Question and Answer (MIDTERM)

BAROQUE Company, a partnership engaged in the trading of art supplies, is

composed of the following partners with their respective capital contributions:
Bernardo, P10,000.00; Antonio, P20,000.00; Renato, P30,000.00; Orlando, P50,000.00;
Quintin, P80,000.00; Ulpiano, P200,000.00; and Eustaquio, P300,000.00. Bernardo,
Antonio, Renato, Orlando , and Quintin were appointed as managers without any
specification of their respective duties. In October 2008, Bernardo proposed to buy
art supplies from XYZ Corporation, but Quintin opposed it.

A voting took place and Antonio and Renato sided with Bernardo, while Orlando sided
with Quintin. How shall the conflict be resolved?

a. The group of Bernardo, Antonio and Renato will prevail because they
constitute the majority of the managing partners.
b. the group of Orlando and Quintin will preavail because they constitute the
controlling interest among the managing partners.
c. Neither of the two groups will prevail because the partners should act with
unanimity.
d. The votes of Ulipiano and Eusataquio are necessary to resolve the conflict.

Article 1801 is applicable in the instant case because there are 2 or more partners which were appointed
as managers. According to the said article, in case 2 or more partners were entrusted to manage the
partnership without specification as to their respective function, each one of the partners can bind the
partnership in any act for the administration of the partnership.

However, if any one of the managing partner opposes, then, the decision of the majority of the managing
partners shall prevail WITHOUT considering their respective interest. In the instant case, the group
of Bernardo, Antonio and Renato shall prevail. This is true even if the group of Quintin own the
controlling interest of the partnership among the managing partners because Bernardo, Antonio and
Renato constituted the majority of the managing partners.
Note: Article 1801 is applicable only in case the managing partners were appointed without
specification as to their respective duties. If each of the managing partners were appointed to perform
specific function (ex. if one partner was appointed for purchasing, one for Human Resource, one for
operations, etc each.,) the decision of each of them within the purview of their authority shall prevail
even if the other partners objected.

Supposing that when the voting took place, Antonio sided with Bernardo, Orlando
sided with Quintin, while Renato abstained thereby resulting in a tie among the
managing partners. In this case:

a. The group of Quintin will prevail because he and Orlando own the
controlling interest among the managing partners.
b. The group of Bernardo will prevail because there is a tie.
c. Neither of the two groups will prevail because of the equal number of votes.
d. Another voting should be conducted to resolve the conflict.

Article 1801 provides that in case a tie between the managing partners, the vote of the managing
partners owning the controlling interest shall prevail. Since the group of Quintin owns the majority
interest, then, their decision shall prevail.

STARBOX Enterprises, a partnership engaged in the trading of video films is

composed of the following partners with their capital contributions: Simon,
P20,000.00; Troy. P40,000.00; Ariel, P50,000.00; Roger, P60,000.00; Benny,
P80,000.00; Oscar, P300,000.00; and Xavier, P700,000.00. There was no agreement
among the partners as to who shall be the manager.

a. Xavier shall be the manager because he owns the controlling interest.

b. Oscar and Xavier will be the managers because the two of them own the controlling
interest.
c. All of the partners will be managers.
d. The partners will have to agree as to who shall be the manager.

Under Article 1803, if there was no agreement regarding to be a managing partner, all partners are
considered agents and whatever any of them may do, even without the approval of the others, are binding
on the partnership.
In the instant case, because there was NO agreement as to who will manage the partnership, all of
them will be considered as managing partner and any act of each of them shall bind the partnership.
The fact that one of the partners has controlling interest does not entitle him to become the managing
partner of the firm absent any agreement between the partners.

Refer to previous question. Assume that Simon desires to buy video films from Z
Distributors Company, but Benny opposes it. A voting took place and troy, Ariel and
Roger sided with Simon, while Oscar and Xavier sided with Benny.

a. The Group of Simon, Troy, Ariel and Roger will prevail because they
constitute the majority.
b. The group of Benny, Oscar and Xavier will prevail because they own the controlling
interest.
c. None will prevail because no one was appointed as manager.
d. The conflict should be resolved by a unanimous vote among the partners.

Under Article 1803, all partners are considered an agent of the partnership since there is no agreement
appointing a partner as a managing partner. On the other hand, Article 1801 states that in case 2
or more partners were entrusted to manage the partnership without specification as to their respective
function, each one of the partners can bind the partnership in any act for the administration of the
partnership. And if any one of the managing partner opposes, then, the decision of the majority of the
managing partners shall prevail WITHOUT considering their respective interest.
As such, the group of Simon will prevail since they constitute the majority of the managing partners.
For more than 10 years, Palma and Plaza have been partners in the cultivation of an
agricultural lot planted with sweet corn. At the end of the last harvest season, Palma
assigned his interest to Toledo, but Plaza objected on the ground that he did not want
Toledo to be his partner.

a. Palma, without Plaza’s consent, cannot convey his interest to Toledo or any other
person.
b. The partnership between Palma and Plaza was automatically dissolved when Palma
assigned his interest to Toledo.
c. Toledo automatically became Plaza’s partner when Palma assigned his interest in the
partnership to him.
d. Palma remains as a partner of Plaza with all the rights and obligations of a
partner.

