PLJ Volume 4 Number 6 -01- Jose a. Espiritu - A Proposed Uniform Partnership Law for the Philippine Islands

7/30/2019 PLJ Volume 4 Number 6 -01- Jose a. Espiritu - A Proposed Uniform Partnership Law for the Philippine Islands

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PHILIPPINE LA W JOURNAL

A PROPOSED UNIFORM PARTNERSHIP LAWFOR THE PHILIPPINE ISLANDS:

REASONS FOR ITS ADOPTIONBy JOSE A. ESPIRITU,

Assistant Pmfe ssor of Mel'cantile Law , Univer sity of the Philippines .

INTRODUCTION

C icero, seeing the chaotic state of the Roman law after its thousand years or

m ore of evolution, had dreamed of a system of a universal and permanent law by

sa } ing, " Non erit alia lex Rome, alia Athena, alia nunc, et alia posthac sed apud omnes

gentes at omni ' temporc una lex et sempitema et immortalis, continebit ."l The idea o f

a syste m of law that can exist without j1ny changc for al l time to come and among

th e diffe rent peoples of the world is, of course, an impossibility. It directly disregardsth e tr uth that law, in its widest sense, is a progressive science. And as such, it should

be des ignated to meet the needs of the people to which it is made applicable and to

suit ne Wconditions that may arise from time to time in the locality of its application.

A useful and progres sive system of law i s one which the people among whom it, ,is mad e enforceable can prop erly understand and the wisdom of which is appreciated,

f or thc la w s hould be made to suit the p eople and not thc people to suit the law.

O ne of t he mo st striking illustr ation s of the effect of a scientific system of law enforced

among a pe opl e who were not ready to appr eciate its wisdom and usefulness was that

of the Sie tc Partidas of Spain whi ch though considered as "by far the most valuable

m onumc nt of legislation not merely of Spain but of Europ e since the Roman (Jueti-

nian) Code," and "unequaled by any mediaeval code, for its spiri t of ju stice, and for

natura l ar range ment and for kriowl edge,"" still i t took over two hundred years

before the S pani sh peopl e could under stand its provi sion s and thu s w as finally given

its ful l opera tion throughout the country .

Three defects of the law are gen erall y as signed among well-known writers on juris-.prude nce ; namely, rigidity, conservatism and formalism.' The law is rigid because

ev ery g eneral principle of law is the product of a proces s of abstraction. It is the

1 De Republica.2 Dunham, History of Spain and Portugal, Vol . IV, pp. 109, 131-132.3 Salmond, Jurisprudence, pp. 23-25;

Holland, Jurisprudence;LeEr, Historical Jurisprudence.


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result of elimination by disregarding the less material circ umstances in pa rticular

cases fa lling within the scope and putting more attention upon those essentia l eleme nts

whic h arc common among these cases. A princip le of law, t herefore , is no t a mere

gui de to exercise rational discret ion, but it is rather a substitute of it. In its appli_

cation generally no a llowance for specia l circumstances is made. The res ult o f this

inflex ibility is that even a carefu lly framed rule wil l always work hardship an d i njus -

tice in some special circumstances. This must be accounted for by the com plica ted

and numerous affairs of men, so that it is impossib le to lay down genera l pr inc iples

which will be true and just in every case.

Conservatism is the general element existing in every system of law. It is c on-

sidered one of its defects because it fails to conform itse lf to those changes a nd cir -

cum3tances in men's view ,:;of truth and justice, which are inevitably broug ht ab outby the lapse of time; that which is true today may become fa lse tomorrow b y reas on

of those changes of circumstances. This being so, some method is found necess ary

through which the law, which is by its very nature stationery, may be c h 'ang ed to

meet th~ circumstances and opinions of the time. The law being a living orga nis m it

requires constant changes in its provisions, and consequently it is necessary t o adopt

and use some effect ive means to facilitate lega l deve lopment in order t o cou nter-

balance this fatal conservatism. Today, legislation is the instrument ge nera lly

approved by all civilized and progressive races by means of which the substit utio n of

new principles for old ones can be made effective.

The formalism of the law is the result of the tendency of some legal syste m to

attribute too much importance to form as opposed to substance. It is necess ary for

every progressive legal system to exercise careful discrimination as to the rel ative

importance of the matters which come within its cognizance and any system w hich

fails to meet these requirements i;; fu ll of formal ism. This is a defect o f anc ient

origin which was shown remarkably in the early Roman legis lation until t he rigid

rules gradua lly relaxed i nto a more liberal system of recogn izing t he inten tion of the

part ies as the more important criterion . But even today, this de f ect is not e ntire ly

absent from the most mode rn lega l system.

The Phi lipp ine Islands has bee n and is sti ll under the inf luence o f the C iv il law

as is embodied in the Spanish Codes, as fa r as her substantive law is conc erne d.

'W hile t here have always been some ef f orts to i ntroduce new legis lations base d entirely

on t he progressive Ang lo-American ideas, sti ll there seems to be a preva lent des ireamong the members of the bench an d of the bar who know a nd can a pprecia te the

wisdom o f our laws to keep the major part of the present substantive law o f these '

Islands derived from the Civil law unchanged. This idea is p lausib le, not o nly

because this system has been in fo rce i n th is A rchipelago f or over t hirty years , and c on-

sequently the people of these Islands have already lea rn ed to ident ify the m se lves a nd

thei r institutions wit h its p recepts an d provis ions, but a lso because it had h ad a close

relat ion w ith the hi stor ica l deve lopme nt of t his co untry an d h er pe opl e.


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That the provisions of our present substantive law are better known among the

majorit y of the members of the bar and the bench, nobody can dcn y. The in troduc -

tion of new laws ba se d entirely on Am erican legi slation , no m atter how wise an d pr o-

gressive t hese laws may be, i s always a source of hardship and confusion amo ng our

Spani~ h speaking lawyer s and judges who cannot study for thcm se lves the hi story ,interpreta tion , con st ruction and applic ation for the prop er m ast ery of ev ery ne w law

The c onsequence of .this is, of course, obvious . Instead of quick and inexpensive

admi nis tration of ju stic e in the se I sland s, we shall h ave endle ss litig ations, misunde r-

st andi ng, a nd mi sinterpr etation of the law . Th at t he p eopl e will u nders ta nd th e

law lat er, nobody can deny, but look at what it co sts them to le arn i ts provisi on s.

'Whil e th e a bove m ay b e true , it doe s not how ever me an th at no new ch anges

shou ld be introduced in our l aw s. On the contr ary, th e progre ss of the people de mand snew leg isl ation providing for better, clearer, and more liber al law s. To this extent ,

th erefore, our exi sting law s mu st b e modified , not abruptly , but s lowl y and c auti ousl y

The ex istin g law s s hould not be wip ed out at a s trok e of th e pen and new an d s trang e

laws i ntroduc ed III their pl acE 'S , but rather let our reform b e gr adual an d limited

only to t ho se part s found to b e def ect iv e or in suffi cient in :t hei r sc op e.

DEVELOPMENT OF PARTNERSHIP LAW

The id ea of forming p artner ship s w as un doub te dly pr act ice d fr om th e ea rli esttime a mon g tho se individual s, who , not havin g s uffi cient ca pita ls a nd not being i n

posit ion to conduct busines s or to und ertake certain ent erp rise s sing ly, m ade us e of

thi s lega l relation ship. B y mean s of con tribu tion s put by the severa l m emb ers i n

the ca pi ta l of the ent erpri se or bu sin ess which con sisted e ither of mone y, pr op erty

or lab or , th ey were able to c arry out their preconceived plan s. H i s sai d t hat of a ll

comme rcial in st itution s non e had acquir ed a development and pro gress so f ast, varied

and p ow erful a s tho se thatn ad ari se n from the con tract of p artne rship. '

Tracing the hi st ori cal evolution of the partnership law , Pr of esso r S cott Rowle y'

sa ys: " From a historical view point , it i s prob ably a sa f e asse rtion that no othe r br anch

of thc law has so int eres ting a dev elopm ent as has the law of p artnership r elati on s, n or

has a ny other legal relation been handed down from gen eration, through va ried n a-

tions , conditions, and p eriods, with such uniformi ty in principl e a nd in practi ce

Nea rly a thou sand years before the Mo saic law w as given to th e Jew ~, the Bab yloni ans

in t he celebrated Code of Khammurabi, had d eveloped a syste m o f partne rsh ip la w

wh ich, in its basi c element s, differ ed bu t lit tle from our m ode rn law , em ph asizing. the principle of division of profit and lo ss. It is perhaps safe to assu me th at th e

Ba byloni an partn ership , modified as it passed through J ewi sh, c ivil and comm on

la w to m ee t changing condition s, is really the for erunn er an d tllP model of OU J

prese nt-day partnership. "

4 Supino, D e recho Mercantil, p . 168 .5 Rowl e y, The Development o f P a rtn e rship Law , XXIV Ca se a n d C omme nt , p . 367.


