Atty. Val Antonio B. Suarez

December 1, 1993 Atty. Val Antonio B. Suarez Sycip, Salazar, Hernandez & Gatmaitan 105 Paseo de Roxas, 1200 Makati, Metro Manila S i r : This refers to your letter of November 29, 1993 requesting confirmation on the opinion previously issued by the Commission that a corporation can enter into a partnership under certain conditions. As stated, your client, a Dutch corporation, intends to establish a branch in the Philippines. The Dutch corporation, through its Philippine branch, will then form a general partnership with a Philippine corporation. The partnership will be registered with the Commission and will engage in the development of a power plant on a build, operate and transfer basis, pursuant to which the partnership will design, construct, own and operate the power plant for 10 years. Hence, your request for confirmation that the Dutch corporation, through its Philippine branch and the Philippine corporation may enter into a general partnership for the purpose described above and register such partnership with the Commission. As a general rule, a corporation cannot enter into a contract of partnership with an individual or another corporation, and the reasons, quoting American Authorities are, as follows: "According to the prevailing view a corporation has no implied power to become a partner with an individual or another corporation. This limitation is based on public policy, since in a partnership the corporation would be bound by the acts of the persons who are not its duly appointed and authorized agents and officers, which would be entirely inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively." (13 A. Jur. S 823 [1938]) "It is fairly well settled that corporations cannot ordinarily enter into partnerships with other corporations or with individuals, for, in entering into a partnership the identity of the corporation is lost or merged with that of another and the directions of the affairs is placed on other hands than those provided by the law of its creation. A corporation can act only through its duly authorized agents and is not bound by the acts of anyone else, while in partnership each member binds the firm when acting within the scope of the partnership." (6 Fletcher Cyclopedia Corporations, S 2520 [perm. ed. rev. repl. 1950]) However, the Commission, on several occasions allowed exceptions to the application of the above rule, provided the following conditions are complied with: 1. The authority to enter into a partnership relation is expressly conferred by the respective charters or articles of incorporation of the constituent corporations, and the nature of the business venture to be undertaken by the partnership is in line with the business authorized by the charter or articles of incorporation of the constituent corporations. llcd 2. The agreement on the articles of partnership must provide that all the partners will manage the partnership, and consequently, the articles of partnership must stipulate that all the partners are and shall be jointly and severally liable for all the obligations of the partnership; "In a solidary or joint and several obligations, the relationship between the active and passive subjects is so close that each of the former or of the latter may demand the fulfillment of or must comply with the whole obligations ." (Paras, Civil Code of the Philippines Annotated, citing 8 Manresa 194) 3. The foreign corporation must obtain a license to transact business in the country in accordance with the Corporation Code of the Philippines and the Foreign Investments Act. cdll Thus, for as long as the foregoing conditions are met, the above-mentioned proposed articles of partnership may be registered. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman