STUDIES ON SPANISH-PHILIPPINE PRIVATE LAW
Papers of the Private Law of the Philippines and Spain International Scientific Congress

RELATIONS BETWEEN THE SPANISH AND PHILIPPINE COMMERCIAL CODES

Prof. Dr. Eugenio Olmedo Peralta
Senior Lecturer of Commercial Law
Universidad Loyola-Andalucía

Abstract:

Spain and the Philippines share more than just three centuries of common history, but they also have in common a legal background that still links nowadays both countries. This is the case of Commercial Law, for both countries have shared and still share the provisions of the same Code of Commerce of 1885. However the evolution of the Code and the rest of the Commercial regulations in both countries has followed two different ways in order to answer to the legal, political and economic requirements of both countries. In this presentation we will consider some of these evolutions in order to conclude that Commercial Law is –above all- a historical notion.

Keywords:
Code of Commerce – Spain – Philippines – Evolution of Commercial Law – Maritime Law – Sainz de Andino – Codification – Re-codification.

The common beginning of the Spanish and Philippine Commercial regulation

The scope of this intervention is to discuss the different evolutions that both Spanish and Philippine Commercial Law have suffered throughout the last two Centuries and to reflect on the reasons of this diverse evolution. The starting point –but also the main conclusion- of these reflections is undoubtedly the historical character that defines Commercial Law. The most important authors in the Commercial Law literature have agreed that Commercial Law is a historic notion. This means that the problem of defining the concept of “Commercial Law” is not a conceptual matter but a historical one, for its definition depends on a determinate historical moment and a concrete legislation. Among this authors we must point out professor Joaquín Garrigues in Spain and Francesco Galgano in Italy. In these pages we will discuss how along with the historical moment that the regulation must face, the geographical situation, the international relations and the different problems of every country constitute important elements that determine the evolution of Commercial Law.

The first connections between Spanish and Philippine Commercial Laws date back to the common historical background of both Countries in the colonial times and the very starts of the Spanish Codification. This way, the Spanish Constitution of 1812 stablished that the Civil, Criminal and Commercial Codes will be common for the whole Monarchy, without prejudice to the variations that for particular circumstances the Parliament might introduce. This constitutional precept set up the unity of legislation for all the Spanish territories in the fields of private and criminal Law. To comply with this constitutional mandate, the Andalusian jurist Pedro Sainz de Andino drew up the first Spanish Commercial Law, which was adopted by the King Fernando VII the 30th May 1829.

This first Spanish Commercial Code was enforced in all the territories that in the moment were part of the Spanish Monarchy, including the East Indies and, obviously, the Philippines. From a legal point of view the Code of 1829 was considered the best code of commerce of its time. This Code followed the footsteps stablished by the French Code de Commerce of 1807, but the Spanish did modernize the regulation in many aspects. However the influence of the French Code in the first Spanish Commercial Code was not so strong as the influence that the French Civil Code had -60 years latter- on ours. Despite of being wholly influenced by the French code in its nuclear parts, the Sanz de Andino’s Code followed closely the Spanish Commercial Law tradition already stablished in the Bilbao Ordinances of 1737 and the Law of Castile. In parallel to the redaction of this Code in 1829 were also enforced the Consular Ordinances of Málaga, whose effects were very limited because of the adoption of the Code.

The Spanish Code of 1829 produced two important effects on the basis of the Spanish private Law. First of all, and because of the delay of the first Spanish Civil Code until 1889, the Commercial Code had to face some legislative lacks that had to be filled by a Civil Law regulation that was not born yet. And secondly –and mainly- the Spanish Commercial Code stablished the division of the Spanish private Law in a Commercial and a Civil regulation, a division that is not present in all the Countries. This way, the Code of 1829 set the basis of the Spanish dual regulation of the private Law that lasts until our days, despite the legislative efforts to unify the private Law at least with regards to the contracts.

