note 1 commercial contracts

7/28/2019 Note 1 Commercial Contracts

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COMMERCIAL CONTRACTS

Art. 51Commercial 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 amountexceeding 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= (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.

Governed by:1. Code of Commerce; or2. 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= except for those which have been expressly or impliedly repealed= and the Civil Code is suppletory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 likebottomry and respondentia.

PerfectionGeneral Rule:

= Commercial contracts are consensual as to perfection.= It is perfected from the moment the offeror has notice of the offerees 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 lattermay be modified (Manifestation theory)(Article 54, Code of Commerce)

= BUTcertain 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 offereesacceptance (COGNITION THEORY).(Article 1219 [2], New Civil Code)

NOTE: VILLANUEVA

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= 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 validityif 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 whimsicallycould 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 itsperfection, he, in fact, withdraws the offer ( the principle of consensuality of contractsordains 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 ContractsGeneral 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 PhilippineLaw does not require them (Article 52, Ibid).

Art. 52. Exceptions to Art. 51From 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 tocommercial 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

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= 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 thatAs a general rule:

= a written instrument is not necessary

= in commercial transactionsThe 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 forthe 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 Commercea. letters of creditb. loans on bottomry and respondentiac. charter parties

Perfection of Commercial ContractsCONTRACTS BY CORRESPONDECE

Art. 54Contracts entered into by correspondence shall be perfected from the moment an answer is madeaccepting 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 THEORYConsent is manifested by the meeting of the offer and acceptance upon the thing and the cause whichare to constitute the contract. The offer must be certain and the acceptance absolute. A qualifiedacceptance constitutes a counter offer.

Acceptance made by letter or telegram= does not bind the offerer= except:

= from the time it came to his knowledge.

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The contract, in such a case, is presumed to have been entered into in the place where the offerwas made.

2. PerfectionGeneral 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 bycommercial laws.Art. 1319 Civil Code.Consent is manifested by the meeting of the offer and the acceptance upon the thing andtha cause which are to constitute the contract. The offer must be certain and theacceptance 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 theoffer 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 madeEg. Sending of acceptance letter

= this applies to all contracts that are still governed by the Code ofCommerce (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(acceptance made by letter or telegram does not bindthe offeror except from the time it came to hisknowledge and that the contract is presumed to havebeen entered into in the place where the offer wasmade)

Theory of Manifestation (contracts shall be perfectedfrom the moment an answer is made accepting theoffer)

Designation of period

If the obligation does not fix a period, action wouldhave to be filed with the courts for the fixing of theperiod

Obligations which do not have a period previouslyfixed by the parties shall be demandable ten (10) daysafter having been contracted if they give rise only to anordinary action, and on the next day if they involveimmediate action

Concept of delay and default

Depends on the actuations of the obligee or creditor no demand, no liability, EXCEPT if time is of theessence in the contract (Article 1169 of the Civil Code)

Every debtor would be in default without need of ademand (mora ex re)

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.

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= 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 theCode 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 theoffer 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 madeafter 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 onthe 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 ofCommerce in commercial contracts

= premised upon the rule that implied repeals are not favored and that, accordingly, not havingbeen expressly repealed,= the Code of Commerce is still the governing law in commercial transactions.

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= the better view, however, would be to confine the applicability of Art. 54 only to contracts stillspecifically governed by the Code of Commerce

Art. 55Contracts 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 complytherewith is fixed,

= the injured party may demand through legal means the fulfillment of the contract or thepenalty stipulated;

= but the recourse to one of these actions shall extinguish the other unless the contrary isstipulated.

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 (mutuallyexclusive)

= 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 CivilCode.

= 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 thespoken or written words,= or limiting the effects which are naturally derived from the manner in which the contractingparties 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 inaccordance with law.

Art. 59If doubts which cannot be decided in accordance with what is provided in Art. 2 of this Code (Code ofCommerce) should arise,

= the question shall be decided in favor of the debtor.

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A. Interpretation and compliance in good faith and full enforceability of their provisions in theirplain, 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 agents 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 thisCode (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.

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= mere expiration of the period fixed is not enough that debtor may incur delayNote:Kinds of Mora

a. Mora solvendi = default on the part of the obligor/debtor1. 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/obligeec. 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 wouldnot 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 CodeAs 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 CommerceGeneral 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 tomake 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 transactionsessentially involves an exchange of values),= allowing the obligee or creditor the choice of whether to move forward to have the obligordeclared 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 contracts2

= are the main considerationsIn 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,

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= to go about their business relying on the efficiency of the system or network in place, ratherthan on personalities,

= to achieve almost the uniform, yet progeressive, end.

Arts. 62 and 63 govern the instances when the debtor shall be in delay under the concept of default,thus:

a. If period of performance is fixed,= next in delay without need of demand= debtor in delay on the day following the day fixed;

b. If no period is fixed= 10 days from the execution of the contract= and on 11th day, debtor in delay without need of demand.

Eg. Contract entered on October 29; 10 days later is Nov 8; Nov 9 in default

c. Potestative period debtor in delay from demand

Art. 1197If the obligation does not fix a period,

= but from the nature and the circumstances it should appear that the period was intended,= then the obligee must go to court to have the period fixed.

= this is in contrast with Art. 62 which fixes the period without need of going to the court

Art. 1182 (potestative condition)When the fulfillment of the obligation depends upon the sole will of the debtor,

= the conditional obligation shall be void.If it depends upon chance or upon the will of a third person

= the obligation shall take effect in conformity with the provisions of the Civil Code

= the rule under Art. 1182 of the Civil Code= that if there is a potestative condition (if the debtor so desires)= then the obligation is void and non-existent,

= this also applies to commercial transactions

But under Art. 1180 of the Civil Code, that is: (obligation with a potestative period, when the debtordesires)

= When the debtor binds himself to pay when his means permit him to do so,= the obligation shall be deemed to be one with a period,= which the court may fix the duration of the period= the rule under Art. 1197 of the Civil Code shall apply

= a valid obligation arises,= the courts shall fix the period

Under the Code of Commerce= demand by creditor fixes the period and from then on the debtor is in delay.

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1Art. 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 whathas been expressly stipulated but also to all the consequences which, according to their nature, may be keeping with good

faith, usage and law. (consensual)

note 1 commercial contracts

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