Atty. Hector M. De Leon, Jr.

March 4, 1994 Atty. Hector M. De Leon, Jr. Sycip, Salazar, Hernandez & Gatmaitan 105 Paseo De Roxas, 1200 Makati, Metro Manila S i r : This refers to your letter of February 11, 1994 requesting the Commission to reconsider the "solidary liability" requirement of all the partners in partnerships composed of corporate partners for the following reasons: 1. The requirement is inconsistent with the rule laid down in Article 1816 of the Civil Code which provides: "ARTICLE 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all partnership assets have been exhausted, for the contract which may be entered into in the name and for the account of the partnership. However, any partner may enter into a separate obligation to perform a partnership contract." 2. Under the American Uniform Partnership Act (where many Civil Code provisions on partnership were based), partners (including corporate partners) are not solidarily liable for the contractual obligation of the partnership. 3. The solidary liability requirement discourages the formation of partnerships. Please be advised that the "pro-rata liability" in the above-quoted provision of the Civil Code only refers to the extent of the share of the partners in the partnership liability. Your attention is invited to Article 1824 of the Civil Code which requires a "solidary liability" of all the partners for the contractual liabilities arising from the partnership obligations. The Law provides: "ARTICLE 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Article 1822 and 1823." (Emphasis supplied) Thus, while the extent of a partner's share in the partnership liability is merely "pro-rata", each partner is "solidarily" liable with the partnership in the event the latter fails to fulfill its contractual obligations . However, partner who is made to pay the full amount of the partnership obligation can recover from the other partners their pro-rata share in the liability. The above SEC requirement, therefore, is not inconsistent with the provisions of the Civil Code. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman