Note 1 Commercial Contracts
Notes on Code of Commerce Commercial Contracts...
COMMERCIAL CONTRACTS Art. 51 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 belong = and the amount they may involve = provided their existence is shown by any means established by civil law. However, the testimony of the witness alone = shall not be sufficient to prove the existence of a contract which involves an amount exceeding 1,500pesetas = unless supported by some other evidence. Commercial Contract An agreement between two or more merchants or non-merchants = binding themselves to give or to do something in commercial transactions transactions = (Del Viso, 88, Bar Review Materials in Commercial Law, Jorge Miravite, 2007). Commercial Contracts = are those entered into by merchants = in pursuit of their activities as such merchants = those involving articles of commerce = and those defined or governed as such contract by certain commercial laws. = thus, commercial contracts need not only be those entered into by merchants. merchants. Governed by: 1. Code of Commerce; Commerce; or 2. The Civil Law , in case of Special Laws (Article 50, Code of Commerce). = the Code of Commerce still governs in commercial contracts = except for those which have been expressly or impliedly repealed = and the Civil Code is suppletory = but in case of inconsistency in their general provisions, = the Civil Code prevails except as to contracts that are still explicitly governed by the Code of Commerce like bottomry and respondentia. Perfection General Rule: = Commercial contracts are consensual as to perfection. = It is perfected from the moment the offeror has notice of the offeree’s acceptance = (COGNITION THEORY) (Art. 1319, Civil Code) Exception: = Commercial contracts entered into by correspondence = (CONTRACTS BY CORRESPONDENCE) = are perfected from the moment an answer is made accepting the offer or the conditions by which the latter may be modified (Manifestation theory) (Article 54, Code of Commerce) = BUT certain mercantile contracts governed by the CIVIL CODE, = like sales, deposit, loan, partnerships, agency and guaranty, = if entered into by correspondence, are perfected from the time the offeror has knowledge of the offeree’s acceptance (COGNITION THEORY). (Article 1219 , New Civil Code)
NOTE: VILLANUEVA 1
= ART. 51 is deemed to supplement Art. 1403 of the Civil Code on the Statute of Frauds: = a commercial contract exceeding P300 cannot be proved by parol evidence = Art. 51 provides for the requisites pertaining to enforceability and not for the validity if the amount exceeds P300. Vitug: Prior to, but not after, the perfection of the contract, an offeror may withdraw his offer. = if a period given to the offeree, but no valuable consideration is paid therefor, = an offer may still be withdrawn as a matter of right. = the withdrawal, however, if exercised arbitrarily (without rhyme or reason) or whimsically could warrant a liability for damages. = if the period is supported by a consideration, = a contract of option is deemed concluded = and the offeror may no longer lawfully renege therefrom = this is not to say, however, = that the optioner may be compelled to execute the main contract if before its perfection, he, in fact, withdraws the offer ( the principle of “consensuality of contracts” ordains the necessity of consent in all contracts) = but he opens himself to liability for damages for the breach of the option contract. Form of Commercial Contracts General Rule: = May be executed in any form and language (Article 51, Ibid) Exceptions: 1. Contracts required by the Code of Commerce or Special Laws = to BE IN WRITING OR REQUIRE FORMS OR FORMALITIES FOR THEIR EFFICACY; 2. Contracts executed abroad which require instruments, forms or formalities for their validity, although Philippine Law does not require them (Article 52, Ibid).
Art. 52. Exceptions to Art. 51 From the provisions of the preceding article shall be excepted: 1. Contracts which, in the accordance with the Code of Commerce or with special laws = which must be reduce in writing or require forms or formalities necessary for their efficacy. Examples: Negotiable Instruments, Charter Parties, Maritime Loans of Bottomry and Respondentia 2. Contracts executed in foreign country = in which the law requires certain instruments, forms or formalities for their validity = although the Philippine law does not require them to. In either case, = contracts which do not satisfy the circumstances respectively required = shall not give rise to obligations or causes of action.
