San Beda College of Law
MEMORY AID IN COMMERCIAL LAW
CODE OF COMMERCE
COMMERCE commercial contracts (Arts. 1-
It is that branch of human activity, 63)
the purpose of which is to bring products 2. Joint Accounts (Arts. 239-243)
to the consumer by means of exchanges 3. Transfers of non-negotiable
or operations which tend to supply and credits (Arts. 347-348)
extend to him, habitually, with intent to 4. Commercial Contracts of
gain at the proper time and place and in Overland Transportation (Arts.
good quality and quantity. (1 Blanco 36 349-379)
cited in Miravite’s Bar Review Materials 5. Letters of Credit (Arts. 567-572)
in Commercial Law, 2002 ed.) 6. Maritime Commerce (Arts. 573-
869)
“Commerce” and “trade” are used B. Special Laws
interchangeably although the former is 1. Corporation Code
more commonly used in international 2. Negotiable Instruments Law,
dealings and the latter in domestic ones. 3. Insurance Code,
(Pandect of Commercial Law and 4. Insolvency Law
Jurisprudence, Justice Jose Vitug, 1997 5. Securities Regulation Code
ed.) 6. Public Service Law
7. General Banking Law
COMMERCIAL LAW 8. Warehouse Receipts Law
It is that branch of private law 9. Chattel Mortgage Law
governing acts of commerce (business 10. Others
intercourse) and/or the juridical C. New Civil Code (repealed certain
relations arising from such commercial contracts in the Code of Commerce)
acts. (Pandect of Commercial Law and 1. Sales
Jurisprudence, Justice Jose Vitug, 1997 2. Partnership
ed.) 3. Agency
Principal characteristics: 4. Loan
1. Uniform 5. Deposit
2. Universal 6. Guaranty
3. Equitable
4. Customary MERCHANTS
5. Progressive A. Foreign Merchants
Those engaged in business in the
LAW MERCHANT (LEX MERCATORIA) Philippines
An old international law of merchants 1. As to capacity to contract
and mariners growing out of their - governed by the laws of their
customary practices. It was a law country
practiced and enforced by businessman 2. As to the creation of their
and ship owners in their own courts establishments, their mercantile
without professional judges or lawyers. operations and the jurisdiction
(Mellinkoff’s Dictionary of American of our courts
Legal Usage cited in Tristan Catindig’s - governed by the Code of
Notes on Selected Commercial Laws) Commerce
Note: The Corporation Code
COMMERCIAL LAWS OF THE PHILIPPINES applies to corporations.
A. Code of Commerce (portions still in B. Filipino Merchants
force) 1. Natural person
1. Merchants, Commercial Qualifications:
registries, Book of Merchants, a. Legal capacity to engage in
General provisions on commerce (capacity)
i. Of legal age (18 years)
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
2 2005 CENTRALIZED BAR OPERATIONS
ii. Has free disposition of 4. Members of Congress (Art. VI,
property Sec. 14, 1987 Constitution)
b. Habitually engaged in 5. President, Vice President,
commerce (habituality) members of Cabinet and their
2. Juridical person deputies or assistants (Art. VII,
Qualifications: Sec. 13, 1987 Constitution)
a. Industrial or commercial 6. Members of Constitutional
company Commission (Art. IX, Sec. 2 1987
b. Organized in accordance Constitution)
with existing legislation 7. President, Vice-President,
Members of the Cabinet,
Habituality Congress, Supreme Court and the
1. Series of acts: Constitutional Commission,
The repetition and continuation of Ombudsman with respect to any
commercial acts in such manner that loan, guaranty, or other form of
they are related to each other by reason financial accommodation for any
of the commercial purpose or end which business purpose by any
they tend to have, which is, the government-owned or controlled
exchange or circulation of products. bank to them (Art. XI, Sec. 16,
2. Single act: 1987 Constitution)
Act which manifests the intention to
engage habitually in commerce. ABSOLUTE RELATIVE
Examples: Throwing open to the INCAPACITY INCAPACITY
public a shop or establishment; public Extends through out Extends only to
announcement; etc. the Philippines the territory
Presumption of habituality where the officer
Exists from the moment a person who is exercising his
intends to engage in commerce functions
announces through circulars, Effect of act is null and Effect is to
void subject the
newspapers, handbills, posters exhibited violator to
to the public, or in any other manner disciplinary
whatsoever, an establishment which has action or
for its object some commercial punishment
operations. (Art. 3)
ACTS OF COMMERCE (COMMERCIAL
DISQUALIFICATIONS FROM ENGAGING IN TRANSACTIONS)
COMMERCE 1) Those acts contained in the Code of
A. Absolute disqualifications: Commerce and 2) all others of analogous
1. Those serving the penalty of civil character.
interdiction; The Code of Commerce does not
2.Those judicially declared attempt anywhere to define what
insolvent; commercial transactions are. It only
3. Those who are absolutely specifies two general classes.
disqualified under special laws. Moreover, an act need not be
(Art. 13) performed by a merchant in order that it
B. Relative disqualifications: may be considered an act of commerce.
1. Certain government officials, (Cia. Agricola de Ultramar v. Reyes)
such as judicial officers, Governing law (in successive order):
prosecutors, department heads, 1) Code of Commerce; 2) commercial
collectors, and custodian of usage; and 3) Civil Code.
