LESSON 1: LAW AND LEGAL SOURCES OF BUSINESS LAW

• Definition of Business Law

• The importance of the constitution
• The sources of business law
• Types of sources: law, commercial costumes, general principles
• Production of business law
• In Spain
• In EU
• Internationalization of Business Law
• The enforcement of Business Law in Spain

1. DEFINITION OF BUSINESS LAW

Private Law Public Law

Civil Law Administrative Law

Commercial/ Criminal Law

Business Law

Procedimental Law

Tax Law

Business Law is part of private law, the part of the legal system that involves
relationships between individuals. It is also “special law” by contrast with general law or
civil law. It is the successor of the Law Merchant

Its content has been variable along the different periods of the history, though it has
always been linked to commerce, industry or services and commercial transactions. We can
say that Business Law (often called commercial law) is the branch of law that deals with the
rules and institutions of commercial transactions. But there is more: not only commercial
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transactions are covered but also the subjects and the organization of those people doing
commercial transactions and their professional organization.
The origin of Business Law or Mercantile Law was in the Middle Ages when merchants
needed for their trades special rules as the civil law was not responsive enough to the growing demands
of commerce and there was a need for quick and effective jurisdiction, administered by specialised
courts. Merchants gave themselves a body of rules la to regulate their dealing. It consisted of usages
and customs common to merchants and traders in Europe, with slightly local differences. The guiding
spirit of the merchant law was that it ought to evolve from commercial practice, respond to the needs
of the merchants, and be comprehensible and acceptable to the merchants who submitted to it.
Merchants gathered their customs and usages in books such as “Libro del Consulado del mar”
or “Las Ordenanzas de Bilbao”. These books were just a collection of their customs. They were not
legislation as we understand today.
In a second stage the mediaeval lex mercatoria was incorporated into the national systems of
law in the seventieth to ninetieth century. In Spain most of the rules of the law merchant were included
in the Commercial Code 1829, which took them directly from the “Ordenanzas de Bilbao”.

We can define it as the

 part of private law

 that deals with the professional relationships of the business owners with
other business owners or their clients
 in the market.

In another sense, it can be seen as the body of law that governs business and
commercial transactions.

It is private law because its rules are directed to regulate the relationships between
individuals. And it is special because the individuals affected by the business law can be
defined by special characteristics: they are businessmen acting as businessmen. They are
doing a professional activity and so they must be treated in contrast with civil law or general
law that has the scope of protecting individuals when they act as private persons in their
private –non-professional- sphere.

The term business is frequently used as if it were the subject of the law, but the real
subject is not the business but the person doing it, the natural or legal person acting in the
market: the business man or trader. We can say that centre of the business law is the business
man, the trader the person who organizes the business and is responsible for it, and carries
out the business in a view of profit and assumes the risks of the business. This person can be
a sole proprietor or holder, a partnership, a company or a cooperative.

Nevertheless we also have to take into account Consumers Law, which regulates
private relationship between individuals and the businesses that sell goods or services and
which protect the interests of consumers and recognizes consumer’s rights. The Spanish
Constitution establishes in art. 51.1 that public authorities shall guarantee the defence of
consumers and users, protecting their safety, health, and legitimate economic interests
through effective procedures.

2. THE IMPORTANCE OF THE CONSTITUTION

The business activity is developed in the market within the economic frame defined
by the Constitution. The Spanish Constitution establishes the principle of "Free enterprise
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within the framework of a market economy” and the public authorities guarantee and protect
its exercise and the defence of productivity in accordance with the demands of the general
economy, and as the case may be, in keeping with planning.

