1970.06.24

1966 (O) 444

Minshu Vol. 24, No. 6

Judgment concerning a donation for political funds and company's capacity to hold rights

Case seeking enforcement of the liability of directors

Judgment of the Grand Bench, dismissed

Tokyo High Court, Judgment of January 31, 1966

1. A donation for political funds made by a company is an act that falls within the scope of the company's capacity to hold rights as long as it is found to have been made to fulfill the company's social role as a result of objective and abstract observation.

2. As provisions on the people's rights and duties in Chapter III of the Constitution are also applied to domestic corporations whenever possible in terms of their nature, companies have the freedom to make a donation for political funds to a political party as part of the freedom to conduct a political act as long as the donation does not go against public welfare.

3. The provisions of Article 254-2 of the Commercial Code only explained in detail and further clarified the duty of due care of a prudent manager provided in Article 254, paragraph (3) of the same Code and Article 644 of the Civil Code and did not provide for a higher level of duty that differs from the duty of due care of a prudent manager associated with an ordinary relationship of mandate.

4. A donation for political funds made by a director of a company representing the company does not violate the duty of loyalty of the director as long as it is made within a reasonable scope in consideration of various circumstances, including the size, business performance, and other social and economic status of the company and the other party to the donation.

Articles 43 and 644 of the Civil Code, Article 166, paragraph (1), item (i), Article 254-2, and Article 254, paragraph (3) of the Commercial Code, and Chapter III of the Constitution

Civil Code
(Capacity of Juridical Person)
Article 43　A juridical person shall have rights and assume duties to the extent of the purpose provided in the applicable articles of incorporation or act of endowment subject to the applicable provisions of the laws and regulations.
(Duty of Care of Mandatary)
Article 644　A mandatary shall assume a duty to administer the mandated business with the care of a good manager compliance with the main purport of the mandate.

Commercial Code
Article 166, paragraph (1), item (i)
The incorporator of a company must prepare the articles of incorporation of the company, state the following matters therein, and sign it.
Article 254-2
Directors of a company are to bear the duty to comply with laws and regulations, the articles of incorporation of the company, and resolutions made by the assembly of the company and the duty to faithfully perform their duties on behalf of the company.
Article 254, paragraph (3)
The relationship between a company and its directors is governed by the provisions on mandate.

The final appeal is dismissed.

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

Concerning Reason II for final appeal stated by the counsel for final appeal and Reasons I and II for final appeal stated by the appellant

According to the facts determined by the court of prior instance, Non-Party Iron and Steel Stock Company D is a company that lists the "manufacture and sale of iron and steel and businesses incidental thereto" as its purpose in its articles of incorporation. On March 14, 1960, both of the appellees, who were representative directors of this company, made a donation for political funds of 3,500,000 yen to the Liberal Democratic Party, on behalf of the company. In short, the counsel and the appellant argue that the company does not have the capacity to hold rights to make a donation as mentioned above because the aforementioned donation is an act outside the scope of the purpose prescribed in the company's articles of incorporation.

Although companies have the capacity to hold rights within the scope of the purposes prescribed respectively in their articles of incorporation, it is reasonable to consider that acts within the scope of such purposes are not limited to acts for purposes clearly specified in the articles of incorporation but also include all acts that are directly or indirectly necessary for performing their purposes. Thus, whether an act is necessary should not be determined based on whether the act was actually necessary in performing the relevant company's purpose but must be abstractly determined in line with the objective nature of the act (see 1949 (O) 64, the judgment of the Second Petty Bench of the Supreme Court of February 15, 1952, Minshu Vol. 6, No. 2, at 77; 1952 (O) 1075, the judgment of the Third Petty Bench of the Supreme Court of November 29, 1955, Minshu Vol. 9, No. 12, at 1886).

Incidentally, as companies are originally intended to run certain businesses for profit, the emphasis of their activities, needless to say, exists in acts that are directly necessary for performing the purposes prescribed respectively in their articles of incorporation. However, on the other hand, companies are also social entities that are constituent units of a nation, local government, community, etc. (hereinafter referred to as a "society, etc.") in the same way as natural persons. Therefore, they must undertake social functions as such social entities. Even if an act is not related to any purpose prescribed in the articles of incorporation of a company at first glance, as long as the act is one that the company is expected or requested to conduct in terms of common sense, it must be said that the company may naturally respond to such expectation or request. In addition, from the standpoint of companies, conducting activities that fall under such social functions is not necessarily unprofitable and unnecessary in general, but can also be recognized as having considerable value and effect in promoting smooth development as business entities. Therefore, in that sense, such acts can also be considered to be necessary for performing their purposes, though indirectly. Donations for disaster relief funds, financial service to a community, financial cooperation for various welfare services, etc. are exactly appropriate examples of such acts. As it is rather natural, in terms of common sense, for companies to make a substantial amount of such contributions to fulfill their social functions, it is not at all against the expectations of their shareholders and other constituent members. Therefore, considering these acts to be within the scope of companies' capacity to hold rights is not likely to prejudice the interests of shareholders, etc.

