2006.01.13

2004(Ju)1518

Minshu Vol. 60, No. 1

Judgment on the legitimacy of Article 15(2) of the Ordinance for Enforcement of the Money Lending Business Control and Regulation Act

Case to seek repayment of loan

Judgment of the Second Petty Bench, quashed and remanded

Hiroshima High Court, Matsue Branch, Judgment of June 18, 2004

1. The provision of Article 15(2) of the Ordinance for Enforcement of the Money Lending Business Control and Regulation Act, with respect to the part that stipulates that the moneylender may specify the loan contract concerning the repaid debts with the contract number or other information, instead of stating the matters listed in Article 18(1)(i) to (iii) of the Money Lending Business Control and Regulation Act, should be construed to be null and void as an illegal provision that goes beyond the bounds of the mandate by the said Act. 2. Even if a contract for pecuniary loan for consumption which provides that the debtor shall repay the principal in installments with the agreed interest the rate of which exceeds the upper limit prescribed in the Interest Rate Restriction Act, also has a specially agreed acceleration clause that the debtor will automatically lose the benefit of time in the event of delay in payment of the principal or agreed interest, such a special agreement, with respect to the part that requires that the debtor will lose the benefit of time in the event of the failure to pay the part of interest that exceeds the limit under the Act, is contrary to the purport of Article 1(1) of the said Act and therefore is null and void; the debtor shall not lose the benefit of time if he only pays the agreed principal and the part of interest that does not exceed the upper limit provided by Article 1(1) of the said Act. 3. Under a contract for pecuniary loan for consumption which requires the debtor to repay the principal in installments with the agreed interest that exceeds the upper limit prescribed in the Interest Rate Restriction Act, if the debtor, under a specially agreed acceleration clause that the debtor will automatically lose the benefit of time in the event of delay in payment of the principal or agreed interest, has paid the amount of money that exceeds the statutory upper limit of interest, the payment of the part of interest in excess cannot be deemed to be the "amount of money voluntarily paid as interest" prescribed in Article 43(1) of the Money Lending Business Control and Regulation Act, unless there are special circumstances where the debtor cannot be regarded as having been misled into believing that he would lose the benefit of time unless he paid the agreed interest that exceeded the upper limit together with the agreed principal.