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Compar ed wi th man y other branche s of the law , the partner ship r elation i~ mos t

simple and uncompli cat ed. It i s the n atur al relation of two or more individ ua ls,

ass ociating them selv es in a common ent erpri se, orgin ally, perh aps, w ithout la w Or

law yer s, and b ase d on l~ ' upo n n ec ess ity and the partn er's id ea o f common sense an d

justice, and, a s a ru le, thc stat ute law h as to a gr eat e xte nt s imply adopted t he ru lesso laid down b y custom, usa ge, a nd court d ec ision. Soc iety existeq. for a lo ng t ime

w ithou t corpor ation s, wi thout n egoti abl e in strum ent s, wi thou t m any of tho se relations

,m d instrum ents whi ch n ow cons titut es s o l arg e a part of our l aw, and inconve nient

as it mi ght pro ve t o be , co uld con tinu e t o ex ist w ithou t them , bu t it is diffi cult t o see

how th e partnership r elation could be a bo lished, how any nation , c ivilized or s avage,

eould long exi st with out partne rship s.

At first the id ea of p artner ship h ad a s it s ba sis th e personal clement only, t hat is,the faith of the m emb ers in their r es pec tive fin ancial sol vency, and the tru st give n by

tho se who were de aling with th e partner ship th at each and everyone of i ts mem bers

w ere solv ent . How eve r, from the time that d efinit e rul es or law s began to be rec og -

nized a s governing thi s particul ar relation ship , th e id ea of the c olle ctive p artners hip

was th e fi rs t to b e pr act ise d. Bu t as t hi s form of a ss ociation wa s later found ha zar -

dou s on account of th e f ac t that a partn er could b e m ade liabl e for the who le debt

of the association, a new form w as introdu ced and th at w as what is now know n as

limit ed partn ership. B ut thi s new f or m did no t las t long bcfor e a new kind o f an

, \ ss ociation w as co nce ive d which pro tec ted the member s from fu rther liability o uts ide

t.heirorigiu :J.leo ntri hut ion to t he f irm cJ .pi ta l. Thi s w as wh at is no w kn own as priva te

corporation.

MOME NOTABLE SIMILARITI ES A ND DIFF ERENC ES I N THE PRO YI-

SIO N S OF THE CIVIL A ND C OMM ERCIAL COD ES

Partnership s are a t pre se nt c lass if ied in accordancc wi th the law s in force in t he

Philippi nes into civil and commerci al. The f or m er class ific ati on dea ls a nd c once rns

itse lf wi th those re lations e nterec l in to in acco rclance wi th the provis ions of th e C ivil

Co de. Th ey have for t heir obj ect s no n-c omm erc ial transac tions, s tri ctly spea king ,

suc h as assoc iat ions for m ed by professiona l me n as lawyers, a rchi tects, eng in eers ,

to car ry out thei r' parti cul ar prof ess ion ; or t ho se f orm ed p ur ely fo r so m e agri cu ltura l

pur suit , etc . W hereas th e lat ter class ifi catio n h as re f erence st rict ly to t hose

comm ercial ass ociat ion s wh ose prin cip al busin ess is b uyin g, se llin g a nd m anu -fac turing commo dities with the int ention and prin cip al pur pose o f di spos in g th em fo r

pr ofits .

Concerning th e ge neral n atur e of th es e two cla sses of partn ership s it m ay be sa id

that they are both d efined as ass ociations con sisting of ~woor m or e person s who agree

to place money, prop erty, and labor into a common fund to be us ed for the purpose of

ca rrying out the obj e'e t of their org anization. Bo th of them have as their ultimate


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aim and purpo se the acquiring or obt aining of profit s. It will b e observed th erefore,

that c ivil and comm ercial partner ship s have the same aim in view , and tha t is the

e:1rning or obtaining o f profi ts. 6

As to the mod es o( their forma tion or org anization, as f ar as the relation ship

cxioting a mon g the memb ers of the firm i s conc erned, be their organization a civil orcommerc ~al one, no particular form i s necessa ry or requir ed to be followed in their

agreement to c reate t he rights and liabili ties of partners as amon g themselves. The

only req uirements pro vided for b y law are, that the agreement is the result of th e

volunta ry act of the partner s, and that the object or pur pose of their organ ization

is not o ne prohibit ed by law. 7 But wh en the question that may arise ha s to do with

the relat ion exi sting b etween the firm and third p arties, we then find a marked di f f er-

ence in t he require ments of the law co ncernin g the legal existence of th ese two classes

of pm -tne 'rships. According to the Civil Code, a partnership m ay be form ed orally

or in w riting by th e members of the same , and from th e tim e of their agre ement a

partners hip i s created. It then exi~ts as a legal entity di stinc t f rom individu al mem-

bel 's. 8 There i s, however, on e exception to thi s rule appli cable to the civi l partner-

ship. It ref ers to the requirement of a written memor andum when some r eal prope 'rty

has bee n contribu ted to form a par t of the firm' s capital. 9

The Cod e of Comm erce clear ly provid es that in ord er a firm c an acquire a lega l

or jurist ic personality, distinc t and separate from i ts individual member s, its arti clesof copa rtnpr ship mu st be registered in acco rdance with the pro vision of that code.'o

Thereas ongiven for the prin cipal diff erence in the mod es of constituting commer cial

and c ivil partner ships is said to be on acc ount of the special nature of the commercial

law, which mu st corr espond to the mode rn ideas of requiring suffi cient publicity and

credit to inspire confidence a mon g merchants, and of giving b etter securities to tho se

who a re eng aged in comm ercial pursu its.u

The ef f ect of f ailure to register the articles of a comm erc ial partnership h as to do

only w ith third persons, for , as already sta ted, in so f ar as the partners arc themselyesconcer ned no special requisite is necessary t o create t heir partnership r ights and lia-

bilities s ave onl y their volun tary agreements . What is then the eff ect of failur e to

register p:1 rtnersh ip art icles as to third PCl'SOnS? The law denies to giv e such an asso-

ci~ltion its juri dical pe' rsonalit y. It can, there f ore, neither sue nor be sued in its firm

name ." But the' law, at the sa me time', ex pressly provides tha t the ma nagin g part-

ners sha ll be personall~ ' liable t o those third persons \ \'ho might. haw dealt with such

6 Ci" il C ode, Book I\ ', Tit le nI , Chaps . 1- 3Code of Co mm erc e, Boo k II, Ti tle I, Sees . 1- 6.

7 Civi l Code, A rts. 16 135, 1666; Code of Com m erce , Ar ts. 11 G, 117 .8 C iv il C ode, Ar t. 1 66 7.9 Civ il C ode, Ar t. 1668 .

10 Code o f Com me rce, Ar ts . 11 6 , 11 9 , 17 , 2,; .I I De l Vi ,o , D ere cho i \Ier C lntil, p.6~.12 Code o f Comm erce , Art . IIG (2); Pr au trh r. H ern an dez, 1 Phil . R ep . 707 ; Co mp aiii a Ag rico la

v. Reyrs , 4 Phil . R ep. ~ .


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an association not knowing that it has fa iled to register its article s of associa tion.u

Th e Cod e of Comm erc e furth er pr ovide s in thi s case th at third parti es cannot be pre-

judic ed, bu t ca n ma k e use t hereof in so far as t he a rticle s a re ad van ta geou s to the m. It

In the case of limi ted m emb ers o f a non-r egi st ered ass ociat ion the S upr eme C ourt

of th ese Island s has held t hat their liabiliti es can not go b eyond th eir contrib utions

to the capital of the as sociation, but that th e managing partn ers sh all bear a ll the rest

of th e liabiliti es . 15

Ano ther imp orta nt dif f ere nce bet w ee n civil and comme rcial pa rtnerships is in

th e liabili ties of the m emb ers.. In t he case o f the c ivil p artners, t heir liabili ties, out-

side of wh at they have alrea dy co ntribu ted to the partn ership' s ca pi ta l, i s propor-

tion ate onl y to th eir resp ective int erest in th e partn ershi p bu sin ess; in other w ords,

a civil p artner can not b e held li abl e for th e e ntir e debt of the f irm , bu t only to t heexte nt of hi s share in the bus In ess. 16 Bu t as regards c omme rcial partn erships , th e

debts co ntracted by t he firm m ak es th e m em bers o f the assoc iat ion join tly a nd se ver-

ally lia ble for the pa ym ent of any unp aid am oun t af te r th e e ntir e asse ts of the ass o-

ciation h as be en ex hau stedY Simult aneou s ac tions ma y e ven b e brought ag ainst

th e firm and agains t an y of the in dividu al pa rtners, but the e xecuti on of a judgme nt

that mi ght be o bta in ed ag~ in st th e lat toc will b e s uspe nd ed un til th e ass ets of the firm

have been a ll u sed up a nd f ound i ns uffi cient to p ay a ll t he c laim sya

A s rega rd t he ot her p ortion s of the law of p art nership un de r the C ivil and C om-

m ercial C odes, th e rule s a re s imil ar in m any re spe cts., Thi s is s pecially true with

rega rd s to t he rig hts a nd duties of p artners to w ard eac h o ther .18 Th ere ar e, howeve r,

a f ew prov isions f ound in the C ivi l Code that d o n ot have co rrespo ndin g a rticles in

the C om me rcial Code. 19 In such cases t he rul es p rov ide d fo r in the C ivil Code

suppl em ent the l ack ing pro vision s o f the latte r. _0 Con cer ning th e te rmin ation a nd

di ss olution of partn ership , no notable dif fe rence s in th e rule l aid down by the two c ode s

ma y b e ob ser ved . H Th e Comm ercia l Cod e, how ever, has so m e provi sions for pa rtia l

rec iss ion s of the part ner ship con tract un qer t he c ir cum stances t herein enum erate d.

