Law on Business

Organizations
(Partnership Law)

Submitted By:

Albrando, Jon Humprey D.

Buenaventura, Rad V.

Degran, Bill Steven C.

Ilao, Ivan Derick S.

Mediarito, Aime Jane

Zoleta, Exequiel

BL104

January 14, 2019

 AFFIDAVIT

I, JIAN, of legal age, Filipino, single, residing at 22C Rosalia Village, St. Martin St.,
Tandang Sora Avenue, Lucena City, Province of Quezon, after being duly sworn in accordance
with law, hereby depose and state:

1. I am one of the partners of FINDING NHORY AND COMPANY, an

unregistered partnership set up exclusively for the purpose of operating a fishpond located in
Lucena City, nestled within a piece of land registered in the name of John Frazer with TCT No.
123456.

2. Formation of the partnership transpired in this manner:

a. At the turn of the year 2017, as I was arriving in school, I saw Kayie, Nhory
and Tin (collectively the “THREE”) overly excited, prompting me to inquire as to what
the matter was; they told me about a business venture they were about to embark on. It
was for the operation of a fish pond. I was ecstatic, as this was also one of the things I
wanted to try. Thereafter, I made it a point that I kept myself apprised of developments in
their venture. Though I was not always present, I was welcome to attend the THREE’s
discussions on relevant matters. It seemed like the arrangement had become the
THREE+ME.
b. On 10 January 2018, Tin narrated to me that as agreed upon, the business
to be undertaken via a limited partnership named FINDING NHORY AND COMPANY
(the “FIRM”). And as a rule, the capital contributions of the partners were to be in
accordance with the Civil Code, except if there was any agreement to the contrary. Also,
she said that should there be dissolution of the partnership, for any cause whatsoever, all
partners agreed to liquidate immediately. Before she went to the room, she mentioned that
Troy, another member of the class, provided seed money in the amount of Php50M to the
partnership as he wanted a piece of the action as well, provided that he be given a
preference in profit distribution.
c. On 12 January 2018, as I was walking up the stairs of the school, I
encountered Kayie who has just finished speaking with someone on the phone. She was
noticeably in a good mood. She could not contain her emotions as she was telling me that,
business was a go! I was dumb-founded because of the lack of context. Apparently, the
THREE were having difficulties with financing, when Jesus (or Jess as he was commonly
known) stepped in with another contribution. He was gracious enough to lend Php50M
which was payable only when the business conditions became profitable. It seems that he
indeed was, true to his name, a savior.
d. On 19 January 2018, I went fish pond to see it for myself. On site, I was
met by Nhory who took a break from overseeing the operations. She told me that the
profit -sharing arrangement was determined entirely by another partner, Chris, who
apparently structured it in this way: the Managing partner was to be given a 10% bonus
computed after bonus and after tax; all creditor partners were entitled to preference in the
form of a salary of Php1M; the remainder was to be shared equally by all partners. She also
conveyed to me that it was agreed by the partners that the necessary partnership papers
and other documentary requirements were to be executed later when the business
overcomes its birth pains and stabilizes. I nodded as I saw nothing wrong with the said
arrangement.
 e. Every Friday and Saturday for the next few months, I voluntarily went to
the site just to see what was going on. As such, my familiarity grew with the many aspects
of the business, including the staff, suppliers and even the clients.
f. Sometime in June 2017, in one of my on-site visits, RJ, a trusted friend of
the THREE, introduced me to a certain person named Sec. I was told that, upon the
former’s recommendation, the latter was now the the general manager of the business.
This event created a sense of accomplishment in me, as it indicated that the venture was
actually doing well enough for the partners to become less hands-on.

3. Sometime in September 2018, I saw the THREE in school looking more serious
than usual. I approached them and asked what was going on. Apparently, due to loss on interest,
Troy and Jesus had assigned their entire economic interests in the FIRM to Randy. Furthermore,
they have just received information that the piece of land covered by TCT No. 123456 was sold
by John Frazer to Grem and Time (friends of mine) without the FIRM’s knowledge (I heard, it
was again sold thereafter to Hannah and Patrick jointly). At that time, I did not see what the
problem was, but reserved my comments for a future time, hopefully when the tensions have
eased.

