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Partnership, Agency, and Trusts

Amurao, Angelica D. Atty. Mykedox Knoel Cuchapin


LLB – III Professor

Topic: Formalities in a Contract of Partnership (Article 1771)

Changes are indispensable in almost every aspects of man’s life. These changes are mainly
brought by the advent of technology, various scientific advancements and other human factors.
Even the existing laws in the Philippines cannot escape from the effects of the ever-changing world.
That is why, some of the laws need amendments or revisions so as to align the current ways of
doing things. Thus, this paper aims to propose amendment to certain provision of Partnership
embodied in the Civil Code of the Philippines. The discussion of this proposal will focus on the
essentiality of the formalities of a partnership contract.

Partnership in the Philippines are governed by and covered under Articles 1767 to 1867 of
the Civil Code of the Philippines. Particularly, Article 1771 provides “A partnership may be
constituted in any form, except where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.” This provision entails the general rule that no
special form is required for the validity or existence of the contract of partnership. The contract
may be made orally or in writing regardless of the value of the contributions. There is exception
regarding this general rule wherein in case of immovable property or real rights are contributed, a
public instrument shall be necessary. The proposed amendment for this provision is that in a
contract of partnership, a written contract or agreement must be required for its validity in all
cases, including movable property.

This amendment is for preventing the partners in evading their liabilities, denying the
existence of partnership and to avoid other disputes which may arise between them. Partnership is
one of the few contracts that do not entitle its owners to limited liability. Therefore, if the
partnership is sued, the personal assets of the partners are also on the line. It is obviously that in
best interests of the partners do not want that kind of situation to happen. However, if that is the
case, it is best not to leave only one partner in carrying the brunt of the partnership’s debts. Thus, a
partner must do everything in his power to prove a partnership existed between them. Hence, in
proving the existence of partnership is very challenging if there is an existing provision in our law
that allows any form for the existence of the partnership. Although you can alternatively determine
based on the intention and conduct of the parties, but it is also difficult to use those as basis because
it is subjective and disputable. But if the law mandated only for a written agreement, it is easier to
determine the absence or existence of partnership and no more act of denial for the partner who is
negating his engagement to the partnership.

In the nature of partnership wherein it can exist even if there has been no formal
acknowledgement that a person is engage with it, is actually necessary for it to have a written
contract or agreement in its formation. It is because a written contract plays a vital role in any
business transaction. Apart from putting an agreement on paper as a formal act and legally binding
between the parties, this also serve as future references, guidelines of the agreement and proof in
the event of misunderstandings, complaints or disputes needing litigation proceedings. In the event
that a dispute arises, the written agreement serves as better legal evidence than oral testimony.

Perhaps the easiest way to prove there was a partnership is by having a written agreement
or contract to share in profits or losses, as well as a mutual right of control or management. In
essence, once a partner made or signed a written contract that the latter acknowledged a
partnership and engaged with it, he cannot then deny it. In conclusion, the law must be strict
regarding the formalities of contract of partnership and adopt an easier way in determining
whether a partnership exist or not. Even if one cannot definitely prove to the factors necessary that
a partnership existed, such as profit sharing or shared management, a written contract can prove
that a partnership did exist.

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