The logic above also applies to the case where a company makes a donation for political funds to a political party. The Constitution provides nothing about political parties and does not grant any special status thereto. However, as the smooth operation of parliamentary democracy provided in the Constitution cannot be expected at all in disregard of political parties, it should be said that the Constitution naturally presupposes the existence of political parties. Political parties are thus essential elements that support parliamentary democracy. At the same time, political parties are the most dominant media that form the political will of the people. Thus, what political parties should be like must be the matters of serious concern of the people. Therefore, companies are also expected to cooperate in the sound development of political parties as the natural acts of social entities, and donations for political funds are also no exception as one form of such cooperation. Even if constituent members of a company do not have the same political conviction as argued by the counsel and the appellant, as long as a donation for political funds by the company is made not for the purpose of promoting the interests of a specific constituent member of the company and satisfying his/her political orientation but to the extent expected or requested for the company, which is in the position of one constituent unit of a society, it cannot be said that the company does not have the capacity to make the donation for political funds. All the other appellant's arguments must be considered as his/her own unique views and are not acceptable. In short, a donation for political funds made by a company can be considered to be an act within the scope of the purpose prescribed in the company's articles of incorporation as long as it is found to have been made to fulfill the company's social role as a result of objective and abstract observation.

The judgment in prior instance differs from the view mentioned above in some points. However, the determination in the judgment in prior instance that the donation for political funds in question (hereinafter referred to as the "Donation for Political Funds") is an act within the scope of the purpose prescribed in the articles of incorporation of Iron and Steel Stock Company D is eventually reasonable, and the judgment in prior instance contains no illegality as argued by the counsel and the appellant. The arguments made by the counsel and the appellant are not acceptable.

Concerning Reason I for final appeal stated by the counsel for final appeal, ARIGA Masaaki, YOSHIDA Hajime, and NAGAOKA Kuni and Reason IV for final appeal stated by the appellant

In short, the counsel and the appellant argue that a donation for political funds made by a stock company violates the Constitution that grants suffrage only to the people, who are natural persons, and is thus an act that violates Article 90 of the Civil Code.

As argued by the counsel and the appellant, the right to vote and other suffrage under the Constitution are granted only to the people, who are natural persons. However, as long as companies have the duty to pay taxes and are thus liable to bear burden, such as national tax, in the same way as the people, who are natural persons, there is no reason to prohibit them by power from expressing their opinions about and taking other actions against measures taken by the State or a local public entity in their position as taxpayers. In addition, as it should be considered that provisions on the rights and duties of the people in Chapter III of the Constitution are also applied to domestic corporations whenever possible in terms of their nature, companies have the freedom to conduct political acts, such as supporting and promoting or opposing a specific policy of the State or a political party, in the same way as the people, who are natural persons. Donations for political funds are exactly part of that freedom. The Constitution does not require handling a donation for political funds made by a company differently from donations made by the people, who are natural persons, even if the donation may have affected political trends. The counsel and the appellant argue that a donation to a political party made by a company constitutes invasion of the people's suffrage. However, in terms of its nature, a donation to a political party has no direct influence on the exercise of the right to vote and other suffrage by the people as individuals. In addition, although part of a political party's funds can be allocated for buying voters, such buying is merely a pathological phenomenon that happens by chance, and there is also a strict system to restrain such illegal act. At any rate, it is difficult to consider that a donation for political funds made by a company directly infringes the people's free exercise of the right to vote. As explained above, companies have the freedom to make a donation for political funds, and it is not at all surprising even if such donation works toward the formation of the political will of the people. The counsel and the appellant argue as follows: large amounts of donations by large companies are to cause the negative effects of money politics; in addition, if the leading shareholder of a company is a foreign national, such donation is liable to constitute political intervention by a foreign state; furthermore, ample and sufficient political funds foster political corruption. However, for the moment, we should leave the issue of addressing such negative effects as pointed out by the counsel and the appellant to legislative policies. Under the Constitution, it must be said that companies also have the freedom to make a donation for political funds as long as the donation does not go against public welfare. Therefore, the argument that such donation infringes the people's suffrage is not acceptable.

As explained above, a donation for political funds made by a stock company does not violate the Constitution, and therefore, it must be said that the argument that such donation violates Article 90 of the Civil Code based on the premise that it violates the Constitution lacks its premise. The judgment in prior instance contains no illegality as argued by the counsel and the appellant, and the arguments made by the counsel and the appellant are not acceptable.

Concerning Reason III for final appeal stated by the counsel for final appeal, ARIGA Masaaki, YOSHIDA Hajime, and NAGAOKA Kuni and Reason III for final appeal stated by the appellant

In short, the counsel and the appellant argue that the Donation for Political Funds made by the appellees violates the duty of loyalty of directors provided in Article 254-2 of the Commercial Code.