The Code of 1829 was followed by several development laws, such as an Act for the Commercial and Business Proceeding (1830), and many regulations regarding to the stocks market, banking, corporate Law and other commercial topics. This profusion of commercial laws justified the need for a new Code of Commerce, which was approved in 1885. According to the memorandum of this text, its redaction was a response to the situation of legal confusion and anarchy generated by the proliferation of laws after the Code of 1929, which needed some consolidation.

The second Spanish Commercial Code was approved the 22nd August 1885 and it replaced the earlier. It was composed of four Books, divided in titles, sections, paragraphs and articles.  The first book referred to the «Merchants and commerce in general» (arts. 1-115); the second one to the «special commercial contracts» (arts. 116-572); the third, to «maritime commerce» (arts. 573-869); and the Fourth to the «suspension of payments, bankruptcies and prescriptions» (arts. 870-955).  

The redaction of this Code was a reaction to the need of a new regulation of Commercial matters. The works for its redaction started in 1834 and they implied a long and complex process of reform and modernization of the Code of 1829, in which seven different Commissions took part trying to improve the regulation of the Spanish Commercial Law.

The initial geographical scope was defined in article 1 of the Royal Decree, which considered that «The Code of Commerce referred to shall be observed as a law in the Peninsula and adjacent islands, from January 1, 1886». This Royal Decree implementing the Code of Commerce was signed by the King Alfonso XII and the Secretary of Grace and Justice, Francisco Silvela, and it stated:

«Don Alfonso XII, by the grace of God, constitutional King of Spain:
Known all ye who see and understand these presents, that the Cortes have decreed and we have sanctioned the following:
First and last article. The Secretary of Grace and Justice is hereby authorized to publish as a law the annexed project of a Code of Commerce.
Therefore, we order all superior courts, justices, chiefs, governors, and other authorities, civil as well as military and ecclesiastical, of whatsoever class and dignity, to observe and enforce the observance, comply and execute the present law in all its parts»

The need to extend its implementation to the territory of the colonies that in that moment were limited to Cuba, Porto Rico and the Philippines was faced by successive decrees. This way, a Royal Decree of January 28th 1886 extended the Code to the islands of Cuba and Porto Rico and another Royal Decree of August 6th 1888 extended it to the Philippines. After its extension to the Philippines, the Code was amended by the Law of June 10th 1897.

The Royal Decree of August 6th 1886, extended the Code of Commerce in force in the Peninsula to the Philippines, considering some modifications. This Decree stated:

«The general commission on codes of the colonial department having introduced in the code of commerce in force in the Peninsula the modifications and changes required by the different culture, commercial usages, and the geographic situation of said islands, in order that it may be applied in the same in accordance with said commission, on the recommendation of the colonial secretary and by virtue of the authority granted my government by article 89 of the constitution of the Monarchy, in the name of my August Son, the King Don Alfonso XIII, and as Queen Regent of the Realm, I hereby decree the following:
Article 1. The annexed code of commerce for the Philippine Islands is hereby approved.
Art. 2. This code shall go in operation in the same fifteen days following its publication in the Gaceta de Manila (…)».  

The Code was published –with the modifications necessary for its adaption- in the Philippines in the Gacetas of Manila of November 3 to 16 of 1888, from which latter date the fifteen days are to be computed, which, according to the Royal Decree of August 6th 1888, must pass from the date of its publication in order that it might be considered in force in the archipelago. Thanks to the royal decrees of 1886 and 1888, the provisions of the Spanish Code of Commerce of 1885 were of general application in the entire Kingdom, the Spanish Antilles and the Philippines. It was thus decided by the Supreme Court with regards to the code of 1829 in its decisions of May 26th 1866 and April 2nd 1862 according to which said code was promulgated for the entire Kingdom as a universal law with regard to commercial subjects and questions, with the high purpose of unifying the legislation in this respect and founded on the unalterable principles of Justice.

