Saint Louis University

SCHOOL OF ACCOUNTANCY MANAGEMENT AND COMPUTING STUDIES

Baguio City

CASE ANALYSIS: Start your answer with either YES or NO, if applicable, to be followed by
your legal reasons. A mere YES or NO answer without any legal reason shall be treated as
a mere guess work and hence, not entitled to any points. BOTH the INITIAL ANSWER and
the LEGAL REASON/s must be correct to be given a credit. Be sure that your answer is brief
and direct to the point. No erasures and/or alterations of answers. Repeat the question for
purposes of checking.

1.Jane and Vanessa formed a partnership to operate a car repaint shop in

Baguio City. Jane provided capital while Vanessa contributed her labor. On the
left side of the shop, Jane opened and operated a coffee shop, while on the right
side of the shop Vanessa put up a car accessories store.

1a. May Vanessa engage in the business of car accessories store? Explain with
legal reason.
No, because, according to Article 1789 of the New Civil Code of the Philippines
states that: " An industrial partner cannot engage in business for himself, unless
the partnership expressly permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm or avail themselves of
the benefits which he may have obtained in violation of this provision, with a
right to damages in either case. In applying the law, Jane is a capitalist partner,
while Vanessa is an industrial partner. Being an industrial partner, Vanessa
cannot engage in any business unless the partnership expressly permits her to
do so. In this case, since there was no mention that she was explicitly allowed
to do so, she could not engage in any business, even for a car accessories
store.

1b. May jane engage in the business of a coffee shop? Explain with legal reason.
Yes, because according to Article 1808 of the New Civil Code of the Philippines
states that: " The capitalist partners cannot engage for their own account in any
operation which is of the kind of business in which the partnership is engaged,
unless there is a stipulation to the contrary. Any capitalist partner violating this
prohibition shall bring to the common funds any profits accruing to him from his
transactions, and shall personally bear all the losses." In the case at bar, Jane
is a capitalist partner. Being a capitalist partner, she cannot engage for her own
account in any operation which is of kind of business in which the partnership
is engaged unless there is a stipulation to the contrary. Here, Jane engage in
a coffee shop business, a business which is not of the same kind of business
in which the partnership is engaged which is car accessories store. Therefore,
Jane can engage in the coffee shop business.

2.Arjan and Jasmin engaged in a buy and sale of second hand cars business
which they started by buying second hand cars from the loan coming from
Marieliz. Their intention was to pay the loan with the proceeds of the sale of the
cars and to divide equally among them the excess or loss, less the purchase
price of cars and the repairs which were all financed by the amount borrowed
from Marieliz. They did not however contribute money or property. Can they be
considered partners? Why? Explain with legal reason.
Yes, because according to Article 1767 of the New Civil Code of the
Philippines states that: " 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." In
applying the law, they are considered partners. There is a partnership as long
as Arjan and Jasmin bind themselves to contribute not only money but also
industry and intend to divide the profits. Here, the mere fact that they did not
 contribute cash or property will not negate the partnership because they also
contributed industry. Hence, there is a partnership, and they are partners.

3. Meg and Katrina are close friends. Meg is engaged in business. Katrina gave
Meg the amount of P100,000.00 to help her finance the expansion of Meg's
business with an agreement that Katrina would be entitled to at least 30% of his
profits as payment of the amount given. Is there a partnership formed by Meg
and Katrina. Why? Explain with legal reason.
No, under the law, specifically Article 1769 of the New Civil Code of the
Philippines states that while a receipt by a person of a share of the profits of a
business is a prima facie evidence that he is a partner in business. However,
there is no such inference when the profit was received as payment of a debt
by installments. Here, the share of the profits received by Katrina is a payment
of debt by installment by Meg. Therefore, there is no partnership between Meg
and Katrina.

