INTRODUCTION TO BUSINESS LAW NOTES

CHAPTER 1: CONTRACTS

1.1CONTRACTS AS INSTRUMENTS TO ENCOURAGE ECONOMIC COOPERATION AND BUSINESS ACTIVITY

Notion of a contract: an agreement which is intended to give rise to a binding legal relationship.

In short: an enforceable agreed promise. Legal system upholds it. Pacta sunt servanda: first basic
principle of contract law according to which parties can be held to what they contracted for.

Functions of contracts:
I) Why to enter into contracts? When there are mutual beneficial for both parties. Pareto-
Efficiency, enlarging the contractual pie. E.g. Sales contracts, financial contracts, risk
assignment, commodity trade, etc.
II) On what parties bargain? a) Enlarging the contractual pie (welfare). The larger the pie,
the larger slice for each party. b) Distributing generated pie. C) Incentives to stick to the
contract. D) Allocating risks. E) Enforceability. F) Dispute resolution.
III) Asas

REMEDIES FOR BREACH (Ch. 1.2. slide 53)

They are those actions, mechanisms that a contractual party takes to fix wrong consequences
arising out of a breach. The remedy of termination is not liked due to social costs.
a) Specific performance: “cumplimiento forzoso”. A required action is imposed upon breaching
party. Right to request the completion of what had been partly performed. Problems:
Efficient breach and bargaining in the shadow.

b) Damages: payment of a sum of money to compensate the loss resulting from the reach of
contract.
Expectation damages: money that brings the aggrieved contractual party to the situation of
welfare in which he would be if the contract had been perfectly performed. It includes the
loss caused and the lost profit (which Spanish Courts compensate). It is the general rule in
Spanish Law. Limitations: foreseeability rule, duty to mitigate damages and comparative
fault.
Reliance Damages: money that intends to restore the injured party to the situation before
celebration of contract.
Traditionally, Spanish Supreme Court accept and award damages for pain and suffering.

c) Fixed sums: damages not determined ex post by a Court, but ex ante by the contract parties.
Liquidated Damages: they replace Court award of damages.
Penalty Clauses: extra punishment for breach. “Pena facultativa”: power to perform the
contract or pay and go.
d) Termination: the contract does not exist anymore, obligations are eliminated and parties
must return to initial situation. Ultima ratio remedy.
 Ch. 2: Market Regulation (slide 39)
3 devices that act as protection for consumers in all contracts:
- Pre-contractual information and documentary duties.
- Right of withdrawal and cooling-off.
- General conditions and unfair terms.
Guarantees and after-sale services
Subjective approach: it applies to B2C sales.
Objective approach: it applies to the sale of consumer goods, thus any tangible movable item (new
or second-hand).
The seller will be liable within 2 years of the date of delivery. With second-hand goods, a shorter
period may be agreed but never less than one year following delivery.
After a defect appears, you have a 3 years limit to apply.
Art. 123(1). Before 6 months, it is presumed that the lack of conformity existed at the time of
delivery, so it is the seller who needs to prove conformity. After 6 months, it is the consumer who
needs to prove the lack of conformity.
Remedies for breach (lack of conformity): 1st repair or replacement, 2nd Reduction of price or
termination (not with a minor breach).
What about damages? It is not covered in sales or consumer protection law, so you’d have to go the
general civil code.
Sequencing the remedies for breach:
- First, the consumer chooses to ask for a free repair or replacement (the seller may refuse if it is
disproportionate).
- If a repair or replacement is not possible, or the seller hasn’t completed a remedy within a
reasonable time or has caused significant inconvenience, the consumer is entitled to a price
reduction or termination (in theory, he can choose). However, termination is only possible if
the defect was major.

