G.R. No. 1184. April 22, 1904

On the 7th day of January, 1902, the representative of the Compañia
Agricola de Ultramar, a partnership legally organized in Madrid, Spain,
domiciled in the city of Manila, presented a complaint in the justice’s court of
the town of Quingua, Province of Bulacan, against Anacleto Reyes and others,
setting forth that the defendants were tenants of the estate called Tabang, San
Marcos, and Dampol, the property of the plaintiff company, located in the said
town of Quingua, each one of whom were occupying the quantity of land expressed
therein without having paid the rent for the years 1899,1900, and 1901,
notwithstanding the fact that said payment had been demanded several times at
the end of each year. Therefore the plaintiff company prayed that judgment be
rendered against said defendants, ordering them to vacate the lands occupied by
them and to restore the possession thereof to the plaintiff, with costs against
the defendants.

Upon notice, the defendants appeared on the 30th of January of the same year,
with the exception of the Chinaman Mariano Yñiguez. After hearing both parties,
the justice of the peace, on the 17th of February following, on the supposition
that said plaintiff company was a commercial partnership, and subject to the
provisions of the Code of Commerce, and had not registered in the commercial
registry, denied the petition of the plaintiff, with costs.

An appeal having been interposed by the plaintiff and the parties cited, a
hearing was had in the Court of First Instance of Bulacan on the 21st of March,
1902, and the judge, having heard the arguments and petitions of both parties,
on the 22d of the same month, rendered judgment confirming the decision of the
justice’s court of Quingua, and declared the Compañia Agricola de
Ultramar, a commercial partnership, and therefore that its registry in the
commercial register was necessary in order to appear in an action, and adjudged
the payment of the costs to the plaintiff.

On the 24th of March the plaintiff company, by petition, prayed that the
decision before mentioned should be annulled, and that a new trial be granted in
view of the reasons set forth. The judge, on the 27th of September, in the
presence of both parties, and for the reasons ex pressed by him, declared that
the Compañia Agricola de Ultramar, was a civil partnership, to which
are applicable the provisions of the Code of Commerce in conformity with article
1670 of the Civil Code, and that said partnership should be registered in the
commercial registry before it could appear in an action against the defendants,
modifying and revoking that part of the judgment of the 22d of March which did
not conform thereto, and confirming that part which agrees with the provisions
cited. The plaintiff excepted to this judgment.

In the bill of exceptions appears, among other documents, the articles of
incorporation executed on the 6th of February, 1893, before a notary in the
court of Madrid, ;Spain, by various residents of the same place, organizing a
partnership, entitled Compañia Agricola de Ultramar, which, among other
things, expressed the organization of the partnership and its statutes, as well
as that the parties therein organized a special civil partnership to exploit the
agricultural industry in the Philippine Islands and other Spanish colonies, in
accordance with the present Civil Code, and under the following statutes:

“Article 1. The partnership shall be called the Compañia Agricola de
Ultramar, and shall have its residence in Manila.

“Art. 2. The duration of the partnership shall be for ninety years from the
date of its incorporation. Said period may be extended by a resolution of the
board of shareholders.

“Art. 3. In order to exploit and develop the agricultural industry in the
Philippine Islands and other Spanish colonies, the partnership may acquire any
land, canals, and irrigating marshes or runways, overflows, waterfalls,
quarries, and other real estate, and such cattle as may be useful for
agricultural exploitation; to exploit or alienate said property, and to rent, by
way of a charge, or underlease, as may be convenient for the interests of the
partnership, the realty; to establish agricultural colonies and to invest
capital at interest with a mortgage upon rural or urban property, and to acquire
credits with such guaranties; to grant loans upon crops, cultivated lands,
cattle, agricultural machines, and in turn to borrow money on mortgage guaranty;
to lease rural or urban property.

“Art. 4. The capital is four million and fifty thousand pesetas, divided into
eighty-one shares of fifty thousand pesetas each. Said capital can be increased
or decreased, or subdivided in a proportion of five thousand or more pesetas for
each one, by resolution of the board of directors.

“Art. 5. Only the capital invested will answer for the obligations of the
company. Neither the organizers nor grantors of shares will in any case and
under any consideration be responsible for the debts of the partnership.”

“Art. 38. According to the provisions of article three the partnership can
loan money upon crops, cultivated land, cattle, and agricultural machinery and
implements in general.”

In the bill of exceptions presented to this court by the Compania Agricola de
Ultramar, plaintiff and appellant, against the decision of the lower court, it
appears that the principal object is to obtain a judicial declaration that the
plaintiff herein is a civil partnership, and is not therefore under the
obligation of registering in the commercial registry in order to have juridical
personality with the power to appear in an action against the defendants.

The organizers of the Compañia Agricola de Ultramar, stated in the
articles of incorporation that by the same they organized a special civil
corporation for the purposes and ends expressed therein. Granting, for the sake
of argument, without, accepting the doctrine that, the character of an
association, whether it be civil or mercantile, is determined solely by the
business in which it is engaged and not by the form of its organization, in this
present cause there is no evidence showing the character of the business of the
plaintiff save the articles of its association. We must therefore decide whether
this plaintiff was a mercantile or a civil corporation by the purposes declared
in its articles of association, and the law governing in such cases.

Mercantile associations, purely, are governed by the mercantile code. Civil
associations are governed by the Civil Code.

Article 1 of the Code of Commerce provides that :

“Article 1. The following are merchants for the purposes of this code:

“(1) Those who, having legal capacity to trade, devote themselves thereto
habitually.

“(2) Commercial or industrial associations which are formed in accordance
with this code.”

The Commercial Code for the Philippines does not attempt anywhere, as some
other codes do, to define what are commercial transactions. In the absence of
proof to the contrary, therefore, we must be governed as to the purposes of the
association by the form adopted by its organization and the purposes declared in
its articles of association.