However, provided that the Spanish Code of 1885 did not contain any derogative clause, we had to consider that –until the adoption of the Spanish Insolvency Act 2003- some precepts of the previous Code of 1829 continued in force, mainly regarding to bankruptcy.  

After the Spanish loss of the Philippines in 1898, the Code remained in force during the period of American Rule of the Philippine Islands. This way, the legal inheritance that the Philippines received from Spain influenced the foundations of its legal system. The Spanish Codification stablished a legal system of civil law in the Philippines which was maintained during the period of American Rule, even though the United States is a common law jurisdiction. To maintain the validity of the Spanish Code, the Division of Customs and Insular Affairs of the War Department adopted a translation of the Code of Commerce in October 1899 which is partly still into force. However, as we will consider, some American common law principles influenced the Philippine legal system by way of legislation and by judicial pronouncements.

The Code of 1885 takes the basis of an objective conception of Commercial Law even when it introduces many connections with a subjective system. In order to define the scope of Commercial Law –and in contrast to Civil Law- article 2 of the Code states that «Commercial transactions, be they executed by merchants or not, whether they are specified in this Code or not, shall be governed by the provisions contained in the same (…)». Thus, without regard of the fact that the executor of the acts is a merchant or not, the commercial transactions specified in the Code or similar to those will be subjected to commercial regulations. Nevertheless, along the text of the Code of Commerce we find many references to the need of the participation of a merchant in order to consider a transaction or a contract of commercial nature (e.g. joint accounts –art. 239-, agents –art. 244-, commercial deposits –art. 303-, commercial loans –art. 311-, transportations –art. 349-, etc.). Along with that the current system of Commercial Law into force both in Spain and in the Philippines is based on the idea of the entrepreneur as the subject of commercial regulations.

Considering its contents, this Code has been said to have been obsolete since its very adoption in many aspects (maritime transport, for instance). However its regulation is far richer than the one of the Code of 1829. It considers some institutions that did not have any regulation under the previous code (stock market, checks, fire insurance…), but we find in it some important deficiencies, among which, the most important is the weak and deficient regulation of corporations.  These lacks had to be filled with successive reforms and laws that followed two different ways in Spain and in the Philippines and that were influenced by different factors in both Countries.

• Diverse legislative developments from 1898

After 1898, and notwithstanding the fact that the Spanish Code of 1885 was still into force in the Philippines, the successive evolutions of the Commercial regulations of both countries have followed different paths and have been defined by the historical situation of both Countries throughout the XX Century so as by the different legislative requirements.

In Spain, the evolution of the Commercial Law during the last 100 years has been defined by the historical moment of the Country. This way, we can consider two different stages of evolution. The first one started with the adoption of the Code of Commerce of 1885 and lasted until the end of the dictatorship of Franco in 1975. This phase was defined by a limited decodification process and a limited legislative activity. The Code of Commerce was becoming more and more obsolete as time passed and reforms were not faced. Nevertheless, during this period we have to point out some important laws, such as the Public Companies Act of 1951; the Private Liability Companies Act of 1953; the Commercial Registry Regulation of 1956; the Law for the repression of anticompetitive practices of 1963; the Statute of the Industrial Property of 1929; or the Law of the Maritime Transport of Goods under Bill of Landing of 1949.

The second stage of the evolution of the Spanish Commercial Law has had a broaden impact. This phase is defined by two main factors: firstly the consolidation of democracy and its principles which have influenced the whole legal system; and, secondly, and with more impact in the Commercial matters, the accession of Spain to the European Union in 1986 and the influence of the Community regulations. Under this phase, the most important laws were approved, such as the Public Companies Act of 1989 and the Private Liability Companies Act of 1995 –both recast in the Spanish Companies Law of 2010-; the current Commercial Registry Regulation of 1996; the Competition Acts of 1989 and 2007; the Act against unfair competition of 1991; the Patent Act of 1986; the Trademark Acts of 1988 and 2001; the Intellectual Property Law of 1992, refunded in the one of 1996; the Cooperatives Act of 1999; the Bill of Exchange and Check Law of 1985; the Insurance Contract Act of 1980; the Act on the Agency Contract of 1992; the Insolvencies Act of 2003; or the recent Maritime Navigation Act of 2014 (among many others).