Under Article 1813, assigning partner’s interest to a third person does not of itself dissolve the
partnership since no admission as partners took place. So, Toledo does not become a partner of Plaza
since assignment only took place and it does not dissolve the partnership. Partners have the right to
convey his interest to anyone with/without the consent of the other partners. However, such assignment
does not automatically make the assignee as a partner on the partnership. He will only have the right
to received from the assignor all the amounts to which the assignor is entitled.

FORT Enterprises is a partnership engaged in the construction business with Flores,

Orlina, Rubio and Tallo as partners. Flores was appointed manager. On August 31,
2008, the five year term of the partnership expired thereby resulting in its automatic
dissolution. On September 5, 2008, Flores, without knowledge of the expiration of the
firm’s term, purchased on credit gravel and sand worth P50,000.00 from Palanza, a
creditor who had granted charge sales to FORT before August 31, 2008. Palanza was
not aware of the expiration of the term of the partnership.

a. The authority of Flores was not terminated among the partners and with respect to
Palanza
b. The authority of Flores was not terminated among the partners but terminated with
respect to Palanza
c. The authority of Flores was terminated among the partners and with respect to
Palanza
d. The authority of Flores was terminated among the partners but not with
respect to Palanza

In this case, the cause of the partnership’s dissolution is the expiration of term, hence, notice or
knowledge of the acting partner is immaterial. Such notices or knowledge is only material if the
dissolution was caused by an act, death or insolvency of a partner. If the cause of the dissolution is
other than by act, death or insolvency, the authority of a partner to bind the OTHER PARTNERS
is terminated. It means that the other partners will not be liable to the extent of their personal properties
for any liabilities of the partnership entered by a partner after the said dissolution.
However, the partnership can still be liable as to a third person who has no knowledge or notice of the
dissolution in accordance with the previous discussion (See discussions in Items 102 up to 105).
Therefore, the authority of Flores to act for the partnership is deemed terminated among the partners
but not to Palanza to whom the partnership has a previous dealing. Palanza must have been previously
notified or has previous knowledge of the dissolution before so that the partnership cannot incur liability
to Palanza.
In case the partnership cannot pay its obligation with Palanza, only Flores will be liable to Palanza.
The other partners will NOT be liable to the extent of their personal properties.

D, E and F are partners in DEF Company each one contributing P100,000.00 and with
F as managing partner. On April 1, 2009, D died. The following day, F, unaware of the
death of D contracted a debt of P180,000.00 to C, a previous creditor of the
partnership who also did not know of D’s death. Assuming that the remaining assets
of the partnership amounted to P120,000.00, C can collect P120,000.00 from DEF
Company and:

a. P60,000.00 from E or P60,000.00 from F

b. P30,000.00 from E and P30,000.00 from F
c. P20,000.00 from the estate of D, P20,000.00 from E, and P20,000.00 from F
d. P60,000.00 from F alone because he contracted the debt after the partnership has
been dissolved

Since, both the managing partner and the third person acted in good faith and without knowing the
dissolution of the partnership. the transaction shall be considered valid between the partnership and the
third person. Further, the partners will be liable to the extent of their respective personal properties.

These statements are presented to you:

I I. When the business of the partnership after dissolution is continued, the

retiring partner or the representative of the deceased partner enjoys preferential right
as regards the claim of the retired or deceased partner’s interest in the dissolved
partnership over the creditors of the dissolved partnership.
II II. The use by the person or partnership continuing the business of the
partnership name, or the name of a deceased partner as part thereof, shall of itself
make the individual properties of the deceased partner liable for any debts contracted
by such person or partnership.
In your evaluation of the foregoing statements:
a. Both statements are true.
b. Both statements are false.
c. Only Statement I is true.
d. Only Statement II is true.

Article 1840 states that when the business of a partnership after dissolution is continued, the creditors
of the dissolved partnership enjoys preferential right over the separate creditors of the retiring or deceased
partner or the representative of the deceased partner as regards their claim of the retired or deceased
partner’s interest in the dissolved partnership over the creditors of the dissolved partnership.
Furthermore, the use by the person or partnership continuing the business of the partnership name, or
the name of a deceased partner as part thereof, shall not of itself make the individual properties of the
deceased partner liable for any debts contracted by such person or partnership.