Con ce rnin g s uch rul es th e C ivil Co de is s ilent. Both Cod es ha ve sa lu ta ry pr ovis ion s

to the e f f ec tth at in ord er that a m emb er of a partn ership con st ituted for an indef init e

period of time can ask for a volunt ary dissolution of the firm, such partne r mus t act

in good f aith and mu st m ake hi s requ es t at the mo st propi tiou s time so as not to ca use

any lo ss or injur y to his cop artner s . 2

13 Co de of C omme rce, A r t. 120 .1 C o d e o f C omm e rce, Ar t . 2 4 .15 Hun g -M a n-Y oc . K e ng -Chiong- Se ng, 6 Phil . R e p. 4 98; An g Q u eng S e n g . Te C h ico , 12 P h il

R e p. 551 .16 Civil C o d e , Ar t. 1698.17 Cod e of C omm e rce, Art s. 127, 237; Opinion s o f S upr e m e Co u r t o f Sp a in o f D e ce mbe r 17, 1 8 7 3

an d J a nu a ry 8 , 1 88 l .17- a S uni co .Ch uid ia n , 9 P hil . R e p. 6 25 .18 Ci vil Co d e, Arts. 1 6 7 9 -1 6 96 ; Cod e o f Co mme rc e , A rts. 12 8 -14 4; 1 4 8-1 5 0; 1 55 , 1 56 , 1 58,

170 -174 .19 Ci v il Co de , Ar ts. 16 8 4-1 68 7 .20 Cod e o f Comm e rce, Art s. 2 and 50 .21 Civil Code, Art s. 1700-170 8 ; Code of Commerc e , Art s . 221-223.

22Civil Cod e , Art s . 1705, 1 706; Code of Comm e rc e , Arts. 224, 225.


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CRITICISMS ON THE PRESE "T PHILIPPINE PARTNERSHIP LAW

One of the principal sources of confusion in the present partnership law of the

Philippine Islands is based on the distinction b etween civil and commercial partner-

ships. There might have be en a time when such special rules were necessary to deter-

m ine a l1d to differentiate civil and commercial partnership transaction s. Today,no p rac tical reasons can be ass igned for this cl as sification. The fact is, both classes

of pa rtner ship rel ations h ave only on e definite aim or purpose in vie.w, and that is,

the obtaining of profit s. Th e mere f act that in th e case of commercial p artnerships

the b usine ss to be carried on consist s principally of buying, selling, and m anufacturing

com modities or the embarking in any other undertakings having commerci al nature,

whereas , in the case of civil rela tion, the princip al object s are profe ssional and agricul-

tura l undertakings are not grounds sufficien t to ju stify the drawing of hard and fast

rules diff erentiating them into comm ercial and civil clas ses. Since the p artners are

not ge nerally precluded from embarking int o all sort s of business and from under-

tak ing every po ss ible kind of ent erpri se, th e di st in ction found in our pre sent law

serves only a s a source of confu sion. ' After all, in the final analysi s of the n atures

of co mm ercial and civil p artner ship s, very f ew di st ingui shing ch aracteri stics can be

observ ed.

Th e principal provi sion s of our present law th at created the confusing d ist inction

betwee n comm ercial and civil p artn ership s ar e found in articl e 1670 of th e Civil Cod e.This a rticle provide s that civil p artner ship s on acc oun t of their object s to which

they a re d evoted m ay adopt all th e forms provid ed b y the Code of Commer ce a nd in

such case t he provi sion s of the Cod e of Comm erce shall b e appli ca bl e in so f ar a s they

do not co nfli ct with those of th e Civil Cod e. On the other hand, the Code of C omm er-'

merce in it s article 116 provid es th at an asso ciation is to b e c on sidered commercial,

no ma tte r what m ay b e it s cl ass or f orm p rovid ed it has been es tablished in accordance

with t he provi sion of the s aid cod e. Tho se provi sions referred to by th e Code of

Com merc e which mu st be compli ed with befor e an a ssoci ation can be con sid ered as acomme rci al partn ership hav e reference spe cially t o the registration of the articles

of ass ociation in the commercial registry of th e province in which the princip al office

of t he firm is located.

From the provi sions of these two article s abov e mentioned , the principal source

of con fu sion is found. T aking for instance, the case of an association form ed by two

or m or e electrical engineer s under the provi sions of the Civil Code for th e purpose

of ope ning a consulting and constr\}cting electrical engin eering office . In the course

of t heir bu siness, they may find it convenient to extend their undertaking by openinga store wh erein they may sell electrical appliance s. They may do this under the pro-

vis ion s of article 1670 of the Civil Code. The qu es tion naturally may arise, as to

w het her this partnership, in so far as its new undertaking is concerned, is to continue

to be governed by the provision of the Civil Code or must it comply with the require-

m ent s of the Code of Commerce? If these partners are to be governed by the Code of


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PHILIPPINE LAW JOURNAL".

Commerce, docs the firm continue to be a civil partnership or does it become a C O m _

mercial one for having extended its business into what may be sa id str ict ly com me rc ial

undertaking? On the other hand, supposing a firm of lawyers should agree to registe l'

(,heir articles of association in a commercial registry, does the partnersh ip be co me a

eommercial one, in spite of the fact that there is no intention to engage in a ny c om -mercia l undertaking '? In other words, what should be the real test wh ich wil l dis -

tinguish civil from commercial partnerships? Shou ld they be the form and t he C od~

under which a firm is organ ized? Or should the object and the character of t he busi-

ness to be carried on by it be the proper criterion for the determinat ion of t hi s di stinc-

tion? This problem remains unsolved in the Philippine Is lands up to this day.

Even our Supreme Court has not yet been able to g ive us a clear idea of ho w to

distingu ish one class of partnership from the other. Th is statement is sup ported by

the opin ions which may be fo und in the cases of Prautch vs. He rnandez, 1 Phil . 777,

:wd the Compania Agricola de Ultramar vs. Reyes , 4 P hil. 2. In the fo rm er ca se,

:Vlr.Justice Wi llard he ld that a commercial association is distinguished from a civi l

assoc iation by the object to which it is devoted and not the mach in ery wit h w hich

it is organized, for, as it is said, to hold a partnership commercia l mere ly bec ause it

has comp lied with the provision of the Code of Commerce concerning reg istrat ion

without any regard whatsoever as to its ob ject is to igno re and to disregard t he pro -

visio n of artic les 1, 2, 123 of the said code. In the latter case, on the ot her ha nd,ou r Supreme Cou rt, speaking through M r. Justice Johnson, held that when a pa rtne r-

ship expressly organized under the provis ion of the C ivil Code for the purpose of ex-

plo iting the ag ricultural resources of these Islands, but in t he course of its o perat io n

"extended and unde rtook to carry out some business clearly coming under the prov i-

sion of the Code of Commerce , such an association did not by that fact lose its civ il

character . In that case, the court mainta ined that a commercial pa rtnersh ip is to

be d istinguished from a civil one by the form of its organization and not necessa rily

by its object to which it may be devoted . The Chief Justice in his concurrent opin io nin that case said, "A c ivil partnership which engages in acts of commerce is s ubjec t

to those provisions of the Code of Commerce which control the particu lar acts of

commerce but does not thereby lose its status as a civil partnership" (Syl labus). By

the phrase, "engages in acts of commerce," is understood, of course, as the ob ject

of the partnership and by the phrase, "subject to the provisions of the Code of C om -

merce" is meant the machinery by which the partnership is organized. After read ing

these two cases, one cannot but fee l that he is still in the dark as far as knowin g the

true distinction between commercial and civil partnerships is concerned .

There arc, of course, two good grounds for the necessity of making th is d istinc -

tion of civ il and comme rcial partnerships under the p resent state o f ou r law. One o f

them is that in the f ormer ellse no registration is needed to g.ivethe fi rm a lega l pe r-

sona lity, whereas in the lattcr case such requ isite is absolutely necessary to be c om -

plied wit h, otherwise the association does not become a juridical entity. The se con d


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important reaso n for the n ee d of thi s di st in ct ion i s in the m ethod of d ete rmining 1 he

persona l li abili ty of eac h m emb er of the firm , for, as it h as alr ea dy been shown, th r

civil pa rtners a re onl y liabl e pro r ata t o the amou nt of th eir con tribution s to the f irm

capita l f or the p artn ership d ebt s, wh ereas the commer cial p artn ers a re jointly and

seve rally liabl e f or th e whole d ebt of th e f irm aft er th e firm a ss et s have been exh austed

by t he creditor s.

O ur pr ese nt law is al so def ective in no t having any provi sion s wh atsoever con-

cern in g t he bu sine ss good-will of a p artnership , nor a s to how the same may be di s-

posed of at t he liquid ation or te rmin at ion of the firm. Kobody ca n d eny th at in the

mode rn commer cial co nc eption th e g ood-will of an association i s often-time far more

va lua bl e th an all i ts oth er a ssc ts combined. The f ailur e of our l aw to r ecognize thi s

good -wi ll a s valu abl e property and to provide for it s fin al di stribu tion and appraisr-

ment m ay be accounted for it s antiquated n ature.

Som e excellent provi sion s are not, how ever, w anting in thi s law . On e of theseco ncer ns the right of on e partner to a sk for a voluntary di ss olution of the firm when

, no t im e is specifi ed within whi ch the ass ociation i s to exi st. The law requir es that he

m ust act in good faith in doing so, t ha t is, he mu st not try to enrich himself alone with

the profits tha t may righ tly belong to all hi s co-partner s if not for such di ssolution .

