1998.04.14

1994 (O) 2137

Minshu Vol. 52, No. 3, at 813

Judgment upon the case concerning whether or not each member of a consortium consisting of stock companies shall jointly and severally bear the obligations for the debts of the consortium

Case on the settlement of a debt

Judgment of the Third Petty Bench, quashed and remanded by the Supreme Court

Nagoya High Court, Judgment of July 14, 1994

1. Each member of a consortium consisting of stock companies shall jointly and severally bear the obligations for the debts assumed by the consortium for its business to any third party.
2. In the case in which one of joint and several obligors files an application for commencement of composition after the occurrence of a relationship of joint and several obligation, the other joint and several obligors who have acquired the right to obtain reimbursement after they came to know about the application by way of performance of obligation before the ruling of commencement of composition are entitled to set off the obligation-right of the composition obligor by the right to obtain reimbursement.
3. In the case in which the ruling to approve a composition has become final and binding for one of joint and several obligors, the other joint and several obligors who have acquired the right to obtain reimbursement by way of performance after the ruling of commencement of composition are entitled to set off the composition obligor's obligation-right by the right to obtain reimbursement, to the extent of the creditor's composition obligation-right (which may have been changed under the conditions of composition) acquired by such performance, only at when the creditor has received the payment in full.

(Concerning 1) Article 675 of the Civil Code, Article 511, para.1 of the Commercial Code; (Concerning 2 and 3) Article 5 of the Composition Act, Article 104 of the Bankruptcy Act, Article 442 of the Civil Code; (Concerning 3) Article 45, Article 57 of the Composition Act, Article 24, Article 26 and Article 326 of the Bankruptcy Act, Article 501 of the Civil Code

Article 675 of the Civil Code
If a creditor of a partnership did not know, when his/her claim arose, the proportions of the partners' shares of losses, the creditor may exercise his/her rights against each partner in equal proportions.

Article 511, para.1 of the Commercial Code
(1) When several parties assume obligations arising out of activities that are commercial activities for the benefit of one party or all of the parties, the said obligation shall be jointly and severally borne by all parties.

Article 5 of the Composition Act
The provisions of Articles 98 to 104 of the Bankruptcy Act shall apply mutatis mutandis to the composition creditor's right to set off.

Article 104 of the Bankruptcy Act
Set-off shall not be effected in any of the following cases:
(i) Where a bankruptcy creditor has assumed obligation due to the bankruptcy estate subsequent to the adjudication of bankruptcy;
(ii) Where a bankruptcy creditor has assumed obligation due to the bankrupt with the knowledge that there has been suspension of payment or that petition for bankruptcy has been filed; provided, however, that this shall not apply if the assumption is based on causes provided for in laws, or if it is based on causes which had arisen prior to the time bankruptcy creditor had became aware of suspension of payment or of suspension of payment or of petition for bankruptcy having been filed, or on causes which had arisen one year or more prior to the time of adjudication of bankruptcy;
(iii) Where an obligor of the bankrupt has acquired other person's claims in bankruptcy after adjudication of bankruptcy;
(iv) Where an obligor of the bankrupt has acquired a claim in bankruptcy with the knowledge that there has been suspension of payment or that petition for bankruptcy has been filed; provided, however, that this shall not apply in cases where the acquisition is based on causes provided for in laws, or on causes which had arisen prior to the time the obligor had become aware of suspension of payment or of petition for bankruptcy having been filed, or on cases which had arisen one year or more prior to the time of adjudication of bankruptcy.

Article 442 of the Civil Code
(1) If one joint and several obligor performs the obligation, or has otherwise acquired any common discharge in exchange for his/her own property, such joint and several obligor shall have right to obtain reimbursement from other joint and several obligors to the extent of the respective portion of the obligations which is borne by each of other joint and several obligors.
(2) The reimbursement pursuant to the provision of the preceding paragraph shall include the compensation of the statutory interest which accrue on or after the day of the performance of the obligation or other discharge, any unavoidable expenses, and other damages.

Article 45 of the Composition Act
The provisions of Article 17, Articles 22 to 27 and Articles 228 to 230 of the Bankruptcy Act shall apply mutatis mutandis to the composition obligations. In this case, the commencement of composition shall be deemed to be the adjudication of bankruptcy.

Article 57 of the Composition Act
The provisions of Articles 325 to 327 and Article 342 of the Bankruptcy Act shall apply mutatis mutandis to the effect of composition.

