CODE OF COMMERCE

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BOOK ONE — MERCHANTS AND COMMERCE IN GENERAL

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TITLE I — MERCHANTS AND COMMERCIAL TRANSACTIONS

ARTICLE 1. — For the purpose of this Code, the following are merchants:

1. Those who, having capacity to engage in commerce, habitually devote themselves thereto.
2. Commercial or industrial associations organized in accordance with this Code.

Source of origin. — On January 1, 1886, the Code of Commerce was promulgated in Spain and on August 6, 1888, it was by Royal Decree extended to the Philippines. The Code of Commerce, after publication in the Gaceta de Manila, with certain modifications necessary for its adaptation to the Philippines, became effective as law on December 1, 1888.

Commerce defined. — It is the intercourse by way of trade and traffic between different peoples or states and the citizens or inhabitants thereof, including not only the purchase, sale, and exchange of commodities, but also the instrumentalities and agencies by which it is promoted and the means and appliances by which it is carried on, and the transportation of persons as well as of goods, both by land and by sea. (Black's Law Dict., 4th ed., p.336.)

Commercial law defined. — It is a phrase used to designate the whole body of substantive jurisprudence applicable to the rights, intercourse, and relations of persons engaged in commerce, trade, or mercantile pursuits. It is not a very scientific or accurate term. As foreign commerce is carried on by means of shipping, the term has come to be used occasionally as synonymous with "maritime law" but, in strictness, the phrase "commercial law" is wider, and includes many transactions or legal questions which have nothing to do with shipping or its incidents. (Id., p.338.)

Commerce distinguished from trade. — The words "commerce" and "trade" are often used interchangeably; but, strictly speaking, commerce relates to intercourse or dealings with foreign nations, states, or political communities, while trade denotes business intercourse or mutual traffic within the limits of a state or nation, or the buying, selling, and exchanging of articles, between members of the same community. (Hooker vs. Vandewater, 4 Denio, N.Y., 353, 47 Am. Dec. 258.)

Division of the Code of Commerce. — The Code of Commerce is divided into four books. They are: (a) Book One — Merchants and Commerce in General; (b) Book Two — Special Commercial Contracts; (c) Book Three — Maritime Commerce; and (d) Book Four — Suspension of Payments, Bankruptcy and Prescription of Actions.

ARTICLE 2. — Commercial transactions, whether performed by merchants or not, and whether or not specified in this Code, shall be governed by provisions contained herein, in default of such provisions, by the commercial usages generally observed in each place and in the absence of both, by the rules of the civil law.

Acts covered by this Code and all others of analogous character shall be deemed commercial transactions.

Applicability of this provision. — The first paragraph of this article is deemed to have been repealed and/or amended by subsequent legislation, such as the new Civil Code, amendments to the Corporation Code, Negotiable Instruments Law, Insurance Code, Chattel Mortgage Law, Warehouse Receipts Law, Salvage Law, Usury Law, and such recent laws as the Rural Banks' Act, Private Development Banks' Act, Deposit Insurance Corporation Act, Savings and Loan Association Act, Retail Trade Nationalization Law, such that the applicability of this provision is now limited to acts of commerce which are covered by the provisions of the Code of Commerce that are still in force.

ARTICLE 3. — The legal presumption of engaging habitually in commerce shall exist from the time the person who intends to engage therein gives announcement, by means of circulars, newspapers, handbills, posters exhibited to the public, or by any other manner whatsoever, of an establishment, the purpose of which is to conduct any commercial transaction.

ARTICLE 4. — Persons possessing the following qualifications shall have the legal capacity to habitually engage in commerce:

1. Those having reached the age of twenty-one years.
2. Those not being subject to the authority of the father or mother nor to marital authority.
3. Those having the free disposition of their property.

Age of majority. — Emancipation takes place by the attainment of majority. Unless otherwise provided, majority commences at the age of eighteen years. Also takes place: (1) By the marriage of the minor; or (2) By the recording the Civil Register of an agreement in a public instrument executed by the parent exercising parental authority and the minor at least eighteen year of age. Such emancipation shall be irrevocable. (Art. 234, NCC, as amended by EO No. 209 and RA No. 6809).

Consent of parental authority. — Emancipation shall terminate parental authority over the person and property of the child who shall then be qualified and responsible for all acts of civil life, save the exceptions established by existing laws in special cases. Contracting marriage shall require parental consent until the age of twenty-one. Nothing in this Code shall be construed to derogate from the duty or responsibility of parents and guardians for children and wards below twenty-one years of age mentioned in the second and third paragraphs of Art. 2180 of the Civil Code. (Art. 236, ibid.)

Second and third paragraphs of Art. 2180, provides: The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the minor children who live in their company; and Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and live in their company.

ARTICLE 5. — Persons below twenty-one years of age and those incapacitated may continue, through their guardians, the business in which their parents or predecessors in interest may have been engaged. If the guardians lack legal capacity to engage in commerce or should there exist certain incompatibility on their part, they shall be obliged to appoint one or more factors with legal qualifications who shall take their places in the conduct of the business.

ARTICLE 6. — Married woman having reached twenty-one years of age, may engage in commerce with her husband's authorization in a public instrument which shall be registered in the mercantile registry.

Repeal of this provision. — This article has been impliedly repealed by the new Civil Code (RA No. 386, as amended), which provides as follows: (a) A married woman, twenty-one years of age or over, is qualified for all acts of civil life, except in cases specified by law (Art. 39); (b) Either spouse may exercise any legitimate profession, occupation, business or activity without the consent of the other. The latter may object only on valid, serious, and moral grounds.

In case of disagreement, the court shall decide whether or not: (1) The objection is proper, and (2) Benefit has accrued to the family prior to the objection or thereafter. If the benefit accrued prior to the objection, the resulting obligation shall be enforced against the separate property of the spouse who has not obtained consent. The foregoing provisions shall not prejudice the rights of creditors who acted in good faith. (Art. 73, NCC, as amended by EO No. 209).

ARTICLE 7. — A married woman shall also be presumed to be authorized to engage in commerce when she does so with the knowledge of her husband.

This provision is impliedly repealed by the new Civil Code. See also notes under Article 6, supra.

ARTICLE 8. — The husband may freely revoke the authorization expressly or tacitly granted to the wife to engage in commerce, by stating the revocation in a public instrument which shall be registered in the mercantile registry, publishing it further in the official newspaper of the town should there be any; otherwise, in that of the province, and announcing it to her correspondents by means of circulars. The publication may also be made, if the husband so demands, by proclamations and common criers.

This revocation shall not, in any case, prejudice the acquired rights before its publication in the official newspaper.

This provision is impliedly repealed by the new Civil Code. See also notes under Article 6, supra.

ARTICLE 9. — A woman who, upon contracting marriage, is engaged in commerce shall need the permission from her husband to continue it.

This permission shall be presumed granted so long as the husband does not make known, in the manner prescribed in the preceding article, the cessation of his wife's engagement in commerce.

This provision is impliedly repealed by the new Civil Code. See also notes under Article 6, supra.

ARTICLE 10. — Should the wife engage in commerce in cases mentioned in Articles 6, 7, and 9 of this Code, all her dowry and paraphernal property, and all the property and rights which both spouses may own in the community or conjugal partnership, shall be solidarily liable for the results of her commercial transactions, the wife having the power to alienate and mortgage her own private property as well as that owned in common.

The private property of the husband may also be alienated and mortgaged by the wife, should the authorization granted by him be or have been extended to that effect.

This provision is impliedly repealed by the new Civil Code. See also notes under Article 6, supra.

ARTICLE 11. — A married woman, having reached twenty-one years of age, may likewise engage in commerce when she comes under any of the following cases:

1. When she lives separately from her husband by final decree of divorce.
2. When her husband is under guardianship.
3. When her husband is absent, his whereabouts being unknown, and his return not expected.
4. When her husband is serving the penalty of civil interdiction.

This provision is impliedly repealed by the new Civil Code. See also notes under Article 6, supra.

ARTICLE 12. — In the cases referred to in the preceding article, only the private property of the wife and that of the community or conjugal partnership acquired through her commercial transactions shall be liable for the results thereof, the wife being able to alienate or mortgage one or the other.

After the absence of the husband has been legally declared, the wife shall have furthermore, the rights granted her in such case by the civil law.

This provision is impliedly repealed by the new Civil Code. See also notes under Article 6, supra.

ARTICLE 13. — The following cannot engage in commerce nor hold office or have any direct, administrative, or financial intervention in commercial or industrial companies:

1. Persons sentenced to civil interdiction, while they have not yet fully served their sentence, or been amnestied or pardoned.
2. Persons who have been declared bankrupts, while they have not obtained their discharge, or been authorized, by virtue of an agreement accepted at a general meeting of creditors and approved by judicial authority, to continue at the head of their establishments. The discharge being considered in such cases as limited to that expressed in the agreement.
3. Persons who, on account of laws or special provision, may not engage in commerce.

Effect of civil interdiction. — Civil interdiction shall deprive the offender during the time of his sentence of the rights of parental authority, or guardianship, either as to the person or property of any ward, or marital authority, of the right to manage his property and of the right to dispose of such property by any act or any conveyance inter vivos. (Art. 34, Rev. Penal Code).