Primarily we must determine whether an association is mercantile or civil
simply by the form of its organization.

The Commercial Code provides how mercantile associations shall be
organized.

Article 116 defines a commercial association and provides that—

“Articles of association by which two or more persons obligate themselves to
place in a common fund any property, industry, or any of these things, in order
to obtain profit, shall be commercial, no matter what its nature may be,
provided it has been established in accordance with the provisions of this
code.

“After a commercial association has been established, it shall have the right
to operate as a juristic person in all its acts and contracts.”

Article 122 provides that commercial associations may become a general or
limited copartnership or a corporation, according to the particular form of the
organization which it may adopt.

Article 121 provides that all commercial associations shall be governed by
the clauses and conditions of their articles of association, and that in cases
or conditions not so provided for shall be controlled by the general provisions
of the Commercial Code.

Article 17 provides that all commercial associations, established in
accordance with the provisions of the code, shall be inscribed in the commercial
registry.

Article 16 makes provisions for the establishment of commercial registries in
all the capitals of the provinces.

Article 21 provides what facts, concerning commercial associations, shall be
recorded in such commercial registries.

Article 119 provides that—

“Every commercial association, before beginning business, shall be obliged to
record its establishment, agreements, and conditions in a public instrument,
which shall be presented for record in the commercial registry, in accordance
with the provisions of article seventeen.

“Additional instruments which modify or alter in any manner whatsoever the
original contracts of the association are subject to the same formalities, in
accordance with the provisions of article twenty-five.

“Partners can not make private agreements, but all must appear in the
articles of co- partnership.”

The supreme court of Spain in an opinion rendered on the 14th day of May,
1884, in the cause of Santiago vs. Bautista et al., held under a similar
provision of the Commercial Code in force in Spain, that commercial associations
have no right to bring actions in the name of the association until after they
have complied with the provisions of the code found in articles 17 and 119.

Articles 125-144 contain the general provisions governing general
associations.

Articles 145-150 contain the general provisions governing limited
associations.

Articles 151-174 contain the general provisions governing corporations.

Articles 175-243 contain the general provisions governing special classes of
corporations or associations.

Article 35 of the Civil Code provides what are juridical persons. Its
provisions are as follows :

“The following are juridical persons :

“(1) The corporations, associations, and institutions of public interest
recognized by law.

“Their personality begins from the very instant in which, in accordance with
law, they are legally established.

“(2) Private associations, be they civil, commercial, or industrial, to which
the law grants proper personality, independent of that of each member
thereof.”

Article 36 provides that—

“The associations referred to in “No.- 2 of the foregoing article, shall be
governed by the provisions of their articles of association, according to the
nature of the latter.”

Article 37 provides that—

“The civil capacity of corporations shall be governed by the laws which have
created or recognized them; that of associations by their by-laws * *
*.”

Article 88 provides that the general powers and rights of juridical persons
are as follows:

“Juridical persons may acquire and possess property of all kinds, as well as
contract obligations and institute civil or criminal actions in accordance with
the laws and rules of their organization.”

Article 39 provides for the winding up of the business of corporations and
associations organized under the Civil Code and for the disposition of their
property.

Article 1665 defines a partnership as follows:

“Partnership is a contract by which 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.’

Article 1666 provides that such partnerships must have lawful objects, and be
established for the common interest of all their members.

Article 1667 provides that such partnerships may be established in any form
whatever, except when real property or property rights are contributed, in which
case a public instrument shall be necessary.

In the present case the property was contributed and a public instrument was
duly executed before Manuel de Bofarull, one of the most famous notaries of all
Europe.

Article 1670 provides that civil partnerships, on account of the; objects to
which they are devoted, may adopt all the forms recognized >y the Commercial
Code. In such cases its (Commercial Code) provisions shall be applicable in so
far as they do not conflict with the provisions of this code.

It will be seen from this provision that whether or not partnerships shall
adopt the forms provided for by the Civil or Commercial Codes is left entirely
to their discretion. And furthermore, that such civil partnerships shall only be
governed by the forms and provisions of the Commercial Code when they expressly
adopt them, and then only in so far as they (rules of the Commercial Code) do
not conflict with the provisions of the Civil Code. In this provision the
legislature expressly indicates that there may exist two classes, of commercial
associations, depending not upon the business in which they are engaged but upon
the particular form adopted in their organization. The definition of the
partnership found in article 1665 clearly includes associations organized for
the purpose, of gain growing out of commercial transactions.

Articles 1671-1678 provide for general and particular partnerships, and give
the rules governing the division of the profits.

The Commercial Code makes special provisions for the liability of the members
of the different associations organized under it. (See the articles contained in
sections 2, 3, 4, 5, and 6 of Book II, Title I.)

The Civil Code here again recognizes the existence of civil partnerships, in
contradistinction to commercial partnerships, in expressly providing for the
liability of their members. (See arts. 1667-1669 of Chap. II of Title VIII.)
Chapter III of the same title contains special provisions for the dissolution of
civil associations.

If it is held that an association which adopts the. form for its organization
provided for by the Civil Code is controlled by the rules requiring registration
under the Commercial Code, then by which code shall the courts be governed in
applying the rules of the liability of their members and for the dissolution of
the same? We are inclined to the belief that the respective codes, Civil and
Commercial, have adopted a complete system for the organization, control,
continuance, liabilities, dissolutions, and juristic personalities of
associations organized under each.

It will be seen from these provisions of the codes that the Civil Code has
expressly provided for the existence of commercial associations, giving them
juristic personality and certain rights and privileges. In these provisions no
reference is made to the provisions of the Commercial Code. It is contended that
notwithstanding this fact, such associations are nevertheless governed by the
provisions of the latter code. The Commercial Code was enacted and went info
effect on the 1st day of December, 1888. The Civil Code was enacted and took
effect on the 31st day of July, 1889. Had it been the-intention of the
legislature to provide that all commercial associations, of whatever class,
should be governed by the provisions of the Commercial Code, it certainly would
not have provided, at a later date, other rules, rights, privileges, and
regulations. It is our opinion that associations organized under the different
codes are governed by the provisions of the respective codes.