The provisions of Article 254-2 of the Commercial Code only explained in detail and further clarified the duty of due care of a prudent manager provided in Article 254, paragraph (3) of the same Code and Article 644 of the Civil Code, and in contrast to the arguments made by the counsel and the appellant, the provisions cannot be considered to have provided for a higher level of duty that differs from the duty of due care of a prudent manager associated with an ordinary relationship of mandate. Incidentally, if directors use their positions in the course of duties and make a donation for political funds in the interests of themselves or a third party, they, needless to say, violate the duty of loyalty. However, the counsel and the appellant does not argue that the appellees had the specific intention to promote such interests but argue as follows on the premise that this kind of donation should be generally made by the people as individuals based on their own political conviction: the directors' act of not making a contribution him/herself in a private capacity but spending money from the company's assets as the company's organ is the same as consuming the company's assets for themselves in the result. As explained above, companies can make a donation for political funds. Therefore, as long as this is so, directors' assumption of that important role as the company's organ, needless to say, cannot be considered to be an act of pursuing their private interests by using their position as directors unless there are special circumstances. Furthermore, the counsel and the appellant argue as follows: despite the risk that part of political party's funds might be unlawfully and unjustly, or uselessly, used in an extravagant way, the appellees closed their eyes to that risk while knowing it, and unthinkingly made the donation in question (hereinafter referred to as the "Donation") without taking preventive measures, such as limiting the usage of the donation; in addition, the donation did not even go through deliberation by the board of directors; therefore, the appellees obviously violated the duty of loyalty. Incidentally, it should be considered that even in the case of arguing violation of the duty of loyalty as above, the onus of proof of the violation should be laid on the person who makes the argument in the same manner as in the case of violation of a duty in general. The appellant's argument in prior instance was only that a donation for political funds generally violates the articles of incorporation and disrupts public order and therefore that the appellees who undertook the expenditure violate the duty of loyalty, and it did not quibble about any specific act of the appellees. In the first place, the appellant proved nothing in that regard. Therefore, the fact pointed out in the argument was not found by the court of prior instance, and in addition, not many words are required to explain that this fact should not be regarded as a publicly known fact, in contrast to the argument. Therefore, the argument of the appellees' violation of the duty of loyalty lacks a premise and cannot be upheld. Needless to say, when directors of a company make a donation for political funds on behalf of the company, the amount, etc. of the donation should be decided within a reasonable scope in consideration of various circumstances, including the size, business performance, and other social and economic status of the company and the other party to the donation. Making an unsuitable donation beyond the aforementioned scope should be considered to violate the duty of loyalty of directors. However, in line with the facts determined by the court of prior instance, the Donation cannot be determined to have gone beyond the aforementioned reasonable scope even in consideration of the amount of stated capital of Iron and Steel Stock Company D and the amounts of net income, dividend to shareholders, etc. of the time as argued by the counsel and the appellant.

For the reasons described above, the determination of the court of prior instance that the Donation made by the appellees does not violate the duty of loyalty of directors provided in Article 254-2 of the Commercial Code is eventually reasonable, and the judgment in prior instance contains no illegality as argued by the counsel and the appellant. The arguments made by the counsel and the appellant are also not acceptable in this regard.

Concerning Reason V for final appeal stated by the appellant

The appellant's argument is not alleging illegality of the judgment in prior instance. Therefore, the argument is 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 of the judgment, except for the opinion stated by Justice MATSUDA Jiro and agreed with by Justice IRIE Toshio, Justice OSABE Kingo, and Justice IWATA Makoto and the opinion stated by Justice OSUMI Kenichiro.

The opinion stated by Justice MATSUDA Jiro is as follows.

This case is an action that is based on a shareholders' subrogation action (Article 267 of the Commercial Code) filed by the appellant, who is a shareholder of Iron and Steel Stock Company D, in relation to the case of political contribution made by the same company. The court of prior instance rejected the appellant's claims. I consider that this result is justifiable. However, the reasons therefor are not necessarily the same as the majority opinion. Many criticisms and articles regarding the judgment in first instance on this case have been published since its rendering, and if opinions are finely distinguished, they can be considered to be diverse. My opinion is as follows.

(1) The majority opinion first states as follows regarding a company's capacity to hold rights: "Although companies have the capacity to hold rights within the scope of the purposes prescribed respectively in their articles of incorporation, it is reasonable to consider that acts within the scope of such purposes are not limited to acts for purposes clearly specified in the articles of incorporation but include all acts that are directly or indirectly necessary for performing their purposes." This can be considered to be to the same effect as the holdings in the judicial precedents of this Court aside from some terminological differences. Then, regarding donations for political funds made by companies, the majority opinion states as follows: "a donation for political funds made by a company can be considered to be an act within the scope of the purpose prescribed in the company's articles of incorporation as long as it is found to have been made to fulfill the company's social role as a result of objective and abstract observation." According to this, the majority opinion is, in a sort, considered not to permit a political contribution made by a company without any restriction but to accept it under the following restriction: "as long as it is found to have been made to fulfill the company's social role."