Paragraph 2 modified by the Insolvency Law. — Paragraph 2 of this article is modified by the Insolvency Law (Act No. 1956, as amended), in the sense that said law likewise governs the disqualification of an insolvent to engage in commerce.

Paragraph 3 modified on account of special laws. — See notes under Article 14, infra.

ARTICLE 14. — The following cannot engage in commerce, either in person or by proxy, nor can they hold any office or have any direct, administrative, or financial intervention in commercial or industrial companies within the limits of the districts, provinces, or towns in which they discharge their duties:

1. Justices of the Supreme Court, judges and officials of the department of public prosecution in active service. This provision shall not be applicable to mayors, municipal judges, and municipal prosecuting attorneys nor to those who by chance are temporarily discharging the functions of judge or prosecuting attorney.
2. Administrative, financial, or military chiefs of districts, provinces or garrisons.
3. Employees engaged in the collection and administration of funds by the State, appointed by the government. Persons who by contract administer and collect temporarily or their representatives are excepted.
4. Money and commercial brokers of any class whatsoever.
5. Those who by virtue of laws or special provisions may not engage in commerce in a determinate territory.

Persons disqualified to engage in commerce or business under other laws. — (1) The President, Vice President, the Members of the Cabinet, and their deputies or assistants shall not, unless otherwise provided in this Constitution, hold any other office or employment during their tenure. They shall not, during said tenure, directly or indirectly practice any other profession, participate in any business, or be financially interested in any contract with, or in any franchise, or special privilege granted by the Government or any subdivision, agency or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries. They shall strictly avoid conflict of interest in the conduct of their office (Art. VII, Sec. 13, Constitution); (2) No Senator or Member of the House of Representatives may personally appear as counsel before any court of justice or before the Electoral Tribunals, or quasi-judicial and other administrative bodies. Neither shall he, directly or indirectly, be interested financially in any contract with, or in any franchise or special privilege granted by the Government, or any subdivision, agency, or instrumentality thereof, including any government-owned or controlled corporations, or its subsidiary, during his term of office. He shall not intervene in any matter before any office of the government for his pecuniary benefit or where he may be called upon to act on account of his office (Art. VI, Sec. 14, id.); (3) No officer or employee shall engage directly in any private business, vocation, or profession or be connected with any commercial, credit, agricultural or industrial undertaking without a written permission from the Head of Department: Provided, That this prohibition will be absolute in the case of those officers and employees whose duties and responsibilities require that their entire time be at the disposal of the Government: Provided, further, That if an employee is granted permission to engage in outside activities, the time so devoted outside of office hours should be fixed by the chief of the agency to the end that it will not impair in any way the efficiency of the officer or employee: And provided, finally, That no permission is necessary in the case of investments, made by an officer or employee, which do not involve any real or apparent conflict between his private interests and public duties or in any way influence him in the discharge of his duties, and he shall not take part in the management of the enterprise or become an officer or member of the board of directors (Rule XVII, Sec. 12, Civil Service Rules); (4) It shall be unlawful for any public officer to directly or indirectly have financial or pecuniary interest in any business, contract or transaction in connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the Constitution or by any law from having any interest (Sec. 3-h, RA No. 3019, Anti-Graft & Corrupt Practices Act); and (5) It shall be unlawful for a municipal officer to possess pecuniary interest, either direct or indirect, in any municipal contract, work, or other municipal business, or to hold such interest in any cockpit or other game licensed by municipal authority. (Sec. 2176, Rev. Adm. Code). See also Code of Conduct and Ethical Standards for Public Officials and Employees (RA No. 6713).

ARTICLE 15. — Companies organized in any foreign country and aliens may engage in commerce in the Philippines, subject to the laws of their country in so far as their capacity to contract is concerned; and to the provisions of this Code in all that may refer to the creation of their establishments within the Philippine territory, their commercial transactions, and the jurisdiction of the courts of this nation.

Those provided for in this article shall be understood to be without prejudice to what may, in particular cases, be established by treaties and conventions with other powers.

This article, modified. — This article is deemed modified as to foreign corporations doing business in the Philippines, see Secs. 123-136, BP Blg. 68, Corporation Code; as to foreign banking institutions, see Secs. 14-19, RA No. 337, General Banking Act; and as to foreign insurance companies, see Secs. 189 (c) to 193, PD No. 1460, Insurance Code.

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TITLE II — COMMERCIAL REGISTRIES

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ARTICLE 16. — There should be opened in all the capitals of the provinces a mercantile registry composed of two independent books in which there shall be recorded:

1. Private merchants.
2. Associations.

In the coastal provinces, and in those of the interior where it is considered advisable on account of the existence of a navigation service, the registry shall contain a third book in which to record vessels.

Implied repeal of this provision. — This article is impliedly superseded by subsequent laws. Thus, the commercial registries are now as follows: (1) For private merchants domiciled in the City of Manila, — The Bureau of Commerce (now Department of Trade and Industry) (Sec. 3-b, Act No. 2728, as amended by Act No. 3715, Act No. 3969, and by CA No. 287, as amended by RA No. 1055); while for private merchants domiciled in the province, — the Register of Deeds therein (Secs. 192-193, Rev. Adm. Code); (2) For partnerships and corporations domiciled either in Manila or in the provinces, — the Securities and Exchange Commission (BP Blg. 68; BP Blg. 178; Arts. 1772, 1844 and 1864, Civil Code as to partnerships; and Secs. 10 and 14, Corporation Code as to corporations); and (3) For vessels whose home ports is in Manila — the Maritime Industry Authority (PD No. 474) and Philippine Coast Guard (PD No. 761).

Other offices of registry are: (A) For patents and industrial designs; (trademarks, trade names and service marks; and copyrights RA No. 8293) — Intellectual Property Office; (B) For large cattle, for purposes of registration of brands and issuance of sale, transfer certificates — the Treasurer of the Municipality of the residence of the owner (Secs. 512 and 526, Rev. Adm. Code); (C) For chattel mortgage (except of vessels) — The Register of Deeds of the province in which the mortgagor resides at the time of making the same, or if he resides outside the province where the property is situated, if the property is situated in a different province from that in which the mortgagor resides, the mortgage shall be recorded in the Register of Deeds of both the province in which the mortgagor resides and that in which the property is situated (Sec. 4, Act No. 1508); (D) For motor vehicles used or operated on, or upon any public highways of the Philippines — Land Transportation Franchising and Regulatory Board (Sec. 5, EO No. 202); and (E) For aircrafts owned by citizens of the Philippines and all conveyances affecting the title or interest in any civil aircraft of Philippine registry (Secs. 24 and 34, RA No. 776) — Civil Aeronautics Board.

ARTICLE 17. — Registration in the mercantile registry shall be optional for private merchants and compulsory for associations organized in accordance with this Code or with special laws, and for vessels.

As to partnerships. — If the capital is P3,000 or more, the contract must appear in a public instrument and must be recorded in the Securities and Exchange Commission, but failure to comply does not affect the liability of the partnership and the members thereof to third persons (Art. 1772, Civil Code); and a partnership has a juridical personality, even in case of failure to comply with the requirements of Article 1772 of the Civil Code. (Art. 1768, Id.).

As to vessels. — Every vessel used in Philippine waters, being a transient of foreign registry shall be registered in the Philippine Coast Guard, except those of three tons gross or less, unless the owner shall so desire. (See: PD No. 761, as amended and Sec. 12, PD No. 474).

As to business names. — It shall be unlawful for any person to use or sign any name used in connection with his business other than his true name, or keep any sign announcing a firm name or business name or style, without first registering such other name, or such firm, name, or business name, or style, in the Department of Trade and Industry. The required fee shall be collected for each name registered and renewable every five years. Penalty for violation is a fine of not less than P50 and not more than P200 or imprisonment for not less than 20 days nor more than three months, or both. (See: Act No. 3883, as amended.)

ARTICLE 18. — An unregistered merchant may not request the registration of any document in the mercantile registry, nor take advantage of its legal effects.

ARTICLE 19. — The registrar shall keep the books necessary for registration, stamped, folioed and with memorandum on the first page, stating the number of pages each book contains, signed by the justice of the peace.

Where there are several justices of the peace, the memorandum may be signed by any one of them.

Power of municipal judge to authenticate merchant's books. — A justice of the peace (now known as municipal circuit trial judge, BP Blg. 129) shall have power anywhere within his territorial jurisdiction to solemnize marriages, authenticate merchants' books, administer oaths and take depositions and acknowledgment, and, in his capacity as ex officio notary public, may perform any act within the competency of a notary public. (Sec. 76, Judiciary Act of 1948, as amended.)

ARTICLE 20. — The registrar shall enter, in chronological order in the registry and general index, all the merchants and companies which are registered, giving each sheet the corresponding correlative number.

ARTICLE 21. — On the record sheet of each merchant and association, there shall be entered:

1. The name, firm name, or title.
2. The kind of commerce or transactions engaged in.
3. The date on which transactions are to begin or were begun.
4. The domicile, with a statement of the branches which may have been established, without prejudice to recording the branches in the registry of the province in which they are domiciled.
5. The articles constituting a commercial association, whatever may be its object or class, as well as the instruments modifying, rescinding, or dissolving such associations.¹

¹ Modified by the Corporation Code and the new Civil Code on partnerships.