CHAPTER 3: PROPERTY LAW

The Constitutional Concept of Ownership
Art. 33(1): Spanish Const. Recognizes right to private property together with right to
inheritance. Plus, it sets a legal reserve. (2) right of property is compulsory with social
function. It means that this right is intended to achieve goals that benefit the society as a
whole. (3) expropriation guarantee.
Acquisition of Property: occupation, law, gift, contracts, etc.
Art. 609: Title plus modus. (Title: paper that entitles this guy to acquire. Modus: traditio,
delivery.). Only with a contract you’re not owner.
What happens if goods are sold twice? Movable goods: property assigned to whom firstly
took the good in good faith. Immovable goods: Property assigned to whom firstly registered
ownership in Land Register. Exception: acquisitions a non-domino (seller delivers good
before purchasing it from 3rd party).
CISG imposes obligation to the seller of transferring/delivering good to buyer. Spanish Civil
Code doesn’t impose that expressly.
Limitations to Property Right
- Restrictions to owner’s faculty of disposition: limitation not to transfer/sell the good.
- Restrictions to enjoyment of real state: 1. Nuisances: law prohibits harmful nuisances.
2. Servitudes:
Protection of Property Right
- Interdictos: possessory actions aimed at restoring the situation to what it was.
- Actio Reivindicatoria: this action allows the non-possessing owner to recover his
property if a 3rd party possesses it unlawfully.
- Action to a quiet title: its function is obtaining acknowledgment of ownership when 3 rd
parties deny it or attribute it to themselves.
- Actio negatoria: its purpose is preventing trespass on land.
- Terceria de dominio: it pursues abatement of goods ordered while action for debt and
property which doesn’t belong to debtor is taken against. One person threatens my
goods which currently belong to another party.
- Action to “deslinde”: owner is able to hedge his property as well as to define its
boundaries. Put limits.
th
5 book of catalan CC applies for almost all property issues.
Owner’s Community: When 2 people hold the same title. General solution is “La
comunitat en proindivís”.The Law neglects the existence of communities on property
rights.
- Special Community (I): Horizontal PropertyA materially indivisible object (e.g.
building) is jointly administered and legally divided into different premises whose use
might be excluded from third parties (“elements privatius”). Key element: quota, which
is determined by size, etc. Other public elements are indispensable for owners to enjoy
their respective private goods (“elements comuns”).
- Special Community (II): TimesharingBuyers have the right to occupy the
accommodation in turns. This may affect real estate, ships, non-commercial aircrafts
and other chattels.
3.1.5. Limited rights on goods: Curtailed rights, either movable or immovable. Limited
right is held by someone else different from the owner of the good, by the force of law,
by will or by a contract between owner and limited user.
- Limited Real Rights for Enjoyment (so-called usufruct): right to enjoy alien property.
Right of overhang (“dret de vol”): person with the right can construct on top
(overhang) of an existing building, always in accordance with the urbanistic law.
- Limited Real Rights for Guarantee: Pledge (“panyora”) real security over movables
by transferring possession of property to creditor or third party. Right of retention: a
party can refuse giving back a good to its debtor until he pays what he owes.
- Limited Real Rights for Preferential Acquisition: Right of call option faculty that
owner gives to another party to acquire his good, paying agreed price. It is
indispensable the inscription to Land Register to assure opposability to third parties.
Right of pre-emption (“tanteo”) this right entitles its holder to acquire the charged
property before any other party, paying the price that this third party would have paid.
Right of redemption opposite way, having this right, you can void an existing
contract of transferring a good between two parties in order to become the owner of
that good.
3.1.6. Land Register
- Purpose: Its aim is registration of acts and contracts related to ownership and real
property rights in land. With it, potential buyer of real estate can get information about
legal background of the immovable property. It is public and structured around
principles.
Some principal consequences: Principle of legitimationholder of registered property
can act more easily in the market. Principle of protectionthe holder of the title gets
protection in front of third parties.
 CHAPTER 3.2 INTELLECTUAL PROPERTY
3.2.1. Foreword: Acknowledgment and Protection of Innovations
IP law is the area concerned with recognition and protection of private rights in respect
to authorial works (Copyright). Subject matters: Patents, Trademarks, Copyright, Data.
CopyrightIP holder has right to publish for life of author +70years. Exc.: education.
Patent lawInventions, IP holder uses, supplies it for 20 years at most. Exc.: research.
Trademark lawappearance in the market, use in trade indefinitely except for product
designs (3 or 25 years). Exc.: non-commercial purposes.
3.2.2. Copyright Law
It is the IP that charges on products on mind, e.g. literary, artistic or scientific works.
CC says almost nothing about the matter, it refers to a specific act which is the basis in
Spanish Copyright Law.
What is protected is the formal expression of the idea you have, not only in your mind.
Works are the core regulated, but there might be others such as personal and business
performances.
- Acquisition Registration is not needed, different from Patent Law.
- It might be one author or more than one. In this case, the work can be in collaboration
(all members same right), Collective Work (under instructions of one leader) or
Compound Work (new work that incorporates pre-existing work).
- Exploitation is not allowed with copyright. The author has 7 moral rights (cannot be
transmitted: divulgation, modification, regret, etc.), and some economic rights
(reproduction, distribution, communication, alteration; authorisation must be given,
otherwise compensation). Performers have the same Moral and Economic Rights but
limited in their scope. Businesses do not have Moral Rights but Economic ones.
- Limits: A) Temporalwhen IP expires, work enters into public domain. 70 years from
next 1st January. B) Materialmandatory nature.
- Transmission: they cannot be sold, only cession.
- SGAE: authorized association that collectively administrates copyrights.
3.2.3. Industrial Property
It is the IP charging intangible assets like inventions (patents) or distinctive business signs
(trademarks), linked to commercial law.
a) Trademarks: any graphical sign used to distinguish the goods of one company. They
can be names, graphics, a combination of both, Three-dimensional, sounds, etc.
- TM must be registered. There is an exception: “Notorious Signs”, which are
unregistered signs that are well-known in the market (huge companies).
- Any registration must be carried out in Good Faith. Otherwise, registration is void.
There are several prohibitions, such as signs that are not distinctive in nature or those
ones previously registered or lead to confusion.
- Natural persons and legal entities of Spanish nationality can be a TM holder. Exclusive
right of use, transfer, etc. Obligation to effectively use the trademark in the Spanish
market.
- Infringement: reliance damages (tort)
b) Tradenames: they identify a natural person or legal entity, not products or goods.
Same legislation as TM. Using TN to distinguish goods to the detriments of a
previously registered TM could be considered infringement or unfair competition.
 c) Shops and Business Signs: they are left out from TM Law. They are signs or names
used to make a business known to the public and to distinguish it from others.
d) Inventions/Patents: exclusive right granted for a new way of doing something. They
provide incentives to individuals.
- Requirements: novelty, inventive, industrial use, (+).
- Various inventors: right to the inventor whose application first reaches the Spanish
Patents and Trademarks Office.
- Right to patent offers protection for 20 years before entering to public domain.
e) Utility Models: “soft patent”, alterations which lead to significant improvement in its
use or manufacture. 10 years of protection.
f) Industrial Design: btw Copyright and Industrial Property, they cover aesthetic
aspects of Art. To make sth appealing, adding commercial value. Patents and Utility
Models protect technical innovations aimed to solve functional problems, whereas
Industrial Design only covers the external appearance of a product.