However, on the other hand, the majority opinion emphasizes that political contributions made by companies fall under cooperation for the sound development of political parties. The majority opinion states as follows: "Political parties are thus essential elements that support parliamentary democracy. At the same time, political parties are the most dominant media that form the political will of the people. Thus, the what political parties should be like must be the matters of serious concern of the people. Therefore, companies are also expected to cooperate in the sound development of political parties as the natural acts of social entities, and donations for political funds are also no exception as one form of such cooperation." As long as the majority opinion places the ground for donations for political funds made by companies in that "companies are social entities" in such manner, companies and natural persons will have a commonality in this regard as natural persons are also social entities. In my eyes, the majority opinion seems to emphasize this commonality and consider companies and natural persons in parallel. The majority opinion states as follows: "… companies have the freedom to conduct political acts, such as supporting and promoting or opposing a specific policy of the State or a political party, in the same way as the people, who are natural persons. Donations for political funds are exactly part of that freedom…." In this manner, the majority opinion seems to consider companies' freedom to make a donation for political funds in the same way as natural persons' freedom to make a donation for political funds. As long as a natural person is not at all to be legally accused even if he/she invests his/her entire property for a donation for political funds, the majority opinion can even be considered to widely approve donations for political funds made by companies.

The point to note in this regard is what the majority opinion states with regard to the liability of directors for a political contribution. The majority opinion states as follows: "… when directors of a company make a donation for political funds on behalf of the company, the amount, etc. of the donation should be decided within a reasonable scope in consideration of various circumstances, including the size, business performance, and other social and economic status of the company and the other party to the donation. Making an unsuitable donation beyond the aforementioned scope should be considered to violate the duty of loyalty of directors." I think that various points mentioned above in the majority opinion should naturally be taken into consideration when directors of a company make a political contribution on behalf of the company. However, it is worth noting that although the majority opinion imposes a strict constraint on directors of a company in relation to the company based on the duty of loyalty as mentioned above with regard to a donation for political funds, it does not mention the existence of such constraint with regard to a political contribution made by a company itself. By measure of the content of the majority opinion, the majority opinion seems to possibly consider that whether a donation for political funds made by a company is valid is to be determined based only on whether it is "within the scope of the purpose prescribed in the company's articles of incorporation," irrespective of restriction imposed on its directors. However, as long as it is difficult to find judicial precedents that invalidated a company's act as one that is out of the scope of the purpose of the company's articles of incorporation, when being based on the majority opinion, donations for political funds made by companies are actually extremely widely affirmed or are likely to be affirmed to the extent that they are almost unrestricted. I have to have doubts about such view.

In my opinion, the view that companies have the capacity to hold rights within the scope of the purposes prescribed respectively in their articles of incorporation is based on Article 43 of the Civil Code. The provisions of the same Article exceptionally follow common law and are considered to follow in the wake of the doctrine of "acts outside the scope of the purpose of a corporation" (ultra vires) though the civil and commercial law of Japan belongs to the system of continental law in terms of the history of legislation. Then, if I am permitted to simply get to the point, this doctrine is based on the fictional theory of the corporation, and it can be said that the doctrine invalidates an act conducted by a corporation beyond the indicated purpose. Under the doctrine, a deep connection is found between the "purpose prescribed in the articles of incorporation" and the "capacity to hold rights." Incidentally, when theoretically considering this point, the "scope of the purpose prescribed in the articles of incorporation" and the "scope of the capacity to hold rights" should originally be separate issues. However, I consider it meaningful that judicial precedents in Japan have not merely focused on such theory but have considered that corporations have the "capacity to hold rights" "within the scope of the purposes prescribed respectively in their articles of incorporation" and have widely admitted companies' capacity to hold rights by broadly understanding the scope of the purposes of companies. I thus agree with this attitude of judicial precedents. Case law is to be formed based on such form. Then, it is considered that the courts have come to especially broadly find the scope of the capacity to hold rights in relation to companies compared to other types of corporations based on the commerciality of companies and request for the safety of transactions.

In my opinion, although companies have independent legal personality and have their own interests that differ from the interests of their individual members, it is not sufficient for companies to merely promote their own interests. Rather, companies are required to distribute profits they gained to their members as long as they are profit-making corporations. The fact that shareholders' right to claim distribution of profits is considered to be an inherent power in relation to stock companies indicates this point. The essence of companies exists here, and so to speak, companies are originally bodies for performing such profit purposes, and it can be said that companies were granted the capacity to hold rights for this reason. Companies are originally neither political bodies nor charity groups. Therefore, now that companies conduct activities as enterprises, it is naturally requested to grant them the wide capacity to hold rights in that "aspect" because companies can thereby sufficiently conduct profit-making activities and the safety of transactions can also be ensured.