The part of the Constitution dealing with the basis of the market is known as the
Economic Constitution and it is of great importance in the Business Law. The main aspects
regulated in the Constitution are:

a) Businesses are free to establish themselves and act in the market to their convenience
and the private property right is recognized. However, art. 128(1) says that “All the
wealth of the country in its distinct form of its ownership is subordinated to the
general interest.
b) Together with the private initiative, public initiative in economic activity is
recognized. By law, essential resources or services, particularly in the case of
monopoly, can be reserved for the public sector and it may also declare the
intervention in companies when the general interest so requires (art. 128.2).
c) Public initiative should also be subordinated to the general interest. (art. 128.1)
Public initiative must be developed in consideration of its social functions.
d) The public authorities shall effectively promote the various forms of participation in
enterprise and facilitate cooperative enterprises by means of appropriate legislation.
They shall also establish the means that will facilitate access by the workers to
ownership of the means of production. (art. 129.1)
e) The State, by means of law, may plan the general economic activity to attend to
collective needs, balance and harmonize regional and sectorial development, and
stimulate the growth of income and wealth and their more equitable distribution (art.
131) but always encouraging private initiative.
f) To enforce the existence of a single market the State holds exclusive competence
over mercantile legislation without prejudice to the necessary specialties which in
this order may derive from the particularities of the substantive law of the
Autonomous Communities (art. 149.1.6º).
g) Consumer protection is a general principle of the Spanish legal system and should be
applied in regard of the economic framework established in art. 38 and 128 and
according to art. 139 that establishes the principles of equal rights and freedom of
movements of the Spanish people and free movement of goods.

3. THE SOURCES OF BUSINESS LAW

Sources of law are the materials and processes out of which law is developed. There
are two different meanings of sources of law. On one hand, sources of law are the bodies
where the law is laid down. On the other hand, sources of law can be understand as the
various ways in which law comes into existence.

In the first sense, art. Art. 1 CC (civil code) states that the sources of law are: legal
rule (ley), custom and the general principles of law. Legal rule (ley, reglamento) is written
legislation enacted by the Spanish Parliament or the the Regulations(reglamentos) of the
different administrative authorities

In the second, the authorities producing the legal rules or legislaion can be National
or Autonomous Communities. Howerver, the Spanish Constitution enables only the the
Spanish Parliament to adopt the legislation in Business Law. The Autonomous Communities
have only the power of promotion of the economic development of the Autonomous
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Community within the objectives marked by the national economic polity as well as the
development of the national legislation in those cases it has been included in their
Autonomous Statutes.

In other sense, we cannot forget that Spain is member of the European Community
and the EC legislation is an upper level in hierarchy.

Autonomous European
State
Communities Union

art.149.6
art. 148 Spanish
Spanish The Treaties
Constitution
Constitution

Promotion of local
Exclusive economy and Secondary
production developement of Legislation
national legislation

The sources of law are the same for Civil Law or Business Law. However, being the
business law a special part of private law thee are some specialities established in article 2
of the 1885 Commercial Code.

Los actos de comercio, sean o no comerciantes los que los ejecuten, y estén o no
especificados en este Código, se regirán por las disposiciones contenidas en él; en su
defecto, por los usos del comercio observados generalmente en cada plaza; y a falta de
ambas reglas, por las del Derecho común.

The sense of the article is such as to admit a closed system of sources of law that
have to be applied prior to the Civil Code. So, in the first place we have to apply the
Commercial Code and in the second place the usages or customs of the businesses, and only
in a third place have we to apply the Civil Code or other general legislation.

However, we can find an important exception to this rule in art. 50 Commercial Code
that reads “Los contratos mercantiles, en todo lo relativo a sus requisitos, modificaciones,
excepciones, interpretación y extinción y a la capacidad de los contratantes, se regirán, en
todo lo que no se halle expresamente establecido en este Código o en las Leyes especiales,
por las reglas generales del Derecho común”.

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 General Sources of Commercial Sources
Law of Law
The Law The Commercial Law
Commercial Usages
Costums and Costums
Civil Law
General Principles General Principles

3.1 Commercial Code and Special legislation

The most important legal rule is the Commercial Code from 1885, successor of
1829 Code, still in use although it has been amended or changed in many occasions looking
for the solution of the new problems that have been arising with the evolution of the
economic development. At the present moment there are many special legislation that
completes the Code and that has the same legal importance. Some of them are: Ley de
Sociedades de Capital, Ley Cambiaria y del Cheque, Ley Concursal, Ley de Contrato de
Seguro, Competition Law, and many others that have been produced to substitute or to
complete the code in those parts that needed to be amended to attend the new circumstances
of the business organization and trading.

