Due care of a prudent manager

Due Care of a Prudent Manager is to exercise duties with care of a prudent manager. Corporate executive officers are mandated by a company and are responsible for duties of care and loyalty as a prudent manager.

Overview of Due Care of a Prudent Manager
In a mandate contract, a mandatary assumes due care of a "prudent manager."

Civil Code Section 10 Mandates

Article 643 (Mandates)

A mandate shall take effect when one of the parties mandates the other to perform a juristic act, and the other party accepts the mandate.

Article 644 (Duty of Care of Mandatary)

A mandatary shall assume a duty to deal with the mandated business with the care of a prudent manager in compliance with the primary purport of the mandate.

Article 645 (Reports by Mandatary)

A mandatary must report the status of the mandated business at any time, if requested by the mandator, and is required to report the process and results without delay upon completion of the mandate.

Article 646 (Delivery of Received Things by Mandatary)

The mandatary must deliver money and other things that he/she has received during the mandated business to the mandator. The same shall apply to fruits the mandatary has reaped.

２ The mandatary must transfer rights which the mandatary has obtained under his/her own name on behalf of the mandator to the mandator.

For instance, because corporate executive officers are mandated the administration of a company by shareholders, breach of law or an article of incorporation and submission of an illegal distribution plan are to be punished. If such an illegal act is decided in the board of directors, board members that agreed to the decision are to be jointly liable for it.

Companies Act Article 355 (Duty of Loyalty)

Board members must perform their duties for a stock company in compliance with laws and regulations, the articles of incorporation, and resolutions of shareholders meetings with loyalty.

A mandator in a mandate contract does not have obligation concerning the completion nor the achievement of numerical goals while they assume a duty to administer the mandated duties loyally.

In business processes, it is difficult to accuse the mandatary of incompletion of the duties.

Appropriate Decision-Making Process
Even if it results in a significant loss of a company, it is not considered as violation of Due Care of a Prudent Manager as long as the board members did the following when making a decision regarding the administration:


 * Appropriate information gathering
 * Appropriate decision-making process

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