Art. 53. Illicit agreements do not give rise to obligations or causes of action even should they refer to commercial transactions. NOTES: VILLANUEVA = While Art. 51 refers to forms and formalities which are necessary for the purpose of proof, = Art. 52, refers to forms and formalities which are necessary 2
= for the efficacy of contracts: = the absence of the formalities affects the existence of the contracts = and shall not give rise to obligations and causes of action. = Art. 52 emphasizes the fact that = commercial contracts are consensual in nature so that As a general rule: = a written instrument is not necessary = in commercial transactions The general rule is that = whenever there is consent, subject matter, cause or consideration, a contract arises. = only when the law expressly requires them in certain forms shall such forms be necessary for the efficacy of commercial contracts. = at present, only a few special laws require a certain form for validity = negotiable instruments and insurance contract = which require a fourth element of being in writing and payment of premiums, respectively. = also, the Code of Commerce requires specific forms for = charter parties and loans on bottomry and respondentia From Sundiang Reviewer Commercial Contracts 1. Concept and Formalities = Commercial contracts = contracts that are governed by the Code of Commerce are called commercial contracts a. in the absence of any requirement under the Code of Commerce or Special law = that certain formalities are required, = commercial contracts are valid in whatever form they appear b. contracts that are expressly required to be in writing under the Code of Commerce a. letters of credit b. loans on bottomry and respondentia c. charter parties Perfection of Commercial Contracts CONTRACTS BY CORRESPONDECE Art. 54 Contracts entered into by correspondence shall be perfected from the moment an answer is made accepting the offer or the conditions by the which the latter may be modified. = this is the MANIFESTATION THEORY (under Code of Commerce) Article 1319 Civil Code: COGNITION THEORY Consent is manifested by the meeting of the offer and acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter offer. Acceptance made by letter or telegram = does not bind the offerer = except: = from the time it came to his knowledge. 3
The contract, in such a case, is presumed to have been entered into in the place where the offer was made. 2. Perfection General Rule: under the Civil Code = contracts are perfected upon the meeting of the minds = with respect to the object and the consideration a. Perfection by correspondence a.1 Cognition Theory (Civil Code Art. 1319) = this the applicable rule (civil contracts) = the contract is perfected = the moment the offeror learns about the acceptance of his offer by the offeree = thus, this theory should apply to all consensual contracts that are governed by commercial laws. “Art. 1319 Civil Code. Consent is manifested by the meeting of the offer and the acceptance upon the thing and tha cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by a letter or telegram does not bind the offerer = except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.”
a.2 Manifestation Theory Article 54 of the Code of Commerce = under which the contract is perfected the moment = the acceptance of the offer is “manifested” or made Eg. Sending of acceptance letter = this applies to all contracts that are still governed by the Code of Commerce (eg. loan on bottomry) a.3 However, even if the contract is still governed by the Code of Commerce = neither the manifestation theory nor the cognition theory applies = if the contract is perfected by delivery = as in real contract like the contract of carriage proper = or formal contracts – the perfection of the contract is through the execution of the contract Civil Law
Code of Commerce Perfection Theory of Cognition Theory of Manifestation (contracts shall be perfected (acceptance made by letter or telegram does not bind from the moment an answer is made accepting the the offeror except from the time it came to his offer) knowledge and that the contract is presumed to have been entered into in the place where the offer was made) Designation of period If the obligation does not fix a period, action would Obligations which do not have a period previously have to be filed with the courts for the fixing of the fixed by the parties shall be demandable ten (10) days period after having been contracted if they give rise only to an ordinary action, and on the next day if they involve immediate action Concept of delay and default Depends on the actuations of the obligee or creditor – Every debtor would be in default without need of a no demand, no liability, EXCEPT if time is of the demand (mora ex re) essence in the contract (Article 1169 of the Civil Code)
NOTES: VILLANUEVA = Under Art. 1319 of the Civil Code = civil contracts negotiated by correspondence = are perfected only from the time the offeror has actual knowledge of acceptance. 4
= commercial transactions, however, where time is of the essence, = the contract is perfected from the time the acceptance is dropped in the mail box. = the time of receipt of the acceptance by the offeror is not the material legal factor for the perfection. TIME IS OF THE ESSENCE IN COMMERCIAL TRANSACTIONS = springs from the characteristic of equitableness: = that commercial transactions involving essentially an exchange of values, = then the expeditious enforcement and consummation of the transactions = serves the better interests of the multitude of parties similarly situated. = by way of contrast, in Civil Law = the fixing of a date for the performance of an obligation does not necessarily mean = that time is of the essence of the contract; = under the Civil Code: = General Rule: time is not of the essence. = this difference in philosophical basis underlined the differing rules between the Civil Code and the Code of Commerce in the areas of: = contractual perfection = binding