Facts

In February, 1961, X, the proprietor of the shop in question in this case, entered into a 5-year lease agreement with Y Company Inc. Y Company is an organization established so that the electrical appliances shop operated by A, as a private person, could limit its tax liability and is, in substance, the private enterprise of A, its representative director. X also considered that he was entering into a lease with A. In 1966 X issued a request that A vacate the premises. A sent a memo to X stating that the premises would be vacated by August 19 of that year. The date came and want and did not vacate the shop, so X filed a lawsuit for vacation of the shop premises, naming A as defendant. In 1967, while the above lawsuit was pending, A and X entered into an extra-judicial settlement for vacation of the premise. However, after entering into this settlement, A claimed that the contractual lessor was Y Company and therefore refused to vacate that portion of the premises being used by Y Company. X then filed the instant suit for vacation of the premises naming Y Company as defendant. In the court of first instance, the court recognized X's claim, holding that although A had entered into the settlement as a private person, it could be expected that Y Company, whose representative director was the same A, would be bound by the promise to X to vacate the shop. The court of second instance upheld the lower court decision. Y Company then appealed to thee Supreme Court, claiming that the lease agreement was entered into between X and Y Company and could not be affected by the settlement entered into between X and A.

Gist

Appeal dismissed.

"As a general rule, the granting of juridical person status is a matter of legislative policy in assessment of the value of socially existing groups, and occurs, based on legal technique, when we value and recognize the manifestation of grounding such a policy in rights. However, when juridical person status is nothing more than a shell or when it is being abused in order to evade application of the law, then it must be said that recognition of juridical person status, in light of the original purpose of achieving that status, cannot be permitted and that when repudiation of that status has been requested, it must be acted upon. ...A stock company, as a matter of regulatory principal, has the advantage of being simple to establish. Further, since even the so-called one many company is possible, the stock company form is, as it were, nothing more then a straw effigy--the company is the person and the person is the company--and this gives rise to the recognition of what is, in substance, a completely individual enterprise. In such a case, it is often not clear for someone entering into a transaction with the enterprise clear whether they are dealing with the company or the person and some safeguards are needed. ... In such a case, it becomes necessary to be able to approach the actual person behind the legal form know as a company. Even if the transaction was entered into in the name of the company, the person on the other side of the transaction should be able to disregard the juridical person status of the company and act as if there was no juridical person status, i.e., it should be recognized that the transaction was actually entered into by the person behind the company and that person should have responsibility. Also, where a transaction has been entered into in the name of the individual, the other person on the other side of the transaction may, without regard to Article 405 of the Commercial Code, immediately consider that action to have been taken by the company. "

(translation by Vicki L. Beyer)

Temple University Japan