GRADUATE SCHOOL OF BUSINESS, PLM

DOCTORIN BUSINESS ADMINISTRATION (DBA) CODE: 002

COMPREHENSIVE EXAMINATION
JULY 31, 2021

LEGAL ASPECTS OF BUSINESS

1. X writes B offering to sell a piece of land for P100,000, and at the same
time receives from B a letter offering to buy the same land for P100,000.
Is there a perfected contract? Explain.

Though, X offering B to sell a piece of land and B offering X to buy that

land at P100,000, the situation cannot be automatically declared as a
perfected contract. While there is an offer from X to B and B to X, there
was no indication that they have agreed to the offers of the opposite
parties. Primarily, there are elements that must be present to say that a
contract is perfect. First, there must be an offer, which is present in this
case. Second, there must be an acceptance of the offer. Third, there
must be a consideration which is the equivalent value or the amount of
P100,000 being represented here. On the second element, the
acceptance must be clearly indicated. B and X may have their offers
but without the acceptance of X on B’s and B on X’s offer, there will be
no perfect contract.

Assuming, that X accepts B’s offer, vice versa. Then, the contract can be
declared as perfect.

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GRADUATE SCHOOL OF BUSINESS, PLM
DOCTORIN BUSINESS ADMINISTRATION (DBA) CODE: 002
COMPREHENSIVE EXAMINATION
JULY 31, 2021

2. A, B, and C are partners in X Partnership. The partnership is dissolved by

A’s death. B thereafter transacts business with D, a third person. The
transaction does not refer to winding up of partnership affairs nor is it
designed to completed transactions begun but not finished at
dissolution. May the partnership be found? Explain

On the event of A’s death, the X Partnership has already been dissolved.
As the rule says, partnership can be dissolved when one of the partners
died.

However, on the query whether a partnership can be found in the

situation where B transacts business with D, a third person, the answer is
yes. When A died, the X Partnership is no longer valid. But that does not
mean that B and C will be dissolved also. Hence, a new partnership will
be formed with new partners (B and C), new book accounts, and new
ownership – in the person of B and C. Therefore, the new partnership
formed between B and C will be the new partnership entity. This makes
the business transaction of B to D valid. The liability now belongs to the
new partnership formed as the X Partnership is no longer involved here.
Regardless of if B and C intends to retain the name of X Partnership, the
records, book of accounts, and even the SEC registration of that new
partnership will be totally different from the original X Partnership.

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GRADUATE SCHOOL OF BUSINESS, PLM
DOCTORIN BUSINESS ADMINISTRATION (DBA) CODE: 002
COMPREHENSIVE EXAMINATION
JULY 31, 2021

3. What is Partnership by Estoppel?

a. What are the two(2) ways wherein a Partnership by estoppel is

created?
b. Cite a situational example for each way.
c. What are the eight (8) criteria in distinguishing a partnership from
a corporation? Discuss how these criteria apply for each of them
(partnership vis-a-vis corporation.

A “Partnership by Estoppel” is type of transaction where a person

represents himself as a partner of an existing or non-existing partnership.
A person who represents himself can be called as the partner by
estoppel and at the same time be held liable.

To clearly understand the situation, a diagram below is presented in a

manner where partnership by estoppel can be created.

Partnership Existing Partnership Non-existing Partnership

by Estoppel
With Consent The partner by estoppel The partner by estoppel
of the and all other partners are and all other partners are
Partners held liable held liable
Without the The partner by estoppel The partner by estoppel
Consent of and/or the other partner and/or the other partner
the Partners who consented the who consented the
representation are held representation are held
liable liable

In the diagram above, we can say that partnership by estoppel can be

created if it happens when there is an existing partnership and the other
is there is no legal or valid partnership that really exists.

Let’s say Datu and Puti are partners of the Datu Puti Partnership, a
catering service. With an aim to increase their sales, their friend Mang
Tomas offers them to represent Datu Puti Partnership in the Adobo
Conference sponsored by the Samahang Uusig at Kakalinga sa Adobo,
Inc. (SUKA). Mang Tomas, a friend of Datu and Puti, enters a contract
with SUKA noting that he is a partner of the Datu Puti Partnership. SUKA,
without knowing that Mang Tomas is not an actual partner of Datu Puti
Partnership, he then signed a contract. However, 2 days after the event,
there was an increasing reports of food poisoning. Now, SUKA wants the
partnership to be held liable on the food poisoning event.

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GRADUATE SCHOOL OF BUSINESS, PLM
DOCTORIN BUSINESS ADMINISTRATION (DBA) CODE: 002
COMPREHENSIVE EXAMINATION
JULY 31, 2021

In that case, where Datu and Puti are aware of Mang Tomas’
representation of the partnership, all of them will be held liable to SUKA.
The partnership is liable to SUKA.
On the other hand, if Datu and Puti is not aware that Mang Tomas
represented the partnership and enters a contract with SUKA, Mang
Tomas will be the only liable to SUKA. Although, Datu and Puti may help
Mang Tomas on their personal capacity, being a friend, with regards to
financial concerns.
Meanwhile, if Mang Tomas enters a contract with SUKA and the latter
knew that the former is not a partner in the Datu Puti Partnership, Datu
and Puti will not be held liable. The partnership is not liable to either Mang
Tomas or SUKA as both are not authorized to represent the partnership.
Lastly, if Datu and Puti of the Datu Puti Partnership together with Mang
Tomas their friend, enters a contract with SUKA, a third party, and all of
them knew that Datu Puti Partnership is not an existing partnership then
all the persons involved are considered partners by estoppel. All of them
will be held liable. That includes SUKA Inc. even if it is a corporation
because it still legally considered as a person doing business.