When giving thought to the view mentioned above, the current situation is easily understandable where a tendency to restrict or abolish the ultra vires doctrine is observed under common law and a theory that does not admit imposition of "restriction based on the purpose" on companies is gaining power in Japan (in this regard, I think of the insight of Dr. AOKI Tetsuji in that he alleged that Article 43 of the Civil Code would not be applied to companies, as early as at the end of the Meiji Era. However, I admit imposition of restriction based on the "scope of the purpose," as mentioned above.)

When considering judicial precedents in Japan from the aforementioned perspective, even among recent judicial precedents, although there is a judicial precedent that determined that loan of money does not "fall within the scope of the purpose of the cooperative" in relation to an entity with legal personality other than companies, such as an agricultural cooperative (1965 (O) 348, the judgment of the Supreme Court of April 26, 1966, Minshu Vol. 20, No. 4, at 849), it is difficult to find the judicial precedents of the Supreme Court regarding companies that determined that a company's act is outside the purpose prescribed in the company's articles of incorporation, except for a few judicial precedents from long ago, such as the judgment of the Grand Bench of May 10, 1904 holding that "business line … is just as prescribed in the articles of incorporation, and if a director of a company conducts an act that does not fall within the business line of the company in violation of the articles of incorporation, the company is not liable for that act" (Minroku Vol. 10, at 638). In other words, judicial precedents can be considered to show that while advocating "restriction based on the purpose prescribed in the articles of incorporation" in relation to companies superficially, the court have actually found no companies' acts that went beyond this restriction. In relation to companies, judicial precedents in Japan have made an effect close to the removal of restriction based on the ultra vires doctrine under common law since early times.

However, as mentioned above, companies are granted such wide capacity to hold rights based on requests for guaranteeing the freedom for profit-making activities of companies and enterprises and for ensuring the safety of their transactions. Therefore, it can be said that there is not necessarily any need to widely admit the scope of the capacity to hold rights even for companies in terms of other aspects, especially, donations that should be considered to be contrary to commerciality. Although I know little about U.S. law, I feel interested in the following developments: under U.S. law, the effect of a donation made by a company was first admitted only if it was made for the interests of the company, and donations only for charity were not admitted; donations made by companies have come to be admitted if they benefitted the companies' businesses or were for enhancing the health and welfare of employees; and donations for charity have eventually come to be widely admitted. This can be considered to mean that companies' making some sort of donation has come to be admitted as their "social responsibility" as the influence of acts conducted by companies and enterprises on various quarters in society has become increasingly significant, following the development of the company system. That is the expansion of the scope where companies can assume duties, and it can be considered to be the expansion of the "capacity to hold rights" in this regard. However, even so, I think that it differs in aspect from companies' ability to extensively become the subjects of rights and duties based on their original nature as enterprises, and follows a different doctrine and that constraint naturally exists thereon. Speaking in more detail, the following should be said: a company's capacity to hold rights is objectively and abstractly determined in terms of profit-making activities as an enterprise and its scope is broad, while in other aspects, especially, in the aspect of making a donation, a company's capacity to hold rights is determined individually and specifically and its scope is narrow. Then, regarding the latter, companies are only permitted to make "appropriate" donations based on a case-by-case basis. In this regard, Wieland, who considered commercial law to be enterprise law and examined company law from this perspective, denied dispositions of companies' gains for public purposes or for political propaganda, etc. on the ground that they do not meet the purpose of profit-making companies, but stated that gifts that are found to fall within the ordinary scope of business are permitted, and also alleged that it is permitted to use companies' gains for the purpose of performing moral and social duties, such as creating a fund for pension or insurance for employees and workers (Karl Wieland, Handelsrecht, Bd. II, S. 219). I feel that his theories are meaningful as those that referred to the essence of the relationship between the commerciality of companies and donations made by companies, though they have already fallen under old theories.

According to my understanding, donations made by companies should be examined specifically by purpose as they differ depending on their purposes, such as for the welfare of company employees, for a festival in a municipality where a company is located, for charity for society in general, or for a political party. I think that such donations have gradations in the levels of their meaning . Therefore, regarding the validity or the invalidity of a donation made by a company, whether the donation falls within the scope of the company's capacity to hold rights is determined based on various circumstances, including the relationship between the company and the other party to the donation and the size, assets condition, etc. of the company. In this regard, I have a great doubt about the majority opinion that states "... companies have the freedom to conduct political acts, such as supporting and promoting or opposing a specific policy of the State or a political party, in the same way as the people, who are natural persons. Donations for political funds are exactly part of that freedom" (the part cited above), which sounds as if the majority opinion had construed donations for political funds made by companies and those made by natural persons in the same way. This is because companies should not be discussed in the same way as natural persons in that natural persons have the freedom to donate their own entire property to a political party.