government funds
2. Money and commercial brokers COMMERCIAL REGISTRY
3. Those who are under relative 1. A book where entries are made of
disqualification under special merchants and of documents affecting
laws. (Art. 14) their commercial transactions; OR
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda
Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-
EDP), Anna Margarita Eres (VC-Logistics). Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
San Beda College of Law
3
MEMORY AID IN COMMERCIAL LAW
2. An office established for the as charter parties and loans on bottomry
purpose of copying and recording and respondentia.
verbatim certain classes of documents of Exact moment of perfection:
commercial nature. GENERAL RULE: All contracts, whether
civil or commercial, are perfected from
REQUIRED BOOKS OF MERCHANTS the moment the offeror has notice of the
1. Under the Code of Commerce offeree’s acceptance. (Cognition theory;
a. Book of inventories and balances Art. 1319, Civil Code)
b. Journal EXCEPTION: Under Article 54 of the
c. Ledger Code of Commerce, commercial
d. Books for copies of letters and contracts entered into by
telegrams correspondence are perfected from the
2. Under special laws; e.g. stock and moment an answer is made accepting
transfer book under the Corporation the offer or the conditions by which the
Code latter may be modified. (Manifestation
3. Under the National Internal Revenue theory)
Code However, Justice Vitug believes
that Article 54 is applicable only to
COMMERCIAL CONTRACTS contracts still specifically governed by
Those entered into by merchants in the Code of Commerce. (Pandect of
the pursuit of their activities as such Commercial Law and Jurisprudence,
merchants, those involving articles of 1997 ed.)
commerce, or those defined as such
contract by certain special commercial JOINT ACCOUNT (cuentas en
laws. participacion)
An agreement between two or more A business arrangement of merchants
merchants or non-merchants binding where other merchants agree to
themselves to give or to do something in contribute the amount of capital agreed
commercial transactions. (Del Viso 88 upon, and participating in the favorable
cited in Miravite’s Bar Review Materials or unfavorable results thereof in the
in Commercial Law) proportion they may determine. (Art.
Governing Laws: 239)
1. Code of Commerce - primary
2. Civil Code - suppletory (Art. 18, Civil JOINT ACCOUNT PARTNERSHIP
Code) No firm name Has a firm name
But in case of inconsistency, the latter No common fund Has common fund
prevails except as to contracts explicitly No juridical Has juridical
governed by the former such as personality personality
bottomry and respondentia. Only ostensible All general partners
Formalities: partner liable to third liable to third
GENERAL RULE: Need not be in any persons persons
Only ostensible All general partners
particular form
partner manages manage
EXCEPTIONS:
Liquidation done by Liquidation
1. Contracts required by the Code ostensible partner entrusted to any
or special laws to be in writing partner/s
or in a certain form.
2. Foreign contracts executed LETTER OF CREDIT (LC)
abroad, required by foreign law That issued by one merchant to
to be in a particular form. another for the purpose of attending to a
Perfection: commercial transaction. (Art. 567)
GENERAL RULE: Commercial contracts An instrument issued by a bank on
are consensual as to perfection. behalf of one of its customers,
EXCEPTION: When the Code of authorizing an individual or a firm to
Commerce requires specific forms, such draw drafts on the bank or one of its
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
4 2005 CENTRALIZED BAR OPERATIONS
correspondents for its account under 3. Seller/exporter/beneficiary – one
certain conditions of the credit. who sells the goods to the buyer, and
(Commercial Law Review, C. Villanueva, who delivers the draft and documents to
2004 ed.) the issuing bank to recover payment.