While we understand that a corporation can be known also as person

and transact business with partnerships, there are criteria that makes it
totally different from a partnership. This includes the following:
METLOP-CC
1. On the type of Management

In partnership, the managers are also the partners while in

corporation the owners or the shareholders may hire a manager to
manage the corporation or the business.

2. On being an Entity

In partnership, the partners are considered the entity. However, in

corporation, the owners are considered a separate entity.

3. On the Term:

A partnership may only be terminated upon the death, the will of the
partners, insolvency, or by any legal reason which rest only on the
decision of a partner or the partners. Meanwhile, the term of a
corporation will be terminated upon the decision of all its
shareholders, or thru bankruptcy. Of course, since the corporation is
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GRADUATE SCHOOL OF BUSINESS, PLM
DOCTORIN BUSINESS ADMINISTRATION (DBA) CODE: 002
COMPREHENSIVE EXAMINATION
JULY 31, 2021

created by a law, this can be terminated also by the enactment of

the legislation. Corporations do have term expirations, too. For
example, the ABS CBN Corporation whose franchise renewal is still
under the legal discussions.

4. On the Liabilities:

All partners are held liable in the general partnership. In a limited

partnership, though not all, but still a partner ca be held liable. This is
different in a corporation where the owners or the shareholders
cannot be held liable considering that the owners and the
corporation are two separate entities/persons.

5. On Ownership:

When a partner dies, the ownership of the partnership will be

changed. When it changed, the original partnership is no longer valid
because a new partnership will be formed. While if a shareholder or
owner of a corporation dies, the corporation will remain business as
usual. The corporation’s ownership can be transferred to whoever
has the share on the company.

Ownership under partnership cannot be transferred while this can be

under corporation rules.

6. On its Policies:

In partnership, the policies are determined by the partners. In

corporation, the policies are determined by the shareholders usually
the Board of Directors of the corporation.

7. On its Creation: A partnership is created by means of agreement

between persons while a corporation is created by means of law or
by enacted by the legislation.

8. On its Capital:

A partnership has a limited capital. This may include all the capitals
of the partners even their personal properties and assets. In a
corporation, there is a huge capital because there a lot of owners
and shareholders. Moreover, their personal properties or assets are
not part of the corporation’s capital.

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GRADUATE SCHOOL OF BUSINESS, PLM
DOCTORIN BUSINESS ADMINISTRATION (DBA) CODE: 002
COMPREHENSIVE EXAMINATION
JULY 31, 2021

4. In what ways or by what means can the existence of a corporation

come to an end?

First, the existence of a corporation may come to an end if all the owners
or the shareholders decided not to continue the business.

Second, if the corporation files for bankruptcy. If that happens, then the
corporation can no longer exist.

Third, a corporation may come to an end due to legislative enactment.

In the Philippines, a corporation may come to an end upon the passing
of a Republic Act pertaining to their corporation and as guided by the
rules and regulations of the Revised Corporation Code of the Philippines.

Lastly, a corporation has a limited term. So, regardless business owners

want to continue business, there is no bankruptcy, or there was no law
enacted to end its term, it will surely end when it reaches the end of its
term as indicated in the Corporation Code.

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GRADUATE SCHOOL OF BUSINESS, PLM
DOCTORIN BUSINESS ADMINISTRATION (DBA) CODE: 002
COMPREHENSIVE EXAMINATION
JULY 31, 2021

5. Case Analysis –The X-Partnership becomes insolvent due to

mismanagement and cannot pay its liability to Y-Corp. Y-Corp
proposes to manage the partnership business, with the agreement
that 50 percent of the net profits will be applied to the payment of X-
Partnership’s debt to Y-Corp. X-Partnership agrees to the
management contract.
a. Can the Y-Corp. validly enter into the above management
contract?
b. Is the Y-Corp. considered a partner of the X-Partnership by the
mere fact that it is receiving a share of the net profits?

On whether Y-Corp can validly enter a management contract with X-

Partnership, the answer is no. The Y-Corp can no longer have a
management contract with X-Partnership who is already insolvent.
Moreover, the management of a partnership rest on the partners alone.

Additionally, Y-Corp cannot be considered a partner of the X-

Partnership because if he intends to be one of them, the original X-
Partnership will first be dissolved. Change in ownership means change in
partnership.

During insolvency, the X-Partnership must pay its debts first. That includes
their debts to Y-Corp. Y-Corp gaining management control in the X-
Partnership could be one way of paying the latter’s debt. No partnership
will be formed but it could be an acquisition of the X-Partnership’s
business. Otherwise, if there was no insolvency present, Y-Corp making a
contract with X-Partnership could just be a form of joint venture.

Further, corporations entering a partnership or becoming a partner in a

partnership is not legally allowed. This is further supported by an article
published in Chan Robles law.

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