There may probably be a criticism against my view mentioned above that if such view is adopted, whether donations made by companies are "appropriate" should be determined on a case-by-case basis and that the effects of donations would become extremely unstable. However, that can be considered to be similar to a situation where those that have been considered to be "legitimate grounds" are more specifically determined based on the conditions of each case. Although the effect of a donation made by a company is a newly raised issue, standards therefor will be gradually clarified through accumulation of judicial precedents (A situation where there is no clear uniform standard in relation to company affairs is not desirable. However, such situation arises in unavoidable cases. For example, there is no other choice but to specifically determine the degree of a defect in subscription of shares or payment for shares by a company that causes invalidation of the incorporation of the company.). Then, even if a contribution made by a company is found to be invalid as an act outside the scope of the company's capacity to hold rights, protection for the other party is not completely neglected because the representative director of the company who promised to make the contribution should be liable for the donation in relation to the other party under Article 117 of the Civil Code. Thus, when considering the majority opinion in light of the above, it seems to have expanded the wide capacity to hold rights: which was granted to companies in the aspect of their profit-making activities as enterprises, to political contributions that companies unjustly make. Based on the majority opinion, there may be cases where even if the representative of a company arbitrarily makes a huge political contribution that is unsuitable for the company, the contribution becomes valid and results in causing the company's operations to plunge into a crisis. This is, needless to say, appalling from the perspective of maintenance of enterprises and from a social perspective.

(2) The effect of a donation for political funds made by a company is as mentioned above. However, the liability of directors of a company who made a donation for political funds as the representatives of the company is an issue that should be separately examined. Therefore, if a donation made by directors of a company as its representatives is invalid and the company has already completed the payment, the directors are naturally liable for the donation in relation to the company. However, even if such donation is externally valid as an act of the company, the directors who made the donation can be liable for the donation in relation to the company. This is because the issue of a company's capacity to hold rights and the issue of directors' duty of due care of a prudent manager and duty of loyalty in relation to the company should be separately examined. For example, the aforementioned situation can arise in the case where the representative director of a company made a donation for political funds for his/her own personal interests and the donation was found to be valid as the act of the company.

(3) When considering this case in light of the above, based on the facts found by the court of prior instance, the Donation for political funds of 3,500,000 yen that the appellees made to the Liberal Democratic Party as the representative directors of Non-Party Iron and Steel Stock Company D is an act within the scope of the purpose of the same company and is also considered to be one that cannot constitute violation of the duty of due care of a prudent manager and duty of loyalty of the directors in relation to the company. Therefore, the determination of the court of prior instance that dismissed the claims of the appellant, who is a shareholder of the non-party company, in an action filed by the appellant against the appellees based on a shareholders' subrogation action is justifiable, and the final appeal is groundless in the end.

Justice IRIE Toshio, Justice OSABE Kingo, and Justice IWATA Makoto agree with the opinion stated by Justice MATSUDA Jiro.

The opinion stated by Justice OSUMI Kenichiro is as follows.

I have no objection to the conclusion of this judgment, but I cannot agree with the majority opinion in the following points regarding companies' capacity to hold rights.

(1) The majority opinion adopts a view that the provisions of Article 43 of the Civil Code are also applied by analogy to companies' capacity to hold rights and that companies have rights and duties only within the scope of the purpose set respectively by their articles of incorporation. This view is presumed to be based on the following reason: as companies are persons with personality that have certain purposes unlike natural persons, they can naturally become the subjects of rights and duties only within the scope of their purposes; in addition, as members of a company make investments in the anticipation that the company's property is used for the purpose prescribed in the company's articles of incorporation, it is also necessary to limit the company's capacity to hold rights to that within the scope of the purpose prescribed in its articles of incorporation in order to protect the interests of the members. However, I think that it is inappropriate to determine the issue of the relationship between the purpose of a company and its capacity to hold rights only conceptually and abstractly based merely on the company's nature as a corporation and that the issue should be determined by weighing various interests related to the company's activities from the perspective of the appropriate way of adjusting those interests. Then, the major issues from such perspective are the interests of the members of a company who expect the company's property to be used for the purpose prescribed in the company's articles of incorporation and the interests of third parties that are in a business relationship with the company.