The following statements are presented to you:

I. A limited partnership is one composed of at least one limited partner and at least
one general partner.
II. A limited partner may contribute money or property but not services.
III. The death of a limited partner dissolves the partnership.
In your evaluation of the foregoing statements:
a. I and II are true
b. I and III are true
c. II and III are true
d. All are true

A limited partnership is one formed by two or more persons having as members at least one general
partner and at least one limited partner (Article 1843). Moreover, a limited partner may contribute
cash or other property, but not services (Article 1845).
The death of a limited partner will not automatically dissolve the partnership since the estate of the
said Limited partner will be substituted as the limited partner in accordance with Article 1861 which
provides, thus:
“On the death of a limited partner his executor or administrator shall have all the rights of a limited
partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee
a substituted limited partner. The estate of a deceased limited partner shall be liable for all his liabilities
as a limited partner.”
Therefore, only statements I and II are true.

BLOCK Enterprises is a partnership engaged in the business of construction with

Baldoz, Lopez, Olandez, Crisol and Kintanar as partners. Baldoz is the manager. After
5 years of operations, Kintanar resigned from the partnership. The dissolution was
published in a newspaper of general circulation. Nonetheless, Baldoz, despite having
knowledge of the dissolution of the partnership by reason of Kintanar’s withdrawal,
still entered into the following transactions:

I. Purchase of cement on credit from Ramos Cement Company, a sole proprietorship

whose owner, Jose Ramos, was not aware of the dissolution of the partnership and
had not read the publication. Ramos Cement Company had been a creditor of BLOCK
for the past four years.
II. Purchase of steel on credit from Sanchez Steel Works, a sole proprietorship whose
owner, Alberto Sanchez, was not aware of the dissolution of the partnership and had
not read the publication. Sanchez was dealing for the first time with BLOCK.

Which of the above transactions are binding on BLOCK?

a. Both I and II
b. Neither I nor II
c. I only
d. II only

Ramos Cement Company, having no knowledge regarding the dissolution of the partnership and being
the creditor of BLOCK for the past four years, must be given a special notification regarding the
dissolution. The mere publication of the dissolution in a newspaper is not considered as a notice to him.
Therefore, BLOCK is still liable by the action made by Baldoz. On the other hand, Sanchez Steel
Works, dealing for the first time with BLOCK, shall not be entitled to any special notification of the
dissolution. The publication of the dissolution in a newspaper shall be considered as a constructive to
Sanchez Steel Works whether he had not read it. Therefore, the partnership would have assumed that
Sanchez Steel Works would have known regarding the dissolution. Thus, not making the partnership
liable to Sanchez Steel Works.

Refer to previous question. The authority of Baldoz to act for the partnership is:

a. Terminated among the partners but not terminated with respect to both Ramos and
Sanchez
b. Terminated among the partners but not terminated with respect to Ramos
c. Terminated among the partners but not terminated with respect to Sanchez
d. Terminated among the partners as well as to Ramos and Sanchez

Since Baldoz have the knowledge of the dissolution due to Kintanar’s withdrawal, his authority is
deemed to be terminated among the partners but he is still liable with Ramos Cement Company.
Ramos Cement Company cannot go after the partnership’s assets.

BRAVO Enterprises is a partnership owned by Bettina who invested P20, 000.00;

Rowena, P40, 000.00; Armida, P10, 000.00; Violeta, P30, 000.00; and Olivia, who
contributed her services. The partners have stipulated that Bettina shall be exempt
from obligations to third persons. After three years of losses, the business had liabilities
of P90, 000.00, while its assets dwindled to P50, 000.00. In the payment of the
liabilities, the assets of the partnership will first be exhausted, and thereafter:

a. The unpaid liabilities of P40, 000.00 will be paid equally by all the partners from their
separate assets at P8, 000.00 each with no right to reimbursement.
b. The unpaid liabilities of P40, 000.00 will be paid equally by all the partners
from their separate assets at P8,000.00 each with a right to reimbursement on
the part of Bettina, who was exempted from liability to third persons by
agreement, and Olivia, who is an industrial partner who must not share in the
losses.
c. The unpaid liabilities of P40,000.00 will be paid equally by Rowena, Armida, Violeta,
and Olivia at P10,000.00 each with no right to reimbursement on the part of Olivia.
d. The unpaid liabilities of P40,000.00 will be paid equally by Bettina, Rowena, Armida
and Violeta at P10,000.00 each with no right to reimbursement on the part of Bettina.