This legal evolution represents the current process of decodification that has suffered the Spanish Commercial Law throughout the last decades. The Code of Commerce has been progressively emptying and new acts have regulated some topics that once where part to the Code (companies, bill of exchanges and checks, insolvency regulation, recently sea transportation…). However in the late years we find two tendencies. The first one aims to rationalize the existing rules by offering a new regulation, recasting in one act the scattered and antiquated legislation in some topics (companies, insolvencies, intellectual property…). The second tendency is of greater interests and refers to the efforts to create a new Mercantile Code. The 7th November 2006 an Order of the Ministry of Justice entrusted the Commercial Section of the General Codification Commission the elaboration of a Mercantile Code in order to substitute the old Code of Commerce and integrating and delimitating the current commercial regulation, modernizing and completing as far as needed the existing regulation affecting to the private legal relations according to the exigencies of the market unity. The proposal for a Code was finished and delivered to the Ministry of Justice the 17th June 2013. Maybe the most important novity of the draft text is to consider the «market operator» as a center of the system, and not the old concepts of entrepreneur or undertaking. Thus, as the main subject of Commercial Law, the market operator might be an entrepreneur or any other professional, that is, any person executing an organized economic activity in the market consisting in the production or exchange of goods or the provision of services (including the agriculture, handcraft and liberal professions).

This important change of the optic of the text means that the proposed Code is not just a modernization of the existing Code of Commerce, but it tries to stablish a new system for the Spanish commercial law that overpasses the old conceptions and enshrines the Commercial Law as the Law of the Market. To do that the Code disciplines new contracts and new institutions that, although they are currently used, are atypical in our system, for example electronic commerce. Finally, the Code aims to guarantee the needed unity of Law requested to regulate the economic activity in the market of goods and services.

The Proposal for a Code of Commerce became a draft bill for a Code last May 2014, even when its future adoption is still under doubts. The text under processing is composed by a Preliminary Title considering the scope of Commercial Law and seven books, dedicated respectively to:

• The entrepreneur and the undertaking
• Commercial companies
• Competition Law
• Commercial obligations and contracts in general
• Commercial contracts in particular
• Letters of commerce and other instruments for the payment and the credits
• Limitation and prescription periods

The Philippines also had to face the problem of the inadequacy of the regulations of the Spanish Code of Commerce during the XX Century. In this case, although its provisions were conserved into force during the period of American Rule, as time passed the provisions considered in the Code became more and more inappropriate to discipline the Commercial issue.

However, in this case the evolution suffered by the Philippine Commercial Law was influenced by the very needs and special requirements of the islands. This way, there are still some important portions of the Spanish Code of Commerce that are still applicable –after its official translation into English-. Along these parts that remain still into force, we can mention:

• The regulation merchants, the book of merchants and the general provision of contracts
• The joint account association
• The commercial barter
• Transfers of non-negotiable credits
• Commercial contracts of overland transportation
• Letters of credit
• Maritime commerce

In other topics, the need to modernize the old Spanish regulation was greater, and this motivated the adoption of some special commercial laws regarding some important issues. Among them, it is to point out the following:

• Corporation Code of the Philippines (Batas Pambansa Bilang 68, May 1, 1980)

Before the adoption of this Corpora Law, the part of the Code of Commerce considering that issue had already been abrogated. This Code is formed by an act providing for the formation and organization of corporations defining their powers, fixing the duties of directors and other officers thereof, declaring the rights and liabilities of shareholders and members, prescribing the conditions under which such corporations may transact business, and repealing certain articles of the Code of Commerce and all laws or parts of laws in conflict or inconsistent with this act.

However, not all the commercial partnership are regulated in the Code of commerce, for the Philippine Civil Code still provides some rules regarding the partnership contract, and among them, we have to consider some regulation of the personal partnerships. This way, article 1767 of the Civil Code states that «by the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves».