From the articles of association it will be seen that the plaintiff company
was organized expressly under the provisions of the Civil Code, on the 6th day
of February, 1893.

From the petition of the plaintiff and the bill of exceptions it appears that
the defendants failed and refused to pay the rent for the years 1899, 1900, and
1901. It does not appear whether or not the defendants had failed or refused to
pay the rent for any of the years previous to 1899. Assuming, without finding it
to be a fact, that the defendants had paid the rent for previous years, then
they thereby recognized the plain tiff company as an entity and are thereby now
estopped from setting up the contrary.

While conditions precedent must always be performed, in order that a
corporation may have a legal existence, it does not by any means follow that
objection to the existence of a corporation on this ground alone can be raised
by any and every person, and in every proceeding. This objection can always,
with few exceptions, be raised by the State. (Attorney-General vs. Hanchett, 42
Mich., 436; People vs. Water Co., 97 Cal., 276.)

Persons who assume to form a corporation or business association, and
exercise corporate functions, and enter into business relations with third
persons, are estopped from denying that they constitute a corporation. So also
are the third persons who deal with such a de facto association or corporation,
recognizing it as such and thereby incurring liabilities, estopped, when an
action is brought on such obligations, from denying the juristic personality of
such corporations or associations. (Scheufler vs. Grand Lodge, 45 Minn., 256;
Farmers’ Loan and Trust Co. vs. Ann Arbor Ry. Co., 67 Fed. Sep., 49.)

Where there is a corporation de facto, with no want of legislative power to
its due and legal existence, when it is proceeding in the performance of a
corporate function, andthird persons are dealing with it on the supposition that
it is what it professes to be, and the questions are only whether the law has
been strictly followed in its organization, it is plainly a dictate alike of
justice and public policy, that in controversies between the de facto
corporation and those who have entered into contractual relations with it, as
corporations or otherwise, such questions should not be suffered to be raised.
(Swarthout vs. Michigan, etc., Ey. Co., 224 Mich., 390.)

Where a shareholder of an association is called upon to respond to a
liability as such, and where a party has contracted with a corporation and is
sued upon the contract, neither is permitted to deny the existence or the legal
validity of such corporation. To hold otherwise would be contrary to the
plainest principles of reason and good faith. Parties must take the consequences
of the position they assume. (Casey vs.Galli, 94 U. S., 673;Bliss on
Code Pleading, secs. 252-254.)

From the foregoing considerations, the provisions of the articles of
association of the plaintiff company, and the quoted provisions of the Civil and
Commercial Codes, we are justified in reaching the following conclusions:

First. That the plaintiff company had statutory authority to organize under
the Civil Code for the purposes indicated in its articles of association.

Second. That it did effect its organization under the Civil Code in force in
these Islands.

Third. The defendants having recognized the existence of the plaintiff as an
entity capable of dealing with private persons, they are thereby estopped from
denying that fact.

Fourth. That the plaintiff company, having complied with the forms required
for the organization of associations of its class under the Civil Code, is a
juristic person recognized by law, and has capacity to maintain the present
action.

The judgment of the lower court is therefore hereby reversed, and the cause
is hereby ordered to be remanded to the Court of First Instance of the Province
of Bulacan, with direction that the defendants be required to appear and answer
within the time fixed by law, and upon failure so to do that a judgment be
rendered against them by default in accordance with the prayer of the petition
filed in said cause.

Cooper and McDonough, JJ., concur.

Mapa, J., did not sit in this case.

---

ARELLANO, C. J.

This case presents the much-debated question of the legal personality of a
civil partnership in the mercantile form.

The question turns upon the provisions of article 1670 of the Civil Code,
which is as follows: “Civil partnerships, on account of the objects to which
they are devoted, may adopt all the forms recognized by the Code of Commerce. In
such case its provisions shall be applicable in so far as they do not conflict
with those of this code.”

The doubt which gives rise to the discussion results on the one hand, from
the fact that the partnership, because it is a civil partnership, is by its very
nature invested with legal personality from the moment of the execution of the
contract, in the absence of a contrary stipulation, and on the other hand from
the fact that because it is established in a form recognized by the Code of
Commerce it can not have legal personality until after the execution of a public
instrument containing the articles of association, and the inscription of this
instrument in the mercantile registry.

The provisions of law which serve as a basis for both aspects of the question
are the following:

With respect to the juridical personality of a civil partnership, articles
1679, 1667, 1668, and 1669 of the Civil Code provide:

“Art. 1679. A partnership begins from the moment of the making of the
agreement, if not otherwise stipulated.”

“Art. 1667. Civil partnerships may be established in any form whatever,
unless when real property or an interest therein should be contributed to the
same, in which case a public instrument shall be necessary.

“Art. 1068. Articles of copartnership are void, when real property is
contributed to the same, if an inventory of said property is not made, signed by
the parties, and which must be attached to the instrument.

“Art. 1669. Partnerships, the articles of which are kept secret among the
partners, and in which each one of the latter may contract in his own name with
third persons, shall have no juristic personalities. This kind of partnership
shall be governed by the provisions relating to property held in
common.”

As to the juristic personality of a mercantile partnership articles 117,119,
17, and 24 of the Code of Commerce control:

“Art. 117. Articles of association, executed with the essential requisites of
law, shall be valid and binding between the parties thereto, no matter what
form, or what conditions and combinations, legal and honest, are embraced
therein, provided they are not expressly prohibited by this code.”