6. The general powers of attorney and the revocation of the same, should there be any, given to the managers, factors, employees, and any other agents.²
7. The authorization of the husband to his wife to engage in commerce and the legal or judicial authority of the wife to administer her property on account of the absence or incapacity of the husband.³
8. The revocation of the permission granted to the wife to engage in commerce.⁴
9. [Dowry instruments],⁵ marriage agreements and the deeds which prove the ownership of the paraphernal property of the wives of merchants.
10. The issue of shares, certificates, and obligations of railroads and of all kinds of associations, be they of public works, credit or others, stating the series and number of certificates of each issue, their interest, revenue, redemption, and premium, should they have either, the total amount of the issue, and the property, works, rights, or mortgages, should there be any, by which their payment is secured.

There shall be recorded also, in accordance with the provisions of the foregoing paragraph, the issues made by private parties.⁶

11. The issue of bank notes, stating the date, class, series, quantity, and value of each issue.⁷
12. The certificates of industrial property, patents, and trademarks, in the form and manner established by law.⁸

Foreign associations which desire to establish themselves or create branches in the Philippines shall present and record in the registry, besides their bylaws and the documents required of Philippine associations, the certificate issued by the Philippine consul that they have been organized and authorized according to the laws of the respective country.

Necessity of registering foreign corporations with the Securities and Exchange Commission. — No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippines shall be permitted to transact business in the Philippines until after it shall have obtained a license for that purpose from the Securities and Exchange Commission, upon order of the Central Bank in case of banks, savings and loan banks, trust corporations, and banking institutions of all kinds, and upon order of the Secretary of Trade and Industry in case of all other foreign corporations. (See: Secs. 123-126, Corporation Code; Sec. 14, General Banking Act; Sec. 189 (c), Insurance Code of 1978, as amended, and Rep. Act No. 7042).

² Repealed by Art. 2270 of the new Civil Code.

³ Impliedly repealed by Art. 73 of the new Civil Code. See notes under Article 6, supra.

⁴ Id.

⁵ See note under Art. 27, Code of Commerce.

⁶ Modified by the Corporation Code, as amended.

⁷ Superseded by Rep. Act No. 7653, and Rep. Act No. 337, as amended.

⁸ Repealed and Superseded by Rep. Act No. 8293, approved June 6, 1997.

ARTICLE 22. — (Superseded by Republic Act No. 1937, known as the Tariff and Customs Code).

Repeal of this provision. — This section is superseded by Sections 804 and 805 of Republic Act No. 1937, approved June 22, 1957, which provide as follows:

Data to be noted in register of vessels. — In the register of vessels, to be kept at each port of entry, the following facts concerning each vessel there registered shall be noted in such form and detail as the Commissioner shall prescribe: (a) Name of vessel; (b) Rig of vessel; (c) Material of hull; (d) Principal dimensions; (e) Gross tonnage; (f) Net tonnage; (g) Where built; (h) Year when built; (i) Name, citizenship, nationality and residence of owner; (j) Date of issuance of certificate of Philippine registry; (k) Any material change of condition in respect to any of the preceding items, and (1) Any other fact required to be there noted by the regulations of the Bureau of Customs. (Sec. 804)

Record of documents affecting title. — In the record of transfer and encumbrances of vessels, to be kept at each principal port of entry, shall be recorded at length "all transfers, bills of sale, mortgages, liens or other documents which evidence ownership or directly or indirectly affect the title of registered vessels, and therein shall be recorded all receipts, certificates or acknowledgment cancelling or satisfying, in whole or in part, any such obligations. No other record of any such document or paper shall be required than such as is affected hereunder." (Sec. 805)

See also Pres. Decree Nos. 474, 601 and 761, as amended.

ARTICLE 23. — The registration, as a general rule shall be made by virtue of notarial copies of the documents which the interested party may present.

The registration of notes, obligations, or documents payable to order and to bearer, which do not carry with them mortgages of real property, shall be made upon presentation of the certified copy of the minutes wherein appear the decision of the person or persons who make the issue, and the conditions, requisites, and guaranties of the same.

When these guaranties consist of mortgage of real property, the corresponding instrument shall be presented for annotation in the mercantile registry, after having been registered in the registry of property.

ARTICLE 24. — Unregistered articles of association shall be binding among the members who execute them; but these shall not prejudice a third person who, however, may make use thereof in so far as the same may be favorable to him.⁹

ARTICLE 25. — There shall also be recorded in the registry all resolutions or acts which affect an increase or decrease in the capital of commercial associations, whatever may be their denomination, and those which modify or alter the conditions of the recorded instruments.

The omission of his requisite shall produce the effects mentioned in the foregoing article.¹⁰

ARTICLE 26. — Registered documents shall produce legal effects to the detriment of third persons only from the date of their recording and they cannot be invalidated by previous or subsequent unregistered documents.

ARTICLE 27. — [Dowry] instruments [and those] referring to paraphernal property of the wife of a merchant, not registered in the mercantile registry, shall not have any right of preference over other credits.

Real property and real rights over them, acquired by the wife prior to the creation of the concurrent credits, shall be excepted.

As to dowry provisions. — The dowry provisions having been eliminated by the new Civil Code, the provisions referring to dowry instruments are understood to be obsolete. (Martin's Com. Laws, Vol. I, p. 31, 1988 Ed.)

ARTICLE 28. — If a merchant should omit to enter in the registry the [dowry or] paraphernal property of his wife, the latter may do so, or it may be done in her name by her parents, brothers or uncles by consanguinity, as well as by those, who are or have been the guardians or curators of the wife, [or who constitute or have constituted the dowry.]

ARTICLE 29. — Unregistered powers of attorney shall be effective between the principal and the agent; but they cannot be used to the prejudice of a third person, who, however, may rely thereon in so far as they may be favorable.¹¹

ARTICLE 30. — The mercantile registry shall be public. The registrar shall give, to whomsoever requests it, any data with reference to what appears in the registration sheet of each merchant, association or vessel.

Likewise, he shall issue true copies of the entire or part of the sheet mentioned to any person who requests it in writing.

⁹ Superseded by the Corporation Code as to corporations and by the new Civil Code on partnerships.

¹⁰ Id.

¹¹ Repealed by Art. 2270 of the New Civil Code, see Title X on Agency of Book IX.

ARTICLE 31. — (Repealed by Com. Act No. 83, known as the Securities Act, and by Com. Act No. 287, as amended.)¹²

ARTICLE 32. — (Repealed by Sec. 66, Act No. 2711.)

¹² Superseded by the Securities Act.

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TITLE III — BOOKS AND BOOKKEEPING OF COMMERCE

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ARTICLE 33. — Merchants shall necessarily keep:

1. A book of inventories and balances.
2. A journal of daybook.
3. A ledger.
4. A book or books for copies of letters and telegrams.
5. Other books required by special laws.

Associations and companies shall also keep a book or books of minutes, in which shall be entered all the resolutions which refer to the progress and business transactions adopted at the general meetings and at those of managing boards.

Books of accounts and audit by Independent Certified Public Accountants. — All corporations, companies, partnerships, or persons, required by law to pay internal revenue taxes shall keep a journal and a ledger, or their equivalent: Provided, however, That those whose quarterly sales, earnings, receipts, or output do not exceed five thousand pesos shall keep and use a simplified set of bookkeeping records duly authorized by the Secretary of Finance wherein all transactions and results of operations are shown and from which all taxes due the government may readily and accurately be ascertained and determined any time of the year: And provided, further, That in the case of corporations, companies, partnerships, or persons whose gross quarterly sales, earnings, receipts or output exceed twenty-five thousand pesos, they shall have their books of accounts audited and examined yearly by Independent Certified Public Accountants and their income tax returns accompanied with certified balance sheets, profit and loss statements, schedules listing income-producing properties and the corresponding income therefrom and other relevant statements. (Sec. 232, NIRC, as amended)

A "Journal" is a book of original entry in which the happenings or transactions affecting the taxpayer's business are recorded consecutively day by day as they occur while a "ledger" is a book of final entry in which is posted the classified accounts or items of all transactions entered in the journal or its equivalents.

The "simplified set of bookkeeping records" shall consist of the records of daily sales and cash receipts, the record of daily purchases, expenses and cash disbursements, record of summary of transactions, and yearly statements of net worth and operations which may be in combined form or in separate book. (BIR Ruling, Dec. 12, 1989)

The use of the general journal and the general ledger in loose leaf form may be allowed, upon written permission from the BIR Commissioner. (See Rev. Memo. Cir. No. 13-82 issued May 28, 1982)

Books required as to inventories and balances. — See note under Art. 37, C. Comm.; and Sec. 74, the Corporation Code (BP Blg. 68).

ARTICLE 34. — They may furthermore keep other books that they consider advisable, according to the system of bookkeeping adopted.

Such books shall not be subject to the provisions of Article 36; but any book or books which may be considered proper may be legalized.