Names of the Payment to Actual Share on Over(Under)

Partners Creditors the Payment* Payment
Bettina P8,000.00 none P8,000.00
Belinda purchased Cut-N-Curl, a beauty salon owned by Sophia, for P100, 000.00. To
finance the acquisition of the business, Belinda obtained from Cristina a loan of P60,
000.00 (at 12% interest per annum) which the parties agreed would be paid by Belinda
in an amount equivalent to 20% of the monthly net profits of the salon until the loan
and the interest thereon are fully paid. Belinda then gave the P60, 000.00 to Sophia as
down payment, promising to pay the balance of P40, 000.00 at an amount equivalent
to 10% of the monthly net profits until it is fully paid.

a. Cristina is a partner of Belinda until Belinda has paid in full her loan obligation of
P60, 000.00 and the interest thereon to Cristina.
b. Sophia is a partner of Belinda until Belinda has paid in full her balance of P40, 000.00
on the purchase price of the beauty salon.
c. Both Cristina and Sophia who receive a share of the net profits are the partners of
Belinda until the latter has fully paid her obligations to them.
d. No partnership exists between Belinda, Cristina and Sophia whether before
or after the payment of Belinda’s obligations to Cristina and Sophia.

There is no agreement for the mutual contribution of money, property or industry to a common fund
between the three of them that is why no partnership shall exist on the given case. Further, the payment
to Cristina out of the profits arises NOT out of a partnership obligation but out of a loan obligation.
Belinda is liable to pay the same whether or not the business obtains profits.

In which of the following cases is there a prima facie evidence that one is a partner in
a business?

a. His receipt of a share in the gross returns derived from a property where he has a
joint or common interest with another.
b. His receipt of a share of the profits realized from the use of property that he co-
owns with another.
c. His receipt of a share of the net profits of a business.
d. His receipt of share of the profits realized from the use of a property that he co-
possesses with another.

Article 1769 provides for the rules in determining whether a partnership exists. In accordance with
Article 1769 (4), the receipt of a share of the net profits of a business is a prima facie evidence that
he is a partner in the business. This is based on the rule that one would not be sharing in the profits
of a business unless he is a partner therein.
Also, Article 1769 (2) provides that co-ownership or co-possession does not itself establish a
partnership even if the co-owners or co-possessors share any profits made by the use of the said property

TRUE OR FALSE

General rule – Upon dissolution, the partnership ceases to be an on-going concern

and the partner’s power of representation is confined only to acts incident to winding
up or completing transactions begun but not then finished.
The event of dissolution terminates the actual authority of a partner to undertake new
business for the partnership.

(TRUE)

Where the dissolution is caused by the act, death or insolvency of partner, each
partner will not be liable to his co-partners for his share of any liability created by
any partner acting for the partnership as if the partnership had not been dissolved.

(FALSE)

The dissolution of the partnership discharges 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.
(FALSE)

Art. 1835. The dissolution of the partnership does not of itself discharge the
existing liability of any partner. liability upon dissolution of. A partner is
discharged from any existing 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.

All partners, including industrial ones, shall be liable pro rata with all their property
and after all the partnership assets have been exhausted, for the contracts 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.
(TRUE)

Notice to any partner of any matter relating to partnership affairs, and the knowledge
of the partner acting in the particular matter, acquired while a partner or then present
to his mind, and the knowledge of any other partner who reasonably could and
should have communicated it to the acting partner, operate as notice to or
knowledge of the partnership except in case of a fraud on the partnership,
committed by or with the consent of that partner so long as the partner who was
notified or who had knowledge shall inform the other to bind them.

(FALSE)

Art. 1821. Notice to any partner of any matter relating to partnership affairs,
and the knowledge of the partner acting in the particular matter, acquired
while a partner or then present to his mind, and the knowledge of any other
partner who reasonably could and should have communicated it to the acting
partner, operate as notice to or knowledge of the partnership except in case
of a fraud on the partnership, committed by or with the consent of that
partner.

A person admitted as a partner into an existing partnership is liable for all the
obligations of the partnership arising before his admission as though he had been a
partner when such obligations were incurred, except that this liability shall be
satisfied only out of partnership property, unless there is a stipulation to the contrary.

(TRUE)

The creditors of the partnership shall be preferred to those of each partner as regards
the partnership property. Without prejudice to this right, the private creditors of
each partner may ask the attachment and public sale of the share of the latter in the
partnership assets.

(TRUE)

Every partner is an agent of the partnership for the purpose of its business, and the
act of every partner, including the execution in the partnership name of any
instrument, for apparently carrying on in the usual way the business of the
partnership of which he is a member, binds the partnership, unless the partner so
acting has in fact no authority to act for the partnership in the particular matter, and
the person with whom he is dealing has knowledge of the fact that he has no such
authority.

(TRUE)

The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, with the
permission of all the partners.

(FALSE)

Art. 1842. The right to an account of his interest shall accrue to any partner,
or his legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the contrary.
A contract of partnership is void, whenever immovable property is contributed
thereto, if an inventory of said property is not made, signed by the parties, and
attached to the public instrument. However, it will not affect its juridical personality.
(FALSE)

Art. 1773. A contract of partnership is void, whenever immovable property is

contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.