• 2023.04.05
  • Corporate

Points to note in drafting contracts

Points to be noted when drafting contracts (clarification of contents and fairness)

The purpose of drafting a contract is to prevent disputes at a later date by clarifying the relationship of rights and obligations between the contracting parties. Therefore, it is important in drafting a contract that the contracting parties have a common understanding of the rights and obligations, conditions, etc. at each stage of the contract’s formation, continuation, and termination. Unifying terms used in the contract, clarifying definitions, and clarifying the contracting parties are also necessary for this purpose. We also believe that contracts should be basically fair to the parties. If a contract is unilaterally favorable to one party, it may be invalid under the law, or it may result in a dispute later with the party who has been treated unfairly, which may ultimately damage its reputation. We believe that concluding a contract with fair content will ultimately benefit both parties in the long run as a whole.

Clauses contrary to mandatory provisions

So-called mandatory provisions are provisions relating to public order that apply unconditionally regardless of the intention of the parties and have the effect of invalidating covenants between the parties that are contrary to such provisions. For example, in addition to Article 90 of the Civil Code (public order and morals), there are provisions in the Interest Rate Restriction Law, Labor Standards Law, Subcontract Law, Antimonopoly Law, Consumer Contract Law, and other special laws in various fields. In the case of a contractual provision that violates the mandatory provisions, it should be noted that not only is the provision invalid, but also administrative sanctions or criminal penalties may be imposed for the act if the contractor violates the mandatory provisions.

Clauses contrary to public order and morals (Civil Code Article 90)

If a contract is made for the purpose of matters contrary to public order or good morals, the contract is void in whole or in part. For example, a contract for the purpose of criminal acts will be void. Even in a business-to-business contract, if the terms and conditions of use are used to unilaterally stipulate clauses that are too favorable to the company, the contract may be deemed invalid by a court of law, in violation of the principle of fairness.

Advantages of having a clause that allows the contract to remain in effect even after termination

When the contractual relationship between the parties is terminated, the rights and obligations stipulated in the contract, with the exception of legally recognized rights, are terminated with the termination of the contract. Therefore, it is beneficial to provide in the contract a special clause to the effect that each necessary provision will remain in effect even after the termination of the contract in order to continue the rights and obligations favorable to the parties after the termination of the contract, while saving the parties the trouble of checking whether or not the provision exists under law.

Clauses restricting transfer

When concluding a contract with a specific counterparty, who is the counterparty to the contract is an important factor, such as the other party’s financial resources, ability, and integrity. In addition, depending on the location of the other party, the costs that must be borne to fulfill the contract may vary. Nevertheless, if the other party is free to assign its contractual rights and obligations, there is a risk that problems may arise, such as the contract not being performed in good faith, depending on the party to whom the contractual relationship has been assigned. Also, if the assignee of the contract is a competing company, the confidential information may be unintentionally leaked to a competing company. On the other hand, if the term of the contract is long, it may be beneficial to leave room for assignment of the contract and to allow a change of contracting parties under certain conditions, such as the consent of the contracting parties.

Regarding force majeure exemption clauses

A force majeure clause exempts the contracting party from liability for default of obligation in the event that the performance of the obligation is delayed due to an earthquake, tsunami, war, or other event that is impossible to prevent even if the contracting party exercises all due care required under socially accepted conventions. Since it is not always clear whether or not such accidents are caused by reasons attributable to a party, it is necessary to clearly specify the scope of force majeure in the contract in order to clarify cases in which the party is exempted from liability due to force majeure.

Determining whether a contract requires the affixing of revenue stamps

Stamp duty is imposed only on taxable documents as defined by the Stamp Tax Law. A taxable document is a document that meets all of the following three conditions Whether a document is a taxable document or not is to be determined based on the contents of the document, but in determining the contents of the document, it is necessary to understand the substantive meaning of the words, signs, etc. on the document, instead of making a formal determination based on its name, designation, or the words on the document. (National Tax Agency website).
(i) Matters to be evidenced by the 20 types of documents listed in Appended Table 1 (Table of Taxable Property) of the Stamp Tax Law (taxable items) must be listed.
(ii) The document is prepared for the purpose of certifying taxable matters between the parties.
(iii) The document is not a non-taxable document that is exempt from stamp taxation under Article 5 of the Stamp Tax Law (non-taxable documents).
A non-taxable document is a document that falls under any of the items of Appended Table 1 (Table of Taxable Property) of the Stamp Tax Law but is not subject to taxation under the exclusion provision.