Optional books allowed by Bureau of Internal Revenue. — Sec. 233, Nat. Int. Rev. Code provides that: All corporations, companies, partnerships, or persons keeping the books of accounts mentioned in the preceding section (Sec. 235) may, at their option, keep such subsidiary books as the needs of their business may require: Provided, That where such subsidiaries are kept, they shall form part of the accounting system of the taxpayer and shall be subject to the same rules and regulations as to their keeping, translation, production, and inspection as are applicable to the journal and the ledger.

ARTICLE 35. — Merchants may keep their books in person or have them kept by a person whom they authorize for the purpose.

If the merchant does not keep his books personally, it shall be presumed that authority has been granted the person who does keep them, unless there is proof to the contrary.

Language to be used in books or records. — All such corporations, companies, partnerships, or persons shall keep the books or records mentioned in Section 232 hereof in a native language, English, or Spanish: Provided, however, That if in addition to said books or records the taxpayer keeps other books or records in a language other than a native language, English, or Spanish, he shall make a true and complete translation of all the entries in such other books or records into a native language, English, or Spanish, and the said translation must be made by the bookkeeper of such taxpayer, or, in his absence, by his manager, and must be certified to under oath as to its correctness by the said bookkeeper or manager, and shall form an integral part of the books of accounts aforesaid. The keeping of such books or records in any language other than a native language, English, or Spanish, is hereby prohibited. (Sec. 234, PD No. 1158, as amended)

ARTICLE 36. — Merchants shall present the books referred to in Article 33, bound, ruled, and folioed, to the justice of the peace of the municipality where they have their commercial establishments, in order that he may put on the first page of each book, a signed memorandum of the number of pages contained therein.

The seal of the justice of the peace which authenticates them shall, moreover, be stamped on all the sheets of each book.

Character of merchants' books. — Although the intervention of a justice of the peace (now municipal trial judge) imparts to commercial books a certain public character (Art. 1216, old C.C.), these books are not, however, the public instruments mentioned by article 1924, par. 3, subdivision A (now Art. 2244, par. 14, new C.C.), of the Civil Code; for, although a public instrument is a public document, not every public document is a public instrument; the latter is made by a notary public in the presence of the parties executing it and of two witnesses, signed by the interested parties or, at their request, by one of the witnesses with the notary. (Garcia vs. China Banking Corp., 57 Phil. 842, citing Escriche, Diccionario de Legislacio y Jurisprudencia, p.859.)

See also note under Art. 19, supra.

ARTICLE 37. — The book of inventories and balances shall begin with the inventory which must be made by the merchant at the time of commencing business, and shall contain:

1. An exact statement of the money, securities, credits, notes receivable, movable and immovable property, merchandise, and goods of all kinds, appraised at their true value, and which constitute his assets.
2. An exact statement of the debts and all kinds of pending obligations, should there be any, and which form his liabilities.
3. He shall fix, in such case, the exact difference between his assets and liabilities, which will be the capital with which to begin his business.

The merchant shall, moreover, make annually and enter in the same book the general balance of his business, with the details mentioned in this article, and in accordance with the entries in the journal, without reservation or omission whatsoever, signed by him and under his responsibility.

Inventories required by BIR. — All corporations, companies, partnerships, or persons required by law to pay internal revenue taxes on business shall keep, in addition to the other books and records prescribed in these regulations, a book of inventories, in which they shall record in detail the quantity, description, unit cost, and total cost of every item of their stocks-in-trade, materials, supplies and all other goods found in the premises of their establishments at the time they start business and at the close of the calendar year or accounting period. The inventory at the beginning shall be made and submitted to the Commissioner of Internal Revenue, if the place of business is in Manila, or to the deputy provincial or city treasurer (now office of the collection agent), if in a municipality or city, within ten days after securing the privilege tax-receipt for starting the business, and the subsequent inventories not later than thirty days after the close of the calendar year or accounting period. This period may, in meritorious cases, be extended by the Commissioner of Internal Revenue.

Deputy provincial and city treasurers (now collection agents) shall, upon receipt of such inventories, immediately send the same to the corresponding provincial revenue agent (now chief revenue officer) who shall keep and preserve them for purposes of reference. (Sec. 13, Rev. Reg. No. V-1).

Under Revenue Memo. Order No. 1-84, all inventory lists should be systematically filed in the revenue district office and made readily accessible to examiners for reference and, if feasible, the duplicate thereof should be attached to the income tax returns for which a letter of authority has been issued. The inventory costing and valuation method should be thoroughly and adequately test-checked simultaneously with the audit and investigation of the corresponding income tax returns of the taxpayers. The objective of test-checking is to see to it that the inventory costing and valuation method used is accurately and consistently applied.

ART. 38. — The first entry in the journal shall consist of the result of the inventory mentioned in the foregoing article, divided into one or several consecutive accounts, according to the system of bookkeeping adopted.

Thereafter, all his transactions shall follow, day by day, all their transactions, each entry stating the credit and debit of the respective accounts.

When the transactions are numerous, no matter of what importance they may be, or when they have taken place outside of the domicile, those referring to each account which have taken place in the same day may be included in the same entry, but observing in their statement, if detailed, the same order in which they took place.

There shall be entered in the same manner, on the date on which they are taken from deposit, the amounts which the merchant uses for his domestic expenses, which shall be placed in a special account to be opened in the ledger for this purpose.

Entries to be kept up-to-date in ink or indelible pencil. — All entries in the books of accounts and other records must be kept up-to-date in ink or indelible pencil in a neat and legible manner, and the figures entered in all columns shall be totalled within twenty-four hours from and after the close of each calendar month and the totals posted at the foot of the respective columns. All transactions, the time of posting or entry of which is not specifically provided for in these regulations, shall be recorded within seven days from the date the transactions were effected (Sec. 8, Rev. Reg. No. V-1).

ART. 39. — The accounts referring to each object or person in particular shall, moreover, be opened with a credit and debit in the ledger, and the entries referring to these accounts in the journal shall be transferred to the former in strict order of dates.

ART. 40. — In the book of minutes which shall be kept by each association, there shall be entered verbatim all resolutions adopted at its meetings or at those of its managers, stating the date of each, the members present at the same, the votes cast, and anything else which will aid in arriving at an exact knowledge of what has been decided, being authenticated with the signatures of the managers, directors or administrators who are in charge of the management of the association or those who are designated by the bylaws or other regulations which govern the said association.¹³

ART. 41. — All letters which a merchant may write regarding his business and the telegrams he may send shall be transferred, either by hand or by any mechanical means, to the book for copies, completely and consecutively, by order of dates, including the subscribing clause and signature.

ART. 42. — Merchants shall carefully keep, in bundles and in proper order, the letters and telegraphic messages which they may receive relating to their transactions.

ART. 43. — Merchants, besides complying with and fulfilling the conditions and formalities prescribed in this title, must keep their books in a clear manner in order of dates, without leaving blank spaces, interlineations, erasures, or blots, and without showing signs of having been altered by subsisting or tearing out folios, or in any other manner whatsoever.

ART. 44. — Merchants shall correct the errors or omissions which they may incur in making entries in their books, immediately after they notice them, clearly explaining in what they consisted, and writing the phrase as it should have appeared.

Should some time have elapsed since the error was committed or since the occurrence of the omission, they shall make the proper entry of correction, adding at the margin of the incorrect entry a memorandum calling attention to the correction.

¹³ This article is superseded by Sec. 74 of the Corporation Code as to corporations.

ART. 45. — No official inquiry can be instituted by judges or courts, nor any authority, in order to ascertain if merchants keep their books in accordance with the provisions of this Code, nor any general investigation or examination of the bookkeeping in the offices or counting-houses of merchants be made.

Effect of subsequent legislation. — The following government agencies are authorized to examine or investigate books of accounts and records of private merchants:

1. The Secretary of Trade and Industry or his agents may examine the books of private merchants _(Sec. 3, Act No. 2728, as amended)_;
2. The Securities and Exchange Commissioner or his duly deputized agents may examine the merchants, partnerships and corporations _(Com. Act No. 287, as amended and Batas Pambansa Blg. 178)_;
3. The Commissioner of Internal Revenue or his duly authorized agents may examine the books of merchants, associations, partnerships and corporations. _(Sec. 235, PD No. 1158, as amended)_;
4. The Insurance Commissioner or his duly authorized agents may examine the books of insurance companies _(Secs. 245 and 246, Pres. Decree No. 1460, as amended)_;
5. The Superintendent of banks and examiners of the Department of Supervision and Examination of the Central Bank as to the books of all banking institutions operating in the Philippines, including Government credit institutions _(Secs. 25 and 25-A, Rep. Act No. 265, as amended)_;
6. The Land Transportation Franchising and Regulatory Board as to the books of public utilities granted under the jurisdiction of the Board _(Secs. 17 & 30, Com. Act No. 146, as amended and Ex. Order No. 202, s. 1987)_; and
7. Courts may examine the books of any merchant presented as an evidence in any litigation pending before it _(Sec. 1, Rule 23, Revised Rules of Court)_.

ART. 46. — Neither may the communication, delivery or general inspection of the books, correspondence and other documents of merchants be decreed at the instance of a party, except in cases of liquidations, universal succession or bankruptcy.

