In Japan, the Civil Code makes provision for mortgage laws and pledge laws. The Civil Code has been in place since 1896 and there have not been many notable amendments modernising secured transaction law. The Civil Code takes a formalistic approach, as it does not govern retention of title clauses, or financial leasing transactions. Additionally, there is no unified online register. The Civil Code only allows for possessory pledges in movable assets to be created. Additionally, regarding interests in accounts receivables, there are onerous perfection formalities, whereby the creditor or debtor must give notice to all account debtors or receive acknowledgement from the account debtors in order to create a security interest in account receivables.
However, there has been much judicial development in the area, leading to many transactions developed by case law that are not governed by the Civil Code which ultimately amount to non-possessory pledges. For example, the Security Transfer of Ownership (Joto-tanpo), is recognised in case law, and it comprises the debtor keeping physical control over the goods and their use, but doing so as an agent for the creditor. Regarding these kinds of transactions, a law has been enacted regarding their registration. The Act on Special Provisions of the Civil Code regarding Registration on Transfer of Goods and Receivables establishes a registration system to perfect these kinds of interests. This register co-exists with the Civil Code provisions on perfection of security interests. This means that parties can either perfect their interests in movable assets by registering them under the Registration Act, or comply with the Civil Code, and perfect theses interests by delivering the assets in question, creating a possessory pledge. The status of the debtor’s rights under the Joto-tanpo is uncertain. The Supreme Court has not clarified whether the debtor who uses their goods as security for an obligation with a creditor has merely a personal right over the goods or a proprietary one. The Court has merely stated that a “transfer of ownership” occurs, but it seems that they treat the transaction as a security interest, not a complete ownership transfer from the debtor to the creditor. Retention of title clauses are also governed by case law, not statute, but in cases of default, the seller of the goods must return the surplus if selling the goods amounts to more than is required to satisfy the obligation.
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Last Checked November 2020
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