Suc h p artn er mu st a lso wait for a time when th e dissolution will not cause s eriou s

inj ur y t o the firm busin ess . Th e other d ec ided advantage s found in th e present law

is the lac k of any need of pl 'oving wha t constitu te p artnership relation s or who are

dorm ant or silent par tners, for l'er son s giving c api ta l and share p rofit s or lo ss are notco nsidered partners if no p artner ship rel ation i s in te nd ed, but their relation i s con-

side red as joint account only.2 3

Th e prin cipal reform s prop ose d to b e introduced and actu ally in corporated in

the draft of the p artn ership l aw , are: First , to aboli sh the cumb ersome di stinction

bet w een civil and commerci al partner ship s; se cond, to re cognize the value and proper

disp osition of the good-will of th e firm; third, to combine all the provi sion s of the Civiland Commercial Cod es so as to produc e a compl ete and h arm oniou s partnership law ;

fo urth, to induc e a ll partner ship s to regi ster th eir articl es of ass oci ation s by conceding;

the m l egal personality and b y limiting the per sonal liabili t.ies of the par tners to the

re lat ive prop ortions of th eir int erests in the p artnership bu sine ss only; and la stly ,

to d isca rd all u sel ess and an tiqu ated provi sion s and to in troduc e new and u se ful one ~

in t heir pla ces .

Th ere is no clai m of originality what ever e ither in th e arr ange ment or con te nt ~

of the dr aft of thi s propo sed p artnership law . Th e Civil and Commercial Cod es now

in force in the se Island s furnished mo st of the provi sion s. M any article s have ,

how ever, been borrowed from the Am eric an Uniform Partn ership Act , either because


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they ar e believed to be useful and they do not h ave co unt erp art or corr es ponding pro -

vi sions in the pre se nt Philippine l aw , or bec ause t he provi sion s of the borrowe d art i-

cles are b ette r and mor e fully expres se d. Oth erwi se t he constant aim is to kee p as

much of the Civil l aw id ea of p artnership as po ssibl e. In v ery few ca ses the p rov isions

of two or m or e ar ticles have be en combined in on e a rticl e. Bu t more often the pro -visions of s om e a rticl es w ere se parate d int o seve ral bri ef er articles for the sake of

cle arn ess. Las tly, a f ew articl es were e ntir ely rew ri tten to produce unity of thou ght

and clearne ss of expression. In this cOllI~ ection,th e sour ces of the articles a re in di-

cated at the e nd of ea ch on e of them , with th e following abbrevi ations: Civ. C.-C iv il

Code; Com . C.-Comm ercial Code ; U . P. A .-Am erican Uniform Par tnership Act .

Articl es t hat do not show their source s a re mor e or l ess th e origin al ideas of the w rite r.

CHAPTER I

GENERAL PROVISIONS AND NA TURE OF PARTNERSHIP

ARTI CLE1 . A partnership is an a ssociation of two or more persons who bin d

themselves to contribute money, property, or industry to a common fund, wit h t he

intention of obt aining and dividing profits among th em selve s. (Civ. C., 1665;

Com. C ., 116.)

ART . 2. Ev ery partn ership before it c an b e con sidered as a legal entity a nd

before commencing any business whatsoever, its m embers must execute and ac know l-

edge in a public in st rum ent th eir agr ee ment s a nd conditions and a copy of sa id in -

strument shall be r ec ord ed and fil ed in the comm ercial r egi stry of th e province or

city wher e the princip al office of the firm i s locat ed.Ad ditiona l instruments which modify or alt er in any manner wh atsoeve r the

original contr act s of the a ssociation ar e subj ec t to the sa m e formalitie s as requ ired

in the pr eviou s parag raph . (Com. C., 119 .)

ART . 3. Th e a rticle s of partner ship mu st stat e the f ollowing :

(1) Th e nam es .surname s, and domiciles of the partners .(2) Th e firm n ame .(3) Th e name s and surn am es of the p artn ers to whom the manage ment

of the firm and th e use of i ts s ign atur e is in tru ste d.(4) Th e capital which each partn er contribute s in ca sh, credits o r pro -

perty, stating th e value given the latt er or th e basis on which the ir appraise -m ent i s to b e mad e.

(5) Th e dur ation of the partn ership.(6) Th e amount s which are to be giv en to each managing pa rtner

annu ally for his private expense s if so agreed.(7) Ther e m ay be also inc lude :! in the arti cles any other legal agreeme nts

and special conditions which the partner s may wi sh to mak e. (Com: C ., 12 5.)


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ART. 4. Articles of partnership execute rl with the essemtial requisites of law,

sh al l be valid and binding among the partners, in whatever form, conditions and com-

bi nat ion s they may be, provided their objects are honest and legal . (Com. C., 117.)

A RT. 5. A partnership , the articles of as sociation of which are not recorded,

can ne ither sue nor transact bu siness in its firm nam e. Th e provi sions of such

unreco rded articles of association shall not pr e judice third person s, who, however,

m ay ma ke use th ereof in so far as they ar e advantag eous to them. (Com. C., 24.)

A RT . 6. The persons in charg e of the management of an association which has

not co mplip rlwith the provisions of article 2 shall be jointly and severally responsible,

toget her with the other ostensible members of said association, to third pe ~sons with

wh om they may have transacted business in the name of the association. (Com.

C ., 120.)

A RT. 7. A partnership begin s to exist a s s uch from the moment of the making

and rec ording its agreements as provided by article 2 if not otherwise stipu lated.

(C iv. C., 1679.)

A RT . 8. - Partnerships shall be govern ed by the clauses and conditions of their

artic les , and all that is not determined and prescribed therein by the provisions of this law. (Com. C,) 121 .)

A RT. 9. All property originally brought into the partnership capital or sub-

seq uently acquired by purchase or otherwi se, on account of the partnership, is partner-

shi p property.

U nless the contrary int ention appears, property acquired with partnership funds

is pa rtnership property.

The good will of the partner ship business shall be considered as partnership

prope rty. (U. P . A ., 8 (1, 2 ).)

CHAPTER II

MANAGEMENT OF THE FIRM

AER. 10. The partner who has been appointed and named as manag er in the

artic les of partner ship may execute -all administrative acts concerning the busine ss

of t he firm and the other partner s can neither oppo se nor hinder his management

_ nor pr event his actions from taking their effect s. (Civ C., 1692; Com. C., 131 .)

ART. 11. When the special power to manage and to use the signature of thepart nership has been conferred as a special condition of the articles of partnership,

the person who obtained the same can not be deprived ther eof; but should the latter

make a n improper use of said power and his management cause serious damage to

the partnership capital, the rest of the partners may appoint from among themse lves

a c omanager to take part in all transactions or they may request the rescission of the

article s before the judge or court of competent jurisdiction, who shall declare them

annull ed should said damage be prov ed. (Com. C., 132.)


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ART. 12. A pow er to m anage the firm bu sine ss no t co nf erred in th e reg istere d

ar ticles of copartn ership m ay b e revok ed at an y t ime by th e vote o f the m a jority of

th e m emb ers in a m ee tin g called for tha t purp ose.

ART. 13. If two or more p artn ers have b ee n in tru ste d with the manag eme nt

of the partner ship without their d uties having been fixed or witho ut a sta teme nt

having be en mad e th at one of th em shall no t act withou t the con se nt of the othe rs,.

eae h on e m ay se verally exe rci se a ll act s of adm ini st rat ion; bu t any of them m ay

oppo se the ac ts of th e others before the y have p rodu ce d any lega l eff ect. In the

latter ca se, th e w ill of th e majori ty of th e manag ers shall pr evail. (C iv. C., 1(93) .

ART . 14 . In ca se it should have be en agre ed that some of the manag ing part ne r~

are not to act without the con se nt of th e other s, the con se nt of all shall b e necessa ryfor th e valid ity of t he acts a nd the ab se nce or in ca pac ity o f any of them ca n not . be

alleged unl ess there should be imminent d ang er of se riou s or irr eparabl e injury to t he

pa rtnersh ip. (Civ. C. , 1694.)

ART . 15 . No new obligation shall b e c ontr ac ted aga inst the w ill of one o f the

m anaging par tners, s hould he h ave expr ess ly state d it. Howev er, if it sho uld ha ve

been con tract er l, it shall not be annulled for thi s reaso n, bu t shall h ave its e ff ec ts w ith-

out prejudic e to the li abili ty of th e par tner or p artners who contr ac ted i t to p artner-ship on account of the f ailure or loss th at ma y have b een suff ered by such a n act .

(Com. C., 130 .)

ART. 16. If the man agem ent of the pa rtnership h as not b ee n limi te d by a spec ial

in strument to one of i ts m emb ers, a ll of them shall h ave t he right to ta ke p art in t he

direction and m anagem ent of the c omm on bu sin ess . (Com . C. , 129. )

ART. 17. . Fo r th e proper manag em ent of th e bu siness of the partners hip in

accordance with th e provi sion s of t he a rti cle 16 of thi s law the foJlowing ru les s hall beobserv ed:

(1) All the partn ers shall b e c on sid ered agents, a nd wh atev er anyo neof them m ay do b y him se lf shall bi nd the partnership ; bu t eac h on e m ay opp osethe act of the others befor e th ey m ay have produ ce d any l eg al eff ect.

