Thunga Chui vs. Que Bentec

A verbal contract of partnership is valid and enforceable between the partners themselves, whether the partnership is civil or commercial, because the statutory requirement that certain contracts be reduced to writing (Article 1280, Civil Code; Articles 51 and 119, Code of Commerce) is not an essential requisite for the contract's existence between the immediate parties. The form requirement operates principally for the protection of third persons and may be compelled by either contracting party only when necessary to render the contract fully effective as to its object.

Thunga Chui and Que Bentec entered into a verbal agreement to form a partnership. The plaintiff contributed capital in the amount of 1,000 pesos; the defendant contributed 2,000 pesos. No written instrument was executed to evidence the partnership agreement. A dispute thereafter arose between the partners, and the plaintiff brought an action to enforce the contract. The defendant resisted, asserting that the partnership contract was unenforceable because it had not been reduced to writing as required by law.

• The Partnership Agreement: The plaintiff, Thunga Chui, and the defendant, Que Bentec, entered into a verbal agreement to form a partnership. The plaintiff contributed capital in the sum of 1,000 pesos; the defendant contributed 2,000 pesos. No written document — whether public or private — was executed to evidence the partnership contract.
• The Dispute: A controversy arose between the partners, and the plaintiff brought suit to enforce rights under the verbal partnership agreement.
• The Trial Court's Decision: It fairly appeared from the trial court's decision that the partnership contract was not in writing. The trial judge found the facts in favor of the plaintiff and rendered judgment accordingly.

• Validity of Verbal Civil Partnership: Whether a verbal contract of civil partnership is valid and enforceable between the partners when the capital contributed exceeds 1,500 pesetas, given the requirement of Article 1280 of the Civil Code that such contracts "must be drawn in writing."
• Validity of Verbal Commercial Partnership: Whether a verbal contract of commercial partnership is valid and enforceable between the partners themselves notwithstanding Articles 119 and 51 of the Code of Commerce.
• Necessity of Prior Action to Compel Written Form: Whether the plaintiff must first bring an action under Article 1279 of the Civil Code to compel the reduction of the contract to writing before suing on the verbal agreement itself.

• Validity of Verbal Civil Partnership: The contract was valid and enforceable. Under Article 1278 of the Civil Code, contracts are binding whatever the form in which they are entered into, provided the essential conditions for validity specified in Article 1261 are present. Article 1280, which enumerates contracts that "must be drawn in writing," does not make the written form an essential requisite of the contract's existence. The enforceability of contracts does not depend upon extrinsic form but solely upon the presence of the conditions necessary for validity. The reduction to writing required by Article 1280 is simply a coercive power granted to the contracting parties by which they can reciprocally compel the observance of these formal requisites — a privilege, not an obligation, and the failure to make use of it does not bar an action on the contract. This doctrine was settled by the Supreme Court of Spain in decisions of May 3, 1897, July 4, 1899, October 19, 1901, and June 18, 1902.
• Validity of Verbal Commercial Partnership: The contract was equally valid under the Code of Commerce. Article 117 of that Code expressly provides that a mercantile partnership contract "entered into with the essential requisites of the law shall be valid and binding upon the parties thereto, whatever may be its form." The phrase "essential requisites of the law" refers to the general requirements of every contract under Article 1261 of the Civil Code — consent, object, and cause — not to the formalities of Article 119. The word "form" in Article 117 refers to whether the contract is made by parol or in writing, not to the class of partnership. A verbal contract of partnership is therefore good as between the partners themselves. Articles 118 and 119, which require a public instrument and registration, are directed to the protection of third persons. Article 118 expressly conditions the validity of contracts with third persons upon compliance with Article 119, but Article 117 contains no such condition as between the partners. The effect of non-compliance with Article 119 is to expose the managers to personal liability to third persons (Article 120) and to prevent the partnership from suing third persons in its partnership name, but it does not affect the validity of the partnership contract as between the partners. The legislative intent to abolish the prior rule of the 1829 Code (which required a public instrument even as between partners) was confirmed by the preface to the 1885 Code of Commerce, which declared the principle that the contract is binding upon the associates "from the very moment of its celebration."
• Necessity of Prior Action to Compel Written Form: No prior action under Article 1279 was required. Article 1279 does not subordinate the principal action for the enforcement of the agreement to the bringing of a secondary action concerning the form. Such subordination would be unnecessary because the cause of action in both cases is the same — the existence of a valid contract. The plaintiff may maintain an action on the verbal contract immediately. Article 1279 need be invoked only when, by reason of the subject-matter of the contract or for other causes, the plaintiff cannot make the contract fully effective without the prescribed document. The case of Elias Gueb vs. Trinidad Ruiz (November 7, 1901), where the writing was held necessary, was distinguished on the ground that it involved an assignment against a third person, not a dispute between the immediate parties.

• Form Is Not an Essential Requisite of Contract Validity: Under Article 1278 of the Civil Code, contracts are binding whatever the form in which they are entered into, provided the essential conditions of consent, object, and cause (Article 1261) are present. The enforceability of contracts does not depend upon extrinsic form but solely upon the presence of the conditions necessary for their validity.

• Article 1280 Confers a Privilege, Not a Condition Precedent: Article 1280's requirement that certain contracts "must be drawn in writing" does not make the written instrument an essential requisite for the contract's existence. Article 1279 grants each contracting party a facultative right to compel the other to execute the required writing, but failure to exercise that right does not bar an action to enforce the underlying obligation. The reduction to writing is a coercive power, not a precondition to enforceability.