“Art. 119. Every commercial association before beginning business shall
record its establishment, agreements, and conditions in a public instrument,
which shall be
presented for record in the commercial registry, in Accordance
with the provisions of article 17 * * *. Partners can not make private
agreements, but all must appear in the articles of copartnership.”

“Art. 17. The record in the commercial registry shall be optional for private
merchants and compulsory for associations established in accordance with this
code or with special laws, and for vessels.”

“Art. 24. Articles constituting associations not recorded shall be binding
between the members who execute the same; but they shall not prejudice third
persons, who, however, may make use thereof in so far as
advantageous.”

From the provisions of law above quoted it follows, first, that the contract
of partnership does not require any particular form to give it validity and make
it enforceable as between the contracting parties themselves, it being
sufficient that the essential requisites for the perfection of the contract
concur, with one single exception as to civil partnership; second, that this
exception with respect to civil partnerships consists in the fact that the
partnership contract shall not be valid, when the real property is contributed
to it, if the contract is not recorded in a public instrument, with an inventory
of the real property so contributed attached thereto; third, with respect to
third persons, (a) for the enforcibility of a contract of civil
partnership the formality of the public instrument is not required, with the
exception of the case above referred to, it being sufficient that the partners
do not keep their agreements secret, and that each partner does not undertake to
reserve the right to make contracts in his own name with third persons; fourth,
that with respect to third persons a partnership which keeps its agreements a
secret, or in which each one of the partners contracts in his own name, the
partnership will not be a legal entity independent from the personality of each
one of the individuals so associated, but would be merely a tenancy in common,
and persons so associated, as to third persons, would be mere tenants in common;
fifth, that with respect to third persons (b) for the enforcibility of
the mercantile contract of partnership it is necessary that the contract be
evidenced by public instrument, and that this instrument be recorded in the
mercantile registry.

If the members of the Companies Agricola de Ultramar, formed in
Madrid February 6, 1893, when constituting this partnership expressly with the
civil character in accordance with their agreements had contributed capital in
cash only “for the purpose of exploiting and developingthe agricultural industry
in the Philippine Islands and other Spanish colonies/’ and to apply such funds
to “(f) leasing such city or country property as may be convenient;”
“(c) to establish agricultural colonies, to make large plantations for
the account of the partnerships or of other persons, to break lands, to make
plans for water supplies, to construct and operate such water supplies, and to
engage in other similar enterprises;” u(d) to invest money at interest upon the
security of mortgages or antichresis upon city or country property, and to
purchase credits secured by mortgage or antichresis * * *,” and had not divided
its capital into shares, or prepared by-laws, or adopted a partnership name,
there is no doubt that they might have dispensed with the formality of a public
instrument and have recorded these agreements in a private writing. Had they
done so nobody could have denied the partnership legal personality as to third
persons unless it should be shown that some one of the members contracted for it
in his own name. The manager or managers appointed by the partners would beyond
doubt have been able to maintain suits in the name of the partnership as a legal
entity—maintain, for instance, the action of forcible entry and unlawful
detainer in which this question arose.

The necessity for a public instrument arises from the provisions of
paragraphs (a) and (b) of the articles of partnership entered
into by the partners with respect to the purpose of the partnership. But this
necessary form did not change the status of the association as a civil
partnership, because the Civil Code itself requires this formality for all
partnerships to which real property or interests therein are contributed, even
though the partnership may not partake of the form of a mercantile
partnership.

The only ground for doubt remaining undisposed of is found in the following
peculiarities of the contract in question: (1) The anonymous form of
the partnership with its firm name, the division of the capital into shares, and
the establishment of by-laws for its government; (2) the operations (e)
in which the partnership might engage, to wit, “to make loans upon
crops, fields, cattle, agricultural machinery and implements * * *,” an
operation apparently controlled by article 212 of the Code of Commerce as one
properly pertaining to agricultural banks. From these premises the inference is
apparently to be drawn that as the anonymous form of partnership is one of the
forms regulated by the Code of Commerce, and as the object of agricultural banks
and associations is to “make loans in money or in kind for a period not
exceeding three years upon products, crops, cattle, or any other pledge or
special security” (art. 212, par. 1), and as on this account the provisions of
the Code of Commerce are applicable to such a partnership (art. 1670, Civil
Code), the Companies Agricola de Ultramar, would be a civil
partnership, but by reason of its form and mercantile purpose would be subject
to the provisions of articles 119 and 17 of the Code of Commerce, and
consequently until the articles of association are recorded in the mercantile
register it would appear that the partnership could not maintain a suit as a
legal entity against third persons arising from obligations contracted by them
in favor of the partnership.

This conclusion, however, is not a necessary one. The terms of the articles
of association are as follows:

“Art. 3. To exploit and develop the agricultural industry in the Philippine
Islands and other Spanish colonies, the partnership (its purpose) may: * * *
(e) (one of its purposes) make loans upon crops, fields, etc. * * *.”
That which is optional is not obligatory. Not being obligatory, it is not
essential. That which is not essential is not one of the constituent elements of
the contract. Consequently the Companies Agricola de Ultramar, was not
constituted as an agricultural bank or agricultural association according to the
classification of the Code of Commerce, in article 123, or the definition of
this class of banks to be inferred from the provisions of section 12, title 1 of
the Code of Commerce under the heading: “Of special rules applicable to banks
and agricultural associations.”

Taking it for granted that this purpose, among others of a purely civil
character, as well as the object of the partnership, were necessary purposes, or
that the Compania Agricola de Ultramar, or any other partnership,
similarly situated, might some day desire to carry it into effect, it would not
for this reason necessarily have to be considered as a mercantile partnership or
bound to comply with the formalities necessary to the constitution of a purely
mercantile partnership. Article 1 of the Code of Commerce gives us a division of
merchants as follows: (1) Those who, having legal capacity to trade, devote
themselves thereto customarily; (2) commercial or industrial associations which
are formed in accordance with this code.

