San Beda College of Law

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M EMORY A ID IN C OMMERCIAL L AW

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intercourse) and/or the juridical C. New Civil Code (repealed certain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)

C OMMERCIAL L AW C OMMITTEE
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

i. Of legal age (18 years) 4. Members of Congress (Art. VI,

ii. Has free disposition of Sec. 14, 1987 Constitution)
property 5. President, Vice President,
b. Habitually engaged in members of Cabinet and their
commerce (habituality) deputies or assistants (Art. VII,
2. Juridical person Sec. 13, 1987 Constitution)
 Qualifications: 6. Members of Constitutional
a. Industrial or commercial Commission (Art. IX, Sec. 2 1987
company Constitution)
b. Organized in accordance 7. President, Vice-President,
with existing legislation Members of the Cabinet,
Congress, Supreme Court and the
Habituality Constitutional Commission,
1. Series of acts: Ombudsman with respect to any
 The repetition and continuation of loan, guaranty, or other form of
commercial acts in such manner that financial accommodation for any
they are related to each other by reason business purpose by any
of the commercial purpose or end which government-owned or controlled
they tend to have, which is, the bank to them (Art. XI, Sec. 16,
exchange or circulation of products. 1987 Constitution)
2. Single act:
 Act which manifests the intention to ABSOLUTE RELATIVE
engage habitually in commerce. INCAPACITY INCAPACITY
 Examples: Throwing open to the Extends through out Extends only to
public a shop or establishment; public the Philippines the territory
announcement; etc. where the
 Presumption of habituality officer is
Exists from the moment a person who exercising his
functions
intends to engage in commerce
Effect of act is null and Effect is to
announces through circulars, 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 C ENTRALIZED B AR O PERATIONS E XECUTIVE C OMMITTEE AND S UBJECT C HAIRPERSONS
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

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M EMORY A ID IN C OMMERCIAL L AW

2. An office established for the EXCEPTION: When the Code of

purpose of copying and recording Commerce requires specific forms, such
verbatim certain classes of documents of as charter parties and loans on bottomry
commercial nature. and respondentia.
 Exact moment of perfection:
REQUIRED BOOKS OF MERCHANTS GENERAL RULE: All contracts, whether
1. Under the Code of Commerce civil or commercial, are perfected from
a. Book of inventories and balances the moment the offeror has notice of the
b. Journal offeree’s acceptance. (Cognition theory;
c. Ledger Art. 1319, Civil Code)
d. Books for copies of letters and EXCEPTION: Under Article 54 of the
telegrams Code of Commerce, commercial
2. Under special laws; e.g. stock and contracts entered into by
transfer book under the Corporation correspondence are perfected from the
Code moment an answer is made accepting
3. Under the National Internal Revenue the offer or the conditions by which the
Code latter may be modified. (Manifestation
theory)
COMMERCIAL CONTRACTS However, Justice Vitug believes
 Those entered into by merchants in that Article 54 is applicable only to
the pursuit of their activities as such contracts still specifically governed by
merchants, those involving articles of the Code of Commerce. (Pandect of
commerce, or those defined as such Commercial Law and Jurisprudence,
contract by certain special commercial 1997 ed.)
laws.
 An agreement between two or more JOINT ACCOUNT (cuentas en
merchants or non-merchants binding participacion)
themselves to give or to do something in  A business arrangement of merchants
commercial transactions. (Del Viso 88 where other merchants agree to
cited in Miravite’s Bar Review Materials contribute the amount of capital agreed
in Commercial Law) upon, and participating in the favorable
 Governing Laws: or unfavorable results thereof in the
1. Code of Commerce - primary proportion they may determine. (Art.
2. Civil Code - suppletory (Art. 18, Civil 239)
Code)
 But in case of inconsistency, the JOINT ACCOUNT PARTNERSHIP
latter prevails except as to contracts No firm name Has a firm name
explicitly governed by the former such as No common fund Has common fund
bottomry and respondentia. No juridical Has juridical
 Formalities: personality personality
GENERAL RULE: Need not be in any Only ostensible All general
particular form partner liable to third partners liable to
EXCEPTIONS: persons third persons
Only ostensible All general
1. Contracts required by the Code
partner manages partners manage
or special laws to be in writing
Liquidation done by Liquidation
or in a certain form. ostensible partner entrusted to any
2. Foreign contracts executed partner/s
abroad, required by foreign law
to be in a particular form. LETTER OF CREDIT (LC)
 Perfection:  That issued by one merchant to
GENERAL RULE: Commercial contracts another for the purpose of attending to a
are consensual as to perfection. commercial transaction. (Art. 567)

C OMMERCIAL L AW C OMMITTEE
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

 An instrument issued by a bank on seller upon receipt of the draft and

behalf of one of its customers, proper documents of title from the seller
authorizing an individual or a firm to and to surrender them to the buyer upon
draw drafts on the bank or one of its reimbursement; and
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 LC, if such draft is to be drawn on the
conditions is not present, the opening bank or on another designated
instrument is merely considered as a bank not in the city of the beneficiary.
letter of 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
2005 C ENTRALIZED B AR O PERATIONS E XECUTIVE C OMMITTEE AND S UBJECT C HAIRPERSONS
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

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M EMORY A ID IN C OMMERCIAL L AW

 There are at least 3 distinct and and conditions of the

independent contracts involved in a LC: credit are complied
1. Contract of sale between the with.
buyer and the seller The correspondent The issuing bank may
bank gives an not without the
2. Contract of the buyer with the
absolute assurance to consent of the
issuing bank the beneficiary that beneficiary (seller)
3. LC proper in which the bank it will undertake the and the applicant
promises to pay the seller issuing bank’s (buyer) revoke his
pursuant to the terms and obligation as its own understanding under
conditions stated therein (with a according to the the LC.
pour autrui stipulation in favor terms and conditions
of the seller). of the credit.
 Other contracts may be involved
especially where the additional parties OTHER KINDS OF LC
are present. REVOLVING BACK-TO- STANDBY LC
LC BACK LC
Independence principle A credit that A credit A security
 The 3 basic contracts are distinct and provides for with arrangement
independent, and the undertakings of renewed identical for the
the respective parties in each are credit to documen- performance
neither subject to claims and defenses become tary require- of certain
nor affected by the breach in the others. available as ments and obligations.
soon as the covering the It can be
Rule of strict compliance opening bank same drawn
 It espouses that the documents has advised merchandise against only
tendered by the seller/beneficiary must the paying as another if another
strictly conform to the terms of the LC, bank that the LC, except business
i.e. they must include all the documents drafts already for a transaction
required by the LC. (Feati Bank vs. CA) drawn by the difference is permitted.
beneficiary in the price.
Kinds of LC (Notes and Cases on Banks, have been
Negotiable Instruments and other reimbursed to
Commercial Documents, Timoteo B. the opening
Aquino) bank by the
buyer.
CONFIRMED LC IRREVOCABLE LC
A LC issued by one A definite Governing law
bank confirmed by undertaking on the 1. Code of Commerce
another, in which part of the issuing 2. Uniform Customs and Practice
case both banks are bank and constitutes for Documentary Credits
obligated to honor the engagement of
drafts drawn in that bank to the
NOTE: The Uniform Commercial Practice
compliance with the beneficiary and bona
credit. fide holders of drafts for Documentary Credits allow Letters of
drawn and or Credit to be payable to order.
documents presented
thereunder, that the
provisions for
payment, acceptance
or negotiation
contained in the
credit will be duly
fulfilled, provided
that all the terms

C OMMERCIAL L AW C OMMITTEE
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)