An engagement by a bank or other The number of parties may be
person made at the request of a increased. Modern letters of credit are
customer that the issuer will honor usually not made between natural
drafts or other demands for payment persons. They involve bank-to-bank
upon compliance with the conditions transactions.
specified in the credit. (Prudential Bank 4. Advising/notifying bank – the
vs. CA, 216 SCRA 257). Through it, the correspondent bank (agent) of the
bank merely substitutes its own promise opening bank through which it advises
to pay for the promise to pay of one of the beneficiary of the LC.
its customers who in return promises to 5. Confirming bank – bank which, upon
pay the bank the amount of funds the request of the beneficiary, confirms
mentioned in the letter of credit plus the LC issued.
credit or commitment fees mutually 6. Paying bank – bank on which the
agreed upon. drafts are to be drawn, which may be
Essential conditions: the opening bank or another bank not in
1. Issued in favor of a definite the city of the beneficiary.
person and not to order; 7. Negotiating bank – bank in the city
2. Amount fixed and specified. of the beneficiary which buys or
(Art. 568) discounts the drafts contemplated by the
If any of these essential conditions LC, if such draft is to be drawn on the
is not present, the instrument is opening bank or on another designated
merely considered as a letter of bank not in the city of the beneficiary.
recommendation.
Duration: Nature
a. Upon the period fixed by the The LC is a financial device (mode of
parties; or payment) developed as a convenient and
b. If none is fixed, 6 months relatively safe mode of dealing with
from its date if used in the sales of goods to satisfy the seemingly
Philippines, or 12 months if irreconcilable interests of a seller, who
used abroad. (Art. 572) refuses to part with his goods before he
The LC becomes void if it is not made is paid, and a buyer, who wants to have
use of within the period applicable. control of the goods before paying.
Perfection: LC are perfected from the Stages:
moment the correspondent bank makes 1. Contract of sale between the
payment to persons in whose favor the buyer and seller
LC has been opened. (Belman, Inc. vs. 2. Application for LC by the buyer
Central Bank, 104 Phil. 887) with the bank
3. Issuance of LC by the bank
Parties 4. Shipping of goods by the seller
There are at least 3 basic parties to a 5. Execution of draft and tender of
LC: documents by the seller
1. Applicant/buyer/importer – one who 6. Redemption of draft (payment)
purchases the goods, procures the LC, and obtaining of documents by
and obliges himself to reimburse the the issuing bank
issuing bank upon receipt of the 7. Reimbursement to the bank and
documents of title. obtaining of documents by the
2. Issuing/opening bank – one which buyer
issues the LC, and undertakes to pay the There are at least 3 distinct and
seller upon receipt of the draft and independent contracts involved in a LC:
proper documents of title from the seller 1. Contract of sale between the
and to surrender them to the buyer upon buyer and the seller
reimbursement; and
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda
Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-
EDP), Anna Margarita Eres (VC-Logistics). Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
San Beda College of Law
5
MEMORY AID IN COMMERCIAL LAW
2. Contract of the buyer with the it will undertake the and the applicant
issuing bank issuing bank’s (buyer) revoke his
3. LC proper in which the bank obligation as its own understanding under
promises to pay the seller according to the the LC.
terms and conditions
pursuant to the terms and
of the credit.
conditions stated therein (with a
pour autrui stipulation in favor
OTHER KINDS OF LC
of the seller).
Other contracts may be involved REVOLVING BACK-TO- STANDBY LC
especially where the additional parties LC BACK LC
are present. A credit that A credit A security
provides for with arrangement
Independence principle renewed identical for the
The 3 basic contracts are distinct and credit to documen- performance
independent, and the undertakings of become tary require- of certain
the respective parties in each are available as ments and obligations.
neither subject to claims and defenses soon as the covering the It can be
nor affected by the breach in the others. opening bank same drawn
has advised merchandise against only
Rule of strict compliance the paying as another if another
It espouses that the documents bank that the LC, except business
tendered by the seller/beneficiary must drafts already for a transaction is
strictly conform to the terms of the LC, drawn by the difference permitted.
i.e. they must include all the documents beneficiary in the price.
required by the LC. (Feati Bank vs. CA) have been
reimbursed to
Kinds of LC (Notes and Cases on Banks, the opening
Negotiable Instruments and other bank by the
Commercial Documents, Timoteo B. buyer.
Aquino)
Governing law
1. Code of Commerce
CONFIRMED LC IRREVOCABLE LC
A LC issued by one A definite 2. Uniform Customs and Practice
bank confirmed by undertaking on the for Documentary Credits
another, in which part of the issuing
case both banks are bank and constitutes NOTE: The Uniform Commercial Practice
obligated to honor the engagement of for Documentary Credits allow Letters of
drafts drawn in that bank to the Credit to be payable to order.
compliance with the beneficiary and bona
credit. fide holders of drafts
drawn and or
documents presented
thereunder, that the
provisions for
payment, acceptance
or negotiation
contained in the
credit will be duly
fulfilled, provided
that all the terms and
conditions of the
credit are complied
with.
The correspondent The issuing bank may
bank gives an not without the
absolute assurance to consent of the
the beneficiary that beneficiary (seller)
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
