Is a seal still necessary for contracts?
On June 19, 2020, the Japanese government published a Q&A memorandum stating that placing a seal is not absolutely necessary to enter into a contract. This was made in response to the requests by Keidanren and other economic organizations, clarifying legal interpretation on seals with the intention to promote online contracts and remote working environments as the new normal. While the memo covers a variety of topics as discussed below, we have some comments to share with you as a litigation practitioner:
A written contract and placing a seal is not legally required as a matter of formality. Thus, a seal does not affect the validity of a contract. While this is true, in our experience, courts tend to put significant weight on written evidence and whether a document represents the true intention of parties. If it is not signed or stamped, courts would raise questions whether it is merely a draft or agreed as final. As discussed below, if you do not sign or stamp a contract, you should have an alternative solution to substantiate that a contract in question is final and executed, similar to a signed contract.
The memo then explains that:
a seal or sign of an author in a document presumes the authenticity of the document under the code of civil procedure;
absent such a seal or sign, a party can still establish the authenticity of the document with other evidence;
as mentioned above, the benefit of seal is limited because the seal only provides a presumption on the authenticity, which is rebuttable by the other party;
thus, a seal is not a perfect solution; it is meaningful to omit or replace this with an alternative solution to promote remote working environments.
It is evident that the government tries to discourage the practice that requires seals on every single document. However, you should not underestimate the rebuttable presumption, in the absence of which, it becomes much harder to establish the authenticity of a document in courts. The question is, what else can you bring into courts to substantiate the authenticity, which remains an open question as legislators or courts have not come far enough to set clear rules on that point.
As may not be widely known, similar statutory presumption is available for electronic signatures. To enjoy the presumption, an e-signature has to be placed in an electronic file, assuring that the signer created information contained in the file, and that information is not forged in the file. In short, e-signature has to assure no unauthorized alteration of information contained in the file and no identity theft. As long as an e-signature meets these criteria, the authenticity of the file is presumed under law. Notably, this law is not very new, being around for two decades. However, for some unknown reasons, e-signature has not been widely popular until recently. As this law defines e-signature by its function, rather than its technical specification, one might find it difficult to determine whether a particular e-signature meets the criteria to enjoy the presumption under law. While it has little precedents to date, this will likely be regarded as an effective alternative to wet signatures and seals.
The memo also refers to “double presumption.” This means that, if a seal impression placed in a document is identical to the seal of a party, courts presume that the party affixed that seal impression on the document. As discussed, a seal or signature of the party in the document presumes the authenticity of the document under the statute. Thus, as long as you substantiate that the seal impression on a document is identical to the seal held by the other party, even if the seal is stolen or abused by a person without authorization, you can presume that such other party authentically prepared the document. This is the reason why it is important to keep your seal safe.
The memo states that the effect of the double presumption is limited as this is rebuttable when the other party substantiates that the seal was stolen or abused. Well, that may be true, as long as that is easily proven in courts. Our experience is to the contrary.
The principle of double presumption also applies to informal seals and rectangle seals. However, as opposed to registered seals, seal certificates are not available for these seals. Thus, for these seals, it may not be easy to substantiate, without a seal certificate, the identity of the seal impression placed in a document and the seal held by a party. For that reason, the memo suggests reconsidering whether placing such seals is necessary.
Apparently, the government has clear goals to set people away from “hanko” culture. However, seals are used not only to establish the authenticity, but to indicate that a particular document is in a final form. In digital documents, you can assure that a document is final without relying on seals, but for paper documents, they are still a simple yet effective solution. If the government wants to push remote working environments, it is more effective to move toward digital documents, rather than discouraging the use of seals.
As mentioned in the memo, the registered seal is particularly important in practice as the seal certificate is an easy solution to establish the identity of the seal impression, thereby enjoying the benefit of double presumption. To date, this is available only for physical seals and wet signatures, but not for e-signatures.
The memo also refers to alternative methods to substantiate the authenticity of a document, namely, emails and their transmission logs for existing customers, identity verification information and communication dialogues for new customers, and e-signatures and digital accreditation services for both of them. It also refers to recording an agreement by emails, locking a PDF document by password, and then sending that password in another communication route. If you set a rule on acceptable methods in a company, it may be helpful to consider whether a proposed method effectively prevents unauthorized alteration of contents and identity theft. Thus, you have a good chance to substantiate the authenticity of the document in courts, but we must add that we have not yet had an established practice in proving the authenticity of digital evidence in courts.
As discussed, while we have some comments on the memorandum, we foresee the significant impact it may bring in practice. From now, Japanese companies have little excuse for why they do not adopt digital signatures and documents, and why it takes so long to process contracts. Perhaps that is the intention behind this memo, and in that sense, this would serve very well for that purpose.
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