(Concerning 1 to 3) Article 1(1) of the Interest Rate Restriction Act; (Concerning 1 and 3) Article 43(1) of the Money Lending Business Control and Regulation Act; (Concerning 1) Article 18(1) and Article 43(3) of the Money Lending Business Control and Regulation Act, Article 4(1) of the Interest Rate Restriction Act, Article 15 of the Ordinance for Enforcement of the Money Lending Business Control and Regulation Act; (Concerning 2 and 3) Article 136 of the Civil Code Article 1(1) of the Interest Rate Restriction Act (Upper limit of interest rate) Where the amount of interest under an interest contract for a pecuniary loan for consumption exceeds the amount calculated by the following rate, the interest contract shall be null and void with respect to the portion in excess. Principal is less than 100,000 yen: 20% per annum Principal is not less than 100,000 yen and less than 1,000,000 yen: 18% per annum Principal is not less than 1,000,000 yen: 15% per annum Article 43(1) of the Money Lending Business Control and Regulation Act (Constructive valid repayment in the case of volunteer payment) 1. Where the amount of money voluntarily paid as interest by the debtor under the contract on interest (including money that is regarded as interest under Article 3 of the Interest Rate Restriction Act (Act No. 100 of 1954)) for a pecuniary loan for consumption commercially provided by a moneylender exceeds the upper limit of interest prescribed in Article 1, para. 1 of the said Act, the payment of the portion in excess shall, notwithstanding the provisions of the said paragraph, be construed to be valid payment if it falls under any of the following. (i) Payment under the loan contract concluded with the person to whom a document prescribed in Article 17, para. 1 (including cases where it is applied mutatis mutandis under Article 24, para. 2, Article 24-2, para. 2, Article 24-3, para. 2, Article 24-4, para. 2, and Article 24-5, para. 2; hereinafter the same shall apply in this item) has been provided pursuant to Article 17, para. 1, or all documents prescribed in Article 17, paragraphs 2 to 4 (including cases where they are applied mutatis mutandis under Article 24, para. 2, Article 24-2, para. 2, Article 24-3, para. 2, Article 24-4, para. 2, and Article 24-5, para. 2; hereinafter the same shall apply in this item) have been provided pursuant to Article 17, paragraphs 2 to 4 (ii) Repayment under Article 18, para. 1 (including cases where it is applied mutatis mutandis under Article 24, para. 2, Article 24-2, para. 2, Article 24-3, para. 2, Article 24-4, para. 2, and Article 24-5, para. 2; hereinafter the same shall apply in this item) where a document prescribed in Article 18, para. 1 has been provided Article 18(1) of the Money Lending Business Control and Regulation Act (Provision of receipt) Upon receiving repayment of all or part of debts under a loan contract, a moneylender shall, immediately for each receipt, as provided by Cabinet Office Ordinance, provide the other party who has made the repayment with a document stating the following matters. (i) Trade name or name and address of the moneylender (ii) Date of contract (iii) Amount of loan (in the case of a guarantee contract, the amount of guaranteed loan; hereinafter the same shall apply in the next article, Article 20, and Article 21, para. 2) (iv) Amount received and interest thereon, amount of liquidated damages and amount appropriated to the principal (v) Date of receipt (ix) In addition to what is listed above, matters specified by Cabinet Office Ordinance. Article 43 (3) of the Money Lending Business Control and Regulation Act 3. The preceding two paragraphs shall apply mutatis mutandis where the amount of damages voluntarily paid by the debtor as the liquidated damages for delinquency of a pecuniary loan for consumption commercially provided by a moneylender exceeds the upper limit of liquidated damages prescribed in Article 4, para. 1 of the Interest Rate Restriction Act, and such payment falls under any of the cases listed in para. 1. Article 4(1) of the Interest Rate Restriction Act (Restriction of liquidated damages) Where the ratio of the amount of liquidated damages for delinquency of a pecuniary loan for consumption to the amount of principal exceeds the 1.46-fold figure of the rate prescribed in Article 1(1), the damages in excess shall be null and void. Article 15 of the Ordinance for Enforcement of the Money Lending Business Control and Regulation Act (Provision of receipt) 1. Matters to be specified by Cabinet Office Ordinance under Article 18, para. 1, item 6 of the Act shall be such matters as listed below (in the case of receipt of commission fees for a pecuniary loan, the matters listed in item 5 shall be excluded). (i) Letters signifying that repayment has been received (ii) Registration number of the moneylender (iii) Trade name or name and address of the debtor (iv) In cases where a person other than the debtor (or person other than the principal debtor in cases where a guarantee contract has been concluded with respect to the loan contract) has repaid debts, the trade name or name and address of such person (v) Outstanding amount of debts after the repayment 2. When preparing a document to be provided under Article 18, para. 1 of the Act, the moneylender may specify the loan contract concerning the repaid debts with the contract number or other information, instead of stating the matters listed in items 1 to 3 of the said paragraph and those listed in items 2 and 3 of the preceding paragraph. Article 136 of the Civil Code (Benefit of time and its wavier) 1. It is presumed that a time specified is provided for the benefit of the obligor. 2. The benefit of time may be waived; however, that such waiver may not prejudice the interest of the counterparty.

The original judgment shall be quashed. This case shall be remanded to the Hiroshima High Court.