(See Secs. 18 and 24, The Insolvency Law.)

ART. 47. — With the exception of the cases mentioned in the foregoing article, the exhibition of the books and documents of merchants may be decreed, at the instance of a party or at the initiative of the court, only when the person to whom they belong has an interest or liability in the question in which the exhibition is made.

[The inspection shall be made in the office of the merchant, in his presence, or in that of the person he may delegate, and shall be limited exclusively to the points which relate to the matter in question, said points being the only ones which may be verified.]¹⁴

ART. 48. — In order to graduate the weight of evidence of books of merchants, the following rules shall be observed:

1. Books of merchants shall be evidence against themselves, no proof to the contrary being admissible; but the adverse party cannot accept the entries which are favorable to him and reject those which prejudice him; but having admitted this means of evidence, he shall abide by the result which they may show in their entirety, taking into equal consideration all the entries relating to the matter in litigation.
2. If the entries of the books kept by two merchants should not conform, and those of one of them have been kept with all the formalities mentioned in this title, and those of the other contain any defect or lack the requisites prescribed by this Code, the entries of the books correctly kept shall be admitted against those of the defective ones, unless the contrary is demonstrated by means of other proofs admissible in law.
3. If one of the merchants should not present his books or should state that he does not possess any, those of his adversary, kept with all the legal formalities, shall be evidence against him, unless it is proven that the lack of said books is caused by force majeure, and always reserving the evidence against the entries exhibited, by the other means legally admissible in suits.
4. If the books of the merchant should have all the legal requisites, but contradictory to each other, the judge or the court shall render judgment in accordance with other proofs, weighing them according to the general rules of law.

ART. 49. — Merchants and their heirs or successors shall preserve the books, telegrams, and correspondence of their business in general for the entire period which it may continue in existence, and until five years after the liquidation of all their commercial transactions and business.

Documents which especially relate to certain acts or transactions may be rendered useless or destroyed after the time of the limitation of the actions which could be brought by virtue thereof has elapsed, unless some questions referring to the same directly or indirectly is pending, in which case they must be kept until the conclusion thereof.

Preservation of books required by BIR. — All the books of accounts, including the subsidiary books, and other accounting records, of such corporations, companies, partnerships, or persons shall be preserved by them for a period of at least three years from the date of the last entry in each book and shall be subject to examination and inspection at any time by internal-revenue officers; Provided, That all corporations, companies, partnerships, or persons, who retire from business shall, within ten days from the date of such retirement or within such period of time as may be allowed by the Commissioner of Internal Revenue in special cases, submit their books of accounts, including the subsidiary books, and other accounting records, to the Commissioner of Internal Revenue or any of his deputies for examination, after which they shall be returned. (Secs. 233 and 235, NIRC)

Preserved books must be originals. — The records to be preserved by taxpayers for a period of three years from date of last entry made therein must be originals thereof. This requirement is necessary for the reason that the originals of the books of accounts are the best evidence to prove entries made therein (BIR Ruling, File No. 106.02, Feb. 20, 1954), the originals and not microfilms or copies must be preserved at the required period (1954 BIR Ruling).

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TITLE IV — GENERAL PROVISIONS ON COMMERCIAL CONTRACTS

ART. 50. — Commercial contracts in all that relates to their requisites, modifications, exceptions, interpretations, and extinction and to the capacity of the contracting parties shall be governed in all that is not expressly established in this Code or in special laws, by the general rules of civil law.¹⁵

Commercial contracts defined. — (a) According to Blanco: "In order that a contract may be commercial, it is necessary that it relates to a determinate, real and effective object of commerce, that is to say, commercial contracts shall be those governed by the Code of Commerce and those of analogous character." (b) According to Del Viso: "By commercial contract is understood the agreement between two or more merchants, and at times between those who are not, whereby they bind themselves to give or to do something in commercial transactions." (Villanueva, Phil. Code of Commerce, p. 105, citing II Blanco, p. 44 and Del Viso, p. 88.)

ART. 51. — Commercial contracts shall be valid and create an obligation and cause of action in suits, whatever may be the form or in whatever language they may be executed, the class to which they correspond, and the amount involved, provided their existence is proved by some of the means established by the civil law. However, the testimony of witnesses shall not in itself be sufficient to prove the existence of a contract wherein the amount involved exceeds 1,500 pesetas ($300.00) unless supported by other evidence.¹⁶

[Telegraphic correspondence shall only be the basis of an obligation between contracting parties who have previously admitted this medium in a written contract, and provided the telegrams fulfill the conventional conditions or conventional signs which may have been previously fixed and agreed to by the contracting parties.]¹⁷

ART. 52. — From the provisions of the foregoing article, the following shall be excepted:

1. Contracts which, in accordance with this Code or special laws, must be reduced to writing or for which certain methods or formalities are necessary to their validity.
2. Contracts executed in a foreign country in which the law requires certain instruments, methods, or formalities for their validity, although not required by Philippine law.

In either case, contracts which do not fulfill the requisites respectively demanded cannot serve as the basis for any obligation or cause of action in suits.

ART. 53. — Unlawful agreements cannot serve as the basis for any obligation or cause of action, even where they involve commercial transactions.

ART. 54. — Contracts entered into through correspondence shall be perfected from the time an answer is made accepting the proposition or the conditions by which the latter may be modified.

ART. 55. — Contracts in which an agent or broker mediates shall be perfected when the contracting parties shall have agreed to his offer.

(As regards stock brokers, dealers and salesmen, see the Revised Securities Act (BP Blg. 178).)

ART. 56. — In a commercial contract containing an indemnification clause against the person who fails to comply therewith, the party aggrieved may take legal steps to demand the fulfillment of the contract or the indemnity stipulated; but in resorting to either of these two actions the other one shall be annulled unless there is an agreement to the contrary.

¹⁶ Modified by the Statute of Frauds.

¹⁷ Repealed by Act No. 3098, which took effect on March 16, 1923.

ART. 57. — Commercial contracts shall be executed and complied with in good faith according to the terms in which they were made and drafted, without evading the honest, proper and usual meaning of written or spoken words with arbitrary interpretations, nor limiting the effects which are naturally derived from the manner in which the contractors may have explained their wishes and contracted their obligations.

ART. 58. — Should any difference appear between the copies of a contract presented by the contracting parties and an agent or broker having mediated in the execution thereof, what appears in the books of the latter shall govern, provided they are kept in accordance with law.

ART. 59. — Should any doubt arise which cannot be decided in accordance with the provisions of Article 2 of this Code, the question shall be decided in favor of the debtor.

ART. 60. — In all computations of days, months, and years, the following shall be understood: A day shall comprise twenty-four hours; the months according to the manner they are designated in the Gregorian calendar, and a year shall embrace three hundred and sixty-five days.

Bills of exchange, promissory notes, and loans are excepted, with regard to which the special provisions established by this Code shall be observed.

Rules adopted by Civil Code. — When the laws speak of years, months, days or nights, it shall be understood that years are of three hundred sixty-five days each; months, of thirty days; days, of twenty-four hours; and nights from sunset to sunrise.

If months are designated by their names, they shall be computed by the number of days which they respectively have.

In computing a period, the first day shall be excluded, and the last day included. (Art. 13)

(See also Sec. 13. Rev. Adm. Code; and Secs. 85 to 88, Negotiable Instruments Law.)

ART. 61. — Days of grace, courtesy, and others, which under any designation whatsoever defer the fulfillment of commercial obligations, shall not be recognized, but only those which the parties may have previously fixed in the contract, or which are founded on a definite provision of law.

ART. 62. — [Obligations which do not have a period previously fixed by the parties, or by the provisions of this Code, shall be demandable ten days after having been contracted, if they can only be the basis of an ordinary action, and on the next day if immediate execution lies.]

Repeal of this article. — This article has been superseded by Arts. 1179 and 1197, Civil Code, which provide as follows:

Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once.

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (Art. 1179).

If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (Art. 1197).

ART. 63. — The effects of default in the compliance with commercial obligations shall begin:

1. In contracts in which a day is fixed for their compliance by the will of the parties or by law, on the day following the one they fall due.
2. In contracts in which no such day is fixed, from the day on which the creditor legally makes demand upon the debtor or notifies him of the protest of losses and damages made against him before a justice, notary, or other public official authorized to admit the same.

Rules adopted by the Civil Code. — 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 obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

1. When the obligation or the law expressly so declares; or
2. 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 was a controlling motive for the establishment of the contract; or
3. When 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. (Art. 1169)

Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (Art. 1170).

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TITLE V — PLACES AND BUILDINGS ON COMMERCIAL TRANSACTIONS

ARTS. 64 to 87. (Superseded by the Securities Act, Com. Act No. 83, as amended.)

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TITLE VI — COMMERCIAL BROKERS AND THEIR OBLIGATIONS

ARTS. 88 to 115. (Superseded by the Securities Act, Com. Act No. 83, as amended.)

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BOOK TWO — SPECIAL COMMERCIAL CONTRACTS

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TITLE I — COMMERCIAL ASSOCIATIONS

SECTION 1 — Manner of establishing associations and their kind

ARTS. 116 to 124. (Repealed by Art. 2270, Civil Code.)

