SPECIAL COMMERCIAL

LAWS

MERCHANTS AND COMMERCIAL

TRANSACTIONS
 COMMERCIAL LAW
• is that branch of law relating to the rules that govern the rights, obligations and relations of
persons engaged in commerce or trade.

• It is that branch of private law which regulates the juridical relations arising from commercial
acts and according to which, the questions and controversies arising therefrom are resolved.

• Law Merchant is the commercial law consisting of customs, practices, and usages given the force
and effect of law by the courts through judicial pronouncements. It is the common law of
commercial law.
 PRINCIPAL CHARACTERISTICS OF
COMMERCIAL LAW
• universal because it exists in every civilized society as trade is
necessary
• progressive as it accumulates new ideas and keeps abreast with
contemporary developments, and
• equitable since commercial transactions involve the exchange of
values or consideration.
 MERCHANTS, DEFINED
• Merchants are, those who having legal capacity to engage in commerce, habitually devote
themselves thereto.

• By definition, only individuals may be merchants, but it must be noted that foreigners and
companies created abroad may engage in commerce in the Philippines, subject to the law of their
country with regard to capacity to contract, and to the provisions of the Code of Commerce as
regards creation of the their establishments in the Philippines (Article 15, Code of Commerce),
which provision shall be without prejudice to what, in particular cases, may be established by
treaties or agreements with other countries. Hence, it should necessarily follow that corporations
engaged for business and partnerships are merchants from the time they are incorporated or
formed.
 LEGAL CAPACITY OF A MERCHANT

• Being an individual: (a) Must be 18 years of age and (b) having free disposal of
property

• As far as an alien is concerned, his legal capacity is determined by his national

law but is limited by the nature of the industry that he would like to participate in
and Philippine Law that will govern the: (a) creation of the establishment (b)
mercantile operations, and (c) jurisdiction of our courts or the provisions of any
treaty obtaining between the Philippines and the country of which he is a national
(Article 15, Code of Commerce).
•Being a juridical person, it is required that it be organized in
accordance with law. If it is a foreign juridical person, it
must obtain a license to transact business in the Philippines
and is subject to the same limitations imposed on individual
aliens.
 THE FOLLOWING CANNOT ENGAGE IN COMMERCE NOR HOLD OFFICE
OR HAVE ANY DIRECT, ADMINISTRATIVE, OR FINANCIAL
INTERVENTION IN COMMERCIAL OR INDUSTRIAL COMPANIES:

(a) Persons sentenced to the penalty of civil interdiction, while they have not served their
sentence or have not been amnestied or pardoned

(b)Persons who have been declared bankrupts, while they have not obtained their
discharge, or been authorized by virtue of an agreement accepted at a general meeting of
creditors and approved by judicial authority, to continue at the head of their
establishments; the discharge being considered in such cases is limited to that expressed in
the agreement; and
(c) Persons who, on account of laws or special provisions, may not engage in commerce
(Article 13, Code of Commerce)

Further, the following cannot engage in the commerce, either in person or by proxy, nor
can they hold any office or have any direct, administrative, or financial intervention in
commercial or industrial companies, within the limits of the districts, provinces or towns
in which they discharge their duties:

(a)Justice of the Supreme Court, judges and officials of the department of public
prosecutors in active service.
 • Note further, the current prohibitions as appearing in the Constitution as to

(a) Members of the Senate and the House of Representatives (Section 14, Article VI)
(b) President, Vice-President, Members of the Cabinet, their deputies or assistants (Section 13,
Article VII)
(c) Members of Constitutional Commissions ( Section 2, Article IX), the Revised Administrative
Code, as to municipal officers (Section 2176), the Anti Graft and Corrupt Practices Act, as to
public officers (Section 3 (h), RA 3019), Civil Service Rules and Regulations, as to public
officers and employees (Rule XIII (5), CSC)
• Distinguishing between absolute and relative incapacity,
the former extends over all Philippines and the act is void, while in the latter, it is
only co-extensive with the place wherein the officer incapacitated exercises
functions and the act is valid but there is a disciplinary sanction.

Acts of persons who are incapacited are generally voidable as they are unable to
give effective consent ( Article 1390, Civil Code)
• The legal presumption of habitually engaging in commerce shall exist
from the moment the person who intends to engage therein
announces through circulars, newspapers, handbills, posters exhibited
to the public, or in any other manner whatsoever, an establishment
which has for its object some commercial operation (Article 3, Code
of Commerce)
 • The applicable laws to commercial transactions in hierarchical order are:
(a) Code of Commerce
(b) Commercial Customs, and
(c) Civil Code.

The listed laws shall apply to the requisites, modifications, exceptions,

interpretations, extinction of commercial contracts and to the capacity of the
contracting parties (Articles 2 and 50, Code of Commerce)
 THE RULES TO BE OBSERVED IN RESPECT TO
COMMERCIAL CONTRACTS ARE:

• As to formalities- commercial contracts shall be valid and shall give rise to obligations
and causes of action in suits, whatever the form and language in which they may be
executed, the class to which they may belong, and the amount they may involve,
provided their existence is shown by any means established by the civil law.

• However, the testimony of witness alone shall not be sufficient to prove the existence of
a contract which involves an amount exceeding 1,500 pesetas unless supported by some
other evidence (Article 51, Code of Commerce).
 THE EXCEPTIONS TO THE RULE ON FORMALITIES ARE:
(a) Contracts which, in accordance with this Code or with special laws, must be reduced
to writing or require forms or formalities necessary for their efficacy. Examples:
Bottomry or Respondentia

(b) Contracts executed in a foreign country in which the law requires certain instruments,
forms or formalities for their validity, although Philippine law does not require them.
In either case, contracts which do not satisfy the circumstances respectively required
shall not give rise to obligations or causes of action (Article 52, Code of Commerce)
• Illicit agreements do not give rise to obligations or causes of action even if they
should refer to a commercial transaction (Article 53, Code of Commerce).

• Contracts entered into by correspondence shall be perfected from the moment an

answer is made accepting the offer or the conditions by which the latter may be
modified (Article 54, Code of Commerce).
 IN INTERPRETING COMMERCIAL CONTRACTS, THE
FOLLOWING RULES SHALL BE OBSERVED:

• Commercial contracts shall be executed and complied with in good faith

according to the terms in which they were made and drafted, without evading the
honest, proper and usual meaning of written or spoken words with arbitrary
interpretations, nor limiting the effects which are naturally derived from the
manner in which the contracting parties may have explained their wishes and
contracted their obligations (Article 57, Code of Commerce).
• In case of conflict between copies of the contract, and an agent
should have intervened in its negotiation, that which appears in the
agent’s book shall prevail (Article 58, Code of Commerce)

• In case of a doubt, and the rules enunciated cannot resolve the

conflict, issues shall be decided in favor of the debtor (Article 59,
Code of Commerce)
• In commercial contracts, time generally is of the essence.
Consequently, every debtor would be in delay without making a
demand. When compared to the Civil Code, the general rule is the
mere non-compliance at the designated time or period would not
constitute default, even if a date has been fixed for the performance
of an obligation. Thus, demand is necessary.
 The rules on computing periods in commercial contracts are:
(a) In all computations of days, months and years, it shall be understood that a day has twenty-four
hours, the months as designated in the Gregorian calendar, and the year has three hundred
sixty-five days (Article 60, Code of Commerce). Note that under Article 13 of the Civil Code, a
month is 30 days, unless designated by name

(b) Days of grace, courtesy or others which under any name whatsoever defer the fulfillment of
commercial obligations, shall not be recognized, except those which the parties may have
previously fixed in contract or which are based on a definite provision of law (Article 61, Code
of Commerce). Example is the grace period provided for by Section 230 of the Insurance Code
 A DEBTOR IN A COMMERCIAL CONTRACT SHALL BE DETERMINED
TO BE IN DELAY WHEN:
(a) On the eleventh day, in obligations which do not have a period previously fixed by the parties
or by the provisions of this Code, as they are demandable ten days after having been contracted
if they give rise only to an ordinary action, or on the day following the next day if they involve
immediate execution (Article 62, Code of Commerce)

(b) in contracts with a day fixed for their compliance by the will of the parties or by law, on the
day following their maturity or in contracts in which no such day is fixed, from the day on
which the creditor legally makes demand upon the debtor or notifies him of the protest of
losses and damages made against him before a justice, notary or other public official authorized
to admit the same.
 IN SUMMARY:
(a) If period of performance fixed, next day in delay without need of demand,
debtor in delay on the day following the day fixed;
(b) If no period fixed, ten (10) days from execution of contract and on eleventh
day, debtor is in delay without need of demand
(c) If there is a Potestative period, the debtor is in delay from demand. Note
period, as “when the debtor desires” (Article 1182, Civil Code) not condition
as “if the debtor desires” (Article 1180), as the latter is a void obligation.