Along with the general partnership articles 1843 and following of the Philippine Civil Code set the regulation of the limited partnership, which would be the equal to the Spanish sociedad comanditaria. The very definition of this partnership states that «A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership».

• Intellectual Property Code (Republic Act No. 8293, June 6, 1997)

The very limited regulation of Intellectual Property matters in the Spanish Civil Code and the Code of Commerce revealed the need for a new regulation of intellectual property issues. Being a part of the World Intellectual Property Organization since 1970 also contributed to the reform of the Philippine Intellectual Property Law.

It is noteworthy the fact that in this very topic the American influence has been higher, for in the new regulation, the Philippines adopt a system of Intellectual Property of an Anglo-Saxon nature, that is, considering this integrated by copyright, trademarks, patents, and other rights of industrial nature. As is generally known, Spain and other European countries still have the traditional distinction between Intellectual Property –referring mainly to copyright- and Industrial Property –which refers to patents, trademarks and other intellectual rights used in the industry and commerce-.

The Intellectual Property Code of the Philippines is then divided into 5 parts, regarding successively to the Intellectual Property Office, the Law on patents, the Law on trademarks, service marks and trade names, the Law on copyright and some Final provisions.

The Philippine Intellectual Property regulation was amended by the Republic act No. 9150, providing an act for the protection of layout-designs (topographies) of integrated circuits, modernizing the regulations with regards to the informatics industry.

• Negotiable Instruments Law – Act No. 2031, February 3, 1911

Because of the important deficiencies of the Spanish code on this topic and the important development that negotiable instruments had had in the United States since the XIX Century, one of the first Commercial provisions adopted in the Philippines during the XX Century was the Negotiable Instruments Law.  

According to section one of the Law, «An instrument to be negotiable must conform to the following requirements:

• It must be in writing and signed by the maker or drawer;
• Must contain an unconditional promise or order to pay a sum certain in money;
• Must be payable on demand, or at a fixed or determinable future time;
• Must be payable to order or to bearer; and
• Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty».

• Competition Law

Without a doubt, Competition Law is the part of Commercial Law that has suffered a more unequal evolution in Spain and in the Philippines. While Spanish regulation was boosted by its integration in the European Union, which required the adoption of the whole regulation of the Union and the Common Market, the Philippines have not been influenced by that integration and, neither, for any integration in a supranational institution.

Because of that, the regulation of Competition Law in the Philippines is still very incipient, does not face all the competition problems and is mostly influenced by the way of understanding Competition Law and policy in the United States.  

Nowadays, the main base for the Philippine Competition Law is section 19 article XII (National Economy and Patrimony) of its Constitution, which states that «the State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed».

This provision has been followed by a criminal prosecution of anticompetitive practices. This penal sanction of monopolies is a characteristic of the American system. Concretely, article 186 of the Philippine Penal Code states a provision about monopolies and combinations in restraint of trade:

«The penalty of prision correccional in its minimum period or a fine ranging from 200 to 6,000 pesos, or both, shall be imposed upon:

• Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the market;
• Any person who shall monopolize any merchandise or object of trade or commerce, or shall combine with any other person or persons to monopolize and merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other article to restrain free competition in the market;
• Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an importer of any merchandise or object of commerce from any foreign country, either as principal or agent, wholesaler or retailer, shall combine, conspire or agree in any manner with any person likewise engaged in the manufacture, production, processing, assembling or importation of such merchandise or object of commerce or with any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing the market price in any part of the Philippines, of any such merchandise or object of commerce manufactured, produced, processed, assembled in or imported into the Philippines, or of any article in the manufacture of which such manufactured, produced, or imported merchandise or object of commerce is used.chanrobles virtual law library

