# Requirements for set-off in Japanese law

## TL;DR

This paper explains the legal requirements for set-off under Japanese civil and bankruptcy law, highlighting differences from German and French civil codes.

## Contribution

The paper systematically clarifies the current Japanese legal framework for set-off, including affirmative and negative requirements and bankruptcy-specific modifications.

## Key findings

- Japanese set-off requirements include affirmative conditions for eligibility and negative restrictions on exercise.
- The Japanese Bankruptcy Act modifies standard set-off rules to fit bankruptcy proceedings.
- Terminology like 'active claim' and 'passive claim' is used to describe set-off dynamics in Japanese law.

## Abstract

As is already known, the Japanese Civil Code (JCC), enacted in 1896, was formulated with reference to the discipline of many foreign laws, including the French Civil Code (FCC) and the draft of the German Civil Code (BGB) at the time. Among the objects of discipline stipulated in the JCC, the concept of German law was widely adopted for the provisions on set-off. However, in the interpretation of these provisions, the Japanese Supreme Court sometimes adopted views that differed from the provisions of BGB and its interpretation. This case law was clarified when the Law of Obligations of the JCC was revised in 2017. This paper explains the various set-off requirements stipulated by Japanese current law.

In Japan, the conditions under which the statutory requirements for set-off are satisfied are described as “eligibility for set-off” (Sousai-Tekijou), and the legal status of the parties in the set-off is called the right to set-off. Even if this eligibility for set-off arises, the parties may not exercise the right to set-off if there are circumstances that restrict the set-off. In addition, the Japanese Bankruptcy Act (JBA) modifies the requirements provided by the JCC to accommodate bankruptcy proceedings.

In this paper, we will review in order the affirmative requirements for creating eligibility for set-off, the negative requirements for restricting the exercise of the right to set-off, and the requirements for set-off in bankruptcy proceedings. Please note that under Japanese law, when A intends to extinguish B’s claim β against him by set-off against his claim α, A’s claim α is referred to as an active claim (Jido-Saiken, Aktivforderung), and B’s cross-claim β as a passive claim (Judo-Saiken, Passivforderung). This paper will also be described based on this terminology

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