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Civil Code Reform: Standard Form Contract

Amendments to the Japan Civil Code (“Amendments”) take effect on April 1, 2020. The Amendments are the largest reforms since it became effective in 1898, including the changes to statutes of limitation and statutory interest rate. This article introduces one of the Amendments’ “standard form contracts” which can often be seen in online businesses.

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120-year old law

The Civil Code [1] (“Code”) is the very basic law governing civil and business activities in Japan. The Code was originally enacted in 1896 and has been reviewed and partly amended as necessary from time to time. However, except for the radical reforms of Part IV (family law) in 1948, most provisions of the Code have remained unchanged since its enactment.

During the past 120 years, Japanese society and its economy have developed far beyond what the Code originally envisioned. In the meantime, court precedents (or case laws) have supplemented the Code through interpretation of existing provisions and application to actual cases. Most of the Amendments are a reflection of the accumulated court precedents that have been established up until the present.

Standard Form Contract

“Standard form contracts” (yakkan) means a set of rules prepared by a service provider to be the provisions of an agreement for a standardized transaction, which the service provider conducts with many and unspecified customers to provide typical services. There are already regulations on standard form contracts in specific industries, but there were no general laws or regulations governing standard form contracts. The Amendments aim to fill this gap.

Standard form contracts are often presented to a customer in a way that requires the customer to acknowledge and accept the agreement to proceed with a transaction. At the same time, standard form contracts often include provisions that unilaterally benefit the business proposing them. Further, customers usually do not carefully read and examine standard form contracts. As a result, they sometimes suffer unexpected loss or damage.

We can therefore see a need to reform the way the law deals with Standard form contracts. To this end, the two new requirements required of businesses listed below should be of particular note.

Businesses must warn the customer in advance

The newly-established Article 548-2 requires that either (a) the parties both agree to assume the rights and duties in the contract or (b) the business warns the customer in advance that the terms and conditions under Standard Form Contracts will be binding if the customer elects to proceed with the transaction. Furthermore, terms and conditions that restrict the rights or expand the duties of a customer shall not bind the parties if they (i) breach the parties’ obligation of good faith and (ii) unilaterally violate the customer’s interests.

Unilateral contract amendments

If a business desires unilateral change or amends a Standard Form Contract, the changes/amendments must be legally reasonable and conform to the general interest of both parties and the purpose of the transaction. The business operator must inform customers of any such amendment by the internet, etc.

As these Standard form contracts are frequently employed by online businesses across borders, these businesses will need to make sure that their agreements meet the new standards.

[1] Law No. 89 of 1896.

Disclaimer: While every effort has been made to ensure that the information on this article is accurate at the time of posting, it is not intended to provide legal advice as individual situations will differ. If you do require advice or wish to find out more about the information provided and related topics, please contact the author.

Text by Atty. Atsushi Miyake of Miyake Law, May 2019.
Read more installments from this series here.

Category
Others
Fukuoka City
Published: May 17, 2019 / Last Updated: May 17, 2019

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