Noticeable Judicial Precedent (Civil Law)
Payment of guarantee obligation, made after a guarantor has inherited principal obligation, can interrupt the extinctive prescription of the principal obligation
Supreme Court, Second Petty Bench. September 13, 2013 (Minshu Volume 67, Number 6, Page 1356)
Associate Professor Dai SHIRAISHI
(Research Staff, Waseda Law School)
(on 4 September 2014)
Overview of the facts
Merchant B borrowed a sum from Bank A, while Credit Guarantee Association X, as entrusted by B, provided guarantee for B’s debt. At that time, B’s son Y guaranteed jointly and severally for B’s contingent reimbursement obligation to X. Later, B did not discharge his debt to A within due period. Accordingly, X subrogated B’s debt in 2000, and gained the right to obtain reimbursement from B (herein referred to as the “reimbursement obligation”). B died in 2001, and Y inherited B’s obligation. From 2003 through 2007, Y made partial payment of the reimbursement obligation to X, as joint and several guarantor. In 2010, X filed a lawsuit against Y requesting performance of the joint and several guarantee obligation.
Y asserted that five years had already passed since X made the subrogation in 2000, and that the reimbursement obligation-i.e. the principal obligation-had extinguished according to the extinctive prescription for commercial transactions (Y invoked the extinctive prescription in Y’s capacity as joint and several guarantor). In response, X argued that Y had also become the principal debtor of the reimbursement obligation because of Y’s inheritance of B’s obligation, and that Y acknowledged his obligation as principal debtor by making partial payment to X. X thus claimed that the extinctive prescription of the reimbursement obligation had not been completed.
The original judgment stated that the prescription of the reimbursement obligation had been completed, and rejected X’s claims. In those circumstances, X appealed to the Supreme Court.
Summary of the judgment
Reversed the original judgment and upheld X’s claim in their entirety.
“In addition to his/her previous status as guarantor, a guarantor who has inherited principal obligation also holds the comprehensively inherited status of principal debtor, and is therefore in a position to be able to acknowledge inherited principal obligation as debtor. In light of its dependent nature, payment of guarantee obligation is usually based on the premise that the principal obligation still exists and has not extinguished. Moreover, considering that the payment of a debt certainly connotes acknowledgement of the debt itself, it follows that a payment made by a person with the status of both principal debtor and guarantor, who is aware that he/she had inherited principal obligation, also connotes acknowledgement of his/her principal obligation, even if the payment is made as guarantee obligation. This is because it is difficult to suppose that a person with the status of both principal debtor and guarantor would behave differently in his/her capacity as a principal debtor than in his/her capacity as a guarantor.”
“Accordingly, in a case where a guarantor pays a guarantee obligation while aware of having inherited principal obligation, it is appropriate-should there be no exceptional circumstances-to understand this payment, as acknowledgement by the principal debtor, has the effect to interrupt the extinctive prescription of the principal obligation in question.”
This judgment is the first Supreme Court ruling to deal with the issue of whether the extinctive prescription of principal obligation may be interrupted by the payment of guarantee obligation by a guarantor following his/her inheritance of the principal obligation. It has thus practical value for use as precedent. In addition, the judgment is also of theoretical importance, as it indicates the meaning of “acknowledgment” as the ground of interruption of prescription.
In this case, because of X’s treatment of Y as joint and several guarantor-e.g. indication of Y’s position as “joint and several guarantor” on the receipt-it was considered that the partial payment made by Y was not for the principal obligation, but for the guarantee obligation. Therefore, in the original judgment, it was decided that, because the partial payment amounted to acknowledgement of nothing more than the guarantee obligation, Y may still invoke the extinctive prescription of the principal obligation and, because of its dependent nature, may also avoid the guarantee obligation.
Meanwhile, the Supreme Court ruled that payment of the guarantee obligation connoted acknowledgement of the principal obligation. In other words, this ruling does not draw a direct connection between a) the finding of whether the payment was undertaken as payment of the principal obligation, and b) the finding of whether the payment may be evaluated as acknowledgement of the principal obligation.
“Acknowledgement” in Section 3, Article 147 of the Civil Code means a manifestation, from the potential beneficiary to the potential victim of prescription, that the former recognizes the latter’s right in question. Since partial payment is a manifestation of such recognition, it should therefore be treated as acknowledgement. If so, the obligation whose extinctive prescription is interrupted due to acknowledgement based on partial payment need not always be the one to which the payment is allocated. Therefore, when a debtor who has multiple debts makes payment, the extinctive prescription can be interrupted over those debts, depending on the relationship between them. This ruling suggests such a flexible interpretation and is considered appropriate.