To my way of thinking, under the actual conditions where companies are conducting activities on an extremely extensive basis and are frequently conducting a lot of transactions on a daily basis as core entities that take charge of the modern economy, although the purpose prescribed in the articles of incorporation of each company is registered in the commercial register, in each case, it is not only difficult for a third party that conducts a transaction with a company to confirm whether the transaction falls within the scope prescribed in the company's articles of incorporation before conducting the transaction but it is also not easy for a third party to determine it. Thus, it is generally ordinary to conduct a transaction with a company without taking into consideration the relationship that the transaction has with the purpose prescribed in the company's articles of incorporation. Therefore, it is difficult to ensure the safety of transactions and expect the smooth operation of the economy without making companies liable for transactional acts that are conducted in their names, irrespective of whether those acts fall within the scope of the purposes prescribed respectively in their articles of incorporation. If companies are not made liable therefor, it will inevitably result in unnecessarily giving companies an excuse to avoid their liability. Looking at the judgments of lower instance courts in fact-finding proceedings, lower instance courts actually tend to find the scope of companies' capacity to hold rights as widely as possible while adopting the stance of past judicial precedents that adopt the same view as the majority opinion, and some of those judgments broke through the stance of judicial precedents. I think this fact has to be considered to be a sensitive and simple reflection of the aforementioned circumstances. Therefore, I must say that it is justifiable to consider that companies' capacity to hold rights is not restricted by the purposes prescribed respectively in their articles of incorporation. Regarding public interest corporations, it cannot be necessarily said that there is no reason for Article 43 of the Civil Code to limit their capacity to hold rights within the purpose set respectively by their articles of incorporation or donations as it is necessary to protect public interest and their external transactions are not wide and frequent, unlike companies. However, as the Commercial Code does not apply mutatis mutandis the provisions of the same Article though it applies mutatis mutandis some provisions relating to public interest corporations to companies (for example, Article 78, paragraph (2) and Article 261, paragraph (3) of the Commercial Code), Article 43 of the Civil Code should be considered as provisions relating only to public interest corporations. Therefore, there is not only no reason to apply by analogy the same Article to companies but it must also be considered to be rather unjust to do so. Needless to say, members of a company have an important interest in the company's property not being used for purposes other than the purpose prescribed in the company's articles of incorporation, and it is not permitted to ignore that interest. However, regarding stock companies, protection of such interest should be left to companies' internal systems, such as shareholders' right to demand an injunction against an illegal act of a director (Article 272 of the Commercial Code) and right to demand dismissal of a director (Article 254, paragraph (3) of the Commercial Code) and directors' liability for compensation for loss or damage in relation to the company (Article 266 of the Commercial Code). In addition, I think that the purpose prescribed in the articles of incorporation of a company should be considered to have a meaning as a restriction on the representative authority of the company's representative organ (though the restriction cannot be duly asserted against a third party in good faith). The fact that theories and legislation that deny the ultra vires doctrine are also gradually becoming dominant in the United States, where restriction on companies' capacity based on their purposes has been admitted in the past, is worthy of referring to in this regard.

For the reasons described above, it should be considered that companies' capacity to hold rights is not restricted by the purposes prescribed respectively in their articles of incorporation. However, I think that it is justifiable to consider that such capacity is restricted by the purpose of making profits that is common to all companies because law distinguishes profit-making companies and public interest companies and has them comply with different regulations, respectively, and thus, an interpretation that also ignores this distinction must be considered to be excessive. Even based on such idea, an act that is objectively determined to be an economic transactional act is generally considered to fall within the scope of the purpose of making profits. Therefore, protection of the safety of transactions will not become especially insufficient.

(2) The majority opinion considers that donations for disaster relief funds, financial service to a community, donations for political funds, etc. conducted by companies fall within the scope of their capacity to hold rights by considering that those acts fall within the scope of the purposes prescribed respectively in their articles of incorporation while considering that companies' capacity to hold rights is limited to that within the scope of the purposes prescribed respectively in their articles of incorporation. Based on this idea, the majority opinion states as follows: "… companies are social entities that are constituent units of a nation, local government, community, etc. (hereinafter referred to as a "society, etc.") in the same way as natural persons. Therefore, they must undertake social functions as such social entities. Even if an act is not related to any purpose prescribed in the articles of incorporation of a company at first glance, as long as the act is one that the company is expected or requested to conduct in terms of common sense, it must be said that the company can naturally respond to such expectation or request. In addition, from the standpoint of companies, conducting activities that fall under such social functions is not necessarily unprofitable and unnecessary in general, but can also be recognized as having considerable value and effect in promoting smooth development as business entities. Therefore, in that sense, such acts can also be considered to be necessary for performing their purposes though indirectly." I have no special objection to the content of this argument. However, I have to have doubts about the idea based on the aforementioned theory that the aforementioned acts are those within the scope of the purposes prescribed respectively in companies' articles of incorporation and thus fall within the scope of their capacity to hold rights.