(2) Every p artn er may mak e use of the t hi ngs which make up t he pa rt-nership ca pital , acc ordin g t o the c ustom s of th e pl ac e, prov ided h e does notdo so again st the in ter est of the pa rtnershi p or in such m anner as to preve ntthe use t here of to whi ch hi s co partne rs a re e ntitled.

(3) Ev ery partner m ay for ce t he ot hers t o d ef ray to gether w ith him 1 heexp enses necess ar y for the preserv ation of the thin gs own ed in commo n.

(4) None of the p artner s can, without th e con sent of the others, m akean y alt eration in the' par tner ship r eal pr operty , even shou ld h e allege thatit is useful to the partnership. (C iv . C ., 1695.) .

A R T. 18. Th e m anaging p artne rs ca n n ~t refu se t o allow the other partne rs to

examin e a ll the book s a nd voueh ers for the purpo se of knowing the actua l cond ition

of the m anagement, provided such examination is done (luring reasonable hour s of

business days . (Com. C ., 133 .)


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CHAPTER III

RE LATIO ~S OF PART~ ERSHIP TO PERSON S DE A LiNG WITH IT

AR T. 19. In ord er th at the p:lr tnership m ay b e liab le to third persons for th e

acts o f any of the p artner s, it i s necess ar y:

(1) Th at th e partner should h ave acte d as s uch for th e ac count of thepar tn ership .

(2) Th at he s houl d have th e pow er to bind the part ner tihi p by virtueof an expr ess or impli ed a uthori ty .

(3) That he m ay h ave ac te d withi n th e lim its of hi s power or authority.(C iv. C ., 1697. )

.- \ .RT .2 0. U nle ss authorized by th e partners, or unl ess t he y have a bandonedthe bu sin ess, one or mor e but l ess th an all the partners have no authority to

(1) A ss ign the partner ship pr operty in tru st for creditors or on th eass ignee's promi se t o p ay the debt s of the partners hip.

(2) D ispose of the goo d-will of the bu sin ess . .(3) D o any other act whi ch w ou ld m ak e it imp oss ibl e to c arryon the

ord in ary bu sin ess of th e partner ship .(4) Co nf ess a judgm ent.(5) S ubmit a partn ership cl aim or li abilit y t o arbi tration or r ef erence .

(U . P . A., 9 (3 ).) .

ART . 21 . An admi ss ion or repr es en tat ion m ade by an y partner concerning

partners hip aff air s wi thin the scop e of hi s a uthori ty as co nf erred by thi s'1awis evidenceagainst t he partnership . (U. P. A., 11.)

ART. 22. Wh ere, by any wron gful a ct or omi ss ion of any p artner acting in the

or di nary co ur se of th e bu sine ss of the p artner ship , or with the authority of his co-

part ners, lo ss or injury i s cau se d to an y person not b eing a p artner in the partnership ,

or any penalty i s in curred , the p :Lrtn ership i s liabl e th erefor e to th e sa me extent as the

partner so a cting or omitting to act. (U . P. A., 1 3.)

ART . 23 . Th e part nership i s, howev er , no t liabl e t o thi rd p erso ns for an act

wh ich one partner m ay have p erformed in hi s own name, or wi thout an authorityfrom hi s co -p artn ers therefor; but the partn ership i s liable to the said partn er in so

f ar as t he acts perform ed have b enefited th e firm. (C iv. C., 1698.)

AR T. 24. Th e partnership i s bound to m ak e good the loss:

(1) Wh ere one p ar tn er, ac ting wi thin the scop e of his authority, receivedm oney or prop erty of a third p erson and mi sa pplie s it, . and

(2) Wh en th e partnership in the cour se of it s bu sin ess receives money orpro perty of a third p erson, a nd th e mon ey or property so received is mis-applied b y any par tner whil e it i s in the cu stody of the p artnership. CU . P.A., 14. )

ART. 25. All p artners ar e liable a s follow s:

(1) M emb ers of a firm , the a rti cles of partner ship of which have beenduly registered in accord anc e with articl e 2 of thi s law, shall be personallyliable only in th e rel ativ e proportion s to their share s or interest in the partner~ship busine ss .


14/24

(2) Members of an a ssociat ion, not h aving regi stered articles of C Opart _nersh ip, shall be jointly and sev erally li able with all their property f or theresults of the tran sac tion s made in the n ame and for th e account of theassociation.

(3) Memb ers, who contribute no mon ey or prop erty, but only work o r

skill, sh all be con sidered as having contribu ted amoun ts equiv alent to thosewho contribute th e leas t in the firm c apital if the articles of partnersh ip are,regi stered; otherwi se they incur the liabiliti es of partn ers und er para grap h2 of this articl e.

ART. 26. The partner s can not b e made to pay and be com e personally liable

as provid ed by article 25 of thi s law, nor c an their priv ate prop erty, which is not

includ ed in the assets of the par tnership , be seized for the p aym ent of the ob liga -

tions contracted by the partner ship until aft er the firm a ssets have been attac hedand exhausted . (Com. C., 237.)

ART . 27. The creditors of the p artnership shall be pr eferr ed to thc c reditors

of each partner with reg ard to the par tnership property . (Civ. C., 1699.)

ART. 28. The private creditor s of each partner may d emand th e attac hme nt

of ihe latter's share or h is interest in the partne rship capit al in aecord ance with

Chapt er XVIII of th< :;Cod e of Civil Procedur e, provided the rip;ht s of the partners hip

ercditor s is not prejudiced thereby. (C iv. C., 1699.)

ART. 29. On due applicat ion t o a eomp etent cour t by any judgment ere ditor

of a partner, the court whi ch entered the judgment, or order, may charge the inte rest

of the debtor pa rtner with payme nt of the uns atisf ied amoun t of suc h judgme nt

debt , with interest t hereon; and may the n or hter .appoin t a rece iver of hi s share or

profit s, and o f any other money d ue or to fal l due to him in respeet of the partners hip

and m ak e all other orders, direct ions, acco unts and inqui ries which the debtor

pariner might have made, or whieh thf' circ.l lmstances of the rase may req uire.(U . P . A., 27(1) .)

A RT . 30. The interest charged in accordance wit h art icles 28 and 29 of t his

law may be redee med at any t ime before foreclosure or in case of a sale be ing dirert ed

by the cou rt may be purchased w ithout there by causing a disso lutio n:

(1) 'Vi th separate property , by auy one or more of the partners .

(2) Vi 'ith the partnership property, by the managing partne rs with th e consent

of all the partne rs who se inte rests arc not so c harged or sold. (D. P. A . 27 (2).)

ART.31 . W'hen a p erson, by word spok en o r written or by condu ct, represe ptshimself , or consents to ano ther rep rese ntih g him to any one, as a partner in an ex ist-

ing pa rtnership, h e is liabl e to any such person to whom such repr esentat io n ha~

been made, who h as on th e fait h of such representation, gi ven credit to the pa rtner -

ship; and if h e has made such represe ntat ion or consented to its being mad e in a public

man ner he is liabl e to such p erson, wh ether the repre sentation h as or has be('n not

made ~r communic ated to such person s o giving credit b y or wi th the know ledge of

the 'apparent partner m aking the repr esenta tion or con senting to i1s bcing ma de.(D. P. A., 16 (1) .)


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ART. 32. When: 1 per son has been repre sented to be a p artner in an existing

partnership, he i s an agent of the per sons eon senting to sueh r eprese ntation to bind

them to the s ame ext ent and in th e same mann er as though h e wer e a partn er in fact,

with respect to th e person who r ely upon the repr ese ntation. 'Where all the members

of the existing partner ship con sent to the repre sentation, a partnership act or obliga-

tion result s; but in all o ther cases it is the joint act or oblig ation of th e person acting

'1m l the per sons con senting to th e representation. (U. P. A. , 16 (2).)

ART. 33. A per son admitted as a partner into an exi sting partner ship is liable

f or all the obligation s of the p artnership arising b efore his admi ssion , as though he

had been a partner wh en such oblig ation w ere incurred, exce pt that his liability shall

he satisfied onl y out of partner ship prop erty. (U. P. A., 17. )

CHAPT ER IV

IUG HTS AND OBLIGATIONS OF TH E PARTN ERS A S AMOXG THEM-

SELVES

ART. 3 t Every par tner is a debtor of th e partnership for what ever he ha s pro-

mi:;cd to contribu te thereto. H e is also bound to eviction wi th regar:d to the specified

and dete rmin ed thing s he may have c ontribut ed to the partnE'rship in the s ame cases

and in the same manner as a vendor 's bound wi th regar d to the vendee. (Civ.C. , 1681.)

ART. 35 . A partner who has bound hi mse lf to contribute a su m of mon e.v and

fail to do so i,; at law :1de btor for the inter .est thereon, fro m t he day o n which he

should have co ntribu ted the same, without pre judice to indemn if ying fur thermor e

for thc damage he may have ca used thereby.

The same s hall take p lace w ith regar d to amounts he may have ta k en from th e

common f unds, an d interest shall be ea rned f rom the day on whi ch he took them for

his private use. (Civ. C., 1682 .)AR T. 36. The risk of t hin gs certa in and s pecif ied, which arc not p erishable

~ontr ibuted t o the partnership in order that only their use anrl fmit s becom e firm

proper ty, shall be borne by the partn ('r owi ng them.