Article 24 of the Bankruptcy Act
In cases where several persons are liable to perform in toto, if all or some of them have been adjudged bankrupt, the creditor may enforce his claim as bankruptcy creditor against each of the bankruptcy estates with respect to the whole amount of obligation held at the time of adjudication of bankruptcy.

Article 26 of the Bankruptcy Act
(1) In cases where several persons are liable to perform in toto if all of them or some or a single one of them have been adjudged bankrupt, a person possessing a right of indemnity to be exercised in the future against the bankrupt may exercise his/her rights as bankruptcy creditor with respect to the whole amount thereof; provided, however, that this shall not apply if the creditor has exercised his/her rights as bankruptcy creditor with respect to the whole amount of such obligations.
(2) In the case mentioned in the proviso to the preceding paragraph, if the person possessing the right of indemnity, mentioned in the preceding paragraph has effected performance, he/she shall acquire the right of the creditor in proportion to such performance.
(3) The provisions of the preceding two paragraphs shall apply mutatis mutandis to the right of indemnity which may be enforced in the future against the bankrupt by a third person who has finished securities.

Article 326 of the Bankruptcy Act
(1) The compulsory composition shall have its effect in favor of, as well as against, all the creditors in bankruptcy.
(2) The compulsory composition shall not affect the rights which creditors in bankruptcy possess against the bankrupt's guarantor and other persons who assume debts together with the bankrupt, nor security furnished on behalf of bankruptcy creditors.

Article 501 of the Civil Code
A person who is subrogated to the claim of the obligee pursuant to the provisions of the preceding two articles may exercise any and all rights possessed by such obligee as the effect of, and as a security for, such right to the extent he/she may seek reimbursement under his/her own right; provided, however, that:
(i) unless the fact of subrogation is noted in advance in the register of an applicable statutory lien, pledge of real estate, or mortgage, a guarantor may not be subrogated to the claim of the obligee vis-a-vis any third party acquirer of the real estate which is encumbered by such statutory lien, pledge of real estate, or mortgage;
(ii) a third party acquirer may not be subrogated to the claim of the obligee vis-a-vis the guarantor;
(iii) one of the third party acquirers of the real estate shall be subrogated to the claim of the obligee vis-a-vis other third party acquirers in proportion to the value of each real estate;
(iv) one of the third party pledgors shall be subrogated to the claim of the obligee vis-a-vis other third party pledgors in proportion to the value of each property;
(v) as between a guarantor and a third party pledgor, the subrogation to the claim of the obligee shall be effected depending on the number of such persons involved; provided, however, that, if there are more than one third party pledgor, such persons shall be subrogated to the claim of the obligee in proportion to the value of each property with respect only to the residual amount which remains after deduction of the portion to be borne by the guarantor; and
(vi) in the cases referred to in the preceding item, if the property in question is real estate, the provisions of item 1 shall apply mutatis mutandis.

The judgment of prior instance shall be quashed to the extent of the part where the appellant has lost the case.
The case shall be remanded to the Nagoya High Court with respect to the part mentioned in the preceding paragraph.

Concerning the reasons for final appeal argued by the appellant's counsels HASHIMOTO Hiroyasu and ITO Kimio
1. The outline of the facts relevant to this case determined by the court of second judgment is as follows:
(1) The appellant and the appellee are both stock companies engaging in contract for construction work, etc. Both companies agreed as of June 30, 1986 that they would form Q Kensetsu mKoji Kyodo Kigyotai, a construction work consortium (hereinafter referred to as the "Consortium"), for the purpose of receiving a contract for expansion and reconstruction work of P Hospital ordered by from Gujo Koiki Gyosei Jimu Kumiai, a wide area administrative service partnership in Gujo City, for which the appellant assumed the position of the representative person and the distribution of profit and loss was to be divided evenly between each partner, i.e., on a fifty-fifty basis, as well as the cost of the construction work undertaken by the Consortium, which was to be borne by each partner in proportion to the said percentage.
(2) The Consortium made a contract with the said Jimu Kumiai on August 7, 1986, that it would receive the contract for part of the expansion and reconstruction work of Gujo Chuo Hospital (hereinafter referred to as the "Construction Work") for 364 million yen.
(3) The appellee withdrew from the Consortium on February 27, 1987. On or just after February 20 before the appellee's withdrawal, it was agreed between the appellant and appellee that with respect to the settlement of proceeds of the Construction Work underway the appellant should pay to the appellee half of the payment equivalent to the value of construction put in place up to February 28 when the appellant received the payment from the said Jimu Kumiai.
(4) On February 28, 1987, the appellee applied to the Gifu District Court for the commencement of composition, which became known to the appellant immediately thereafter.
(5) As of February 28, 1987, the value of the construction work put in place was 62.72 percent. Then, by April 28, 1987, the appellant received the payment from the said Jimu Kumiai for 107,627,520 yen for the contract as equivalent to the value of the construction work put in place.
(6) The Consortium had been in debt to the subcontractors, etc., listed in the "Name of Payment Recipient" column of the Table of Payment attached to the judgment of prior instance for the sum of 20,439,983 yen as recorded in the "622/28 Amount Incurred against the Value of Construction Put in Place" column of the same Table of Payment, as a cost corresponding to the value of the construction work put in place as of February 28, 1987. The appellant has paid the amount equivalent to its share (i.e. half) of the debt, as well as paid 9,248,741 yen during the period from December 1, 1986 to March 15, 1988, as recorded in the columns "Date of Payment" and "Amount of Payment" of the Table of Payment.
(7) On July 14, 1987, the Gifu District Court ruled the commencement of composition for the appellee.