effect = and default. PERFECTION = Contracts negotiated through correspondence = Art. 1319 of the Civil Code = adopts the “THEORY OF COGNITION” = provides that acceptance made by letter or telegram does not bind the offerer = except from the time it came to his knowledge = and that the contract is presumed to have been entered into in the place where the offer was made. = In contrast, Art. 54 of the Code of Commerce adopts the “THEORY OF MANIFESTATION” = providing that such contracts shall be perfected from the moment an answer is made after accepting the offer. This emphasizes the point = that unlike in a private transaction = where the offerer must be given the decision on whether to keep his offer afloat, = In commercial transactions, = the offerer stands out offering his products or services to the public = ready to accept their order or bid = therefore, the decision point by which transactions are deemed perfected is on the side of the transacting public. VITUG = In contracts by correspondence, the Code of Commerce expresses the “Manifestation Theory” = perfecting the contract at the moment when acceptance is declared or made by the offeree = this rule may have been superseded by the “Cognition Theory” adopted by the Civil Code = that considers the acceptance to effectively bind the offeror = only from the time it came to his knowledge. = contrary view has been expressed, however, which would generally apply Article 54 of the Code of Commerce in commercial contracts = premised upon the rule that implied repeals are not favored and that, accordingly, not having been expressly repealed, = the Code of Commerce is still the governing law in commercial transactions. 5
= the better view, however, would be to confine the applicability of Art. 54 only to contracts still specifically governed by the Code of Commerce Art. 55 Contracts in which an agent or broker intervenes = shall be perfected when the contracting parties shall have accepted his offer. = when an agent or a broker intervenes in a commercial contract, = the same is perfected only = when the contracting party shall have accepted his (agent/broker) offer. Art. 56. (Indemnity Clause) In a commercial contract in which a penalty for indemnification against the party failing to comply therewith is fixed, = the injured party may demand through legal means the fulfillment of the contract or the penalty stipulated; = but the recourse to one of these actions shall extinguish the other unless the contrary is stipulated. In commercial contracts, = if there is a stipulation as to indemnification or damages, = in case one party fails to comply with his obligation = the injured party may have the following recourse = he may demand through legal means a. for the fulfillment of the contract; b. or payment of penalty stipulated (liquidated damages) = but recourse to one of these actions will extinguish the other (mutually exclusive) = unless there is a stipulation to the contrary. An indemnity clause under Art. 56 has the same effect as a penal clause under Art. 1226 of the Civil Code. = it serves the same purposes as deterrent to possible infraction and as liquidated damages. = this is also true with demurrage in a charter party = the innocent party need only prove the breach of contract to recover the indemnity clause, without need to prove damages. RULES ON INTERPRETATION OF COMMERCIAL CONTRACTS Art. 57. Commercial contracts shall be executed and complied with in good faith, = according to the terms in which they were made and drawn up, = without evading through arbitrary interpretations the plain, proper and usual meaning of the spoken or written words, = or limiting the effects which are naturally derived from the manner in which the contracting parties may have expressed their will and contracted their obligations. Art. 58 If a discrepancy should appear between the copies of a contract which the contracting parties present, = and in its execution, an agent or broker should have intervened, = that which appears in the books of the latter shall prevail provided they are kept in accordance with law. Art. 59 If doubts which cannot be decided in accordance with what is provided in Art. 2 of this Code (Code of Commerce) should arise, = the question shall be decided in favor of the debtor. 6
A. Interpretation and compliance in good faith and full enforceability of their provisions in their plain, usual and proper meanings; B. In case of conflicts between copies of the contract, = and an agent should have intervened in its negotiation, = that which appears in the agent’s book shall prevail; C. In case of doubt, and the rules enunciated cannot resolve the conflict, = issues shall be decided in favor of the debtor. Art. 60. [In all computations of days, months, years, = it shall be understood that: = a day has 24 hours, = the months as designated in the Gregorian calendar, = and the year has 365 days] [Bills of exchange, promissory notes, and loans = with respect to which that specifically provided for them by this Code shall govern, are excepted.] Under Art. 13 of the Civil Code = a month is of 30 days, = unless, it is designated by name, (of the month) = when the law speak of years, months, days or nights, = it shall be understood that: = years =365 days = months = 30 days = days = 24 hours = nights = from sunset to sunrise = if months are designated by their names = they shall be computed by the number of days they respectively have = in computing a period = the first day shall be excluded, and the last day included = a year is 365 days = so in computing prescription, leap years must be taken into consideration Art. 61. 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 the contract Or which are based on a definite provision of law. DESIGNATION OF PERIOD Art 62. Obligations which do not have a period previously fixed by the parties or by the provisions of the this Code (Code of Commerce), = shall be demandable 10 days after having been contracted = if they give rise only to an ordinary action, = and on the next day if they involve immediate execution. 7