The purpose set by the articles of incorporation of a company as referred to in Article 43 of the Civil Code whose application by analogy is admitted in the majority opinion refers to business that is the purpose of the company that is individualized by the provisions of the articles of incorporation of the company. When this is applied to Non-Party Iron and Steel Stock Company D, its purpose is just "manufacture and sale of iron and steel and businesses incidental thereto." That differs from the purpose of making profits that is common to all companies. Nevertheless, according to the majority opinion, companies are naturally found to be able to conduct donations for disaster relief funds, financial service to a community, donations for political funds, etc. as they are social entities that are constituent units of a society, etc. in the same manner as natural persons and must undertake social functions as social entities. Therefore, although those acts have considerable value and effect in companies' promotion of smooth development as business entities, they are not directly related to businesses that are the purposes of companies that are individualized by their articles of incorporation and are just acts that all companies should be equally permitted to conduct, irrespective of their businesses. In addition, it must be said that not only companies but also intermediate corporations, such as various cooperatives and mutual insurance companies, and public interest corporations under the Civil Code are the same in that as social entities that are constituent units of a society, etc., corporations are expected or requested to conduct such acts in terms of common sense though the degree of such expectation or request can differ. In that sense, I think that it is not only meaningless but is also open to the criticism of twisting an argument to argue the issue of companies' capacity to hold rights in relation to acts as mentioned above in association with the purposes prescribed respectively in companies' articles of incorporation as in the majority opinion.

In either case of granting companies the capacity to hold rights within the scope of the purposes prescribed respectively in their articles of incorporation as stated in the majority opinion or granting them the capacity to hold rights within the scope of the purpose of making profits that is common to all companies as stated by me, companies should be granted, separately from such capacity, the capacity to hold rights based on the fact that companies that are corporations are social entities. The statement of the majority opinion cited above can be just considered to be useful for giving a basis for companies' capacity to hold rights in such sense. It is thus considered that whether the Donation for Political Funds falls within the scope of the capacity to hold rights of Non-Party Iron and Steel Stock Company D should be discussed as an issue related to companies' capacity to hold rights in that sense.

(3) As mentioned above, from my perspective of considering that acts, such as donations for disaster relief funds, financial service to a community, and donations for political funds, fall under the issue of the capacity to hold rights that is in a different sphere from ordinary transactional acts, which is granted to companies based on the fact that companies are social entities as corporations, that capacity to hold rights should also be limited within the scope that is found to be reasonable in terms of common sense. It is thus considered that acts, such as a donation made by a company that exceeds the amount that is found to be socially reasonable or appropriate in consideration of various circumstances, including the size, assets condition, and social and economic status of the company and the other party to the donation, should be regarded as going beyond the company's capacity to hold rights. Such view is naturally expected to come under the criticism that an act conducted beyond reasonable (appropriate) limits is invalid, irrespective of whether the other party is acting in good or bad faith, but the limits of such reasonableness is unclear, and therefore that legal stability is hindered. However, I think that in relation to acts as mentioned above, it is not necessary to emphasize protection of the safety of transactions, unlike in relation to ordinary transaction, and that emphasis should rather be given to protection of the interests of the members of a company in ensuring that the company's property is not unduly spent beyond the purpose prescribed in the company's articles of incorporation.

Although the view of the majority opinion in relation to the aforementioned point is not necessarily clear, the majority opinion is also assumed to adopt a view close to my view stated above in light of the fact that the majority opinion states as follows: "a donation for political funds made by a company can be considered to be an act within the scope of the purpose prescribed in the company's articles of incorporation as long as it is found to have been made to fulfill the company's social role as a result of objective and abstract observation." However, the text of the judgment cited above is extremely unclear in expression, and there is inevitably room for doubt about whether the text is to the effect that a donation for political funds made by a company is within the scope of the purpose prescribed in the company's articles of incorporation and is thus an act within the scope of the company's capacity to hold rights as long as it is made only to the extent that it is found to be reasonable to fulfill the company's social role (the phrase "as a result of objective and abstract observation" prevents such interpretation; the phrase should rather be changed to "as a result of specific observation in consideration of various circumstances"). In addition, even if the text is to that effect, I think that there are doubts about whether it is appropriate in theory to impose the aforementioned limitation on companies' capacity to hold rights only in relation to donations for political funds while stating that donations for political funds are within the scope of the purposes prescribed respectively in companies' articles of incorporation in the same way as ordinary transactions. On this point as well, the propriety of the majority opinion that tries to understand acts, such as donations for political funds, in relation to the purposes prescribed in companies' articles of incorporation is questioned.

At any rate, even in line with a view like mine, the Donation for Political Funds is considered to fall within the scope of the capacity to hold rights of Non-Party Iron and Steel Stock Company D. Therefore, there is no influence on the conclusion of the judgment.

Justice ISHIDA Kazuto

Justice IRIE Toshio

Justice KUSAKA Asanosuke

Justice OSABE Kingo

Justice KIDO Yoshihiko

Justice TANAKA Jiro

Justice MATSUDA Jiro

Justice IWATA Makoto

Justice SHIMOMURA Kazuo

Justice IROKAWA Kotaro

Justice OSUMI Kenichiro

Justice MATSUMOTO Masao

Justice IIMURA Yoshimi

Justice MURAKAMI Tomokazu

Justice SEKINE Kosato