If the offense mentioned in this article affects any food substance, motor fuel or lubricants, or other articles of prime necessity, the penalty shall be that of prision mayor in its maximum and medium periods it being sufficient for the imposition thereof that the initial steps have been taken toward carrying out the purposes of the combination.
Any property possessed under any contract or by any combination mentioned in the preceding paragraphs, and being the subject thereof, shall be forfeited to the Government of the Philippines.chanrobles virtual law library
Whenever any of the offenses described above is committed by a corporation or association, the president and each one of its agents or representatives in the Philippines in case of a foreign corporation or association, who shall have knowingly permitted or failed to prevent the commission of such offense, shall be held liable as principals thereof».hanrobles virtual law library

An important instrument used in the Philippines to protect commerce mainly in some periods of special need is the Price Act (Republic Act No. 7581, May 7, 1992), stating an act providing protection to consumers by stabilizing the prices of basic necessities and prime commodities and by prescribing measures against undue price increases during emergency situations and like occasions. This act contains some instruments to ensure the availability of basic necessities and prime commodities at reasonable prices at all times without denying legitimate business a fair return on investment. It also aims to provide effective and sufficient protection to consumers against hoarding, profiteering and cartels, with respect to the supply, distribution, marketing and pricing of said goods, especially during periods of calamity, emergency, widespread illegal price manipulation and other similar situations.

• Maritime Commerce

The old Spanish regulation contained in the Code of Commerce is still into force to regulate the maritime commerce of the Philippines. However this regulation must be completed with articles 1732 to 1766 of the Civil code, regulating the contracts of work and labor by a carrier. The importance of this regulation in the Philippines is noteworthy because of its own geographical configuration, formed by an archipelago of 7.107 islands and the need of the maritime transport –both of goods and of passengers- to cover these distances.

However the regulation of the Code of Commerce is no longer suitable to offer solutions to most of the problems in the field of see transportation. This inadequacy has been revealed from the fact that the Spanish doctrine brought to light time ago that some of its norms offered incomplete solutions to most of the legal problems in sea transportation. Because of that –and after a long time of discussion and processing- the Maritime Navigation Act was finally adopted in July 2014, modernizing the regulation of the Code of Commerce and giving solution to most of the problems that the old regulation generated.    

From an International point of view, despite the fact of the importance of the transport of passengers by sea in the Philippines, the Archipelago is not party to the Athens Convention relating to the carriage of passengers and their luggage by sea (13 December 1974). The regulation of the liability of the carrier is contained in the Civil Code, whose article 1759 offers the general rule when stating that «Common carriers are liable for the death of or injuries to passengers though the negligence or willful acts of the former’s employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees».

• Other acts

Other important Philippine commercial law acts are the Insurance Code (Presidential Decree No. 612); the Insurance Act (Act No. 2427) and the Electronic Commerce Act of 2000.

• Conclusions and future developments

The comparison of the different developments that Commercial Law has suffered in the Philippines and in Spain shows how Commercial Law is an answer to the needs of the time and a response to the requirements of the economy and the political environment of every state. Even when both States start with the same regulation contained in the Spanish Code of Commerce, the evolution that its regulation has experimented is different in both of them.

In Spain, the Code of Commerce soon demonstrated its inadequacy to solve some of the main problems of the commercial practice in many aspects (contracts, corporations, transportation…). This led to the need of different reforms that took part during the XX Century. But the need of a new Commercial Law was accentuated by the incorporation of Spain to the European Community and the need to adapt its regulation to the provisions for the Common Market. All this changes have led to the elaboration of a draft bill for a new Mercantile Code, whose regulation modernizes the system, giving solutions to the requirements of the new era.

In the Philippines, the regulations of the old Spanish Code of Commerce have been influenced by the American way of understanding Law and commerce. Thus, even when the Code of Commerce maintains its force, its provisions have been modified throughout the XX and XXI Century and new laws have been approved. In this case, the need for new acts is an answer to the situation and requirements of the islands, and the new laws consider those matters that are most important for the commerce in the Philippines –which are not necessarily the same that in Spain-.