Art. 63 The effect of default in the performance of commercial obligation shall commence: 1. In contracts with a day for performance fixed by the will of the parties or by the law, = on the day following their maturity 2. In those which do not have such day fixed, = from the day on which the creditor makes a judicial demand on the debtor = or notifies him of the protest for loss and damages made against him before a judge, notary or other public official authorized to admit the same. = Art. 1197 of the Civil Code provides that = if the obligation does not fix a period, = but from its nature and the circumstances it would appear that the period was intended, = then an action would have to be filed with the courts for the fixing of the period On the other hand, Art. 62 of the Code of Commerce provides that = obligations which do not have a period previously fixed by the parties = shall be demandable =10 days after having been contracted if they give rise only to ordinary action = and on the next day if they involve immediate execution = Commercial transactions governed by the Code of Commerce therefore = are ipso jure given a period by which they could be enforced, = affirming that time is of the essence of commercial contracts. DELAY AND DEFAULT CONCEPTS Law in point under the Civil Code: Article 1169 which states: = Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligations. (Note: this is the concept of legal delay or “mora” or “default” = However, the demand by the creditor shall not be necessary in order that delay may exist: a. When the obligation or the law expressly so declares; or b. When from the nature and the circumstances of the obligation = it appears that the designation of the time when the thing is to be delivered = or the service is to be rendered = is the controlling motive for the establishment of the contract; (time is of the essence) c. When the demand would be useless, = as when the obligor has rendered it beyond his power to perform. = In reciprocal obligations, = neither party incurs in delay if the other does not comply = or is not ready to comply in a proper manner with what is incumbent upon him. = From the moment one of the parties fulfills his obligation, delay by the other begins. Mora or Default = the failure to pay an obligation on due date, but with liability for such delay = demand, either judicially or extrajudicially, is necessary and the debtor fails to fulfill the demand = such debtor is considered in default Ordinary delay (Retraso) = merely non-performance at the stipulated time = the failure to pay on time, but with no liability. = this constitute a mere delay 8
= mere expiration of the period fixed is not enough that debtor may incur delay Note: Kinds of Mora a. Mora solvendi = default on the part of the obligor/debtor 1. Mora solvendi ex re = default in real obligations (to give) 2. Mora solvendi ex personae = default in personal obligations (to do) b. Mora accipiendi = default on the part of the creditor/obligee c. Compensatio morae – default on the part of both the debtor and creditor in reciprocal obligations
Art. 1169 of the Civil Code = provides that mere non-compliance of an obligation at the designated time or period would not constitute default = more so, if there is no demand, judicial or extrajudicial = if there is no demand, = then delay is termed retraso = and the debtor would not incur any liability Under Art. 1169 of the Civil Code As a general rule = for liability to attach by reason of delay = there must be demand, whether judicial or extrajudicial One of the exceptions = is that demand by the creditor shall not be necessary in order that delay may exist is the if time is of the essence of the contract On the other hand, in the Code of Commerce General rule = is that time is of the essence of a commercial contract; = every debtor would be in mora (default) without the need for the creditor or obligee to make a demand (mora ex re = default in real obligation or obligation to give) Art. 62 of the Code of Commerce provides that = the moment the obligor fails to comply with his obligation designated in the contract, = then he would be in default without need of further demand from the obligee, = concentrating as it does therefore on preserving the immediate enforceability of the contract = and the immediate enforcement of the obligation = and the accompanying penalty consequences, = as a more rational and uniform basis upon which society can plan and act upon. The rules therefore emphasizes the “personal nature” of civil contracts = as contrasted from the equitable nature of commercial contracts (commercial transactions essentially involves an exchange of values), = allowing the obligee or creditor the choice of whether to move forward to have the obligor declared in default or whether to grant obligor more leeway. Unlike the focus in Civil Law on the “person, his property and his relations” = where freedom of contract1 = and the personal binding effects of his contracts 2 = are the main considerations In commercial law = the approach is more institutional in nature = the purpose being to provide a legal framework or marker system = upon which large volume of transactions would be processed, = with transactions of similar nature all yielding uniform results In each special field of Commercial Law, therefore, = the emphasis is to provide a set of rules that govern a multitude of transactions uniformly and equitably, = in order to encourage persons and institutions at both ends of the transactions, 9
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Art. 1306, Civil Code: The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to laws, morals, good customs, public order, or public policy. 2 Art. 1308, Civil Code: The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (mutuality of contracts) 3 Art. 1315, Civil Code: Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be keeping with good faith, usage and law. (consensual)