SECTION 2 — General Partnerships

ARTS. 125 to 144. (Repealed by Art. 2270, Civil Code.)

SECTION 3 — Limited Co-partnerships

ARTS. 145 to 150. (Repealed by Art. 2270, Civil Code.)

SECTION 4 — Anonymous Partnerships

ARTS. 151 to 159. (Repealed by Sec. 191, Corporation Law [Act No. 1459], as amended.)

SECTION 5 — Shares

ARTS. 160 to 169. (Repealed by Art. 2270, Civil Code; and by Section 191, Corporation Law [Act No. 1459], as amended.)

SECTION 6 — Rights and Obligations of Members

ARTS. 170 to 174. (Repealed by Art. 2270, Civil Code.)

SECTION 7 — Special rules for loan associations

ARTS. 175 to 176. (Impliedly repealed by the Corporation Law [Act No. 1459]; and superseded by the General Banking Act [Rep. Act No. 337].)

SECTION 8 — Banks of issue and discount

ARTS. 177 to 183. (Impliedly repealed by the Corporation Law [Act No. 1459], as amended; and by the General Banking Act [Rep. Act No. 337].)

SECTION 9 — Railroads and other public works companies

ARTS. 184 to 192. (Repealed and superseded by the Corporation Law [Act No. 1459], as amended.)

SECTION 10 — General warehouse associations

ARTS. 193 to 198. (Repealed and superseded by the Warehouse Receipts Law [Act No. 2137], as amended.)

SECTION 11 — Mortgage loan associations or banks

ARTS. 199 to 212. (Impliedly repealed by the Corporation Law [Act No. 1459], as amended; and by the General Banking Act [Rep. Act No. 337].)

SECTION 12 — Special rules for agricultural banks and associations

ARTS. 212 to 217. (Repealed and superseded by the General Banking Act [Rep. Act No. 337]; and by the Rural Banks' Act [Rep. Act No. 720], as amended.)

SECTION 13 — Expiration and liquidation of commercial associations

ARTS. 218 to 238. (Repealed and superseded by the Civil Code; and by the Corporation Law [Act No. 1459], as amended.)

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TITLE II — JOINT ACCOUNTS¹⁸

ART. 239. — Merchants may interest themselves in the transaction of other merchants, contributing thereto the part of the capital they may agree upon, and participating in the favorable or unfavorable results thereof in the proportion they may determine.

ART. 240. — In their formation, joint accounts shall not be subject to any formality, and may be privately contracted orally or in writing, and their existence may be proved by any of the means recognized by law, according to the provisions of Article 51.

ART. 241. — In the transactions referred to by the two preceding articles, no commercial name common to all the participants can be adopted, nor can any further direct credit be used than that of the merchant who makes and directs them in his name and under his individual responsibility.

ART. 242. — Those who contract with the merchant who carries on the business shall have a right of action against him only and not against the others interested therein, who shall also have no right against the third person who contracted with the manager, unless the latter formally cedes his rights to them.

(Now under Rep. Act No. 7353, approved April 2, 1992.)

¹⁸ Arts. 239 to 243 are still in force, and has not been repealed by the new Civil Code.

ART. 243. — The liquidation shall be made by the manager who, upon the conclusion of the transactions, shall render a verified account of their results.

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TITLE III — COMMERCIAL AGENCY

ARTS. 244 to 302.¹⁹ (Repealed by Art. 2270, Civil Code.)

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TITLE IV — COMMERCIAL DEPOSITS

ARTS. 303 to 310. (Repealed by Art. 2270, Civil Code.)

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TITLE V — COMMERCIAL LOANS

ARTS. 311 to 324. (Repealed by Art. 2270, Civil Code.)

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TITLE VI — COMMERCIAL PURCHASE AND SALE AND BARTER AND TRANSFERS OF NON-NEGOTIABLE CREDITS

SECTION 1 — Purchase and Sale

ARTS. 325 to 345. (Repealed by Art. 2270, Civil Code.)

SECTION 2 — Barter

ART. 346. — Commercial barter shall be governed by the same rules which are prescribed in this title for purchase and sale insofar as they are applicable to the circumstances and conditions of the former contract.

SECTION 3 — Transfers of non-negotiable credits

ART. 347. — Commercial credits which are neither negotiable nor payable to bearer may be transferred by the creditor without the necessity of the consent of the debtor, it being sufficient that he be informed of the transfer.

The debtor shall be obliged to the new creditor by virtue of the notification, and from the time it is made no payment shall be considered valid except that made to the latter.

ART. 348. — The assignor shall be liable for the legality of the credit and for the capacity in which he made the transfer; but not for the solvency of the debtor, unless there is an express agreement to that effect.

¹⁹ The Court of Appeals held that Arts. 281 to 302, referring to factors, employees and shop clerks were not repealed by the Civil Code. (Bernardo vs. Vasquez, 50 Off. Gaz. 5429.) However, the Supreme Court held that they were repealed by the new Civil Code. (Macleod & Co. vs. Progressive Federation of Labor, G.R. No. L-7887, May 31, 1955; Vera vs. Grove Shepherd, etc., 52 Off. Gaz. 274.)

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TITLE VII — COMMERCIAL CONTRACTS OF TRANSPORTATION OVERLAND

ARTS. 349 to 379. (Refer to Series Two, the Public Service Act, Admiralty and Maritime Law by CBSI Ed. Staff, 1998 Edition.)

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TITLE VIII — INSURANCE CONTRACTS

ARTS. 380 to 438. (Repealed by Sec. 204, The Insurance Act [Act No. 2427], as amended.)²⁰

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TITLE IX — COMMERCIAL GUARANTEES

ARTS. 439 to 442. (Repealed by Art. 2270, Civil Code.)

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TITLE X — CONTRACTS AND BILLS OF EXCHANGE

Scope of Articles 443-566, Code of Commerce. — These articles cover: Title X. — Contracts and Bills of Exchange; Title XI. — Drafts, Bills and Promissory Notes Payable to Order and Checks; and Title XII. — Instruments Payable to Bearer, and Forgery, Robbery, Theft, or Loss of the Same. These articles are now mainly superseded by the Negotiable Instruments Law (Act No. 2031).

Conflict of opinion as to the repeal. — There is a conflict of opinion as to whether all of these articles 443 to 566 have been repealed or not. Section 196 of the Negotiable Instruments Law, provides that: "Any case not provided for in this Act shall be governed by the provisions of existing legislation or in default thereof, by the rules of the law merchant." In Francisco's Code of Commerce, it says: "It is believed that, constituting as it does a comprehensive legislation designed to cover the subject of negotiable instruments in lieu of the Code of Commerce, the Negotiable Instruments Law has supplanted the provisions of the said Code on the same subject in their entirety and the 'existing legislation' mentioned in Section 196 thereof could have no reference to legislation of portions of legislation it has replaced but to other laws, such, for instance, as the Civil Code. However, other commentators are of the opinion — and this is the majority view — that some portions of the provisions are still in force, which are as follows:

²⁰ Now under Title 1 of the Insurance Code of 1978 (PD No. 1460), which took effect on Dec. 18, 1974. Refer to Series Four, the Insurance Code and Insolvency Law by CBSI Ed. Staff, 1993 Edition.

SECTION 1 — Forms of bills of exchange

ART. 443. — A bill of exchange shall be considered a commercial instrument, [and all the rights and actions arising therefrom, without distinction of persons, shall be governed by the provisions of this Code].

ART. 444. (Repealed by Secs. 1 and 126, NIL.)

ART. 445. — The clauses "value on account" and "value understood" shall make the purchaser of the draft liable for the amount of the same in favor of the drawer, in order to demand it or compensate him in the manner and at the time which both may have agreed on in making the exchange contract.

ARTS. 446 and 447. (Repealed by Secs. 19-21, NIL.)

ART. 448. — The drawers cannot refuse to issue to holders of the bills of exchange second and third bills, and as many as they may require on the same bill, provided the request is made before the bills fall due, excepting the provision of Article 500, there being stated in all of them that they shall not be considered valid except in case payment was not made on the first bill of exchange issued, or other prior ones.

ART. 449. — In the absence of duplicate copies of the draft issued by the drawer any holder may give the purchaser a copy, stating that he issues it in the absence of the original, which it is desired to substitute.

In this copy there must be inserted literally all the indorsements which the original contains.

ART. 450. (Repealed by Secs. 17[e] and 130, NIL.)

SECTION 2 — Periods and due dates of drafts

ART. 451. (Repealed by Secs. 4 and 7, NIL.)

ARTS. 452-453. (Repealed by Secs. 85, 86 and 194, NIL.)

ART. 454. — The months for the periods of drafts shall be computed from date to date.

If in the months the draft falls due there is no day equivalent to that of the date on which the bill was drawn it shall be understood that it falls due the last day of the month.

ART. 455. (Repealed by Sec. 127, NIL.)

SECTION 3 — Obligations of drawers

ARTS. 456-457. (Repealed by Sec. 127, NIL.)