2. The appellee's claim against the appellant in this case is the payment of 34,263,760 yen as the outstanding balance of half of the payment for contract equivalent to the value of the construction work put in place up to February 28, 1987 (i.e., 53,813,760 yen), pursuant to the agreement stated in 1 (3) above, as well as the delay damages at the commercial statutory interest rate of 6 % per annum carried during the period from April 29, 1987 to the date fully paid.
Against this, the appellant presented defense to set off the payment by his/her claims to the appellee, i.e., (i) the loan claim at the amount of 30 million yen for the loan dated February 20, 1987 and (ii) the right to obtain reimbursement at the value of 9,248,741 yen obtained by the payment mentioned in 1 (6) above.
Of the appellant's defense for set-off, the court of second instance admitted claim (i) as a whole while only part of claim (ii), and upheld the appellee's claim to the extent of the payment of 4,200,460 yen and the delay damages at the interest rate of 6 % per annum carried for this amount during the period from April 29, 1987 to the date fully paid was accepted, judging as follows:
(1) The Consortium in the present case is a partnership under the Civil Code aiming at commercial transaction, so that debts to the subcontractors, etc., borne by the Consortium in relation to the Construction Work shall be a joint and several obligation among partners. Therefore, the appellant is considered to have acquired, to the appellee, the right to obtain reimbursement for the amount equivalent to half of the payment stated in 1 (6) above.
(2) However, of the right to obtain reimbursement, the part acquired by way of the payment after the appellant came to know about the application for the commencement of composition by the appellee cannot be regarded as being based on a cause having arisen before the appellant came to know about the application for the commencement of composition, and is not allowed to be set off by the main clause of Article 104, item 4 of the Bankruptcy Act as applied mutatis mutandis by Article 5 of the Composition Act. Therefore, the appellant's defense to set off its obligation by its right to obtain reimbursement can be reasonably admitted only to the extent that the right to obtain reimbursement occurred from payments before the appellant came to know about the application for the commencement of composition (No. 32, 33,35, 36, 38 to 42 in the Table of Payment mentioned above), that is, to the limit of 63,300 yen.

