Supreme Court, First Petty Bench, 平成17(受)948, July 20, 2006, appeal from Fukuoka High Court


  1. The judgment of the court below is quashed.
  2. Among the claims of the appellee, the High Court appeal with respect to delivery of the goods set forth in item 1 of the record of the court below is rejected.
  3. With respect to remaining claims, the case is remanded to the Fukuoka High Court for further proceedings.
  4. Costs of High Court and Supreme Court appeals regarding section 2 below are assigned to the appellant.


Counsel for the appellant:

  1. The facts established in the proceeding below are as follows:

    1. The appellant is a limited company in the business of yellowtail and amberjack fish farming, packing, and sales.
    2. On June 30, 2000, Appellant entered into an agreement with "A" under which Appellant offered and A received a title transfer security interest in aggregated goods, with transfer of notional possession, on the following terms:
      1. To cover all farmed fish owned by Appellant and kept in ponds at the Kushima (no. 53), Kurose (no. 54), and other facilities.
      2. To secure monies owned under sales of fish food from A to Appellant at the time of signing or in future, to a maximum amount of 2.5 billion yen.
      3. with the consent by A to the use of the secured assets by Appellant, for their care and feeding, and for their sale to third parties at fair market rates in the ordinary course of business.
      4. Farmed fish transferred to third parties under (3) above were released from A's secured claim. Upon removal of a portion of the assets under (3) above, Appellant was to replenish the tank with additional fish, and fish so added became subject as a matter of course to the security interest of A.
    3. On December 7, 2000, Appellant entered into an agreement with "B" under which Appellant offered and B received a title transfer security interest in aggregated goods, with transfer of notional possession, on the following terms:
      1. To cover all fish in ponds at the Kurose facility.
      2. To secure all debts owed by Appellant to B at the time of signing or in future, to a maximum amount of 1 billion yen.
      3. B consented to the ordinary use of the assets, with Appellant to exercise the ordinary care of a husbandman in their management.
      4. In the event of enforcement of its secured claim, B retained a right as against Appellant to physically take possession of the fish or to transfer them.
    4. On February 14, 2003, Appellant entered into an agreement with "C" under which Appellant offered and C received a title transfer security interest in aggregated goods, with transfer of notional possession, on the following terms:
      1. To cover all farmed fish owned by Appellant and kept in ponds at the Kushima, Kurose, and other facilities.
      2. To cover debts arising from commercial and financial transactions between Appellant and C, to a maximum amount of 3 billion yen.
      3. Appellant to exercise good care toward sale of the assets in the ordinary course of business, proceeds of sale to be used, with C's consent, for the conduct of Appellant's business.
    5. On April 30, 2003, Appellant entered into an agreement with Appellee. This provided for (1) sale of fish owned by Appellant to Appellee; (2) entrustment of the subject fish by Appellee with Appellant; and (3) by the circumstances of repurchase arrangements, Appellant and Appellee settled a contract on the following terms.
      1. Sale of subject fish: Appellant to sell the subject fish under its ownership to Appellee as purchaser, as fish held in trust.
        1. Subject fish in 21 ponds at the Kurose facility to be specified to the sale, consisting of 130,512 yellowtail.
        2. Sale price to be 620 yen per kilogram.
        3. Price of each sale to be allocated to a running account between Appellant and Appellee.
        4. Ownership of the subject fish to be transferred from Appellant to Appellee by the date of sale, and ownership of Appellee to be indicated by clear signage at each pond.
      2. Deposit of subject fish: Fish purchased as above by Appellee to be entrusted to Appellant by Appellee as follows:
        1. Period of entrustment to run to April 30, 2004.
        2. Accounting of expenses for the keeping of fish under ownership of the Appellee to be done at the point of repurchase (by Appellant) on the terms stated below.
      3. Repurchase: Appellant to repurchase fish entrusted on the terms above, process them into fillets, and sell to Appellee. Appellee to sell onward to D.
        1. Period for repurchase to be October 1, 2003 to April 30, 2004. adfsf adfsdf
        2. Expenses to be accounted for in settlement of accounts on sale under 1.5.1 above.
        3. Payment for repurchase to be made upon sale of processed fish by Appellant to Appellee.
      4. Other provisions
        1. Initial term of the contract to run from April 30, 2003 to April 30, 2004. The agreement to continue in the event that fish entrusted to Appellant remain at the end of the term.
        2. In the event of bankruptcy by the Appellant, Appellee is entitled to declare immediate termination of the agreement.
        3. In the event that Appellant is unable to pay, Appellee is entitled to sell fish in its ownership to third parties.
    6. On April 30, 2003, Appellant and Appellee concluded a contract for the sale of amberjack in Appellant's ownership on the following terms:
      1. Subject of the sale to be 27,2566 amberjack owned by Appellant, at a price of 650 yen per kilogram.
      2. All fish to be removed from Appellant's ponds for sale to third parties by July 31. Appellant to care for the fish on behalf of Appellee.
    7. The fish listed in item 1 in the record of court below are the subject of the first contract above, and those listed in item 2 are the subject of the second contract; and both are also the subject of the three title-transfer security interests outlined above.
    8. Appellant filed a petition for reconstruction bankruptcy in the Tokyo District Court on July 30, 2003, and proceedings commenced on August 4.
  2. In this case, Appellee demands the delivery of the goods that are the subject of the first and second contracts (hereinafter "the contracts"). Appellant counters by arguing (1) that the contracts should be interpreted as title-transfer security agreements, and (2) that insofar as the previous three title-transfer security agreements have completed the requirements for perfection, Appellee lacks legal foundation for immediate acquisition.