4. On 30 November 2017, I was on my routine visits to the site when I noticed a bit
of a commotion. Apparently, Sec (the general manager) had an altercation with one of the staff
members, Kevin, over a shot of Emperador Light. It was said that Sec tried to slam the bottle unto
the head of Kevin but was successfully blocked. Fearing retaliation, Sec left immediately. I was
relieved that nobody was seriously injured, however given the circumstances, I asked Kevin to call
it a night. On the other hand, the Emperador was now ours.

5. On the same date, deep into my drinking session, another staff member, Jay, passed
the phone to me. On the other line was Brenda, General Manager of La Pomme Verger
(pronounced La Poem Vergie) Corporation (owned primarily by good friends of mine, Apple and
Lala) who angrily followed up on the truck load of fish that was supposed to have been delivered
hours ago. As most of the staff already left, I told Jay to help me load the fish unto the truck.
Thereafter, I shook off the inebriation, and drove the La Pomme.

6. Once there, I waived at Randy, the head of security and logistics, and signaled that
he open the gate. I then tried to enter, rear side first, to make it easier to unload the goods. I even
saw the other owners, Grem and Tine, who were obviously in a very undesirable mood. Thus, I
tried to get the work done as quickly as possible. On my first try, the truck was not angled properly
so I had to drive forward in order to get the angle right. The second try was no better than the
first. At this moment I realized that the task was not as easy as it seemed, especially for a first time
truck driver like myself. I could even hear Grem and Tine’s voices, though indistinct, were
presumably not saying anything good about me. After a few more tries, I was become increasingly
frustrated, and my feet were getting heavier on the pedals. I was determined to make this the last
one, so I steered to the right and stepped on the gas when Manny came out of nowhere!!! He was
killed instantly.

7. I was brought in for questioning of course. After hours of negotiations, criminal

charges were settled on the premise that all civil indemnities were to be paid after proper
proceedings were taken.

8. I was so distraught by the turn of events, that on 05 December 2018, I wrote a

letter to the THREE, indicating my intent to withdraw from the partnership. Despite proper
service however, I have yet to receive a reply to date.
 9. I am executing this Affidavit to attest to the truth of the foregoing statements.

AFFIANT FURTHER SAYETH NAUGHT.

IN WITNESS WHEREOF, I have hereunto set my hand this 10 December 2018, in

Quezon City.

Original Sgd.
____________________
Jian
Affiant

SUBSCRIBED AND SWORN to before me, this 10 December 2018, affiant exhibiting
to me his competent evidence of identity containing thereon, affiant’s photograph and signature.

ORIGINAL Sgd.

ATTY. ERA

NOTARY PUBLIC

1. Given the events as narrated in the Affidavit, what is the status of the contract of
partnership?

2. Assume that the assignment of economic interests by Troy and Jesus were valid,
what would legal effects of such transactions be?

3. Given the circumstances of the sale of the property by John Frazer, what are the
legal effects of such transaction and what remedies available to the FIRM if any?

4. Suppose that the FIRM earned Net Income of Php200M for the year ended 2018,
how much should each partner receive as his/her share?

5. Suppose it was proven that Jian was at fault with regard to the 30 November 2018
incident and is being sued for Php10M in damages, should the FIRM and/or partners be liable? If
so, for how much?

6. What would be the legal effects and consequences of Jian’s letter of withdrawal
upon the FIRM?

7. Assume that there was actually no Income for the year ended 2017, how should
the liquidation statement of the FIRM look like if cash amounted to Php350M, Non-cash Asset
(NCA) were valued at Php700M, Liabilities stood at Php700M, and total capital contributed was
Php350M? NOTE: The NCA were sold for Php200M.
1. Answer:

The status of the partnership is still valid for the reason that the elements/features of a valid
contract of partnership still exists. The partnership type is a general partnership and Jian is a still a
partner.

Legal Basis:

Under Article 1767, the following are the essential features of a partnership contract: There must
be a valid contract; The parties (two or more persons) must have legal capacity to enter into the
contract; There must be a mutual contribution of money, property, or industry to a common fund;
The object must be lawful; and The primary purpose must be to obtain profits and to divide the
same among the parties.

Requisites of a valid contract- Since partnership is fundamentally contractual, all the essentials of
a valid contract must be present. Under the law, the following requisites must concur: 1) Consent
and capacity of the contracting parties; 2) Object which is the subject matter of the contract; and
3) Cause which is established.