The Compania Agricola de Ultramar was not organized in accordance
with this code. It was expressly stated by the gentlemen who signed the contract
that “* * * they declare (1) constitution of the partnership; that by this act
they constitute a particular civil anonymous partnership for the purpose of
exploiting and developing the agricultural industry in the Philippine Islands
and other Spanish colonies in accordance with the Civil Code in force *
* *.” (Bill of exceptions, p. 18.)

Furthermore, in accordance with article 2 of the (code of Commerce
“commercial transactions, whether those who perform them are merchants or not,
and whether such acts are or are not specified in this code, shall be controlled
by the provisions contained therein.” If the Compania Agricola de
Ultramar or any other company organized in a similar way should engage in
commercial transactions such as, for instance, purchase and sale, commission
agencies, mercantile bailments, or mercantile loans, then in accordance with
this article of the Code of Commerce which would be applicable to it ex
propio vigore, and furthermore by the provisions of article 1670 of the
Civil Code, without ceasing to be a civil partnership and endowed with legal
personality from the time of its commencement, it would be controlled by the
provisions contained in that code with respect to the commercial transactions
performed by it. Thus, for instance, if it made loans upon crops, fields,
cattle, agricultural machinery and implements (object (c) of the articles of
association, bill of exceptions, p. 18) then it would be subject to the
provisions of article 217, according to which—even considering it for the sake
of the argument as a mere agricultural credit association instead of what it is,
a civil company for the exploitation and development of the agricultural
industry—it would be obliged to apply 50 per cent of its capital to loans which,
as well as those referred to, are specified in paragraph 1 of article 212 of the
Code of Commerce.

If neither by reason of one among various purposes, or by reason of any
general purpose, is it necessary that one who, like a civil partnership
organized in accordance with the Civil Code, is not a merchant, should become a
merchant and thereby be subject to all the provisions of the Code of Commerce
concerning mercantile companies, and withdrawn absolutely from the scope of the
provisions of the Civil Code to which it was the intent of the founders to
conform in the exercise of the option conferred upon them by both codes, then
neither is it a necessary consequence that a civil partnership, intentionally
and deliberately organized in accordance with the Civil Code, should be
transformed into a mercantile partnership merely because it has been molded in
one of the forms recognized by the Code of Commerce—in this case the anonymous
form.

The applicability of the provisions of the Code of Commerce to civil
partnerships organized in the form of mercantile associations, such as anonymous
partnerships or corporations, does not include all the provisions of that code,
nor does it annul by absorption those provisions of the Civil Code which refer
to the peculiar organization of the association. The application of these
provisions is limited logically to a mere adaptation to those concerning the
form adopted by the civil partnership with respect to its control. This is the
provision of article 1670 of the Civil Code ad referendum. This article
is to be understood as though its provisions had been expressed in the following
language:

“Art. 1670. The civil partnership, without ceasing to be civil by reason of
its object, may be created in all the forms recognized in the Code of Commerce.
It may be a collective or general partnership, a partnership en comandita, or an
anonymous partnership. In this case, if it should adopt the form of a general
partnership, then the provisions of articles one hundred and twenty-five to one
hundred and forty-four, inclusive, would be applicable to it; if it should adopt
the form of a partnership en comandita, then articles one hundred and
forty-five to one hundred and fifty would be applicable; and if the form adopted
is that of the anonymous partnership, then the provisions of articles one
hundred and fifty-seven to one hundred and seventy-four of the Code of Commerce
would apply in so far as they are not in conflict with the articles of the
present code.”

If the object of the Civil Code was to authorize a civil partnership to adopt
the forms of a mercantile partnership but still be controlled by the
provisions of the Civil Code— and that such was the purpose is shown by the
exception established to the applicability of the articles of the Code of
Commerce and to the preponderance given to the provisions of the Civil Code
itself—then it is evident that the provisions of the Code of Commerce referred
to as being applicable to such a civil partnership in the mercantile form can be
none other than those concerning the mercantile form adopted. Any other view
would be equivalent to considering the part greater than the whole, and no
effect could be given to the exception that the provisions of the Code of
Commerce are to be applicable “in so far as they are not in conflict with the
provisions of the present code.” If this were not the purpose intended, then it
would have been sufficient to have said, “in such case they shall be in every
respect subject to the Code of Commerce.” Then indeed it might have been said
that the civil partnership in the mercantile form ceases to be civil and is
transformed into a mercantile association. If this conclusion can not be
reached, and the partnership continues to be civil, although invested with the
mercantile form, then it has legal personality as a corporate being provided the
articles are not kept secret among the partners, and that each one of the latter
be not authorized to contract in his own name with third persons. (Art. 1669.)
Any other application of these provisions would be contrary to the requirements
of the Civil Code with respect to the legal personality of a civil
partnership.