  3. The court below approved the claim of the Appellee in the following terms.

    1. The contract at issue in this case is a sales contract in which the Appellant is the seller and the Appellee is the buyer, and it cannot be recognized as a title-transfer security arrangement.
    2. In a title-transfer security arrangement against a collective asset, it should be understood that the party offering security reserves the right to dispose of the assets to third parties in the ordinary course of business; and the contracts between Appellant and the first and third creditors secured by transfer of title, this is confirmed explicitly in the contracts. In such contracts in respect of collective assets, it must be understood that the debtor offering security has the legal power to transfer ownership to third parties. Accordingly, we conclude that the Appellee, based on the power held by the Appellant, took transfer of the ownership right in the assets concerned. Even conceding that the three title-transfer security interests were established, these cannot oppose the transfer of ownership to the Appellee. Therefore, the claim of the Appellee is with merit.
  4. However, we cannot accept this conclusion of the court below, for the following reasons.

    1. Fish involved in the first sale: It is clear that the purpose of the first contract between Appellant and Appellee was to secure payment of the preexisting debt owed by Appellant through the sale of the subject fish to a third party in the event of Appellant's insolvency. This follows from facts recited above: that sale of the fish to Appellee was coupled with their entrustment to and continued management by Appellant, without transfer of physical possession; that the purchase price was to be settled by an offset against existing sums owed by Appellant to Appellee, without provision of new value to Appellant; and that in the sale to the third party D, the fish were to be repurchased by Appellant, processed for delivery to D, and paid for by the accounting offset in favor of Appellee [reference elided]. The only possible interpretation of this arrangement is that aimed to create a security interest. Accordingly, although the first contract is cast as a purchase for resale, with explicit agreement to immediate transfer of ownership [reference elided], it must be viewed as a transfer to the end of securing preexisting debt. The appropriate interpretation of the agreement is as in essence a security agreement. We cannot view this arrangement as an arm's-length transfer, and therefore cannot accept it as effective to transfer ownership in the fish that are the subject of the first contract. If the Appellee's position is taken to include a claim for delivery of the goods themselves in execution, in the event that the agreement is taken to be one for title-transfer security, this also will not avail. With respect to this first contract, three other secured creditors in the case have title-transfer interests perfected by notional transfer of possession at an earlier date, and the interest of Appellee follows these. Even if an after-acquired title-transfer security interest is to be recognized, if private exercise by transfer were allowed to the later-taking secured party, as such a process differs from that for realization of collateral and distribution of proceeds under the Civil Execution Act, it would not be possible to give effect to the interest of the earlier-taking secured party, and their security interest would become an empty shell. We cannot condone the private exercise of a claim by a later-taking secured party that would bring about such a result. Furthermore, insofar as Appellee can only claim to have executed a notional transfer of possession in this case, notional transfer of possession alone is an insufficient foundation for immediate acquisition, a claim for title-transfer security by immediate acquisition will not lie. Therefore, finding that the claim of Appellee in regard to the first contract at issue in this case is without merit, and that the decision to the contrary by the court below is in error.

    2. Fish involved in the second sale: We now turn to the claim by Appellee that grounds do not exist for finding the second contract to be a title-transfer security arrangement, and that it constituted a good sale under which Appellee acquired ownership of the subject fish. In a title-transfer security interest in composite asset with fluctuating content, it is anticipated that the content of the composite will vary in the course of the secured debtor's activities. The secured debtor has authority to dispose of portions of the composite in the ordinary course of business. When transfers are made within the bounds of the secured debtor's authority, the receiving party takes a good title, free of the secured party's interest. Appellant's title-transfer security agreements with A and C contained explicit provisions confirming these expectations. On the other hand, where a secured debtor disposes of collateral outside of the ordinary course of business, such a transfer is beyond the bounds of the debtor's authority, and to the extent that the portion concerned in the transfer has not been separated from the composite by removal from its place of storage or other means, the recipient cannot accede to its ownership.

    In this case, there is no evidence that the assets subject to the second sale have been separated from the whole, and therefore in order to determine whether Appellee has acceded to ownership of the fish that are the subject of the second agreement, it is necessary to consider whether the sale under the second contract falls within the ordinary course of Appellant's business. The judgment of the court below, approving the second contract without hearings on this issue, is clearly in error.

  5. The petition of Appellant is with merit, and reversal of the judgment below is unavoidable. Among the claims of Appellee, the holding of the trial court rejecting the first sale was correct, and the appeal to the High Court is rejected. With respect to the second sale, the case is remanded to the High Court for further proceedings in conformity with this judgment.

This is the unanimous decisions of the five-judge panel in this case.