Commercial/
Civil Legislation
Business Legislation
Civil Code Commercial Code

Consumer Corporate Enterprise

Act Act

Structural Changes in
Trading Companies Act

Insolvency Act

Competition Act

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3.1 Usages and customs
Custom is the second source of law. Custom and practices originally constituted the
nuclear law of business. In its origin Commercial Law was a customary body of rules relating
to merchants and mercantile transactions and adopted by traders themselves for the purpose
of regulating their dealings. Most of these rules were later incorporated to the national
systems of law in the XVIII-XIX century. They were part of the law merchant and when
codified, many of the customs and practices where included in the codes. And even more,
the Commercial Code still recognizes the importance of the customs to regulate business.

To be considered as a real costume a usage or practice must fulfil the following

conditions: must have existed for a long period of time; it must have been exercised
continuously within that period in a peaceful way; it must have been felt to be obligatory.
There is no a duty for the Judges to know the customs that must be proved by the applicant.

Custom is the second source of business law. When there is no legal rule in the Code
or in the special legislation custom is to be applied. However, this rule has the important
exception laid in art. 50 of Cco, where it is said that in case of lack of regulation for the
mercantile contracts the Civil Code will be applied instead of custom.

4. THE EUROPEAN UNION

4.1 The institutions

The four governing institutions of the Community are the European Parliament, the
Council, the Commission and the Court of Justice.

The Council is the Community’s primary decision making body and its principal
legislator. The council is composed of ministers from the governments of the member states,
and it acts on proposals by the Commission

The Commission is the executive arm of the Community. The Commission is

empowered to apply its provisions and the regulations, directives and decisions made under
the Treaty by the institutions of the Community, to formulate recommendations and deliver
opinions on matters dealt with in the Treaty, itself to exercise powers of decision and to
propose measures to be taken by the Council and the European Parliament, and to exercise
other powers which the Council confers for the implementation of its rules. The Commission
is composed, of 30 members (Commissioners) nominated by the governments of the member
states and approved by the European Parliament.

The European Parliament is directly elected by voters in each member state. The
reforms introduced by the 1986 Single European Act and by the Treaty of the European
Union (the Maastricht Treaty) have increased the influence Parliament can exert on
legislation. The Parliament is empowered to participate in the process leading up to the
adoption of Community acts, by delivering advisors opinions or submitting appropriate
proposal and by exercising co-decision or co-operation powers. The European Parliament
may also hear petitions of any natural or legal person residing in a member state, and it has
appointed an Ombudsman empowered to receive complaints from any citizen of the
European Union.

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 The European Court of Justice is the final arbiter of legal disputes arising under
Community law. The Court of Justice is, as from May 2004, composed of 25 judges and
assisted by eight advocates general. It has three principal functions. First, the Court provides
judicial review over acts of the Council, the Commission and the European Parliament.
Second, it gives rulings on preliminary questions as to the interpretation of the Treaties or
Community legislation referred to it by courts of the member states. Third, or determines
whether a member state has infringed its obligations under5 the Treaties. Since November
1989, the Court of Justice has been assisted by a lower court called the Court of First
Instance. The Court of First Instance, with 25 judges, has jurisdiction in all actions brought
against the Commission by natural or legal persons.

4.2 EU law
4.2.1 The European Union Treaties
The European Community is based on three treaties: the 1951 European Coal and
Steel Community Treaty (ECSC Treaty), The 1957 European Economic Community Treaty
(EC Treaty) and the European Economic Community Energy Treaty (Euratom Treaty).
These three treaties are referred to as the Community Treaties.

The European Union was established by the Maastricht Treaty, which was signed in
Maastricht on February, 7, 1992 by the then twelve members of the European Community.
This European Union is based on three pillars: the existing EC treaties, a Common Foreign
and Security Policy (art. 11) and the Fields of Justice and Home Affairs (art. 29). The main
objective of the Maastricht Treaty is the strengthening of economic and social cohesion and
the establishment of economic and monetary union, including a single currency (art. 2 and
4).

The Amsterdam Treaty, signed in 1997, and entered into force on May 1, 1999,
consolidates the European Union; it strengthens the position of the Parliament and adds in
particular to the EU Treaty provisions on fundamental rights of citizens. The EC competition
rules remain unchanged. However, art. 12 of the Amsterdam Treaty provides for a
renumbering of the articles of the EC Treaty as amended by the Maastricht and the
Amsterdam Treaty.

