Ang Pue & Company vs. Secretary of Commerce and Industry

The right to extend a partnership term is subject to the law in force at the time of extension, and a contractual provision permitting extension cannot override a subsequent statute regulating the retail business; organizing a partnership is a privilege, not an absolute right, subject to such terms as the State may impose.

Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company to engage in general merchandising — buying and selling at wholesale and retail, particularly lumber, hardware, and construction materials. Republic Act No. 1180, enacted on June 19, 1954, regulated the retail business by providing that partnerships not wholly formed by Filipinos could continue engaging in retail only until the expiration of their term or life. The dispute arose from the intersection of the partnership's contractual extension provision with this statutory restriction.

On May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company for a term of five years from that date, extendible by their mutual consent. The partnership's purpose was to maintain the business of general merchandising, buying and selling at wholesale and retail, particularly lumber, hardware, and other construction materials. The corresponding articles of partnership were registered with the Securities and Exchange Commission on June 16, 1953.

On June 19, 1954, Republic Act No. 1180 was enacted to regulate the retail business. Among its provisions, the law stated that a partnership not wholly formed by Filipinos could continue to engage in the retail business until the expiration of its term. On April 15, 1958 — before the five-year term of the partnership expired but after the enactment of RA 1180 — the partners amended the original articles of partnership to extend the term of the partnership for another five years. When the amended articles were presented for registration with the SEC on April 16, 1958, registration was refused on the ground that the extension violated RA 1180.

The plaintiffs thereafter filed an action for declaratory relief in the Court of First Instance of Iloilo against the Secretary of Commerce and Industry, seeking a judicial declaration that they could extend the partnership term pursuant to their amended articles. The defendant's answer alleged that the extension would violate RA 1180. The lower court dismissed the action with costs, and the plaintiffs appealed.

• Contractual Right to Extend: Petitioner argued that because the original articles of partnership provided that the partners could extend the term of the partnership, the provisions of Republic Act No. 1180 could not adversely affect them, as the extension provision constituted a property right of which the partners could not be deprived without due process or without their consent.

• Statutory Violation: Respondent countered that the extension of the partnership term for another five years would be in violation of the provisions of Republic Act No. 1180.

• Validity of Partnership Extension: Whether the partnership formed by Chinese citizens could extend its term for another five years notwithstanding the enactment of Republic Act No. 1180, which restricted retail business to Filipinos and concerns wholly owned by Filipinos.

• Validity of Partnership Extension: No. The extension violated Republic Act No. 1180, because the privilege of organizing and extending a partnership is subject to the terms the State may impose, and the contractual extension provision was subject to the law in force at the time the partners agreed to extend.

• Validity of Partnership Extension: Organizing a corporation or a partnership that claims a juridical personality of its own and transacts business as such is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose. Congress, through RA 1180, validly exercised this regulatory authority by providing that only Filipinos and concerns wholly owned by Filipinos may engage in the retail business. That the law was intended to apply to partnerships already existing at the time of its enactment is shown by its provision giving them the right to continue engaging in retail business until the expiration of their term or life. The argument that the original articles' extension provision constituted a property right immune from statutory regulation erroneously assumes that a contractual term can override subsequent legislation. The agreement contained in the original articles must be deemed subject to the law existing at the time the partners came to agree regarding the extension. When the partners amended the articles on April 15, 1958, RA 1180 was already in force, and the right claimed to extend the partnership term for another five years would violate the clear intent and purpose of the law.

• Privilege Doctrine (Partnership/Corporate Existence) — To organize a corporation or a partnership that can claim a juridical personality of its own and transact business as such is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose. The Court applied this doctrine to hold that the State, through Congress, could validly enact RA 1180 restricting retail business to Filipinos and that the privilege of extending a partnership term was subject to the law in force at the time of extension.

• Subjection of Contractual Rights to Subsequent Legislation — A contractual provision allowing extension of a partnership term must be deemed subject to the law existing at the time the parties come to agree on the extension. A subsequent statute regulating the activity in question cannot be nullified by a prior contractual stipulation, as such a stipulation does not constitute a property right immune from legislative regulation.

• "To organize a corporation or a partnership that could claim a juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose." — This passage articulates the foundational principle that corporate or partnership existence is a state-granted privilege, not an absolute right, and is the ratio decidendi supporting the Court's conclusion that RA 1180 validly restricted the partnership's extension.

• "The agreement contain therein must be deemed subject to the law existing at the time when the partners came to agree regarding the extension." — This passage defines the controlling rule that contractual extension provisions are subject to subsequently enacted legislation, directly rejecting the petitioners' claim that their original articles of partnership immunized them from RA 1180.

• Republic Act No. 1180 — An act to regulate the retail business, providing that after its enactment only Filipinos and concerns wholly owned by Filipinos may engage in retail business, while partnerships not wholly formed by Filipinos could continue in retail until the expiration of their term. The Court applied this provision to hold that the partnership's extension, agreed upon after the law's enactment, violated its clear intent and purpose.

Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Regala, and Makalintal, JJ., concurred.