ART. 458. — The expenses arising from the non-acceptance or nonpayment of the draft shall be paid by the drawer or by the third person for whose account it was made, [unless he proves that he supplied the funds at the proper time, or that he was a creditor in accordance with the foregoing article, or that he was specially authorized to draw for the amount in question.

In any of the three cases, the drawer may require of the person obligated to accept and to pay the indemnity for the expenses which he may have paid the holder of the draft].

ART. 459. (Repealed by Secs. 61, 89, 124 and 151, NIL.)

ART. 460. (Repealed by Secs. 61, 89, 102, 104 and 152, NIL.)

SECTION 4 — Indorsements of bills of exchange

ARTS. 461 to 464. (Repealed by Secs. 30-46, NIL.)

ART. 465. — Indorsements signed in blank and those in which the value is not stated shall transfer the ownership of the draft and shall produce the same effect as if "value received" were written therein.

ARTS. 466 to 468. (Repealed by Secs. 40, 63-67 and 69, NIL.)

SECTION 5 — Presentation of drafts and their acceptance

ART. 469. — Drafts which are not presented for acceptance or payment within the period fixed shall be affected thereby, as well as when they are not protested at the proper time.

ARTS. 470-477. (Repealed by Secs. 13 and 17[c], NIL, and by Art. 2270, Civil Code.)

ART. 478. — The acceptance of the draft must take place or be refused on the same day on which the holder presents it for this purpose, and the person of whom acceptance is demanded cannot retain the draft in his possession under any pretext whatsoever.

If the draft presented for acceptance is to be paid in a place other than that of the residence of the person accepting the same, the domicile in which payment is to be made must be stated in the draft.

The person who receives a draft for acceptance, if it is drawn on him, or to have it accepted if it is drawn on a third person, and should retain possession thereof expecting another copy, and shall advise its acceptance by means of a letter, telegram, or other means of writing, shall be liable to the drawer and indorsers thereof in the same manner as if the acceptance had been placed on the draft in question, even though such acceptance has not taken place, or even when he refuses the delivery of the copy accepted to the person legally requesting it.

ARTS. 479 to 484. (Repealed)

ART. 485. — Persons who forward drafts from one place to another too late to be presented or protested at the proper time shall be liable for the consequences which may arise by reason thereof.

SECTION 6 — Guaranties (Avals) and their effects

ART. 486. — The payment of a draft may be secured by a written obligation, independent of that contracted by the acceptor and indorser, known by the name of guarantee (aval).

Aval, defined. — A written obligation independent of that contracted by the acceptor and indorser, securing the payment of a bill of exchange. The guarantor is called the avalista. (Agbayani's Comm. Laws, Vol. 1.)

ART. 487. — If the guarantee (aval) is drawn up in general terms and without restriction, the person giving it shall be liable for the payment of the draft in the same cases and manner as the person for whom he appears as guarantor; but if the guarantee (aval) is limited as to a determined time, case, amount, or person it shall not produce further liability than that arising from the terms of the guarantee (aval).

SECTION 7 — Payments

ART. 488. (Repealed by Secs. 70 and 71, NIL.)

ART. 489. — Bills of exchange must be paid in the money designated therein, and if that could not be procured in its equivalent, according to the use and customs at the place of payment.

ART. 490. — The person paying a bill of exchange before it is due shall not be exempted from paying the amount of the same if the first payment was not made to a legitimate person.

ART. 491. — The payment of a bill of exchange payable to bearer, which is due shall be considered valid, unless a garnishment of the amount thereof by reason of a judicial judgment was previously issued.

ART. 492. — The holder of a draft, who requests its payment, is obliged to satisfy the person paying it as to his identity, by means of instruments or through residents who are acquainted with him or who will guarantee his identity.

The absence of this proof shall not prevent the deposit of the amount of the draft on the day of its presentation in an establishment or with a person accepted by the holder and payor, in which case the establishment or person shall retain the sum deposited in his or its possession until the legitimate payment is made.

The expenses and risks arising from this deposit shall be for the account of the holder of the draft.

ART. 493. — The holder of a draft shall not obliged to collect its amount before it falls due; but should he accept said payment it shall be valid, [except in case of the bankruptcy of the payor in the fifteen days following, in accordance with the provisions of Art. 879.]

ART. 494. — Neither shall the holder be obliged, even after the draft has fallen due, to receive part and not the whole amount of the same, and only with his consent may a portion of its value be paid and the balance be left standing.

In such case the draft may be protested for the amount which has not been paid, and the holder shall retain possession thereof, making a memorandum on the same of the amount collected and giving a separate receipt for said amount.

ART. 495. — Drafts accepted must necessarily be paid on the copy which contains the acceptance.

If the payment is made on any of the other ones, the person who made the payment shall be liable for the value of the draft to the third person who is the legitimate holder of the acceptance.

ART. 496. — The acceptor cannot be forced to pay, even though the holder of the copy not containing the acceptance binds himself to give security to the satisfaction of the former; but in the latter case the bearer may demand the deposit and formulate the protest in the terms mentioned in Art. 498.

If the acceptor voluntarily admits the security and makes the payment, the former shall be legally cancelled as soon as the acceptance has prescribed which gave rise to the execution of the security.

ARTS. 497 to 499. (Repealed.)

ART. 500. — The request for a copy to take the place of the draft lost must be made by the last holder, from the person who transferred it to him, and thus successively from one to another endorser until the drawer is reached.

No person can refuse to lend his name and interposition to the steps taken to procure a new copy, the owner of the draft defraying the expenses which may arise until it is obtained.

ART. 501. — The payments made on account of the value of a draft by the person on whom it is drawn shall reduce the liability of the drawer and indorsers in like proportion.

SECTION 8 — Protests

ART. 502. (Repealed by Sec. 152, NIL.)

ART. 503. — All protests on account of nonacceptance or nonpayment place the person who gives rise thereto under the obligation to defray the expenses, losses, and damages.

ARTS. 504 to 508. (Repealed.)

ART. 509. — No act or instrument can supply the omission and absence of the protest for the preservation of the action which may be instituted by the holder against the persons liable for the legal effects of the draft.

ART. 510. (Repealed.)

SECTION 9 — Intervention in the acceptance and payment

ART. 511. (Repealed.)

ART. 512. — [The person who intervenes in the protest of a bill of exchange, if he accepts it, shall be liable for its payment in the same manner as if it were drawn on him, being obliged to give notice of its acceptance by the first mail to the person for whom he intervened] and should he pay it, he shall be subrogated to the rights of the holder, complying with the obligations prescribed for the latter, with the following limitations:

1. If he pays said draft for the account of the drawer, the latter only shall be liable for the amount disbursed, the indorsers being free.
2. If he pays it for the account of one of the latter, he shall be entitled to bring an action against the drawer, against the indorser for whose account he intervened, and against the others who precede said indorser in the order of their indorsements, but not against those who may be subsequent.

ART. 513. — The intervention in the acceptance shall not deprive the holder of the draft protested of the right to demand of the drawer or of the indorsers the security for the results.

ART. 514. — If the person who did not accept a draft, giving rise to a protest thereby, should appear to pay it when it falls due, his payment shall be accepted in preference to that of the person who intervened or wished to intervene for the acceptance or payment; but the expenses caused by the nonacceptance of the draft at the proper time shall be for his account.

ART. 515. (Repealed by Sec. 177, NIL.)

SECTION 10 — Actions which may be instituted by the holder of a bill of exchange

ART. 516. — In default of the payment of a bill of exchange presented and protested at the proper time and in the proper manner, the holder shall have a right to demand of the acceptor, of the drawer, or of any of the indorsers the reimbursement for the costs of protest and rechange; [but after an action has been instituted against one of them, it cannot be brought against the rest except in the case of the insolvency of the defendant.]

ART. 517. (Repealed.)

ART. 518. — If an execution has been had against the property of the debtor for the payment or reimbursement of a draft and the holder should have been able to realize only a part of his credit, he may bring an action against the rest for the balance of his account until he is fully reimbursed, in the manner established in Article 516.

The same shall be done in case the person proceeded against is declared in bankruptcy, and if all the persons liable for the draft are in similar circumstances, the claimant shall be entitled to recover from each set of assets the corresponding dividend until his credit is totally cancelled.

ART. 519. — The indorser who pays a protested draft shall subrogate himself to the rights of the holder thereof, viz.:

1. If the protest were for nonacceptance against the drawer and the other indorsers who precede him in order, for the security of the value of the draft, or the deposit in the absence of security.
2. If it were for nonpayment, against the said drawer, acceptor, and prior indorsers for the recovery of the amount of the draft and of all the costs he may have paid.

If the drawer and the indorser both should appear to make the payment, the drawer shall be preferred; and if the indorsers only should appear, the one of a prior date.

ART. 520. — The drawer as well as any of the indorsers of a protested bill of exchange may demand, as soon as they receive notice of the protest, that the holder receive the amount with the legitimate expenses, and deliver to them the draft with the protest and the account of the re-draft.

ARTS. 521 to 523. (Repealed.)

ART. 524. — The amount which a creditor remits or releases a debtor against whom an action has been brought from the payment or reimbursement of a bill of exchange, shall be understood as extended also to the rest who may be liable for the effects of the collection.