If the thin gi:>c ont ribu ted are pcrishable,' or if they ca n no t be k E'pt without

deter iorating, o r if they were contribut ed to be sold, the risk shall be born e by

the ]jartne 1'ship. I t shall also be born e by the same in the absence o f a special

agreement wit h rega rd to the thin gs contributed and appraised in th e inventory,

and in such case, the claim shall be limit ed to the value at whi ch they wer eappra i:;ed. (C iv. C. , 1687.)

AR T. 37. The losses a nd profi ti:>i :>hallb e distributed in accord ance with what

hai :>been agree d upon. If an agreement exi sts onl y with r ega rd to the shar e of each

one in the profi ts, his share in the lo sses shal! be in the same prop ortion .

In the absence of an agreement, the share of eac h partner in the profit s and lo sses

shall b e in proportion to wh at he may hav e contribut ed. Th e par tner who contri-


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butes his services only shal l receivc a share equal to the one who has contributed the

least. If besides his services hc shou ld have contributcd capital, he sha ll also receive

the proportionate sharc which may pertain to him for this capita l. (Civ. C., 168 9.)

ART . 38. If the partners have agrced to intrust to a third person t he d esig na - \ tion of the share of each one in thc profits and losses, said designation can be imp ugned

only if it has evident ly becn made contrary to equity. In no case sha ll the pa rtner,

who has commenced to execute the decision of the third person or who has not im-

pugned the same within a period of three months, counted from the time he had kno wl-

edge thereof, object thereto.

The des ignat ion of the losses and prof its can not bc intrusted to one of t he pa rt -

ners. (Civ. C., 1960.)

ART . 39. Any agrcemcnt in which one or more of thc partncrs are exc lu ded

from any share in the profits is voidable. An ag reement exempting any o f the p art-

ners from losses is valid among the partners themselves, but third persons ca n not

be prejudiced thereby. (Civ. C., 1692.)

ART. 40. The partners can not app ly the funds of thc partncrship nor ca n they

make use of thc firm name in their private b usiness or transactions . Shou ld t hey do

so, they shall forfeit to the partnership any profit they may have made in the b usiness .

They sha ll furthcrmorc return the funds they have taken and indemnify the pa rtner-ship for al l losses and damages suffered ther~y. (Com. C., 135.)

ART. 41 . The partners not du ly authorized to make use of the firm s ignat ure

shal l not make the company liab le through their acts and contracts, even t houg h they

execute them in the name of the latter and under its signature.

The civil or criminal liab ility for thcse acts sha ll bc inc urred exclusi vely by the

authors the reo f . (Com. C., 128.)

ART. 42. No partner may remove or divert from the common fu nds a larger

amount than that assigned to each one for his personal expenses; should he do so, he

may be compc lled to repay it as if he had not completed the port ion o f the ca pita l

which he bound himself to contribute to the partnership as prov ided by a rtic lc 35

of th is law. (Com. C., 13 9.)

ART. 43. T he damage suffered by the partnersh ip by reason of ma lice , abuo;c

of powers, or ser ious neg ligence on the part o f onc of the partners, shal l m ake the

author thereof liable to indemnify it shou ld the othc r partncrs request it; prov ided

there has not been an express or impl icd approva l or ratification of the act on whichthc claim is based. (Com. C., 144.)

ART. 44. If a partner, who is author ize d to manage the business of t he firm,

col lects a demandab le s um , whic h i s owed to him in hi s own nam e, f rom a perso n who

owes the partnersh ip another s um also demandab le, thc sum co llected s hal l be applied

to t he two credits in pr oport ion to t heir am ou nts, evc n when h e m ay have g iven 11

receipt f or h is own account on ly. B ut shou ld he have give n a rece ip t f or acc ount of

th e partnership, it shal l all b e c hargcd to the c rcdi t o f thc latte r onl y.


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The provi sion s of thi s a rticle a re und erstood wi thou t pr e judi ce to th e debtor

using t he pri vilege gr anted to hi m in article 1172 of the C ivil Code bu t only in th e ca se

the personal cr edit of th e par tn er i s m ore burd ensome to sa id de btor . (Civ . C ., 1684 .)

A RT .45.

Apartner, wh o has rece iv ed in f ull hi s s hare of a part nership credit

w hen t he other part ne! "s had not co llec ted t heirs, is obl iged, if the de btor af te rward s

becomes in sol ve nt, to con tr ibu te to t he partne rship ca pi ta l w hat he recei ved, even

th oug h he m ay have given the rece ipt fo r his sha re o nl y. (Civ . C ., 168 5. )

AR T . 46. Th e partner ship is liab le to t he part ners f or amou nt s t hey m ay have

di sbu rse d and f or t he expe nses t hey have in cur red fo 1' the acco un t o f the same wi th

the prope r inte rest.

They m ll 'lt b e ind emnified a lso for t he dam ages t hey may s uffe r b y reas on of the

bu sin ess e ntru sted to t hem by the f irm, provid ed sa id l osses have not be en in curr ed

thro ugh t hei r own fa ul t, by accident , or on acc oun t o f any reaso n i ndepe nd ent o f the

bu siness t hey m anage. (Com . C., 142. )

AR T . 47. Th e par tn ership sha ll be liabl e to every ma nag ing partner f or the

oblig ations he may have contracted in good f aith fo r the acc oun t of the par tne rship

bu sine ss , an d also for a ll ot her r isk s i nseparab le from its management. (C iv . C.,

1688.)

ART. 48. Transact ions m ad e by the pa rtne rs i n their own na m es a nd wi thth eir pr ivate funds sha ll no t be comm unicate d to t he partners hip nor shall th e

firm be liab le t he re for , pro vided they a re of a kind that pa rtners m ay leg ally

m ak e for the ir o w n acco unt and risk, ot herw ise t he prov ision s of art icle 5 0 of

thi s law w ill app ly.

ART. 49 . In a partnersh ip, w hich do es no t spec if y t he kind s or l ines o f bu sine ss

to whic h it is to engage itself, a m emb er ca n n ot make t ransact ions f or his o wn acco unt

wi th ou t the previo us consent o f the ot her pa rtners w hi ch conse nt they ca n n ot refu seto giv e without pro vi ng that the f irm will suf f er th ere by losses an d d am ages. (C om.

C ., 136 ( 1).)

, \RT. 50 . Partner s w ho do not comply with the provi sions of artic le 4 9 of thi s

law sha ll contribute to th e co mm on fund s the pr ofit t hey may der ive f rom these t rans-

action s but sha ll ind ividua lly suffer t he loss es, if a ny, t hat may have been inc urr ed.

(Com. C ., 136 (2) .)

ART. 51. If t he part nership fixe d in its art icles of a ssoc iat ion the kin d o f bu si-

ne ss it is to engage in, the partners m ay lega lly t ransact a ll ki nds of bu siness t hey

may desire, prov idcd it does not belong t o the kin d of transact ions the p ar tn ership

of whic h th ey a re partn ers is en gaged in, unl ess th ere is a spec ial agr ee m ent to thecontrary. (Co m . C ., 137.)

AR T. 52. P artn ers, givin g th eir se rvic es onl y a nd not contributing any capital,

can n ot engage in any kind of bu sin ess tr ansaction what soever, unless expresslypermi tted to do so by th e part .ncr ship , and should th ey do so, tbe other partners may


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at t heir option r emov e th em from th e partn ership, depriv ing them of t he pro f its

du e th em from the firm or they m ay ta k e a ll the pr ofi ts t hat. sa id p artners may have

ea rn ed o r o bta in ed in vi olat ion of the pr ov isions of t hi s a rticle. (Co m . C ., 138.)

ART. 53 . In e very partnership , a ll the partners, be t hey m anaging or not, have

th e right to examin e t he c ondi tion of the a dmini strat ion and of th e book s of t he fi rm,

and to m ake th e objec tion s whi ch they may con sid er legal. (C om. C. , 133 .) ,AR T. 54. Partners s hall r end er o n dem an d true a nd full inform at ion of all

thing s a ff ect in g t he partnership to a ny partn er, or t he lega l repr ese ntat iv e of any de -

ce ase d p artner , o r pa rtner und er lega l di sa bili ty . (D . P . A., 20. )

ART. 55. Every par tner mu st accoun t to the par tnership for any benefi t, a nd

ho ld as tru st ee for it any profi ts derived by him wi thout th e c on se nt of the ot her part -

ners from an y t ransa ction c onn ecte d wi th the form at ion , conduct , or liquid ation of t hepartn ership. (D. P . A ., 21 ( I n

ART . 56. N o partner can tr ansf er to a noth er p erso n the in te res t he may have

in the partner ship, nor ca n h e s ub stitut e another per son in hi s pl ace for t he d is-

charge of the work und er his ch arg e in th e partn ership admini stration, wit hout t he

previou s con se nt of th e partn ers. ( Com. C. , 143 .)

ART. 57. Ev ery part ner m ay ass ociate a no ther perso n in hi s s hare but s aid

person shall no t be con sid ered a m emb er of th e partnership and hi s relat ion sha ll be

limited to that with whom he i s ass ociat ed. (Civ. C., 1696. )

ART . 58. Th e prop erty right s of a partner in th e firm a sse ts a re ( a) his rights

in spec ific p artnership prop erty , ( b ) hi s int ere st in the p artner ship, and (c) his ri~ht

to p arti cip at e in the m anage m ent unl ess a gr ee d o therwi se . (D . P . A ., 24 .)

ART. 59. On the deat h of a partn er hi s righ t in spec ific p artn ership prope rty

vests in the surviving p artn er or partn ers, except wh ere th e deceased was t he last

surviving partn er, wh en hi s right in such prop erty ve sts in his leg al rep rese nta tive .

Such surviving p artn er or p artner s or the le gal r epr ese nt ative of th e las t survivin~partn er, h as no right to po ss ess t he partn ership p ro perty for any b ut a partners hip

purpo se. ( D . P. A ., 25 (2d. ).)

ART. 60. A partn er's int eres t in th e partn ership i s hi s s har e of the profits and

surplus, and th e s ame is per sona l property. (D. P. A., 26 .)

ART. 61 . A conv eyanc e by a partn er of hi s in te re st in th e partnership does not

of it se lf di ss olv e t he partnership , nor, as aga in st the other pa rtn ers in t he a,bsence of

agreem ent , enti tle t he assig nee , during the c ontinu ance of the partnership , to inte rfe rr

in the m anagem ent or adminitr ation of th e partner ship bu sin ess or aff air s, or to re quire

any inform ation or account of p artnership tran sa ction , or to inspect the part nershi1)

book s; but i t m erely enti tles th e ass igne e t o r ece iv e, in acc ord ance wi th thi s la w , thr

profit s to whi ch the ass ign ing p artner would oth erwi se be e ntitl ed.

In case of a di ss olu tion of the partnership , th e a ssign ee is e nti tled to receive hi s

assignor 's inter es t, and may require an account from the d ate only of the l ast acco unt

agreed to by all the partners . (D. P . A ., 27.)


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CHAPTER V

PARTIAL AN D TOT A L DI SS OL U TIONS

ART. 6 2. The di ss olu tion of a partn ership i s th e ch ange in th e relation of the

partners ca use d by a ny partn er ceas ing to b e'ass ociate d in th e ca rrying on of the bu si-

ness. (U. P. A ., 29.)AR T. 6 3. On di ss olution the par tnership i s not t ermin ated , but continu es until

the winding up and liquid at ion of p artn ership af fa irs i s compl eted. (U . P. A., 30. )

AR T. 64. Th e partial re sc iss ion of th e arti cles of partnership sh all b e prop er in

any of t he following cau ses :

1. Wh en a p artn er make s use of th e partn ership capit al and of the firmnam e for private bu sin ess .

2. Wh en a par tne r in te rf ere s in th e m anagem ent of th e firm who has noright to do so, ac cordin g to th e provi sion s of th e articl es of p artnership.

3. Wh en any p artn er in tru sted wi th the man agem ent c ommit a f ra udin sa id m anagem ent or in the bookk eepin g of the partnership.

4. Wh en an y partn er f ail s to con tribu te t o the common capital th eam oun t stipul ate d in th e a rti cles of p artnership , afte r h avin g bee n r eque ster !to d o s o.

5. 'vVh ena partn er tr ansac ts bu sin ess for hi s own accoun t, which i s pro-hibit ed b y t he provi sion s of article s 49, 51 and 52.

6. Wh en a partn er who i s und er th e o bligation to r end er p erso nal s ervic esto th e partnership abse nt s himself, after h aving b een r eque sted to r eturn andcompl y with hi s duti es and does not do so or doe s not giv e a g ood r eas on whichte mpor arily pr event s him from returning.

7. 'vVh enon e or mor e partner s do not comply , in any m anner whatso ev erwith th e obliga tion s impos ed in the article s of partnership. (C om. C., 218 .)

A RT. 6 5. Th e partial resc iss ion of th e partn ership will p roduce t he a nnulment

of the a rticles in so f ar as t he r es pon sible partner i s co ncern ed, who sh all be con sid eredas exc lud ed th erefrom , requiring him to p ay th e a mount of th e lo ss which may corr es - .

pond t o him, should th ere be any.

Th e partn ership shall be furth ermor e a uthori ze d to r etain the fund s th e exclud ed

partner m ay h ave contribut ed to the common c apit al, without all owin g him to parti_

cipate in the profi ts nor giving him any indemnifi cat ion thereby, un ti l all the transac -

tions pen din g at t he t im e of th e re sc iss ion h ave bee n conclud ed and liquid ated.

(Com. C. , 21 9.)

ART. 66. Th e liabili ty of th e partn er exclud ed as well as t hat o f the par tner-

shi p f or all acts and oblig ation s c ontr acte d in th e nam e a nd for the acco unts of th e

f irm, wi th reg ard to third p erso ns, shall continu e un til p erson al not ices have been

sent to t hose w~o are in th e habit of d ea ling with th e firm and th e reco rd o f the p artial

reciss ion of the a rticl es of p artnership h as been m ade in the prop er comm ercial regis-try . (C om. C., 220. )


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AUT. 67. Every partners hip sha ll be comp lete ly d isso lved fo r

reasons:1. The termination of the period fixed in the art icles of pa rtners hip or

the conclusion of the enterpr ise which constitutes its pu rpose.2. The death of any partner un less the artic les of partnership con ta in

an express agreement to the effect that the heirs of the deceased partner areto continue in the partnership, or a stipulation that said partnership w ill becontinued by the surviving partners.

3. The bankruptcy of any partner or the partnership.'1. The insanity of a managing partner or any other cause which ren ders

him incapab le of administering his own property.5. The existence of any event wh ich makes it unlawfu l for the busi ness

of the partnership to be carried on, or for the members to carry it on in part ner -ship. (Com. C., 221 (a), 222 (1, 2); U. P. A., 31 (3, 5).)

AUT. 63. Partnerships shall not be considered as extended by the imp lie d o rpresumed w ill of the members after the period fo r which they were constituted has

elapsed.

If the members desire to cont inue in partnersh ip, they s hall draw up new art icles ,

subject to al l the formal ities prescribed for the organization o f such an associat ion in

accordance with the provis ions of article 2 of th is law. (Com . C ., 223.)AUT . 69 . On appl icat ion by or for a pa rtner, the court o f first instance o f the

province or city where the principal officeof the partnersh ip is located s hall dec ree adisso lution whenever:

1. A partner has been declared a lunatic in any judicial proceed ing o r is~hown to be of unsound mind.

2. A partner becomes in any way incapable of performing his or her pa rtof the partnership contract .

3 . A partner has been guilty of such cond uct as tends to affect pre judi -eiaily the carrying on of the business.

4. The business of the partnership can only be carried on at a loss.

i). Other circumstances which render a dissolution equitable. (U. P.A., 32 (1).)

ART. 70 . Any partner may abo request the dissolution of the partnershi p in

accordance with article 69 of this law and the other partners can not oppose it if the

term of the duration of the firm has not been fixed or if th is term can not be ascerta ine d

from the nature of the business of the partnership.

In order that such withdrawal or dissolution may be permitted, it must be ma de

in good faith and at the p roper time.

All the other part ners must be not ified and hear d b efore the permiss ion t o dIS -

solve can be granted. (C iv. C., 17 05.)AU T . 71. It s hall be understoo d that a pa rtne r ac ts in bad f aith w ith regar d t o

the d isso lu tion of the pa rtnershi p as prov ided by ar ticle 7 0 o f th is law w hen he wou ld

there by der ive an d appropr iate to h imse lf alone a ll th e pr of its a nd b enefit s whic h

sho uld b e co m mo n and w hich h e wo ul d not r ece iv e a lon e s hould the partn ershi p

co nt inue. (Civ. C., 17 06; Co m. C ., 224 . )


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, -I? A member, who retires from a partnership on his own acco rd or sug-"-,.RT. ~.

't dI'ssolution can not prevent pending transactions to be conc luded in t hee-t I S' ,g , most convenient to the common interests, and until said transact ions arc con -manner "

I d the division of the profits, and property of the partnership sha ll not take p lace.rlue e(Com. C., 225.) . ..

ART. 73. The dis solutIOn of a partnershIp, WhIChpro ceeds from any other causebut the termination of the period for which it has been constituted, sha ll not cause

any prejudice to third parties until it has been recorded in the commercial registry

and published in a newspaper of general circulation in the principal place of b usiness

of the firm ; and per sonal notices must be given to those who have habitually been

dealing with the partnership. (Com. C. , 226.)

CHAPTER VI

WINDING UP A~D LIQUIDATIONART. 74. From the time a partnership is declared in liquidation the representa-

tion of the managing partners to make new contracts and obl igations shal l cease,

their pow ers being limited as liquidators to co llecting the credits of the association ,1 0 extingui shing the obligations previously contracted as they fall due, and to com-

pleting all p ending business or transactions. (Co~. C . , 228.)

ART. 75. Should there be no opposition on the part of any of the partners, the

person s who managed the business and capital of the partnership shall continue to be

III charge of the liqu idation. However, should all the partners not agree thereto,a general meeting shal l be called immediately and the resolution adopted in that meet -

ing, conc erning the appointment of liquidators either from among the members of the

firm or not , shall be followed.

Any other things that have been agre ed upon in the said meeti ng having any

referen ce to the form and the proceed ings to be used in the liquidation and manage -

ment of the partnership assets shal l also be fol lowed. (Com ~ C., 229 . )

AR T . 76. Under the penalty of removal the liquidators shal l-

1. Draw up an inventory of the partnership assets and liabil ities in ac -cOl'dance with the books and other records of the association and p resent thesame to the p :J.rtners with in twenty days from the date of th ~il appointments,unle ss they can show with the approval of such partners that a longer periodof time is necessary for the completion and presentment of ,the said inventory .

2. Commun icate to the partners every mont h the progress and condit ionof the liqu idation. (Com. C., 230 .)

ART . 77. The liqu idators sha ll be liable to the partners for any loss t hat the

firm assets may suffe r on acco unt of fraud or serious neg ligence in the discha rge of

their duty. (Com. C. , 231.)

ART. 78. Liquidato rs sha ll not be understood as being authorized to co mpro -

mise and ar bitrate the common in terests of the partners unless t hey have been

express ly empowere d to do so. (Co m. C., 231.)


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ART. 79. For the purpo se of liquid ation the following sha ll b e con side red aK

the asse ts of the pa rtne rshi p:

1. Th e partn ership property.2. The co ntribution s of the part ne rs as pr ovid ed f or b y a rti cle 25 of this

law , necessary f or the pay m ent o f all th e liabili ties of th e partnershi p. (U . P.A. ,40 (a).) \

ART . 80. Th e liabili ties of th e partn ership shall r ank , in order of p ay me ll t, asfollow s:

1. Tho se owing to creditor s other th an p artn ers.2. Thos e owing to 'partners other than for capit al and ,profit s.3. Tho se owing to p artners in r es pect of c apit al.4. Tho se owin g to par tners in r es pect of profit s.

ART. 81 . In sati sfying th e partnership liabilitie s spec ified in artic le 80 of thi8

law, the foll owin g rul es s hall b e ob se rv ed among the p artners, subj ect to any ag ree -

m ent to th e co ntrary :

1. Th e asse ts s ha ll b e a pp lied in ord er of their dec laration in art icle 79of thi s law to th e sat isf action of the li abili ties .

2. Th e partn ers sha ll contribut e, as provided by article 37 of this law,

the amount ne cess ary to s atisfy th e liabiliti es , but if any but not all of the part-ners a re in solv ent or not b ein g s ubj ect to proc ess, refu se to co ntribu te, the ot herpartn ers 's hall con tribut e th eir share s of th e liabiliti es , and in th eir re lativ eproportion s in whi ch th ey share the profit s, the addition al amount necess aryto pay the liabiliti es.

3. A n ass ign ee, for th e benefit of cr editor s or any p erson appoinfe d bythe court shall hav e t he right t o enforce the contribution s sp ecified in parag raph2 of thi s arti cle.

4. Any p artn er or hi s legal repr ese nt ativ e s hall h ave th e righ t to enfo rcethe contribution s s pecifi ed in p ara graph 2 of thi s articl e to the extent of th eamount which he h as p aid in exc ess of his share of the liabi lity.

5. Th e individual prop erty of a d ecease d p artn er shall b e liabl e for t hl'contributions specified in p aragr aph 2 of this article.

6. When partnership property and individual properties of the pa rtnersare in th e po ssess ion of a court for di stribution, partner ship creditors shal l havepriori ty on p artnership property, and s eparate cr editor s on individual prope rty,sa ving th e rights of lien or s eeur ed ereditors . (U. P. A ., 40, e, d, e, f, g, h.)

ART. 82. 'Vh ere a partner h as bec ome b ankrupt or hi s estate is in solvent t hl 'cl aim s aga in st hi s se parate prop erty s hall rank in th e following order:

1. Tho se owing to sep arate creditors.2. Th ose owing to p artn ership cr edi tor s.3. Tho se o win g t o p artners by w ay of con tribu tion s. (U . P. A., 40 ( i).)

ART. 83. Th e right to an ac count of hi s int erest sh all accru e to any partne r, or

hi s legal repr ese ntativ e, as ag ain st th e windin g up p artn er or the surviving partne rs

or th e person or p artn ership continuing th e bu sin ess, at the d ate of di ssolution, in t he


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ART . 84 . No partner ca n d ema nd the deliv ery to him of th e ca pital du e him

fr om the co mmon fund s un ti l all the dc bt s a nd obli ga tions of the assoc iat ion s ha ve

been exti ngui shed, or u ntil the amo un t thereof has been j udicially depos ite d, if d el-

ivery can not tak e p lace at o nce. (Com . C ., 23 5.)

ART . 85. If any o f the partners cons iders him se lf unju stly treated in the f in al

distrib ution of t he partnership assets he m ay m ak e use of hi s right o f act ion i n a ny

('ourt of c omp ete nt juri sdi ct ion . (Co m . C. , 233.)

C H A PT ER VII

LIMIT ED P A RT NE R SHIPS

ART . 86. A limi te d p artnership i s a part ners hip in which th c liability of one ormore, b ut not all, of the pa rtners is limit ed t o th e s pecifi c a mount or amount s c on-

tributed by him or them to the firm ca pit al at t he t im e of the f orm at ion of the partn er-

ship to be use d in the nam e a nd for the bus in ess t ransact ions o f the fir m und er the ex -

elusive manageme nt of t he ge nera l p artners. (G ilm ore's Partnership , p . 592 ; C om.

C ., 122 (2):)

ART . 87. Th ere mu st be a rticl es of p artn ership drawn in acco rda nce with pro -

visions of a rticle 3 of thi s law ; and in ad di tion theret o th e nam es of the limited p art-

ners and t he a m oun t co ntribut ed b y eac h mu st be c lear ly indi ca ted .ART. 88 . Th e pr ovi sions o f art icles 2 o f thi s law m ust fir st be c omp lied wi th

before t he ass ociat ion shall co mm ence t o carry on any o f its bu sin ess, otherwi ~e th e

rules presc rib ed b y ar ticles 5 and 25 (2) of t hi s law s hall bec om e a ppli cabl e to al l the

partners.

ART. 8 9. Limi te d p artner ship s mu st tr ansac t bu si ness und er the nam e of a ll

general m emb ers, or severa l of them , o r of one onl y; it being ne cessa ry to add in th e

latter two cases to t he nam e or nam es g ive n, the word s " and c omp any," a nd in all

cases t he wo rd s " lim ite d p artnershi p" mu st be a dd ed. (Com . C., 146. )AR T. 90 . Thi s ge neral nam e s hall co nst itute t he firm n am e, in which ther e

may neve r b e i nclud ed t he nam es of speci al p artners.

Shou ld any s pec ial p artner in clud e hi s nam e or p erm it its in clu sion in the firm

name, he s hall be s ubj ect, wi th r ega rd s to perso ns not m emb ers o f the partnership ,

to the same liabili ties as t he man ag in g partner, wi thou t acqui ring any mor e right s

than those co rres ponding to hi s ca pac ity of speci al p artner. (C om . C., 147 .)

ART . 91. A ll the ge neral p artners o f the limit ed pa rtnership, b e t hey or b e they

not ma nag in g part ners of t he partners hip , are liable for the res ult s of the tra ns actionsof the fi rm in the same m ann er and to t he sa m e exte nt as in or din ary partner ships

as set fo rth in articl e 25 of thi s law .

They s hall fur therm ore have t he sa m e rights a nd oblig at ions whi ch are pr es crib ed

in the fo rego in g c hapte rs f or p artners in ordin ary partner ship s. (C om. C., 148 (1, 2) .)


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AR T. 92. The liab ili ty of spec ial part ners for the ob ligations a nd l osse s of t he

partners hi p sha ll be lim ited to t he f unds w hich are contr ibut ed o r bo und thems elves

to contribute to the limited copartnership with the exceptio n of the case me nt ione d

in article 90 of this law.

Special partners can not take any parLwhatsoever in the management of t he inte _

rests of the copartnership, not even in the capacity of specia l agents of t he ma na gin g\

partners. (Art. 148 (3, 4).)

ART. 93 . The provisions of art icle 41 of this law shall be applicab le to pa rtners

in limited partnerships. (Com. C., 149.)

ART. 94. Special partners, can not examine the condition and situation of the

management of the partnership except at the times and under the penalties presc ribed

in t he a rticles of copartnersh ip or in additiona l ones.Should the articles not contain any prov ision of this character, the annua l balance

of the partnership shall be communicated to the special copartners at the en d of t he

year witho ut fai l, exhibiting for a period wh ich can not be less than fifteen day s the

exact data and documents prov ing sa id ba lance and perm itt ing the t ransact io ns to

be underRtood. (Com. C., 150.)

CHAPTER VIII

M ISCELLANEOUS PROVISIOKS

ART. 95. This Act shall be known as the Partnership Law.

A RT. 96. A ll partnersh ips formed, organ ized, and exist ing under t he C iv il and

Commercial Codes of the Philippine Islands and lawfully transacting business in thl'

Philippine Is lands on the date of the passage of this Act shall continue to be s ub jec t

to the provis ions of the said Codes, but they shal l be entitled at their optio n e ither

to continue bURincssas they arc organized or to reform and organize u nder and by

virtue of the provi sions of this Act .

ART. 97. All the provisions of the Civil and Commercial Codes, in so fa r a s they

relate to partnerships, and a ll 'other Acts or part of Acts in conflict or in co nsiste nt

with this Act, are hereby repealed; PrOl'ided, however, That nothing in this A ct c on -

tained shall be deemed to repea l the existing law relating to that c lass of assoc iat ion

known as cuentas en participaci6n (joint accounts) as provided by t he Code o f C om -

merce in its articles 239 to 243 inclusive.

Documents

PLJ Volume 4 Number 6 -01- Jose a. Espiritu - A Proposed Uniform Partnership Law for the Philippine Islands