Contracts for Work vs. Quasi-Mandate Contracts: Key Points When Reviewing Service Agreements

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

When reviewing a service agreement, a frequently debated issue is whether the contract is a contract for work or a quasi-mandate. Even if both are titled "Service Agreement," the legal rules differ greatly between a transaction that promises the completion of work and a transaction that handles affairs by providing specialist knowledge or labor. This distinction is not merely a formal legal classification; it is directly linked to responsibility for completing deliverables, acceptance criteria, when the right to claim fees arises and how fees are settled upon mid-term termination. Entering into a contract while leaving this vague can lead directly to disputes such as "the deliverable is not what we expected," "we were billed even though no results were achieved," or "we did the work but were not paid."

Distinguishing Completion of Work From the Duty of Care of a Prudent Manager

A contract for work is a contract in which one party promises to complete certain work and the other party promises to pay remuneration for the result of that work (Article 632 of the Civil Code). Examples include constructing a building, producing a website, creating a video and developing specific system functions, and the delivery of completed work or tangible items or data is the core of the contract. In contrast, a quasi-mandate is a contract that entrusts the handling of affairs that are not juridical acts (Article 656 of the Civil Code). Consulting, system maintenance and operation, and project management support fall into this category, and the focus is not on completing work but on the contractor performing the services with the care of a prudent manager (Article 644 of the Civil Code).

Even within recruitment-related services, content such as "advising on recruitment strategy and supporting candidate handling" has a strong quasi-mandate character, while content such as "producing and delivering a recruitment management site" takes on the character of a contract for work. In system development as well, requirements definition and technical research may be close to quasi-mandate while programming based on detailed design may be close to a contract for work, and in transactions such as agile development, where specifications change flexibly during development, things cannot always be neatly divided into a simple either-or. Rather than judging solely by the contract's title, whether there are deliverables or whether there is an obligation to submit work reports, examine the substance of the obligations both parties agreed to.

Conditions for Fees Arising and Settlement Upon Mid-Term Termination

The timing and conditions for fees arising also differ greatly between the two. In a contract for work, remuneration is, as a rule, payable simultaneously with delivery of the subject matter of the work (or after completion of the work if delivery is not required, Article 633 of the Civil Code), and in practice it is common to make passing the acceptance inspection set out in the contract a condition of payment. In contrast, under a quasi-mandate, the rule under the Civil Code is that remuneration cannot be claimed absent a special agreement (Article 648(1) of the Civil Code). However, the application of other provisions should also be checked, such as the right to claim reasonable remuneration where a merchant acts for another within the scope of its business (Article 512 of the Commercial Code). In practice, remuneration is agreed and consideration is paid according to the performance of services, such as a fixed monthly fee or an hourly rate. That said, even a quasi-mandate may include a success-fee special agreement under which remuneration is paid for the results obtained by handling the entrusted affairs (Article 648-2 of the Civil Code), so the mere existence of an agreement on deliverables or incentives does not immediately make it a contract for work. Under a quasi-mandate, failing to reach an expected numerical target or result does not by itself immediately constitute a breach of contract, but this presupposes appropriate performance in accordance with the standard of care expected under the contract.

The settlement rules when a contract ends midway also differ. For contracts for work, there is a provision for cases where the work is divisible and remuneration can be claimed in proportion to the benefit the ordering party receives (Article 634 of the Civil Code). For quasi-mandates, there is a provision allowing the contractor to claim remuneration in proportion to the performance already rendered (Article 648(3) of the Civil Code) and a provision for success-fee arrangements (Article 648-2(2) of the Civil Code). The amount that can be claimed is calculated individually in light of these provisions and the content of the contract. Also check, contract by contract, the application of voluntary termination by the ordering party (Article 641 of the Civil Code) and termination by either party to a mandate (Article 651 of the Civil Code), the requirements for damages and the validity of special settlement provisions upon mid-term termination. Article 641 allows the ordering party to terminate before the work is completed by compensating for damages. Under Article 651, damages become an issue in the cases prescribed in paragraph (2), such as termination at a time unfavorable to the other party, and there is an exception where there are unavoidable reasons.

Practice on Contractual Non-Conformity Liability and Change Management

Liability where deliverables are deficient also differs. In a contract for work, where the delivered subject matter does not conform to the contract, remedies are provided such as a demand for cure (repair or delivery of a substitute), a demand for a price reduction, a claim for damages and termination of the contract. Each of these remedies has its own requirements. For non-conformity in kind or quality, notice must, as a rule, be given within one year from the time the party learned of it (Article 637(1) of the Civil Code). However, where the contractor knew of the non-conformity, or did not know of it due to gross negligence, at the time of delivery, or at the time the work was finished if delivery is not required, this notice period limitation does not apply (paragraph (2) of the same Article). Distinguish the notice deadline from the deadline for filing a lawsuit. Contractual changes to the period and their effect, and the statute of limitations, are checked separately. Because a quasi-mandate does not automatically carry responsibility for completing deliverables, applying the non-conformity liability provisions as they are is often a poor fit, and even where advisory materials or reports are submitted, it is common to define the scope of liability narrowly.

Also set out how to respond if the ordering party is late in providing materials or deciding specifications. Making it possible to discuss extending the delivery date or additional costs when progress is hindered by the ordering party's delay in cooperation is effective under both contracts for work and quasi-mandates. Particularly for contracts for work, build a written change management procedure into the contract so that specification changes are not treated as free additional work. If you are the contractor under a quasi-mandate, clearly state that while you will provide analysis reports and advice, you do not guarantee the results themselves, such as final business decisions or increases or decreases in sales, and make clear the scope of responsibility your company assumes. Conversely, if you are the ordering party, establish a reporting mechanism that lets you confirm the appropriateness of the performance of services, such as monthly reports, work logs and KPI progress checks.

Ways to Prevent Gaps Between the Contract Type and Actual Operations

A major risk in practice is a discrepancy between the wording of the contract and how things actually run on the ground. If the contract says quasi-mandate but on the ground the contractor is made to guarantee completion of a specific result, or if it is labeled a contract for work but work proceeds on daily instructions with specifications still undetermined, the premises each party relies on will diverge when a dispute arises. Distinguish between reviewing work reports and inspecting completed deliverables for acceptance. Where acceptance inspection is provided for, decide not only its subject and criteria but also the inspection period and how deemed acceptance is treated where no notice is given.

When checking contracts using generative AI tools, it is possible to extract keywords such as "acceptance inspection," "duty of care of a prudent manager" and "deliverables" and to organize the clauses. However, if you simply accept results the AI has determined based only on the contract's title or individual wording, you risk misjudging the reality. This is because a contract titled "quasi-mandate" may in substance impose an obligation to complete, or the word "deliverables" may refer to daily work records. While using the AI's classification as a clue, it is essential for a person to reread the contract against the actual quotations, specifications and the way the services are carried out.