I. Outline of the case 1. The outline of the facts legally determined by the court of the second instance is as follows. (1) The appellee at the court of the last resort is a moneylender registered under Article 3 of the Money Lending Business Control and Regulation Act (hereinafter referred to as the "Act"). (2) On July 6, 2000, the appellee lent 3 million yen to Appellant Y1 under the following loan terms (hereinafter referred to as the "Loan"), and Appellant Y2, on that day, provided the appellee with a joint and several guarantee for Appellant Y1's debts arising from the Loan. (A) Interest rate: 29% per annum (to be calculated in proportion to the number of days of the loan) (B) Rate for delay damages: 29.2% per annum (to be calculated in proportion to the number of days of the loan) (C) Repayment method: pay 50,000 yen as principal with interest accrued thereon per installment on the 20th day of each month during the period from August 2000 to July 2005; 60 installments in total (D) Special agreement (acceleration clause): In the event of delay in payment of the principal or interest, Appellant Y1 will automatically lose the benefit of time and shall immediately pay the appellee the principal and interest accrued thereon in one installment (hereinafter referred to as the "Special Agreement on Loss of the Benefit of Time"). (3) Upon concluding the loan contract, the appellee provided Appellant Y1 with documents titled "Instruction on the Loan and Guarantee Contracts" and "Repayment Schedule." The Instruction on the Loan and Guarantee Contracts cites the agreement on the interest rate contained in the loan contract that it shall be set as 29% per annum, although it exceeds the upper limit of interest rate prescribed in Article 1(1) of the Interest Rate Restriction Act. Following this, it then explains the Special Agreement on Loss of the Benefit of Time by stating that "in the event of delay in payment of the principal or interest..., the debtor will automatically lose the benefit of time without demand, and shall immediately pay all the outstanding principal and interest thereon." It also refers to the agreement between parties that the rate for delay damages payable after the due date shall be set as 29.2% per annum, although it exceeds the upper limit of interest rate prescribed in Article 4(1) of the said Act. (4) As repayments of debts arising from the Loan, Appellant Y1 made payments to the appellee as indicated in the "Amount of Payment" section of the principal and interest statement attached to the judgment of the first instance, on the dates indicated in the "Date of Payment" section thereof (these payments shall hereinafter be collectively referred to as the "Repayments"). For each of the Repayments, the appellee immediately provided Appellant Y1 with a document titled "Receipt and Account Statement" (hereinafter referred to as "Receipt"). In accordance with Article 15(2) of the Ordinance for Enforcement of the Money Lending Business Control and Regulation Act (Ordinance of the Ministry of Finance No. 40 of 1983; hereinafter referred to as the "Ordinance for Enforcement"), each Receipt states the contract number instead of the date of contract required to be stated under Article 18(1)(ii) of the Act. 2. This is a case in which the appellee alleges that Article 43(1) or (3) of the Act shall apply to the Repayments, and therefore the portion thereof that exceeds the upper limit of interest or liquidated damages prescribed in Article 1(1) or Article 4(1) of the Interest Rate Restriction Act should be construed to be valid repayment of debts, and requests Appellant Y1 to pay the outstanding principal of the Loan, 1,894,369 yen, with delay damages thereon. 3. The court of the second instance fully upheld the appellee's claim, on the grounds that Article 43(1) or (3) of the Act shall apply to the Repayments. II. Concerning Reason 2(1) for the petition for acceptance of appeal to the court of the last resort argued by the appeal counsel YAMAGUCHI Toshiaki First of all, as mentioned in IV-2(2) below, it is appropriate to construe that the Special Agreement on Loss of the Benefit of Time is null and void with respect to the part that provides that Appellant Y1 will lose the benefit of time in the event of the failure to pay, by the due date, even only the portion of interest that exceeds the upper limit of interest prescribed in Article 1(1) of the Interest Rate Restriction Act (the upper limit shall hereinafter be referred to as the "upper limit of interest" and the portion shall hereinafter be referred to as the "the part of interest in excess"). Therefore, it should be regarded that Appellant Y1 will not lose the benefit of time if he only pays the principal and the upper limit of interest by the due date, and he will lose the benefit of time only when he fails to make such payment. On the other hand, it can be construed that the purport of Article 17(1) of the Act, which provides that upon concluding a loan contract, a moneylender shall provide the other party with a document clarifying the details of the contract with respect to the matters listed in the said paragraph, is to correctly inform the other party of the details of the agreements for the loan, thereby preventing the possible occurrence of disputes between the parties. Consequently, it is appropriate to construe that Article 17(1) of the Act and Article 13(1) of the Ordinance for Enforcement, which is stipulated under the mandate of the former, only require the details agreed between the parties to be correctly stated in a document. This may also apply where such agreed details become fully or partially null and void depending on the interpretation or application of the law. For this reason, the Instruction on the Loan and