1. Principles and Functions of Contract Law

All modern free-market societies permit private agreements between individuals or legal entities as a form of autonomous social coordination and cooperation. Such agreements are also called "contracts". A contract constitutes a planned relationship by which the parties decide on the transfer and exchange of their respective resources, which are also called performances. Contracts generally permit the voluntary transfer and exchange of all types of performances. By entering into a contract, the debtor assumes a duty to perform, which corresponds to the creditor's right to demand performance. A contract thus involves contractual obligations, and the parties are bound to perform their respective obligations.

The contract is therefore a legal instrument that permits the private and autonomous ordering of the use of individual resources and is, as such, a source of law. Such autonomous rule-making by private individuals or entities is based on the basic principles of personal or private autonomy, freedom of contract, and the binding force of contracts (pacta sunt servanda). Moreover, in particular in the Anglo-American world, contracts are generally being regarded as a means to foster the effective use of resources and economic wealth.

Contract law is a set of rules that most notably governs the formation and enforcement of contracts. Contract law must therefore determine the requirements for the formation of a contract and define when a legally binding contract between the parties arises. Contract law also has to ensure that contractual obligations will be performed if the creditor demands so. For this purpose, contract law in particular has to provide remedies for breach of contract. It is, however, not necessarily a purpose of contract law to determine the content of a contract, because this is primarily up to the parties to the contract. On the other hand, in recent years legislative authorities around the world show a tendency to also regulate the content of contracts, usually with the purpose to protect allegedly weaker parties, such as for instance consumers in consumer transactions. Moreover, it is often argued that the regulation of the content of contracts more generally was necessary to ensure substantive fairness and equity in contractual relations. There is also a tendency to strengthen the regulation of the process of contract formation for ensuring greater procedural fairness, such as for instance by providing rights to avoid a contract or to withdraw therefrom in special situations such as for instance if one party was misinformed by the other.

2. Japanese Law of Contracts

Even though today the basic principles of contract law are generally acknowledged in most industrialized countries, with regard to specific details, contract laws diverge to a great extent. There are particularly many differences between countries with an Anglo-American legal tradition and those based on the European civil law tradition.

In this context, the question "Where does Japan stand?" can be raised. Japanese scholars as well as scholars of Japanese law from other countries frequently discuss this issue. On the one hand side, Japanese civil law, and in particular the provisions in the Japanese Civil Code (Minpō, enacted in 1898) regarding contract law, are based on European models of contract law of the 19th century. Japanese contract law was especially influenced by the drafts of the German Civil Code, which eventually came into force on January 1, 1900, and German prevalent legal theories around that time. On the other hand side, many scholars take the view that the different Japanese culture implicates a different legal consciousness of contract in Japan, if not already immanent right from the beginning then at least developed over the more than hundred years of legal practice since the enactment of the Japanese Civil Code and accompanying laws.

Takeyoshi Kawashima (1909-1992), a famous Japanese legal scholar often referred to when dealing with these issues, once cited Shirō Hattori for the purpose of explaining Japanese legal consciousness, who stated that "When a Japanese makes an agreement with another person, the goodwill and friendship that gave rise to the agreement is more important to him than the agreement itself…", which implies that obligations between individuals in Japan are more regulated by social relations than by formal legal agreements. This differs greatly from the notion of contract in Germany and other Western legal systems. Similarly, Takashi Uchida, a contemporary Japanese legal scholar and advisor to the Japanese Ministry of Justice is of the opinion that the Japanese Civil Code and its rules were never really in line with general legal consciousness in Japan and that they ought to be amended in order to match with Japanese legal notions. According to him, agreements in Japan should be generally regarded and interpreted as "relational contracts" which implies that rights and duties of the parties to the contract shall be inferred from their entire social relationship rather than only from the formal agreement between them. Formal agreement as the only or main basis for obligations between the parties, he states, was a concept derived from Western legal systems that never suited Japanese society. There are also international lawyers frequently working on Japan related cases, especially from the U.S., who sometimes complain that the culture-bound different legal consciousness in Japan was an obstacle to effectively rendering advice to their clients.

This discussion implies that although the basic legal provisions on contracts in Japan are similar to those of European countries, the underlying "social norms" in Japan and those European countries were different, so that the Japanese legal provisions on contracts had to be interpreted and applied differently in accordance with a specific Japanese legal consciousness. Some basic questions for legal scholars who study contract law in Japan and compare the Japanese law with that of other countries are therefore:

1. Does culture matter more in Japan than in other countries when it comes to the interpretation of contracts?
2. Is Japan somewhat exceptional in emphasizing social norms over (written) contract law?
3. Does Japan need a contract law different from the present one?

Addressing the third question is currently of particular relevance also for Japanese legislators in view of the current discussion on a far-reaching reform of the law of obligations.

Apart from the civil law provisions governing contracts in Japan, a rarely noticed distinctive feature of Japanese law is that the formation, the content and the performance and enforcement of contracts in Japan is subject to comprehensive and intensive regulation by administrative law, i.e. by public law, which cannot be found to such extent in any European legal system or in U.S. law, in particular not in those legal systems that once were regarded as models for the Japanese civil law in general, and in particular those that served as models for the introduction of a modern contract law.