Even if we examine the historical precedents of article 1670 of the Civil
Code, no other conclusion can be reached. Its historical precedent is article
106 of the Portuguese Code of Commerce, which became operative in that country
January 1, 1889. The Spanish Civil Code did not become operative in Spain until
May of that year, having been published the preceding January, before which date
the provisions cited of the Portuguese Code were available, it having been
published in June, 1888. According to this article 106, “civil partnerships may
be constituted under any of the forms established in the preceding article, they
being, nevertheless, subject to the provisions of the present code, except with
respect to matters of bankruptcy and questions of jurisdiction.” As the terms of
this article are more explicit, it appears more clearly still that a civil
partnership in the mercantile form is not converted into a mercantile
partnership, and is not identified with a partnership mercantile by its nature
merely because it is subject to the provisions of the Code of Commerce. It
appears further that while mercantile partnerships are subject to the provisions
of the Code of Commerce concerning bankruptcy and the jurisdiction of the
commercial court which exists in Portugal, civil partnerships in the mercantile
form are not so subject. The Spanish Civil Code is broader. While in the
Portuguese Code of Commerce the proviso contained in article 106 is a pure
exception, the rule being the applicability to civil partnerships in the
mercantile form of the provisions of the Code of Commerce, in the Civil Code of
Spain the proviso is not a mere exception, but is the rule, the exception being
the applicability of the provisions of the Code of Commerce in subordination to
those of the Civil Code, which preponderate. Consequently the direct,
primordial, and principal law applicable is the Civil Code, without prejudice to
the application of the provisions of the Code of Commerce in so far as they are
not in conflict with those of the Civil Code, which are applicable to such
partnerships merely subsidiarily. This being so, if the civil partnership from
the time the contract is perfected is invested with juridical personality as a
corporate being, unless the partners keep their agreements a secret or each one
of them contracts in his own name (art. 1669), the Companies Agricola de
Ultramar, the members of which do not keep their agreements secret, and as
to whom it has not been shown that any of them has contracted in his own name,
is invested with juridical personality, notwithstanding the fact that under the
provisions of article 119 of the Code of Commerce, ,a mercantile partnership is
devoid of juridical personality unless its articles of association are recorded
in the mercantile registry. This is so because this provision of the Code of
Commerce, which refers not to a matter of form, but to the existence or
essence of a mercantile partnership, is not applicable to a civil partnership in
the mercantile form, and second, because even admitting for the sake of argument
that it were, then as being clearly in conflict with the provisions of article
1669 it must give way to the rules of the Civil Code .in accordance with the
provisions of article l670 thereof. “The provisions of the Code of Commerce will
be applicable in so far as they are not in conflict with those of the present
code.” These are the express terms of article 1670 of the Civil Code.

The will of the contracting parties, which is the fundamental law of the
contract, can not be disregarded without infringing the principle of the law of
contracts established by article 1091 of the Civil Code. It being the express
will of the parties to constitute a civil partnership in accordance with the
Civil Code, the partnership organized is and can be nothing else than a civil
partnership, and this was the conclusion of the court below in its second
decision. It is true that contracts are not what the parties may see fit to call
them, but what they really are as determined by the principles of law. It is
true that the parties are not at liberty to call a contract of loan a bailment,
for these two contracts are essentially different, and the essential attributes
of things can not be changed. But a civil partnership does not differ
essentially from a mercantile partnership. They are not two distinct contracts.
Both of them have for their purpose the contribution of property or industry for
the purpose of obtaining a profit. As to whether the partnership is to be
mercantile or civil, the law makes no specific difference, leaving this to the
will of the parties. If the parties organize the partnership in accordance with
the provisions of the Code of Commerce, then it would be mercantile. If they
organize it in accordance with the provisions of the Civil Code, then it will be
civil. As the founders of the company in question have made use of the right of
option which the law grants them, it cannot be said that their election,
authorized by the law, is rendered ineffectual by the law itself. If there were
such a provision of law, no room for doubt would exist. It follows, therefore,
that to say that although the parties intended that the partnership should be
civil, nevertheless it is mercantile, because the law so provides, is to take
the whole case for granted.

The partnership in question is industrial. Industry is one of the objects
included within the definition which the Civil Code gives of a civil partnership
in article 1665, and also in that of a mercantile partnership, the definition of
which is found in article 116 of the Code of Commerce. Manresa says: “This
definition also includes mercantile partnerships,” hut adds, “but they will not
be considered as mercantile if they are not constituted in accordance with the
provisions of the Code of Commerce, in which case they would be civil.” (Vol. I,
Manresa’s Commentaries, p. 184.)

For the reasons stated I agree with the result of the majority opinion.

---

TORRES, J.

January 7, 1902, counsel for the Compania Agricola de Ultramar, an
anonymous partnership legally constituted in Madrid, Spain, and domiciled in
this city, filed a complaint in the court of the justice of the peace of the
municipality of Quingua, Province of Bulacan, against Anacleto Reyes et al.,
alleging that the defendants are tenants of the haciendas called Tabang, San
Marcos, and Dampol, the property of the plaintiff company, situated in the said
township of Quingua; that each of the defendants is in possession of the parcels
of land described in the complaint; that they have failed to pay the rents due
for the years 1899, 1900, and 1901, or that of preceding years, notwithstanding
demands made upon them several times at the end of each.year for the payment of
the said rents. Upon this statement of facts the plaintiff company prayed for
judgment against the defendants for the recovery of possession of the lands
occupied by them, with the costs of suit.

Process having been issued, the defendants appeared by their respective
counsel on January 30, 1902, with the exception of the Chinaman Mariano Iniguez,
as to whom the case was dismissed on motion of plaintiff. After hearing of both
parties the justice of the peace, on February 17 following, and upon the ground
that the plaintiff company, being a mercantile partnership subject to the
provisions of the Code of Commerce, had not proven that its articles were
recorded in the mercantile registry, dismissed, the complaint on motion of
counsel for the defendants, and imposed upon the plaintiff the costs of
suit.

The plaintiff company having appealed, the case was tried in the Court of
First Instance of Bulacan, March 21, 1902, and the judge, after hearing the
evidence and argument by the respective counsel, on March 22,1902, rendered
judgment with the costs against the plaintiif, affirming the decision of the
court of the justice of the peace of Quingua, declaring the Compania
Agricola de Ultramar, to be a mercantile partnership, and that therefore to
enable it to maintain the action it was necessary for the company to show that
its articles were recorded in the mercantile registry.

The plaintiff company on March 24,1902, made a motion for a new trial upon
the grounds stated in the motion papers, and the court below, after hearing the
parties upon the motion, on the 22d of September, 1902, for the reasons stated
in its decision, declared that the Compania Agricola de Ultramar, was a
civil partnership, to which the provisions of the Code of Commerce were
applicable in accordance with article 1670 of the Civil Code, and that the said
company must record its articles in the mercantile registry before it could
maintain the suit against the defendants, thus modifying and reversing its
former decision of March 22 in so far as it conflicted with the latter decision,
and affirming it in so far as it was in harmony therewith. To this decision the
plaintiff duly excepted.

In the bill of exceptions, among other documents, appear the articles of
association executed February 6, 1893, before a notary of the city of Madrid,
Spain, by several citizens thereof, the founders of the company styled the
Compania Agricola de Ultramar, which articles among other things recite
the organization of the company and its by-laws, and that the contracting
parties constituted a private civil partnership for the purpose of exploiting
and developing the agricultural industry in the Philippine Islands and other
Spanish colonies, in accordance with the Civil Code in force1 and upon the
following terms and conditions:

“Article 1. The company shall be styled Compania Agricola de
Ultramar, and shall have its domicile in Manila.

“Art. 2. The duration of the company shall be ninety yearn from the date of
the articles of association, subject to further extension by the board of
shareholders.

“Art. 3. For the purpose of exploiting and developing the agricultural
industry, the company may acquire any estates, canals, irrigable lands, salt
marshes, waterfalls, quarries, and such other real and personal property as
might be of utility for agricultural purposes; to operate or dispose of the said
properties, and to let out the real property by lots or emphyteusis, establish
agricultural colonies, etc.; to invest money at interest upon the security of
mortgage’s or antichresis on city or country real property, and to acquire
credits so secured; to make loans upon (crops, fields, cattle, agricultural
machinery, etc., and itself to borrow money upon mortgage security, and to lease
city or country property.

“Art. 4. The capital stock is four million and fifty thousand pesetas,
divided into eighty-one shares of fifty thousand pesetas each, the company being
authorized to increase? or diminish its capital or to subdivide it into shares
of five thousand or more pesetas each, by resolution of the general meeting of
shareholders.

“Art. 5. The obligations of the company shall be enforceable* against the
paid-up capital alone, and consequently neither the original members nor the
subsequent holders of shares shall be in any case responsible for the debts of
the partnership.”

“Art. 38. According to the provisions of article three, the company may lend
money upon crops, fields, cattle, agricultural machinery, and
implements.”

By an instrument executed on the (ith of March, 1899, before a notary public
in the city of Madrid, the agent of the religious corporation of Augustinians
sold and conveyed in fee simple to the Compania Agricola de Ultramar,
the nine estates described in the said deed, in consideration of the sum of
8,350,000 pesetas. Among these estates is included the hacienda of Quingua, more
commonly known by the name of Danipol and San Marcos, which property is devoted
to the cultivation of rice and other grains, and whose area is mentioned in the
deed.

In the bill of exceptions presented to this court by counsel for the
Compania Agricola de Ultramar, against the decision of the judge
entered on the 27th of September, 1902, it is contended and this is the
principal purpose of the appeal, that this court should hold that the appellant
company, by reason of its civil character, is under no obligation to record its
articles of association in the mercantile registry, as a condition to its
possession of the status of a legal entity entitled to maintain suit as such
against the defendants. It is to be observed that the defendants did not
contract with the plaintiff company, but with the Augustinian friars.

Article 2 of the Code of Commerce provides that commercial transactions,
whether performed by merchants or others, and whether they are or are not
speeded in that code, shall be controlled by its provisions. All contracts and
operations provided for in the Code of Commerce, and all others of an analogous
character are regarded as commercial acts.

Article 17 of the code reads as follows: “The record in the commercial
registry shall be optional for private merchants and compulsory for associations
established in accordance with this code or with special laws, and for
vessels.”

The last clause of article 21 of the same code provides: “Foreign
associations which desire to establish themselves or create branches in the
Philippines shall present and have recorded in the registry, besides their
statutes and the documents prescribed for Spanish associations, the certificate
issued by the Spanish consul stating that said companies have been established
and authorized according to the laws of their respective countries.”

From the text of these provisions of the Code of Commerce it is to be
inferred that the duty of complying with this requisite of inscription in the
registry includes all those engaged in commerce, whether matriculated or not,
and to all companies which by reason of their object or purpose and the
character of their operations are to be considered as mercantile companies, for
the character of the company is to be determined not by its external form or
mechanism but by its purpose and object

It is true that the founders of the Compania Agricola de
Ultramar,stated in the articles of association of February 6, 1893, that
they thereby constituted an anonymous private civil partnership for the
purposes and objects therein expressed. But it is also true that it was the
manifest intention of the founders of the company to create an anonymous
partnership which in every respect falls within the description of the
third of the various classes of partnerships provided for by article 122 of the
Code of Commerce, they exercising the right conferred upon them by article 1070
of the Civil Code, and therefore the provisions of the Code of Commerce not in
conflict with those of the Civil Code should be applied to the plaintiff
company.

Article 1670 of the Civil Code, in its last paragraph says: “In such case its
provisions shall be applied to them * * *”—that is, the provisions of the Code
of Commerce. This provision of the law is obligatory, and it can not be believed
that the application of the provisions of the law merchant to partnerships
called civil, but which by reason of the purposes for which they were
created are essentially and actually mercantile companies, is merely optional.
If it had been the intention of the legislator to have made the matter one of
discretion or option, doubtless unequivocal language to that effect would have
been used and the law would have provided that these provisions might be applied
to them. By saying that the provisions of the Code of Commerce shall be
applied to them, it was intended to convey the idea that those provisions of the
Code of Commerce must be applied.

From a mere perusal of the articles of association, and especially of
articles 2, 3, 4, 5, and 38 of the by-laws, it clearly appears that the purpose
of the founders was to constitute an anonymous mercantile partnership under the
denomination of a civil partnership. In the articles referred to provision is
made for the duration of the company, the firm capital is divided into shares,
and provision is made as to the liability of the paid-up capital with respect to
the obligations of the company, and the business operations proposed to be
effected by the company are enumerated. From all this it is unquestionable that
the plaintiff company, by reason of its nature and conditions, and its object
and purpose, is subject to the provisions of articles 117, 119, 121, 122, 123,
151, 152, and 212 of the Code of Commerce.