The Nice treaty, signed in 2001 and entered into force on February 1, 2003, aims at
preparing the accession of ten European countries to the EU as of May 2004. It provides for
changes within the institutions during the enlargement process, a new distribution of seats
in the European Parliament, a change to the qualified majority system within the council, a
new composition of the Commission, major reforms to the Union’s legal system in order to
tackle the Court’s case overload and to introduce greater flexibility, and a preventive
instrument in the case of a serious and persistent breach of fundamental rights. The EC
competition rules remained unchanged.

The Treaty of Lisbon came into force 1 December 2009. It amended both the TEU
Treaty and de the ECTreaty. The EC was subsumed into the EU so that the European
Community ceased to exist. The amended EC Treaty was renamed the Treaty for the
Functioning of the European Union (TFEU).

4.2.2 The secondary sources of law:

The secondary sources of law comprise:

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 -Council Regulations based on a Council enabling regulation, which are binding in
their entirety and directly applicable in all member states,

-Directives of the Council, the Parliament or the Commission, which are binding, as
to the result to be achieved, upon each member state to which they are addressed,

-Commission guidelines and notices, which have no binding force, but do have a
certain self-binding effect on the Commission.

Regulations - are directly applicable and binding in all EU Member States without
the need for any national implementing legislation. They are of "general application", which
means that they are "binding in its entirety and directly applicable in all Member States."
Regulations must be published in the Official Journal of the EC. The decision wether or not
a law shoud be enacted in the form of Regulation or Directive is usually left to the
Commission, but there are areas where the EU Treaty requires that the regulation form must
be used: the regulation of the EU accounts and budgetary procedures; the rights of workers
to remain in member states of which they are not nationals.

Directives state general goals and leave the lprecise implementation in the
appropriate form to the individual Member State. They bind Member States as to the
objectives to be achieved within a certain time-limit while leaving the national authorities
the choice of form and means of achieving them. They have to be transposed into the national
legislation and implemented in accordance with the procedures of individual Member States.
They are "binding, as to the result to be achieved, upon each Member State to which it is
addressed, but shall leave to the national authorities the choice of form and methods."
Directives, however tend to state the means as well as the ends to which they are aimed and
in some cases they have direct effect.

Decisions - are in all respects binding for those to whom they are addressed without
the need for any national implementing legislation. They may be addressed to Member
States, companies or individuals. is "binding in its entirety upon those to whom it is
adressed."

The Commission may issue opinions in relation to the operation of community law.
They have no binding force, althoug thy may be taken into account in trying to clarify any
ambiguities in domestic law.

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 Directives Regulations Decisions

General goals to Direct effect for

be implemented Particular acts
citizens
by Member States

Binding for
Binding only for
everybody all
Not direct effect those to whom
over the EU from
for citizens they are
publication in OJ
addressed to
of EU
Binding for
citizens after
Member States
introduced in its
own legislation

4.2 EU law and business law

The list of tasks entrusted to the EU strongly resembles the constitutional order of a
state. These are not the narrowly circumscribed technical tasks commonly assumed by
international organisations, but fields of competence which, taken as a whole, form essential
attributes of statehood. The list of tasks entrusted to the EU is very wide-ranging, covering
economic, social and political action.

The economic tasks are centred around establishing a common market that unites the
national markets of the Member States and on which all goods and services can be offered
and sold on the same conditions as on an internal market and to which all Union citizens
have the same, free access.

The plan to create a common market has essentially been fulfilled through the
programme aimed at completion of the internal market by 1992, with the Union institutions
succeeding in laying down a legal framework for a properly functioning single market. This
framework has now been fleshed out very largely by national transposition measures, with
the result that the single market has already become a reality. This single market also makes
itself felt in everyday life, especially when travelling within the EU, where identity checks
at national borders have long since been discontinued. The internal market is backed up by
the economic and monetary union.

We can then understand that EU law is extremely important in respect to businesses

and to business law.

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 5. INTERNATIONALIZATION OF BUSINESS LAW.