• Verbal Commercial Partnerships Valid Between Partners: Under Article 117 of the Code of Commerce, a mercantile partnership contract is valid and binding between the partners "whatever may be its form." A verbal contract suffices. The formalities of public instrument and registration required by Article 119 operate for the protection of third persons, not as between the partners. The legislative intent, as evidenced by the preface to the 1885 Code of Commerce, was to abandon the contrary rule of the 1829 Code that required a public instrument even between partners.

• Distinction Between Immediate Parties and Third Persons Regarding Form: The requirement that certain contracts appear in a public or private document (Article 1280, Civil Code; Articles 118-119, Code of Commerce) is principally for the protection of third persons. As between the immediate parties, the absence of the required writing does not impair the contract's validity or enforceability.

• "Contracts shall be binding, whatever the form may be in which they have been entered into, provided the essential conditions required for their validity are present." (Article 1278, Civil Code, cited as the controlling principle)

• "Article 1280 is limited to an enumeration of the acts and contracts which should be reduced to writing, in a public or private document. Article 1279, far from making the enforceability of the contract dependent upon any special extrinsic form, recognizes its enforceability by the mere act of granting to the contracting parties an adequate remedy whereby to compel the execution of a public writing, or any other special form, whenever such form is necessary in order that the contract may produce the effect which is desired, according to whatever may be its object." (Quoting the Supreme Court of Spain, judgment of October 19, 1901)

• "The contract of mercantile partnership entered into with the essential requisites of the law shall be valid and binding upon the parties thereto, whatever may be its form." (Article 117, Code of Commerce)

• "The partners can not avail themselves of this lack of publicity, for they having full knowledge of the terms and conditions of the agreement by which the partnership is created, it is binding upon them from the very moment of its celebration." (Preface to the 1885 Code of Commerce of the Peninsula)

• Thunga Chui vs. Que Bentec, 1 Phil. Rep., 356 — The prior decision in the same case, limiting the scope of the present appeal to whether the trial court's findings of fact supported the judgment.
• Prautch, Scholes and Co. vs. Hernandez, 1 Phil. Rep., 705 — Distinguished. A commercial partnership that had not complied with Article 119 could not maintain an action in its partnership name against a third person, consistent with the principle that Article 119's formalities are for the protection of third persons.
• Elias Gueb vs. Trinidad Ruiz (November 7, 1901) — Distinguished. The assignment of a credit to the plaintiff required the writing mentioned in Article 1280 because the defendant was a third person to the assignment; as against a third person, the writing was necessary.
• Supreme Court of Spain, Judgment of May 3, 1897 — Article 1279 does not impose an obligation but confers a privilege upon both contracting parties, and the fact that a plaintiff has not made use of it does not bar the action.
• Supreme Court of Spain, Judgment of July 4, 1899 — A verbal sale of inheritance rights could not be invalidated for lack of a public document under Article 1280(4).
• Supreme Court of Spain, Judgment of October 19, 1901 — Affirmed judgment on a verbal annuity contract; Article 1279 does not subordinate the principal action to a secondary action concerning form.
• Supreme Court of Spain, Judgment of June 18, 1902 — The enforceability of contracts does not depend on their extrinsic form; Article 1280 had not been violated.
• Supreme Court of Spain, Judgment of April 17, 1897 — Construed consistently with the other decisions; the requirement to execute a public document upon receipt of payment did not contradict the general rule.

• Article 1261, Civil Code — Prescribes the essential requisites for the validity of contracts (consent, object, cause). These requisites, not the written form, govern the contract's existence and enforceability between the parties.
• Article 1278, Civil Code — Establishes the general rule that contracts are binding whatever the form in which they are entered into, provided the essential conditions for validity are present. Applied as the controlling principle that the verbal partnership was valid.
• Article 1279, Civil Code — Confers upon contracting parties the right to compel each other to execute the required form. The Court held that this provision does not subordinate the principal action on the contract to a prior action to compel the writing; the writing need be sought only when necessary to make the contract fully effective.
• Article 1280, Civil Code — Enumerates contracts that "must be drawn in writing." The provision was interpreted as not making the written form an essential requisite for the existence of the contract but merely granting a facultative right to compel the reduction to writing.
• Article 117, Code of Commerce — Declares that a mercantile partnership contract is valid and binding between the parties "whatever may be its form." This provision was held to authorize a verbal partnership contract between the partners.
• Article 118, Code of Commerce — Requires compliance with Article 119 before contracts between commercial associations and third persons become valid and binding. The Court read this in contrast with Article 117 to hold that the formalities are for the protection of third persons, not a condition of validity between partners.
• Article 119, Code of Commerce — Requires every commercial association to record its constitution, agreements, and conditions in a public instrument and to register it in the Commercial Registry. Held inapplicable as between the partners; the provision operates for the benefit of third persons.
• Article 51, Code of Commerce — Found inapplicable because Article 117 expressly authorizes a verbal contract of partnership between partners, thereby excepting such a contract from the general provision of Article 51.

Arellano, C.J., Cooper, Mapa, and McDonough, JJ., concurred. Torres and Johnson, JJ., did not sit in this case.

N/A — The decision was unanimous among those who sat, with no dissenting opinions recorded.