Guarantee Contracts, which correctly states the details of the Special Agreement on Loss of the Benefit of Time made between Appellant Y1 and the appellee, can be regarded to sufficiently state "any agreement on Loss of the benefit of time and details thereof" prescribed in Article 17(1)(viii) of the Act (prior to the revision by Act No. 112 of 2000) and Article 13(1)(i)(j) (prior to the revision by Ordinance of the Prime Minister's Office No. 148 of 2000). The determination of the court of the second instance that goes along with this reasoning can be accepted as justifiable. The appellants' argument cannot be accepted. III. Concerning Reason 2(2) 1. With respect to this, the court of the second instance decided as follows: Article 15(2) of the Ordinance for Enforcement provides that when preparing a document to be provided under Article 18(1) of the Act, the moneylender may specify the loan contract concerning the repaid debts with the contract number or other information, instead of stating the date of contract required to be stated under Article 18(1)(ii) of the Act. Even without the statement of the date of contract, the statement of the contract number is sufficient to specify the loan contract concerning the repaid debts, and therefore the Receipt that states the contract number instead of the date of contract can be regarded as sufficiently stating the matters prescribed in Article 18(1) of the Act. 2. However, this opinion of the court of the second instance cannot be accepted, on the following grounds. (1) The purpose of Article 18(1) of the Act, which provides that upon receiving repayment of all or part of debts under a loan contract, a moneylender shall provide the other party who has made the repayment with a document stating the matters prescribed in the said paragraph, is to ensure appropriate operation of money lending business and protecting the interests of parties in need of funds. Consequently, it is impermissible to construe the provision of the said paragraph loosely by departing from its language. The principal sentence of the said paragraph provides that "upon receiving repayment of all or part of debts under a loan contract, a moneylender shall, immediately for each receipt, as provided by Cabinet Office Ordinance, provide the other party who has made the repayment with a document stating the following matters." Item 6 of the said paragraph further indicates, as such matters to be stated, "in addition to what is listed above, matters specified by Cabinet Office Ordinance." In light of its language, Article 18(1) can be construed to provide that the matters to be stated in the document that should be provided by the moneylender, upon receiving repayment of all or part of debts under a loan contract, to the party who has made the repayment (hereinafter referred to as an "Article 18 Document"), include the matters listed in items 1 to 5 of Article 18(1) (hereinafter referred to as "statutory matters") and additional matters specified by Cabinet Office Ordinance (Ordinance of the Ministry of Finance at the time of enforcement of the Act; subsequently revised to Ordinance of the Prime Minister's Office and the Ministry of Finance, Ordinance of the Prime Minister's Office, and finally Cabinet Office Ordinance), and also provide that the authority to make provision for the method of providing an Article 18 Document shall be mandated to Cabinet Office Ordinance. Consequently, it is impermissible for Cabinet Office Ordinance to replace a statement of any statutory matters in an Article 18 Document with a statement of other matters. (2) Article 15(2) of the Ordinance for Enforcement, which is formulated as Cabinet Office Ordinance, provides as follows: "When preparing a document to be provided under Article 18(1) of the Act, the moneylender may specify the loan contract concerning the repaid debts with the contract number or other information, instead of stating the matters listed in items 1 to 3 of the said paragraph and those listed in items 2 and 3 of the preceding paragraph." The part of this provision that stipulates that the moneylender may specify the loan contract concerning the repaid debts with the contract number or other information, instead of stating the matters listed in Article 18(1)(i) to (iii) of the Act, means that a statement of any statutory matters may be replaced with a statement of other matters, and therefore this part should be construed to be null and void as an illegal provision that goes beyond the bounds of the mandate given by the Act to Cabinet Office Ordinance. (3) On the grounds that contravene this reasoning, the court of the second instance found the Receipt, which states the contract number instead of the date of contract required to be stated under Article 18(1)(ii) of the Act, as sufficiently stating the matters prescribed in the said paragraph. Such a finding contains an apparent violation of law that has affected the judgment, and therefore the judgment of the second instance should inevitably be quashed. The appellants' argument is well-grounded. IV. Concerning Reason 2(3) 1. With respect to this, the court of the second instance decided as follows: An agreement that the debtor will lose the benefit of time in the event of delay in payment of the agreed interest that the moneylender is allowed to receive under Article 43(1) of the Act, cannot be regarded as unreasonable, and such an agreement would not force the debtor to pay the agreed interest. Consequently, the payment by Appellant Y1 of the amount of money that exceeds the upper limit of interest can be deemed to be the "amount of money voluntarily paid as interest" as prescribed in the said paragraph. 2. However, this opinion of the court of the second instance cannot be accepted, on the following grounds. (1) Article 43(1) of the Act provides that, where the amount of money paid as interest by the debtor under the contract on interest for a pecuniary loan for consumption commercially provided by a moneylender exceeds the upper limit of interest, the payment of the part of interest in excess shall, exceptionally notwithstanding Article 1(1) of the Interest Rate Restriction Act, be construed to be valid repayment if the debtor has made the payment voluntarily and the moneylender fulfills the obligation, which is set as a regulation for money lending business, to provide the debtor with documents that satisfy the requirements prescribed in Article 17(1) and Article 18(1) of the Act. In light of the purport and purpose of the Act, i.e. providing for necessary regulations for money lending business for the purpose of ensuring appropriate operation of money lending business and protecting the interests of parties in need of funds (Article 1), the requirement for applying Article 43(1) of the Act should be strictly construed (See 2002 (Ju) No. 912, judgment of the Second Petty Bench of the Supreme Court of February 20, 2004, Minshu Vol. 58, No. 2, at 380, 2003 (O) No. 386 and 2003 (Ju) No. 390, judgment of the Second Petty Bench of the Supreme Court of February 20, 2004, Minshu Vol. 58, No. 2, at 475). Based on this, the phrase "money voluntarily paid as interest by the debtor" contained in Article 43(1) of the Act could be construed that the debtor has paid money of his own free will, being aware that it would be appropriated to the payment of interest under the interest contract, and it also may be construed that in order for the debtor to be regarded as making such a payment voluntarily, the debtor is not necessarily required to have been aware that the amount of payment exceeds the upper limit of interest or that the contract is null and void with respect to the part of interest in excess (See 1987 (O) No. 1531, judgment of the Second Petty Bench of the Supreme Court of January 22, 1990, Minshu Vol. 44, No. 1, 332). However, if the debtor has been effectively forced to pay the amount of money that exceeds the upper limit of interest, he cannot be deemed to have paid the part of interest in excess at his own free will, and therefore it should be construed that the requirement for applying Article 43(1) of the Act is not satisfied. (2) If the Special Agreement on Loss of the Benefit of Time is effective as it is literally understood, Appellant Y1 would, in the event of the failure to pay, by the due date, the agreed interest that contains the part of interest in excess, necessarily lose the benefit of time with respect to the payment of the principal and have to immediately pay all the outstanding principal and interest thereon, and would also have to pay delay damages on the outstanding principal at a rate of 29.2% per annum. Such a consequence goes against the purport of Article 1(1) of the Interest Rate Restriction Act and therefore cannot be accepted, because Appellant Y1 would be forced to pay the part of interest in excess in order to avoid losing the benefit of time, despite the fact that he is originally not liable to pay it under the said paragraph. Thus, the Special Agreement on Loss of the Benefit of Time, with respect to the part that provides that Appellant Y1 will lose the benefit of time in the event of the failure to pay even only the part of interest in excess by the due date, is contrary to the purport of the said paragraph and therefore null and void. It is appropriate to construe that even in the event of the failure to pay the part of interest in excess, Appellant Y1 will not lose the benefit of time only if he pays the agreed principal and the upper limit of interest by the due date, and he will lose the benefit of time only when he fails to make such payment. Even though the Special Agreement on Loss of the Benefit of Time is, from a legal perspective, partially null and void as mentioned above, and therefore the debtor will not lose the benefit of time even if he fails to pay the part of interest in excess, the very existence of such an agreement usually misleads the debtor into believing that unless he pays, by the due date, the agreed interest that contains the part of interest in excess together with the agreed principal, he would lose the benefit of time and have to immediately pay all the outstanding principal and interest thereon. As a result, in order to avoid such an unfavorable consequence, the debtor would be effectively forced to pay the interest in excess. Consequently, it is appropriate to construe that where, under the Special Agreement on Loss of the Benefit of Time, the debtor has paid, as interest, the amount of money that exceeds the statutory upper limit of interest, he cannot be deemed to have paid the interest in excess at his own free will, unless there are special circumstances where such misunderstanding has never occurred. The court of the second instance, without examining whether or not there are such special circumstances, determined Appellant Y1 as having paid the part of interest in excess voluntarily. Such determination contains an apparent violation of laws and regulations that has affected the judgment, and therefore the judgment of the second instance should inevitably be quashed. The appellants' argument is well-grounded. V. Conclusion For the reasons stated above, the judgment of the second instance shall be quashed, and for further examination, this case shall be remanded to the court of the second instance. Therefore, the judgment was rendered in the form of the main text by the unanimous consent of the Justices.

Justice NAKAGAWA Ryoji Justice TAKII Shigeo Justice TSUNO Osamu Justice IMAI Isao Justice FURUTA Yuki