ART. 525. — The prescription of a protested draft shall not have any effect by reason of non-presentation, protest, or its notification at the times which have been stated, with regard to the drawer or indorser who, after said periods have elapsed, has balanced the amount of the draft in his accounts with the debtor or reimbursed him with bonds or securities belonging to him.

ART. 526. — Bills of exchange protested by reason of non-payment shall earn interest in favor of the holders thereof from the date of the protest.

SECTION 11 — Re-exchange and re-draft

ART. 527. — The holder of a protested bill of exchange may recover the amount thereof and the costs of protest and re-exchange by drawing a new bill against the drawer or one of its indorsers and attaching to this draft the original one, as well as the certified copy of the protest and the account of the re-draft, which shall only contain the following clauses:

1. The amount of the bill of exchange protested.
2. Protest costs.
3. Stamp tax for the re-draft.
4. Exchange according to the customs of the place.
5. Brokerage of the transaction.
6. Expense of the correspondence.
7. Loss by reason of the re-exchange.

In this account there shall be stated the name of the person on whom the re-draft is made.

ART. 528. — All the items of the re-draft shall conform to the usages of the place, [and the re-exchange to the current rate of the day of the draft. This will be proven by the official quotation on exchange, or by means of a certificate of an official agent or broker, should there be one, and in their absence by that of two recorded merchants].

ART. 529. — Only one account or re-draft can be made for each bill of exchange, which account shall be paid by the indorsers of one or the other until it is extinguished by means of the reimbursement of the drawer.

ART. 530. — The holder of a re-draft cannot demand legal interest thereon until after the day he demands payment of the person who is to pay it, in the manner prescribed in Article 63 of this Code.

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TITLE XI — DRAFTS, BILLS, AND PROMISSORY NOTES PAYABLE TO ORDER AND CHECKS

SECTION 1 — Drafts, bills, and promissory notes payable to order

ARTS. 531 to 533. (Repealed.)

SECTION 2 — Checks

ART. 534. — The order to pay, known in commerce by the name of check, is an instrument which permits the drawer to withdraw for his benefit or a third person, the whole or part of the funds he may have at his disposal in the hands of the drawee.

ART. 535. (Repealed.)

ART. 536. — It may be drawn in the same place it is to be paid, or in a different place, but the maker shall be obliged to previously have the funds on deposit with the person on whom it is drawn.

ARTS. 537 and 538. (Repealed.)

ART. 539. — Payment of a check shall be demanded of the depository on presentation.

ART. 540. (Repealed.)

ART. 541. — The maker or any legal holder of a check shall be entitled to indicate therein that it be paid to a certain banker or institution, which he shall do by writing across the face the name of said banker or institution, or only the words "and company."

The payment made to a person other than the banker or institution shall not exempt the person on whom it is drawn, if the payment was not correctly made.

ART. 542. (Repealed.)

ART. 543. — The foregoing provisions, in so far as they are applicable, shall govern pay orders known by the name of stubs, in current account, of banks or institutions.

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TITLE XII — INSTRUMENTS PAYABLE TO BEARER, AND FORGERY, ROBBERY, THEFT, OR LOSS OF THE SAME

SECTION 1 — Instruments payable to bearer

ARTS. 544 and 545. (Repealed.)

ART. 546. — The holder of an instrument payable to bearer shall have a right to compare it with the original whenever he considers it advisable.

SECTION 2 — Robbery, theft, or loss of instruments of credit and those payable to bearer

ART. 547. — The following shall be instruments of credit payable to bearer for the effects of this section, according to the cases:

1. Instruments of credit against the State, provinces, or municipalities, legally issued.
2. Those issued by foreign countries the quotation of which has been authorized by the Government, on the recommendation of the board of directors of the association of agents.
3. Instruments of credit payable to bearer, of foreign enterprises, established in accordance with the law of the State to which they belong.
4. Instruments of credit payable to bearer issued in accordance with the laws of their association by national establishments, associations, or enterprises.
5. Those issued by private parties, provided they are mortgaged or are sufficiently secured.

ART. 548. — The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be not paid a third person, as well as in order to prevent the ownership of the instrument from being transferred to another person, or he may request that a duplicate be issued him.

The judge or court exercising jurisdiction in the district in which the debtor establishment or person is situated, shall be of competent jurisdiction.

ART. 549. — In the complaint made to the judge or court by the dispossessed owner he must state the name, character, nominal value, number if it should have one, and the series of the instrument; and furthermore, if it were possible, the time and place he acquired ownership and the manner of acquisition thereof, the time and place where he received the last interest or dividends, and the circumstances attending the dispossession.

The person dispossessed, in making the complaint, shall indicate within the district in which the judge or court of competent jurisdiction exercises the domicile where he is to be served with all notification.

ART. 550. — If the complaint relates only to the payment of the principal or interest or dividends which are due or about to become due, the judge or court, when the legality of the acquisition of the instrument has been proved, must admit said complaint immediately ordering:

1. That the complaint be immediately published in the Gacetas of Madrid and Manila, in the Boletin Oficial of the province, and in the Diario Oficial de Avisos of the place, should there be one fixing a short period within which the holder of the instrument may appear.
2. That it be communicated to the managing office of the institution which issued the instrument, or to the association or private person from whom it originates, in order that the payment of the principal or interest may be suspended.

ART. 551. (Repealed.)

ART. 552. — After one year has elapsed since the complaint without anybody, contradicting it, and if in the interval two dividends have been distributed, the complainant may request the judge or court for authority not only to recover the interest or dividends due or about to become due, in the proportion and means of their collectibility, but also the principal of the instruments, if it is demandable.

ART. 553. — After authorization has been granted by the judge or court, the person dispossessed must, before receiving the interest or dividends, or the principal, give sufficiently security to cover the amount of the anuities recoverable, and, furthermore, twice the amount of the last annuity due.

After two years have elapsed from the date of the authorization without the complainant being contradicted, the guaranty shall be cancelled.

If the complainant does not wish to or cannot give the security, the debtor association or private person may request the deposit of the interest or dividends past due or of the principal recoverable, and to receive after the two years the amount deposited if there be no objection.

ART. 554. — If the principal should be recoverable after the authorization, it may be demanded under security or the deposit may be required.

After five years have elapsed, without opposition, from the date of the authorization, or ten years from the date it was demandable, the person dispossessed may receive the securities deposited.

ART. 555. — The solvency of the guaranty shall be passed upon by the judges and courts.

The complainant may give security in bonds of the State, recovering them at the termination of the period fixed for the guaranty.

ART. 556. — If the complaint relates to coupons payable to bearer separated from the instrument, and the claim should not be overruled, the claimant may recover the amount of the coupons after three years have elapsed, counted from the date of the judicial declaration admitting the complaint.

ART. 557. — The payments made to the person dispossessed in accordance with the rules above established exempt the debtor from all liability; and a third person who considers himself injured shall only retain the right of personal action against the claimant who acted without just cause.

ART. 558. — If, before the exemption of the debtor, a third holder should appear with the instruments the subject of the complaint, the former must retain possession thereof and inform the judge or court and the first claimant, at the same time stating the name, residence, or manner in which the third holder may be found.

The appearance of a third person shall suspend the effects of the claim until it is decided by the judge or court.

ARTS. 559 to 565. (Repealed.)

ART. 566. — The foregoing provisions shall not be applicable to the bank notes of the Spanish Philippine Bank (Banco Español-Filipino), nor to notes of the same kind issued by institutions subject to the same rule, nor to instruments payable to bearer issued by the State, which are governed by special laws, decrees, or regulations.

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TITLE XIII — LETTERS OF CREDIT

ART. 567. — Letters of credit are those issued by one merchant to another, or for the purpose of attending to a commercial transaction.

ART. 568. — The essential conditions of letters of credit shall be:

1. To be issued in favor of a determined person and not to order.
2. To be limited to a fixed and specified amount, or to one or more indeterminate amounts, but all within a maximum sum the limit of which must be exactly stated.

Letters of credit which do not have one of these conditions shall be considered simply as letters of recommendation.

Letters of credit of the Code of Commerce are not negotiable instruments. — A letter of credit, being issued in favor of a determined person and not to order, is not a negotiable instrument under Act No. 2031. (See: Sec. 1(d), Negotiable Instruments Law.)

ART. 569. — One who issues a letter of credit shall be liable to the person on whom it was issued for the amount paid by virtue of the same within the maximum fixed therein.

Letters of credit cannot be protested, even when not paid, nor can the holder thereof acquire any right of action for said nonpayment against the person who issued it.

The payor shall have a right to demand the proof of the identity of the person in whose favor the letter of credit was issued.

ART. 570. — The drawer of a letter of credit may annul it, informing the bearer and the person to whom it is addressed of said revocation.

ART. 571. — The holder of a letter of credit shall pay the drawer the amount received without delay.

Should he not do so, an action including attachment may be brought to recover said amount with the legal interest and the current exchange in the place where the payment was made on the place where it was repaid.

ART. 572. — If the holder of a letter of credit does not make use thereof within the period agreed upon with the drawer of the same, or, in the absence of a fixed period, within six months from its date in any point of the Philippines, and within twelve months outside thereof, it shall be void in fact and in law.