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

The status of the contract of partnership is valid.

Under 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. Two or more persons may also form a partnership for the exercise of
a profession.

It is stated in the affidavit that the business venture to be undertaken is a limited partnership named
FINDING NHORY AND COMPANY. 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.
Hence, the contract is a partnership because they had contributions and they considered it a
business venture, which means they aim for sharing profits.

In addition, Article 1771 states that a partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a public instrument shall
be necessary.

With this, the contract of partnership is valid even if it is unregistered and not in writing since it
can be in any form. It is not covered by the exception because the land which the pond is nestled
is not contributed or there is no written partnership agreement, nor proof that John Frazer, owner
of the land, received a share from the profits, nor that he had participating in running the business.

Thus, the case conforms on the requisites of validity 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?

The legal effect of the transaction is that Randy, the assignee, will have the right to receive
the share profits in accordance to the contract in the amount which the assignor, Troy only, would
have received. He shall have no right to interfere in the daily course of business or the right to
have insights in the partnerships’ accounting information and transactions. Also it will not cause
the dissolution of the partnership because it was merely the assignment of the interest into a third
party solely for the purpose of earning a compensation for the assignors. The assignment of Jesus
has no legal effect to the partnership because he is not a partner but a creditor to the partnership.

Under Article 1804, every partner has the right to associate another person in his share,
but the associate shall not be admitted to the partnership without the consent of all the partners,
even the partner having an associate should be a manager. Also under art. 1813, the conveyance
by a partner of his whole interest in the partnership thus not of itself dissolve the partnership, or
against the other partners in the absence of agreement entitles the assignee the right to interfere in
the management and administration of business affairs or acquire any information related to the
partnership; he merely has the right to receive profit that the assignor could have received in the
sharing.. However in case of fraud, the assignee may avail himself of the usual remedies. And in
case of dissolution, the assignee is entitled to the assignors’ interest and may require an account
from the date only of the last account agreed to all by the other partners.

Therefore the partnership will not cease upon the assignment of the economic interest of
Troy and Jesus to Randy, the business will continue its operation and Randy, the assignee, will not
be a new partner in the partnership if the other partners will not consent to it and shall only have
the right to receive the profit deemed to be received by Troy.
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?

The sale of land is valid. There is no legal effect since the transfer of ownership of the land from
John to Grem and Time and from them to Hannah and Patrick jointly doesn’t affect the normal
course of business of the firm thus there is no flaw. But if the firm was affected by the sudden sale
then the partners will have the right for damages because the sale of land is binding between
parties.

John Frazer is not a partner to the firm because if the instrument purporting to be the contract of
partnership is unsigned, and undated, and does not meet the public instrumentation requirements
and extracted under Art. 1771 of the civil code, and not meet the inventory requirements under
Art. 1773 since the claims involve contribution of immovable properties, does not warrant a
finding that a contract of partnership or joint venture. Also the existence of a partnership shall
deemed perfected if there is a contribution into a common fund with the purpose of dividing the
profits.

Under Article 1933. By the contract of loan, one of the parties delivers to another, either something
not consumable so that the latter may use the same for a certain time and return it, in which case
the contract is called a commodatum, essentially gratuitous. Also it is stated in Article 1951. The
bailor who, knowing the flaws of the thing loaned, does not advise the bailee of the same, shall be
liable to the latter for the damages which he may suffer by reason thereof. (1752)
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?

The partners shall receive P25M each from the residual income of P150M after the payment of
the P50M loaned by Jesus to the partnership. The profit and loss distribution proposed by Chris
is not valid.

Stated in Art. 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. As for the profits, the industrial partner shall receive such share
as may be just and equitable under the circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion to his capital. (1689a)

The proposition of Chrios is invalid because according to Art. 1798, the designation of profit and
loss shall not be intrusted to only one of the partner.

The division of profit is computed as P200M – P50M= P150M. Then the answer will be divided
into the six partners. The division will be P25M each.

Therefore the partnership is free from the liability to Jesus and still able to have profit shared to
each partners.
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?

The partnership and the partners are solidarily liable to the 10M damages which resulted from
November 30 incident caused by Jian.

Article 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 his 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.

Article 1824. All partners are liable solidarily with the partnership for everything chargeable to the
partnership under articles 1822 and 1823. The division is under article 1208 of the civil code which
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.

Jian acted in behalf of the driver even it's not his duty, with the intention of protecting the image
of the partnership but unfortunately it led to a tragic incident. Based on the above articles, the
partnership is also liable to the damages caused by the wrongful act of a partner since the incident
happened in the ordinary course of business. Also, all partners are solidarily liable with the
partnership for everything chargeable to it. Thus, all the 6 partners are solidarily liable to the 10M
damages. The 10M divided by six equals to P1 ,666,667.
6. What would be the legal effects and consequences of Jian’s letter of withdrawal upon the FIRM?

The legal effect of the letter of withdrawal upon affirmation can be the dissolution of the firm
depending if the remaining general partners would want to continue the firms operation after the
withdrawal of the other partner.

Article 1860 of the Civil Code states that the retirement, death, insolvency, insanity or civil
interdiction of a general partner dissolves the partnership, unless the business is continued by the
remaining general partners: (1) Under a right so to do stated in the certificate, or (2) With the
consent of all members. Also Article 1835 of the civil code denotes that the dissolution of the
partnership does not of itself discharge the existing liability of any partner. A partner is discharged
from any existing liability upon dissolution of the partnership by an agreement to that effect
between himself, the partnership creditor and the person or partnership continuing the business;
and such agreement may be inferred from the course of dealing between the creditor having
knowledge of the dissolution and the person or partnership continuing the business.

Upon Jian’s withdrawal in the partnership, the firm is dissolve after that the partners shall make
the firm’s statement of realization and liquidation for the purpose of knowing the extent of the
interest of the withdrawing partner. The withdrawing partner has the right to the extent of his
interest in the partnership. He has the share to its profit, loss, and liabilities. After liquidation, the
remaining partners may decide to continue the firm given the consents of all the remaining
partners.

Thus the firm may continue operation depending on the decisions of the remaining partners.
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.

Finding Nhory and Company

Statement of Realization and Liquidation
December 31, 2017
NON- TOTAL
CASH CASH LIABILITIES CONTRIBUTED
ASSET CAPITAL
Balances before
P 350 M P 700 M P 700 M P 350 M
liquidation
Realization and Loss
200 M (700 M) _______ (500 M)
on Sale of NCA
Balances after
550 M 700 M
Realization
Payment of
(550 M) (550 M)
Liabilities
Balances after
payment of 150 M (P 150 M)
Liabilities
Additional
contribution of P150 M P150 M
solvent partners

The Statement of Realization and Liquidation above shows our answer on how the liquidation
statement of the FIRM looks like. The failure to register a limited partnership will make the
agreement into a general partnership as in the case “Jo Chung Cang v. Pacific Commercial., 45
Phil.142 (1923).

In preparing the statement, the non-cash assets must be converted first into cash, if there is a loss
on realization the partners must absorb the loss, after that the liabilities must be paid, and the
remaining balances if there is any shall be distributed to the partners according to their respective
shares. In this case, the liabilities have a remaining balance of P 150 M which will be shouldered
by all partners since the partnership is treated as general partnership. Thus if the firm will be
liquidated the partners are equally liable to pay the amount of P150M