CHAPTER 4: COMPANY LAW

4.1.1. Constellation
- Non-for-Profit Organizations: they can be either foundations or associations.
- Mutual Organizations: aimed at satisfying interests of company and its members, such
as cooperatives, mutual insurance companies or reciprocal guarantee companies.
Forms of business Enterprise
- Non-limited liability: Partnership, General Partnership, Unión Temporal de Empresas.
- Limited Liability Forms: Corporation (S.A.) only ones at stock market. Limited Liability
Company (S.L.)
Special companies like Professional Services Firms (workers are professionals of
the field).
European Law: Societas Europea (offer to companies to create a single company
that operates in several MS with same legislation).
Shared Activities: Joint ventures (both companies create common project).
Changing the form of the company must follow a formal procedure.
Main Features of a Company
1. Constitutional Protection of the right to associate.
2. Basic definition: Civil partnership follows contract law. Commercial Code for General
Partnership. Corporate law (LSC, particular Act) for SA and SL. Civil Code: A company is a
contract (except from Sole-shareholder companies). Requisites of contracts are consent,
object and cause. Registration is required for mercantile companies, not for all.
3. Civil or Commercial Activities. Civil company is the simplest form and can become
another type upon it. The simplest commercial company is General Partnership and also
can become another type upon it. To differentiate both forms: at the moment you
choose one of the special forms you become commercial.
4. Legal Personality (so-called external dimension). It means that the company acts by itself
inside the market. Do all companies have legal entity? NO. The ones that the contracting
parties at the beginning didn’t want to give a legal entity to the company. How to know
it? Commercial Code grants legal entity when registration in Mercantile Register.
(Exception: General Partnerships).
4.1.2. In particular, Commercial Companies
Classification of Commercial Companies according to liability
 - Partnerships: personal and unlimited liability.
- Capital companies: neither personal nor unlimited.
Main difference btw special ones and general partnership: special ones have
limited liability; general partnership ones have unlimited.