The mere fact that a company which by reason of the character of its business
is mercantile, and therefore subject to the Code of Commerce, has seen fit to
style itself a civil partnership, does not relieve it from the obligation of
complying with the provisions of article 17 above cited, and much more so if the
company is foreign (art. 21, last paragraph), because such a company or
partnership, although it calls itself civil, is beyond the scope of the Civil
Code and plainly subject to the law merchant. For this reason the Civil Code, in
article 1700, last paragraph, provides: “The partnerships referred to in article
1670 are excepted from the provisions of numbers three and four of this article
in cases in which, in accordance with the provisions of the Code of Commerce,
they should continue to exist.” This paragraph shows that such companies are to
be governed by the provisions of the Code of Commerce.

This being so, it is evident that such a company is bound to comply with the
provisions of articles 17, 21, and 119 of that code, because if the provisions
of the law merchant must be applied to the Compania Agricola de
Ultramar, there is no mi son of law or public policy which relieves it from
the fulfillment of the condition of registration, more especially as the
appellant is a foreign company, whose organizers and members are probably all
foreigners.

A company organized in the anonymous form, and composed of foreigners, which
is established in this country and proposes to engage in business or mercantile
operations, is under the unavoidable obligation of informing the public as to
who are its founders, what are its articles, the conditions of its organization
and existence, the basis of its operations, and the security it gives for the
value of the stock issued by it, and of the contents of its articles of
association. The only form of publication provided for by the special law
controlling the case is by record in tin1 mercantile registry, compliance with
which requirement is demanded by public policy.

We are of the opinion that this is the interpretation that should be given to
article 1070 of the Civil Code, and for the purpose of dispelling any doubt
which may remain, we refer to some pertinent paragraphs of the official preface
to the Code of Commerce in force.

“The principles upon which the projected code has been drawn with respect to
the different manners and forms of constituting mercantile companies may be
reduced to three: An ample liberty for the associates to organize in such manner
as they may deem convenient; the complete absence of Governmental intervention
in the private affairs of these juristic persons; the publicity of such of the
acts of these associations as may be of interest to third persons.

“These general principles having been established in harmony with the law of
1869 and the outline drawn by the Government for the drafting of the new Code of
Commerce, the draft herewith presented includes all companies which, either by
their nature or by the character of their operations, are to be considered as
mercantile * * *.

The provisions of the Code of Commerce now in force guarantee the principles
of liberty of association and of trade, harmonizing them with protection of the
rights of third persons by means of the mercantile register.

In order to enforce the performance of the duty of recording, article 24 of
the Code of Commerce provides: “Unrecorded articles of association shall be
enforceable as between the parties thereto, but shall not prejudice third
persons, who nevertheless may make use of them in so far as favorable to them.”
And article 29 of the same code provides: “Unrecorded powers of attorney shall
be binding as between the principal and the agent, but can not be used to the
prejudice of third persons, who nevertheless may make use of them in so far as
they may be favorable.”

If a company, created for a mercantile purpose, could be permitted to elude
the obligation of registration simply because is has been denominated a
particular civil anonymous partnership in its articles of association, this
would authorize a violation of the provisions of article 1670 of the Civil Code
and the provisions of the Code of Commerce, and make unavailing the purpose of
the legislator, which was to establish for the benefit of the public an
efficacious protection for outsiders buying the stock of an anonymous
partnership, and the result would be that the purpose of the law in imposing the
requirement of publication by means of record in the registry—the sole check
imposed upon the otherwise unrestricted right of mercantile association—would be
swept away;

It having therefore been demonstrated that the appellant company is under an
absolute obligation of recording its articles of association and by-laws in the
mercantile register in the manner prescribed by the Code of Commerce, in the
absence of proof of compliance with this provision of the law, it follows that
the company lacks the legal personality or corporate existence necessary to
maintain this suit, because inscription in the mercantile registry is an
indispensable condition to the acquisition by a mercantile company of corporate
existence and of capacity as an entity, to maintain suits in courts against
third persons.

This legal principle has been confirmed in practice by the decisions of the
supreme court of Spain, which we cite, as this case deals with the application
of laws of Spanish origin. That court in its decision of May 8, 1885, said: “The
court below in allowing the complaint and intervention filed on occasion of the
levy of execution, and in basing its decision upon the provisions of article 290
of the Code of Commerce, has violated the provisions of the articles of that
code relied upon in this appeal and principally those of article 28 in.
connection with articles 22 and 25, because the intervening company could have
no legal existence, nor could it avail itself of the provisions of the articles
cited to enforce rights against third persons, before its articles of
association were recorded in the general register of the province, and this
requirement not having been complied with until June 20, 1882, while the
attachment in the executive action was ordered on the 10th, and levied on the
13th of that month, it is evident that the articles of association, prepared
during the period intervening between this date and that of their registration,
could not constitute a bar to the attachment or subsequently affect its
validity.”

This decision is an affirmance of the doctrine laid down in a former decision
of March 1, 1884. If the provisions of the Code of Commerce are applicable to
the Compania Agricola de Ultramar, then it can not maintain an action
in court against third persons as a corporate being until it can show that its
articles are recorded in the mercantile registry in compliance with the
requirement laid down by the law and emphasized by the courts.

With respect to the appellant’s contention based upon the provisions of
section 94 of the Code of Civil Procedure, as the demurrer should have been
sustained under the provisions of paragraph 2 of section 91 of that code, the
provisions of section 101 thereof should be applied to the case.

For the reasons stated, we are therefore of the opinion that the judgment of
the court below should be affirmed, and that the appellees should have judgment
for their costs.