Legal Foundations of Credit Instruments and Commercial Law Sources

Sources of Commercial Law

The legal framework governing commercial transactions, particularly credit instruments, is derived from both primary and secondary sources.

Primary Sources of Commercial Regulation

1. Law and Applicable Statutes

   The primary law applicable to credit instruments is the LGTOC (General Law of Credit Instruments and Operations). Other commercial regulations are also applicable to fill legal gaps, such as the Commercial Code, specialized commercial laws, and the Federal Civil Code. All commercial regulations are federal in nature.

2. International Treaties

   Agreements and conventions ratified internationally that pertain to commercial transactions and credit instruments.

Secondary Sources of Commercial Regulation

3. Jurisprudence

   Jurisprudence is utilized to interpret the law or to fill gaps in judicial actions concerning the non-payment of credit instruments.

4. Custom

   Usages and customs can be applied in cases related to banking, provided they are recognized and accepted by the law or established through jurisprudence.

Essential Elements of Credit Instruments

Subscription and Legal Capacity of Parties

Defining the Holder

A holder is defined as the person in possession of the instrument. This definition applies if the instrument is payable to bearer or, if payable to an identified person, provided that identified person is in possession.

The definition holds dual requirements:

• A person must be in possession of the instrument.
• The instrument must essentially run to that person.

The determination of whether an instrument runs to a particular person depends on whether the instrument is characterized as order paper or bearer paper. This characterization is based on the original form of the instrument or the effect following an endorsement.

Legal Capacity Requirements

Every person capable of contracting may bind themselves by the making, drawing, acceptance, endorsement, delivery, and negotiation of commercial paper (e.g., a promissory note, a bill of exchange, or a check).

Parties considered legally incompetent include:

• Minors
• Persons of unsound mind
• Insolvents

A company can create credit instruments and be bound by them through a representative who has powers conferred by the articles of association.

An agent may negotiate credit instruments on behalf of the principal, provided they have prior authorization to that effect and are themselves a competent person. The agent acts on behalf of the principal and cannot exceed their authorized authority.

Nature of Credit Instruments

Credit instruments are considered movable goods. They inherently contain both a right and an obligation. They originate from the free will of a party, automatically acquire value, create a legal obligation, and are governed by law.