damage up to the same date into the principal under Article 405 of the Civil Code.

3. The court of prior instance ruled that the Issue of New Shares constitutes a tort and partially upheld the appellant's claim for compensation for loss or damage against Appellee Y2 under Article 709 of the Civil Code and the appellant's claim for compensation for loss or damage against the Appellee Company under Article 350 of the Companies Act, respectively. In doing so, the court of prior instance made a determination that Article 405 of the Civil Code is neither applied directly nor applied by analogy to delay damages for the obligation to compensate for loss or damage based on a tort and that delay damages mentioned in 2.(3) above cannot be incorporated into the principal.

4. The counsel for final appeal argues as follows: if Article 405 of the Civil Code is neither applied directly nor applied by analogy to delay damages for an obligation to compensate for loss or damage based on a tort, a negligent obligor who does not compensate for loss or damage would be protected; therefore, the aforementioned determination of the court of prior instance contains an erroneous interpretation and application of laws and regulations and a violation of a judicial precedent.

5. Article 405 of the Civil Code provides that the obligee can incorporate interest into the principal by the unilateral manifestation of intention based on certain requirements even where no special contract for compound interest has been concluded. This is considered to be intended to especially protect obligees from delay in the payment of interest because if it is impossible to add interest to delayed interest despite the obligor's extreme delay in the payment of the interest, the obligee incurs considerable loss or damage as the interest cannot be used. It then can be said that the aforementioned purport is applicable to delay damages that arise due to delay in the performance of a loan obligation in light of the nature, etc. thereof (see 1941 (O) 653, the judgment of the former Supreme Court of February 4, 1942, Minshu Vol. 21, at 107).

On the other hand, regarding an obligation to compensate for loss or damage based on a tort, the amount of the obligation to be performed is often uncertain for the obligor unlike a loan obligation. Therefore, it is not necessarily possible to fault the obligor even if the obligor does not pay delay damages arising from delay in the performance of the obligation. Moreover, it is considered that delay damages for an obligation to compensate for loss or damage based on a tort start to arise at the time when the tort is conducted, without the necessity to make any demand (see 1959 (O) 117, the judgment of the Third Petty Bench of the Supreme Court of September 4, 1962, Minshu Vol. 16, No. 9, at 1834). There is thus little need to protect obligees even by permitting the incorporation of the aforementioned delay damages into the principal. Consequently, it should be said that the aforementioned purport of Article 405 of the Civil Code does not apply to delay damages for an obligation to compensate for loss or damage based on a tort.

Therefore, it is reasonable to consider that delay damages for an obligation to compensate for loss or damage based on a tort cannot be incorporated into the principal through application or application by analogy of Article 405 of the Civil Code.

6. The determination of the court of prior instance to the same effect as above is justifiable and can be upheld. The aforementioned judgment of the former Supreme Court of February 4, 1942 cited in the arguments of the counsel for final appeal is irrelevant in this case because it addressed a different type of facts. The arguments made by the counsel for final appeal are not acceptable.

Incidentally, regarding other final appeals filed by the appellant, the reasons for a petition for acceptance of final appeal were excluded by an order to accept a final appeal.

Accordingly, the Court unanimously decides as set forth in the main text of the judgment.

Justice HAYASHI Michiharu

Justice TOKURA Saburo

Justice UGA Katsuya

Justice NAGAMINE Yasumasa

Justice WATANABE Eriko