3. The European Perspective

Unlike in Japan, the contract law on the European continent over the centuries had a stronger tendency to constantly develop through many efforts made towards universalization, harmonization and unification. Given the geographic situation of Japan as an island nation in the sea east of the Asian continent with no common borders, this is maybe not particularly remarkable.

The natural law theory of the Age of Enlightenment carried the notion that there are common universal rules that should be applicable in all societies. Moreover, Roman law had a similar strong influence on many European countries, in particular also in the field of contract law. Trade among merchants in the European countries grew over the centuries and brought about a steadily increasing number of cross-border legal transactions based on contracts which also led to the development of certain common rules and customs among merchants all over Europe. In recent decades, the fundamental economic freedoms of the EU Treaty led to the dismantling of trade barriers and a common market among EU Member States. In addition, contract law increasingly became the object of harmonization among the Member States through secondary EU law, at the beginning primarily on the basis of EU directives, and recently more and more based also on directly applicable EU regulations. In particular consumer contracts, but also some specific types of other contracts and some aspects of general contract law became more and more uniformly regulated by the EU. EU law also influences national contract laws in the Member States in areas where unification is not yet demanded by the EU legislator and has also induced comprehensive reforms of national contract laws, such as the reform of the German law of obligations in 2002. To provide guidance for a possible further unification of civil law and, in particular, contract law among EU Member States, legal scholars from the EU Member States are engaged in international joint study groups aiming at the systemization of common principles in the legal systems of the Member States. Eventually they aim at providing a restatement based on comparative law research that could serve as a blueprint for the enactment of a uniform contract law, or even a unified EU civil code. One of the best known study groups, the "Lando Commission", for example, compiled in three parts (1995, 2000, and 2003) the "Principles of European Contract Law (PECL)". The Study Group on a European Civil Code founded by the German law professor Christian v. Bar, in co-operation with other like-minded groups, prepared the Draft Common Frame of Reference (DCFR: 2008, 2009), a draft proposal for the unification of the law of obligations. The DCFR served as basis for the compilation of a Common Frame of Reference (CFR) which was commissioned by the European Commission and which narrowed the focus on a unified contract law, in particular a unified law of sales contracts. Based on the CFR, the European Commission recently prepared a draft Regulation for a Common European Sales Law (2011).

EU laws with the purpose to harmonize and unify contract and civil law in the Member States were at first enacted especially in the field of consumer law during the 1980s (regarding e.g. door-to-door sales, consumer credit contracts, package travel contracts). In 1993, the Directive on Unfair Terms in Consumer Contracts was adopted, and in 1999 the Directive on Certain Aspects of the Sale of Consumer Goods and Associated Guarantees. In 2000 and 2004, Directives against discrimination were issued which brought about a strengthening of antidiscrimination laws in the Member States. This, in particular, also extended to the field of contract law. In addition, private international law (i.e. rules that provide which national law shall be applicable with respect to a certain legal matter) in the field of contract law was unified by Regulation 593/2008 on the Law Applicable to Contractual Obligations. The issuance of many further EU directives and regulations aiming at a harmonization or unification of contract laws in the EU Member States can be expected in the years to come.

In Europe, however, harmonization of contract law is not only pursued within the framework of the European Union. Harmonization of contract law is generally regarded as one tool to facilitate trade between the different countries and, as a consequence, to promote economic prosperity and well-being in the related countries. Therefore, traditionally Europe is quite open to any attempts to harmonize contract law. For instance, most European countries have endorsed the development of a uniform international sales law. Eventually this project was realized by the adoption of the United Nations Convention on Contracts for the International Sale of Goods (CISG) which was signed in 1980 and came into force in 1988. On the other hand, Japan long hesitated to ratify and implement the convention, which could be realized only in 2009.

Therefore, in Europe a further harmonization and unification of civil law, in particular contract law, is regarded as an integral component in order to accomplish a completely realized Common Market within the European Union, and for some also as a corner stone for further political unification with the ultimate goal of a European federal state. Moreover, irrespective of the development of the European Union, harmonization of contract law is seen as an important tool to facilitate cross-border trade and to promote prosperity. It is also regarded as necessary to cope with the demands set by the constantly progressing globalization. Hence, the European countries are generally inclined to endorse a further harmonization of contract law, even if this means that part of their national legal tradition would vanish.

4. Japanese Contract Law in a Globalized World

Japan is not a member of any economic or political organization as much integrated as the European Union. Japan, however, is heavily dependent on international trade in order to maintain its prosperity and standard of living. Japan also seeks to deepen cooperation with its trade partners, in particular in Asia, Oceania, North America, and Europe. In addition, Japan has a long tradition of comparative law research and its legal system is based to a great extent on comparative law studies and a reception of foreign law. Moreover, the harmonization of Japanese contract law with the laws of other important trade partners apparently would not only further promote international trade between Japanese companies and their counterparts in other countries, but would also induce more investment in Japan.

On the other hand, as explained above, Japan is consistently struggling whether the adoption of foreign legal elements can be reconciled with Japanese traditional legal traditions and values. It is therefore important to investigate how Japanese contract law could be revised in order to satisfy both demands. But is it possible to create a contract law that suits Japanese legal consciousness and at the same time would comply with international standards? Can there be one integrated contract law or are different laws needed for different purposes? These are issues that will have to be addressed not only in the context of the upcoming reform of the Japanese law of obligations. The future shape and content of Japanese contract law is an issue with high importance for the development of the country as such.