The partnership is a general partnership because under article1844, if a limited partnership does
not comply with the registration requirements shall be treated as a general partnership in which all
the members are liable for partnership debts.

Jian is a partner because under article 1767, the contribution of a partner may be in the three forms
of money, property and industry, or any two or one of them. A partnership may, therefore, exist
even if it is shown that the partners have not contributed any capital of their own to a “common
fund’’ for the contribution may be in the form of credit or industry not necessarily cash or fixed
assets.

Application:

According to the affidavit events, the contract of partnership is still valid for it has the requisites
which is the legal capacity of the parties, there is mutual contribution, the object is lawful and there
is the purpose to obtain profits and divide it amongst the partners.

Jian is still a member because she contributed industry to the partnership which is her
professionalism and skills.

Conclusion:

A partnership is considered a general partnership when a limited partnership has failed to comply
with the registration requisites. A person is considered a partner even if he/she does not contribute
cash or assets to the business for the reason that he/she can contribute industry instead which is
his/her professionalism and skills in work.
2. Answer:

The assignment of economic interests by Troy and Jesus to Randy will result the latter to become
an assignee while the former to become assignors of the partnership interest. The effect of an
assignment of a partner’s whole interest in partnership: rights withheld from assignee and status
and rights of assignors as partners is unaffected.

Legal Basis:

The assignment of economic interests by Troy and Jesus to Randy applies the Article 1813 of the
Civil Code of the Philippines which states that a conveyance by a partner of his whole interest in
the partnership does not itself dissolve the partnership, or, against the other partners in the absence
of the agreement, entitle the assignee, during the continuance the partnership, to interfere in the
management or administration of the partnership business or affairs or to require any information
or account of partnership transactions, or to inspect the partnership books; nut it merely entitles
the assignee to receive in accordance with his contract the profits to which the assigning partner
would otherwise be entitled.

In addition to the information above, the status and rights of assignor as a partner is unaffected
because a partnership is a relation in which delectus personae is an important element. Delectus
personae states that no one may be introduced into the firm as a partner without the consent of
the other partners.

Application:

Randy who has been admitted on the partnership as assignee on the economic interests of Troy
and Jesus has the right to receive in accordance with his contract the profits accruing the assigning
partner, to avail himself of the usual remedies provided by law in the event of fraud in the
management, to receive Troy and Jesus interest in case of dissolution and lastly, to require an
account of partnership affairs, but only in case the partnership is dissolved, and such account shall
cover the period from the date only of the last account agreed to by all partners.

Conclusion:

Assignment of economic interests to an assignee by an assignor does not grant the assignee the
rights to interfere in the management, requiring any information or account and to inspect any of
the partnership books. The delectus personae as one of the attributes of the partnership, states
that the assignment of a partner of his share does not make assignee a partner. No one may be
introduced into the firm as a partner without the unanimous consent of the other partners.
3. Answer

No legal action would be taken by the firm nor there be any remedies available to them.

Legal Basis:

As stated in Article 1767; “By the contract of partnership 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.” which means that an individual can be considered a partner when he
contributes money, property, or industry to a common fund and with the intention to acquire a
share in the profits that may be acquired by the partnership.

As described in the case Riviera Filipina, Inc. V. CA, 380 SCRA 245 (2002)A right of first
refusal means that should a lessor decide to sell the leased property during the term of the lease,
such sale should first be offered to the lessee.

Application:

As described in article 1767, a partnership can be defined as the contract of partnership 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. This description disproves that John
Frazer is not a partner since he did not contribute his land for the partnership as it was merely
where the business of the firm is situated. Frazer also did not have the intention in the share of
profits of the partnership making him not a partner and thus, it does not include him in the
obligation of a partner.

Furthermore, a right of first refusal requires that there be a lease in order for it to be enforced.
The facts are silent with regards to the existence of a lease contract. Pursuing legal action on the
grounds of the right of first refusal by the firm will not valid since it was not stated if a lease was
in effect at the time of that the sale occurred.

Conclusion:

Therefore, no legal action is to be taken by the firm and nor legal remedy be available to them.
4. Answer:

From the profit of 200 Million, each of the six partners would receive 25 million as their share and
Jesus as the creditor of the partnership would receive his 50 million from his pervious contribution.
The profit and loss proposal by Chris is void due to the lack of agreement of the partners and the
proposal cannot be intrusted to one of the partners.