It has always been of most interest to business to spread their field of action as much
and as far as they can. Even in the early days of Merchant the main interest of merchants
was to negotiate with merchants abroad their local space. And now, at our present time, with
the advent of market globalization and electronic commerce internationalization is a
common aspect of business. However, there are two questions we have to resolve.

a) Which is the law applicable?

b) How to resolve the disputes?

The law applicable comes from three sources: customs, domestic regulation and
international treaties. Customs bring with them the difficulty of proving their existence, this
fact making difficult their enforcement. However the International Chamber of Commerce
has made a collection of terns, generally in use, called Incoterms, a collection of essential
international commercial and trade terms. Incoterms do not possess legal status. Parties
should specifically refer to the Incoterms in the sale contract to indicate incorporation. When
incorporated into a sale contract, the term provides a detailed interpretation of rights and
obligations between parties.
Incoterms" is an abbreviation of International Commercial Terms, which were first published
in 1936 by the International Chamber of Commerce (ICC). The most recent publication is
INCOTERMS 2000. They define exactly the responsibilities and risks of both the buyer and seller
including while the merchandise is in transit.

Domestic Law has the difficulty that it may be very different from one state to another
and finding the law applicable may be uncertain and the more business increases between
companies in different nations the most the need for harmonization of commercial law has
become apparent. There are several institutions which purposes is to study the needs and
methods for modernising, harmonising and coordinating private international law and in
particular commercial law between states, and to draft international conventions to address
the needs. We can point out UNCITRAL or UNIDROIT. UNCITRAL (United Nations
Commission on International Trade Law) whose business is the modernization and
harmonization of rules on international business. The areas in which it has worked or is
working and the major results of that work are set are: International Commercial Arbitration
and Conciliation; International Sales of Goods and Related Transactions; Insolvency;
International Payments; International Transport of Goods; Electronic Commerce;
Procurement and Infrastructure Development. UNIDROIT (The International Institute for
the Unification of Private Law), is an independent intergovernmental organisation whose
purpose is to study needs and methods for modernizing and harmonizing and coordinating
private and in particular commercial law as between States and groups of States.

International Treaties, have to be implemented into national laws, which means a

change in the domestic law of a state party that will direct or enable it to fulfill treaty
obligations. International treaties are not binding until they do not form part of national
legislation.

Other problems emerge when merchants have to resolve the disputes arising from
private international commerce transaction. Disputes may be conducted through
international commercial mediation, litigation or arbitration. International litigation is

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difficult as merchants are reluctant to litigate in a foreign court due to unfamiliarity and
difficulties to enforce the foreign judgements. To overcome this, mediation or arbitration
may be use. Mediation is a privative dispute resolution pursuant to an agreement between
parties. International arbitration is a process, private process in which the arbitrators or
arbitral panel decide the dispute by the interpretation of the agreement. Institutional
arbitration is conducted through the International Court of Arbitration, an institution for the
resolution of international commercial disputes which governs the arbitral process through
a set of rules and administrative structures. The international Court of Arbitration is part of
the international Chamber of Commerce.

6. THE ENFORCEMENT OF BUSINESS LAW IN SPAIN

6.1 Court proceedings

Organic Law 6/1985, of July 1, regulates the constitution, operation and governance
of courts and tribunals in Spain. For judicial purposes, the State is organized on a territorial
basis into municipalities, judicial districts, provinces and Autonomous Communities, in
which the Justices of the Peace, the Courts of First Instance, Examining Courts, Commercial
Courts, Criminal Courts, Judicial Review Courts, Labor Courts, Provincial Appellate Courts
and High Courts have jurisdiction. The Supreme Court and the National Appellate Court
(Audiencia Nacional) (the latter only for certain specific matters) have jurisdiction over the
entire national territory. The Supreme Court is the highest judicial authority with the sole
exception of the guarantee of constitutional rights, which are safeguarded by the
Constitutional Court.

Without prejudice to this, the legal system consists of four types of courts: civil,
criminal, administrative and labour courts.

The basic civil court body is the “Court of First Instance” which, together with the
Magistrates’ Courts, are the courts to which civil and commercial cases are first referred.
Cases not expressly brought before another type of court are also heard by civil courts.
Therefore they can be described as “ordinary courts” or “common courts”.