4.2. CORPORATE LAW

4.2.1. Constellation
S.A. and S.L. have legal entity because of the register, legal entity meaning that it takes
part in the market as a collective (company) with limited liability.
When there is partnership (instead of capital/shareholders) there is unlimited liability.
Legal entity for civil partnership depends. If the partnership presents itself as a company
to the market, it has so.
Since the moment you register the company, you have legal entity. Not all commercial
forms of company have limited liability, but all of them have legal entity by operation of
law.
Capital companies (corporate) are: S.A. and S.L. (also some commercial partnership but
forget about it).
4.2.2.Two types of Corporations (S.A. & S.L.)
Joint stock corporation (S.A.)
 Shareholder liability limited to amount contributed (shares).
 Min. capital: €60.000 fully subscribed and at least 25% paid at the moment of
registration.
 Non-voting shares also exist, and their holders are entitled to receive minimum
annual dividends.

Limited liability companies (S.L.)

 Partner liability limited to investment in company’s equity.
 Min. capital: €3.000 fully subscribed and paid at the moment of registration.
 Transferability is restrictedclosed.
Common features between capital companies
 Applicable legislation: RDL 1/2010
 The company has its own legal entity upon registration.
 Exceptions to limited liability when fraud.
4.2.3. Creating a Corporate. By-Laws.
1. Creating a corporation: after having contributed the min. capital, shareholders must
appear before a notary to execute the public deed of formation of a corporation. The deed
of formation must have by-laws and must be registered at the Commercial Registry. Upon
registration, company acquires legal entity.
2. Mandatory content of corporations’ by-laws: corporate name, corporate purpose with
the general framework (if company changes completely, shareholders can withdraw from
it), registered office which must be in Spain, capital stock and number of shares, and
managing body which includes all matters concerning the company’s management.
4.2.4. Life in a Corporate
- Agency problemplaying with others’ money. Equilibrium btw ownership and
management.
a) Business’ owners: Shareholders
- No minimum shareholders. It could be a sole shareholder (S.A.U. or S.L.U.). It has to be
registered and it has special requirements. If 6 months later it hasn’t been registered yet,
the sole shareholder has unlimited liability for that period of non-registering.
- The shareholders’ meeting is the supreme governing body of a company. Types:
 Depending on calling
- Called Shareholders’ Meeting: the meeting is called by the members of the
management body at any convenient time for the corporate’s interest.
- Universal Shareholders’ Meeting: when it hasn’t been called, every shareholder is
present and it is unanimously agreed that the meeting constitutes a universal one with
agreed agenda.

 Depending on agenda
- Ordinary Shareholders’ Meeting: to be held during the first six months of each financial
year in order to approve the annual accounts, distribution of profits and company’s
management.
- Extraordinary Shareholders’ Meeting: any meeting not ordinary.
b) Business’ Administration: Managing Body
- In charge of day-to-day decisions of the company. It represents the company. Different
structures such as Sole Director, Joint Directors, Joint and Several Directors (full power to
act separately), or Board of Directors (Managing Director or Executive Committee).
- Directors have 2 main dutiesto act diligently and to be loyal to the company’s interests.
And several obligationsDiligent management, Loyalty, Prohibition to use the company’s
name to perform personal tasks, to take advantage of business opportunities when it was
known as a consequence of his condition as such, and to compete (carrying out identical
activity but with his name or on behalf of a 3rd party), Duty to notify conflict of interest, and
Secrecy.
Liability of Directorsthey’re liable to the company, its shareholders and its creditors, for
damages caused by acts that are illegal. In such cases, all directors are jointly liable, but they
can be released from liability if they prove they were unaware of the harmful act, or they
did everything possible to mitigate it or were expressly opposed.
4.2.5. Differences between SA and SL Corporations
4.2.6. Subsidiaries (“filiales”) vs. Branches (“sucursales”)

4.2.7. Structural Changes in Companies

Change that affects company’s ownership or personality. LME Act applies to all kind of
companies, either partnership or corporations.
2. Merger2 or more registered companies unite to form a single one.
3. Transformationadoption of a company form while preserving legal entity.
4. Divestment and Segregation Total divestment: dissolution of a company and division
of its equity into 2 or more parts, each of which is transferred to newly formed companies
or acquired by existing companies. Partial divestment: transfer one or several parts of a
company’s equity to one or several newly formed or existing companies. Segregation:
transfer of one or several parts of a company’s equity to one or several companies, in return
the divested company receives shares or stake.
5. Total Assignment of Assets and Liabilities LME Act allows a registered company to
transfer all its equity to one or several partners or third parties and get in exchange a
compensation that may not consist of shares.
6. International Relocation of Registered Office It isn’t a structural change but it was
included in the LME Act because it is of the utmost importance for the applicable Company
Law.
CHAPTER 5: BANKRUPTCY LAW
5.1. Insolvency (Bankruptcy) Law
Several creditors for one common debtor who has not enough assets to pay the whole
passive, thus the law establishes particular proceedings. It isn’t only for commercial
companies; it also applies for natural people (individuals). Act 22/2003 on Insolvency Law.
Opening of the insolvency proceeding within 2 months of having known his state of
insolvency. The proceeding has 2 main goals: satisfying the creditors and keeping the
business alive.
5.2. Pre-insolvency Proceedings (out of Court)
Judicial insolvency proceedings have many drawbacks: expensive, time consuming and
courts’ collapse. Hence, there are 2 out-of-court insolvency proceedings:
1. Refinancing Composition: common debtor negotiates the fulfilment of liabilities with
conversion of debt into shares, a moratorium, etc. If refinancing is signed by
creditors representing 51% of liabilities, composition is judicially homologated.
2. Out-of-Court Payment Composition: common debtor offers an aggregated solution
for all creditors. It must be negotiated and accepted by creditors, otherwise if debtor
is already in state of insolvency the judicial proceeding will be opened. If debtor
breaches the payment agreement, insolvency practitioner must file the
corresponding insolvency proceeding.
5.3. Insolvency Proceedings (in Court)
1. Requirements of Insolvency Proceeding
- Subjective: applicable to any debtor regardless it’s an entrepreneur or not, and it also
affects inheritance but it’s not opened for public law entities.
- Objective: There must be a common debtor.
-Procedural: Mercantile Courts decide on insolvency, but Civil First Courts are competent in
case of natural person not entrepreneur.
2. Two types of Insolvency proceedings
- Voluntary: requested by debtor himself.
- Compulsory: requested by non-paid creditors.
3. Effects of Insolvency proceeding.
- On the common debtor: if voluntary, he preserves managing powers, but if compulsory he
doesn’t.
- On the creditors: integration in aggregate liabilities.
- On debtor’s contracts: insolvency proceedings should not affect the validity of contracts,
except for rescission when requested if insolvency practitioners deem it convenient to the
interest of insolvency proceedings.
- On Detrimental Acts to the Aggregate Assets: once insolvency proceedings are opened,
detrimental acts to aggregate assets performed by debtor within 2 years prior to the date of
declaration may be revoked, even though they may not have had a fraudulent intention.
4. Composition Agreement or Winding-up Phase
Insolvency proceedings lead to one of these two solutions:
 - Phase of Composition Agreement: votes required to accept an agreement depend on
its content, the more severe for creditors, the higher the % of votes required.
- Phase of Winding-up: if no proposal of composition agreement or none of the
proposed is accepted or it is breached, proceedings go to the liquidation (winding-up).
5. Classification Phase
- Tortious: when insolvency involves malicious intent or gross negligence by debtor.
6. Conclusion
Specialties of conclusion due to insufficient aggregate assets.