Legal Basis:

According to article 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the share of each
in the losses shall be in the same proportion. In the absence of stipulation, the share of each partner
in the profits and losses shall be in proportion to what he may have contributed, but the industrial
partner shall not be liable for the losses.

Also, Art. 1208 of the Civil Code states that if from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does not appear, the credit or debt
shall be presumed to be divided into as many shares as there are creditors or debtors, the credits
or debts being considered distinct from one another, subject to the Rules of Court governing the
multiplicity of suits.

Lastly, under article 1798, the designation of losses and profits cannot be intrusted to one of the
partners.

Application:

(200,000,000 – 50,000,000)/6 = Profit share of each partner

150,000,000/6 = P25,000,000

50,000,000 for Jesus as payment for his previous contribution.

Conclusion:

Jian: P25,000,000

Kayie: P25,000,000

Nhory: P25,000,000

Tin: P25,000,000

Troy: P25,000,000

Jesus: P50,000,000
5. Answer:

The partners are liable for the negligent operation of a vehicle by a partner, acting in the course of
business, which results in a traffic accident. If he is driving a partnership-owned vehicle for
purposes of his own, the acting partner alone is liable it is not a partnership tort. Partnership may
proceed against negligent partner. Where a partnership is liable to a third person, there is a right
of indemnity against the partner whose negligence caused the injuries.

Distribution of loss on damages:

10,000,000/6= P1, 666,666.67 each

Legal Basis:

According to Art. 1822. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of co-partners, loss or
injury is caused to any person, not being a partner in the partnership, or any penalty is incurred,
the partnership is liable therefor to the same extent as the partner so acting or omitting to act.

Also, article 1824 states that all partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823

Application:

It was Jian who was driving the business vehicle to deliver the goods. He was at fault for the
accident but the accident was business related so each partner now was liable for the damages.

Conclusion:

Each partner is liable for P1,666,666.67 damages.

6. Answer:

The power of dissolution always exists because no person can be compelled either to become a
partner or to remain one, since that the relation of the partners is of mutual agency. So long as the
express will of Jian indicated on the letter of withdrawal is not in bad faith, will absolve the partner
exercising the right to dissolve the partnership from liability for damages which result to his co-
partners by reason of his action. Due to that, as agreed upon by the partners whenever there is
dissolution of partnership, liquidation will follows.

Legal Basis:

According to Article 1830 of the Civil Code of the Philippines, in the dissolution effected without
violation of partnership agreement that there are four ways by which a partnership may be
dissolved without violation of the partnership. One of that is by the will of any partner, which a
partnership at will, regardless of whether the business is profitable or unprofitable, may be
dissolved at any time by any partner without the consent of his co-partners without the breach of
contract, provided, the said partner acts in good faith. Here, each partner has both the power and
the right to terminate the relation at any time. If there is bad faith the dissolution is wrongful. For
as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and
fairness, nor for the purpose of unduly causing harm and damage upon the partnership, bad faith
cannot be said to characterize the act.

Application:

The legal effects and consequences of Jian’s letter of withdrawal upon the firm tells us the power
of dissolution always exist because no person can be compelled either or become a partner or to
remain one. One of the characteristics of a partnership is mutual agency, such an intimate personal
one that the partnership shall continue for a definite time. Jian’s right to dissolve is inseparably
incident to every partnership and there can be no indissoluble partnership.

The above provision states that when the intent of one of the partners is in good faith, having no
harm and damage for the partnership, he can exercise the right to dissolve the partnership and
being absolve to liability for damages.

As indicated on the affidavit, following Jian’s letter of withdrawal sent to the firm, liquidation will
follows because it’s in the facts that all partners agreed upon when the firm dissolved, liquidation
will immediately happen.

Conclusion:

Every partner has the right to withdraw from the partnership whenever he wants; the difference
is that is its purpose: can be in good faith or in bad faith. But since as stated above that his intent
or purpose of leaving the partnership is neither for the purpose of causing harm and damage upon
the partnership nor conscious and intentional design to do a wrongful act for a dishonest purpose
or moral obliquity, the withdrawing partner, Jian, cannot be liable for damages. Following the
result of dissolution, eventually, and as agreed upon by the partners, liquidation takes place.