3. However, of the determination of the court of second instance on the defense to set off the appellant's obligation by its right to obtain reimbursement above, the present Court can affirm reasoning 2 (1) above, but cannot affirm reasoning 2 (2) above, for the following reasons:
(1) A consortium basically has the characteristics of partnership under the Civil Code, where the properties of the consortium are considered to become an allowance for debts borne by the consortium and each member is also liable for the debts to be performed by each member's own property. Based on this understanding, if such members of the consortium are companies, the business activities of the consortium, which are actually conducted by a member company forming this consortium, are activities conducted for its own business (incidental commercial activities) are the obligations borne by a member in relation to the debts assumed by the consortium for its business to any third party should be regarded as obligations assumed by the company, as a member, by its own commercial activities. Accordingly, in such a case, it is proper to understand that each member of the consortium should jointly and severally bear the obligations for the debts assumed by the consortium for its business to any third party, based on Article 511, para.1 of the Commercial Code.
Applying this to the present case, it is admitted as follows. According to the relevant facts outlined above, the appellant and the appellee as members of the Consortium are both companies engaging in contract for construction work, etc., so both of them are considered to have joint and several obligations for the debts borne by the Consortium to the subcontractors, etc., as a cost corresponding to the value of the Construction Work put in place as of February 28, 1987; Each party bears 50 percent of the debts. Therefore, the appellant is considered to have acquired, to the appellee, the right to obtain reimbursement for the amount equivalent to half of the payment stated in 1 (6) above.
(2) If a person who bears obligations to a composition obligor acquires an obligation-right to the composition obligor after he/she comes to know about the application for the commencement of composition, the person is, in principle, not allowed to set off his/her obligations by the obligation-right acquired, while if such an acquisition of the obligation-right is based on a cause having arisen before he/she came to know about the application for the commencement of composition, the set-off by the obligation-right may be allowed (Article 5 of the Composition Act, Article 104, item 4 of the Bankruptcy Act). Taking this into account, in the case in which one of the joint and several obligors files an application for the commencement of composition after the occurrence of a relationship of joint and several obligation and when the other joint and several obligor performs his/her obligation to the obligee after he/she came to know about the application for the commencement of composition, then the acquisition of the right to obtain reimbursement by way of performance of obligation is considered to be "based on a cause having arisen before he/she came to know about the application for the commencement of composition" as stated above. This is appropriate because in such a case the relationship of joint and several obligations that would become the basis for formation of the right to obtain reimbursement had already existed before the application for the commencement of composition, and it is not inequitable in relation to the other composition creditors even if such a set-off by the right to obtain reimbursement is admitted, neither contrary to the purpose of the main clause of Article 104, item 4 of the Bankruptcy Act as well as Article 5 of the Composition Act that restricts a set-off by the obligation-right acquired after the knowledge of the application for the commencement of composition.
In the present case, the debt paid by the appellant, mentioned in 1 (6) above, was the debt borne by the Consortium as of February 28, 1987 when the appellee filed the application for commencement of composition, for which the appellant and appellee had joint and several obligations, so that, of the right to obtain reimbursement acquired by the appellee by way of the payment mentioned in 1 (6) above, the part acquired by payment after coming to know about the application for commencement of composition can be considered to be used for set-off as a claim acquired "based on a cause having arisen before he/she came to know about the application for commencement of composition" stated above. Therefore, the determination of the court of second instance in 2 (2) above, which held different reasoning to this Court, is illegal due to its misconstruction and misapplication of laws and regulations, which will obviously affect the conclusion of judgment of prior instance. This point of argument is well founded on reason, so that part of the judgment of prior instance for which the appellant has lost the case shall inevitably be quashed.
(3) According to the record, the composition for the appellee was approved by the Gifu District Court on October 19, 1987 with conditions such as a partial waiver of composition obligations, and then, the decision became final and binding. In such a case that the decision to approve a composition has become final and binding for one of joint and several guarantors, the other joint and several guarantor(s) who has acquired the right to obtain reimbursement, to the former, by the way of performance of obligation after the ruling of commencement of composition is considered to be entitled to exercise his/her right to obtain reimbursement acquired by such performance, to the extent of the creditor's composition obligation-right (which may have been changed under the conditions of composition), only when the creditor has received the payment in full (1991 (O) No. 491, judgment of the Second Petty Bench of the Supreme Court of January 20, 1995, Minshu Vol. 49, No. 1, at 1). This reasoning shall also apply to the case of the relationship on the right to obtain reimbursement among joint and several obligors, so that in the case in which the decision to approve a composition had become final and binding for one of joint and several obligors, the other joint and several obligor(s) who has acquired the right to obtain reimbursement, to the former, by way of performance after the ruling of commencement of composition is considered to be entitled to exercise his/her right to obtain reimbursement, to the extent of the creditor's composition obligation acquired by such performance (which may have been changed under the conditions of composition), only when the creditor has received the payment in full. And, included in such exercise of the right to obtain reimbursement are not only the call of duty to the composition obligor but also the set-off of the composition obligor's obligations by the right to obtain reimbursement. To admit a set-off to the extent thereof is not contrary to the provisions of Article 5 of the Composition Act and Article 104, item 4 of the Bankruptcy Act that restricts a set-off by a composition obligation acquired after the ruling of commencement of composition.
Accordingly, in the present case, it is essential to define the scope of the appellant's rights to obtain reimbursement for set-off, which were acquired by the performance of obligations after the ruling of commencement of composition. Therefore, in order to make the court of second instance exhaust the proceedings, including the point above, the Court shall remand this case to the court of second instance with respect to the part where the appellant has lost the case. For these reasons, the Court shall pronounce judgment as stated in the main text unanimously by all Justices.

Justice KANATANI Toshihiro
Justice SONOBE Itsuo
Justice CHIKUSA Hideo
Justice OZAKI Yukinobu
Justice MOTOHARA Toshifumi