4.Chrisma, Twinkle and Eugene agreed to form a partnership? Chrisma agreed

to contribute a building located at Bonifacio St. Twinkle agreed to contribute
One million Pesos (P1,000,000.00) and Eugene the amount of Five Hundred
Pesos (P500,000.00). Twinkle failed to deliver her contribution. The partnership
demanded from her delivery of her contribution but she contended that she is
no longer a partner for her failure to deliver her share.
a. Is the position or contention of Twinkle valid? Why? Explain with legal
reason.
No, because in applying the law, precisely according to Article 1788 of
the New Civil Code of the Philippines, since Twinkle is undertaken to contribute
a sum of money and fails to do so, she will now be a debtor to the partnership
and shall be liable for interests and damages from the time she should have
deliver the sum of money. Therefore, even if she failed to give her agreed
contribution, she is still a partner to the partnership because the only effect of
her failure to provide is that she will be considered a debtor and will be held
liable for the interests and damages.

b. What is she then in relation to the partnership. Why? Explain with legal
reason.
Twinkle is now a debtor in relation to the partnership. Article 1788 of the
New Civil Code of the Philippines states that:" A partner who has undertaken
to contribute a sum of money and fails to do so becomes a debtor for the
interest and damages from the time he should have complied with his
obligation. The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he converted the
amount to his own use. (1682)" Therefore, for her failure to deliver her agreed
contribution to the partnership, she is now considered a debtor of the
partnership.

c. What is required when a real property is contributed in order that a

partnership shall be valid? Explain with legal reason.
Article 1771 of the New Civil Code of the Philippines states that: " A
partnership may be constituted in any form, except where immovable property
or real rights are contributed to that, in which case a public instrument shall be
necessary. " Also, Article 1773 of the New Civil Code of the Philippines states
that: " A contract of partnership is void, whenever an immovable property is
contributed to that if an inventory of said property is not made, signed by the
parties, and attached to the public instrument. (1668a)" Therefore, in cases
where the real property is contributed, the following must be complied with (1)a
public instrument and (2)an inventory of the real property contributed. And such
inventory should be signed by the parties, attached to the public instrument,
and registered in the Registry of Property of the province where the real
property is located to bind third persons.
 5. Aida, Lorna and Fe are partners of ALF Partnership. Fe is the managing
partner. Edmund is indebted in the amount of P5,000.00 from Lorna and P10,000
from ALF Partnership. Lorna was able to collect P3,000 from Edmund and
issued a receipt in his favor.
a. Is the action of Lorna valid? Why? Explain with legal reason.
Yes, because in this case, Lorna is not the partner who is authorized to manage
the partnership; instead, it is Fe who is the managing partner. Therefore, Article 1792
of the New Civil Code of the Philippines will not apply. Thus, Lorna can validly issue a
receipt to Edmund for P3,000 as a partial payment to Edmund's debt to Lorna and
need not be proportioned with the indebtedness of Edmund with the partnership.

b. If not, how much will ALF partnership be entitled? Why? Explain with legal
reason.
If the action of Lorna is not valid, the ALF partnership will be entitled to P2,000.
According to Article 1792 of the New Civil Code of the Philippines states that: " If a
partner authorized to manage collects a demandable sum which was owed to him in
his own name, from a person who owed the partnership another sum also
demandable, the sum thus collected shall be applied to the two credits in proportion
to their amounts, even though he may have given a receipt for his credit only; but
should he have given it for the account of the partnership credit, the amount shall be
fully applied to the latter." Hence, since the amount due to Lorna is P5,000 while on
the ALF partnership is P10,000, P3,000 shall be proportioned. Lorna will be entitled to
P1,000 (5/15 x P3,000), and the ALF partnership will be entitled to P2,000 (P10/15 x
P3,000).

6. Mary and Jane agreed to form a universal partnership of profits. Aside from
their salaries from work, Mary contributed a taxi and Jane contributed a building
located at Rimando Road. During the existence of the partnership, the taxi was
struck by a lightning and the building was destroyed by an earthquake. Who
bears the loss of the things contributed? Explain with legal reason.
The ones who will bear the loss of the things are Mary and Jane themselves.
According to Article 1780 of the New Civil Code of the Philippines states that: " A
universal partnership of profits comprises all that the partners may acquire by their
industry or work during the existence of the partnership. Movable or immovable property
which each of the partners may possess at the time of the celebration of the contract
shall continue to pertain exclusively to each, only the usufruct passing to the partnership.
(1675)" In applying the law, since the partnership formed was that of a universal
partnership of profits, only the usufruct of the taxi and the building was transferred to the
partnership. Hence, the ownership of those things remained with Mary and Jane.
Therefore, since the taxi and building's rights stay with Mary and Jane for only the
usufruct of it was transferred to the partnership, Mary bears the taxi and Jane's loss of
the building's loss.