The civil courts also include the “Commercial Courts” and the “Community
Trademark Courts” which are legal bodies specialised in the type of cases that may arise in
these respective areas of law.

The “Commercial Courts”, which started operating on 1 September 2004, are

courts specialised in disputes that may arise in commercial law (art.86bis, 86ter, 86quater,
86quinquies Ley Orgánica del Poder Judicial). These courts will deal with the following:

a) Bankruptcy.
b) Maritime issues.
c) Competition Law, including the enforcement of art. 101 and 102 TFUE.
d) Corporations.
e) Industrial Property.
f) Assistance to arbitration proceedings.
g) Transport.
h) General contractual conditions

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 Territorial jurisdiction of these courts is provincial, while the commercial court in the place where
the debtor’s main interests are located has jurisdiction to declare and process a bankruptcy. If the debtor
also has his legal residence in Spain and this is not the same as the place where his main interests are
located, the applicant creditor may choose the commercial court of the place where the interests are
located.
If the debtor is a company, it is presumed that its main interests are located in the place where the
company’s registered office is situated. If the company changes registered offices within the six months
prior to the petition for bankruptcy, the change of address shall not be taken into account for the purpose
of the proceedings.

6.2 Alternative Dispute Resolution

The court system is a method of resolving disputes; however other means of
resolving conflicts may be more appropriate in certain circumstances. There are a number of
alternative dispute resolution including arbitration, mediation and conciliation.

6.2.1 Arbitration
Arbitration is the procedure by which the parties refer their disputes to a third party
or parties for resolving. The parties agree to be bound by the decision of the arbitrator who
decides the dispute according to the law but outside the confines of the court and normal
court procedure.

In the commercial world arbitration is viewed as a genuine alternative for the

settlement of commercial disputes. Companies, aware of the greater speed, efficiency and
flexibility of arbitration compared to action before the courts, are increasingly keen to turn
to arbitration. Furthermore, Spanish courts increasingly support arbitration, both in terms of
arbitration agreements and the enforcement of arbitral awards.

Arbitration Law 60/2003 of December 23, 2003 (Ley de arbitraje) enables both
individuals and companies to enter into agreements to submit to one or more arbitrators any
disputes that have arisen or may arise on matters the regulation of which is not subject to
any legal restrictions.
The Arbitration Law is almost entirely inspired by the UNCITRAL Model Law on
International Commercial Arbitration. Royal Decree 231/2008, of February 15, regulates the
Consumer Arbitration System for disputes arising between consumers or users and companies in
relation to the legal or contractual rights granted to consumers.

When more than one arbitrator is appointed, the arbitrators appoint a chairman. The
parties may decide whether the arbitrators are to issue their award according to law or by
applying more equitable principles. Unless otherwise agreed by the parties, the arbitrators
will deliver their award within six months of the date of the submission of the defence or of
the deadline for submission. The arbitration award must be in writing and signed by the
arbitrators, and can be notarized before a notary public. The award must include the date and
place where the award has been issued and the decision of the arbitrators.

The Arbitration Law allows for the granting of interim measures by the arbitrators.
This power does not oust the jurisdiction of the courts under the Civil Procedure Law to
grant interim measures while a decision is pending in an arbitration proceeding. The
jurisdiction of courts and arbitrators to grant interim measures is concurrent, meaning that
parties can request interim measures from the arbitral tribunal or from the court, without
distinction.

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6.2.2 Mediation and Conciliation
Mediation is conducted in private at a time and place to suit the parties and the
mediator acts like a facilitator through which the disputing parties can communicate and
negotiate. If the dispute is successful the parties themselves will have determined their own
solution and therefore may be committed to and satisfied with the outcome. If the parties
agree, the agreement can be written down and is legally binding.
Mediation is governed by Ley 5/2012, de 6 de julio, de mediación en asuntos civiles y
mercantiles.

Conciliation is less formal that mediation. The conciliator assists the parties to
explore all possible solutions for settling the dispute and points out the positive and negative
consequences of the different solutions.

If mediation or conciliation fail, the parties can bring the dispute before the tribunals.

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