Pamantasan ng Lungsod ng Maynila

(University of the City of Manila)

Intramuros, Manila

PLM BUSINESS SCHOOL

GRADUATE PROGRAMS
-o0o-

COMPREHENSIVE EXAMINATION
July 31, 2021
Legal Aspects of Business

1. X writes B offering to sell a piece of land for P100,000.00 and at the same time receives
from B a letter offering to buy the same land for P100,000.00. Is there a perfected contract?
Explain.

On transactions that will require money and an exchange properties such as parcel of land,
and to make the transaction legal, it is very important to protect both parties. Usually, for
prospective buyers after the offer to buy the land from a seller, a letter of intent or
commitment is executed in order for the seller to know who are the interested parties from
among the potential buyers and in case there are several buyer who gave the offer and intent
first.

The Letter of Offer is a commitment in written form from a would-be buyer to the owner or
developer of the property, signifying his desire to purchase the offered property. To signify
that the offer is valid, usually an earnest money is given or an upfront deposit to the property
being purchased.

The letter is also a protection for both the buyer and the seller to ensure that the transaction
will go on as stated in the letter and the responsibilities of each party are clearly defined.
There is the presence of willingness from the buyer to buy and from the seller to sell the
property.

In this case, the letter offering to buy and the letter intending to sell is an agreement
expressing the intention of both parties. Should it is accepted by both parties, the letter of
intent will bind the parties for the sale of the property and will lead them to the next phase of
the transaction which is the execution of an another document which is the Conditional Deed
of Sale.

However, the letter of intent does not carry the authority that a Deed of Sale has. The
document is only for the purpose of securing the first right to the property from the seller if
there are other buyers interested to buy the property. The Letter of Intent may be cancelled
by both parties depending on the agreement set in the document, but the letter is not perpetual
and also serve a specific span of time between the buyer and the seller.
2. A, B and C are X partnerships. The partnership was dissolved by A's death. B thereafter
transacts business with D, a third person. The transaction does not refer to winding up the
partnership affair nor is designed to completed transactions begun but not finished at
dissolution. May the partnership be found?

Dissolution of partnership happens when one of the partners stop or end his involvement to
the firm. One of the conditions that will end the partnership relation is death in which the
partnership is automatically legally dissolved. Though the term dissolution means
termination, in legal practise, this implies the start of the process that will eventually
terminate the partnership.

While winding-up in legal term is the selling of properties and assets of the partnership to pay
its debt and obligation before closing the business.

Depending on the agreement of the partnership which can allow a partner to leave the
partnership without dissolving the partnership with the share of the leaving partner sold to
another or new partner to continue the partnership.

This case the transaction between B and D is dependent on the terms of the partnership either
D is buying the shares of the departed A or D is being invited to join as a new partner of the
remaining partners should they continue the partnership.

I both ways a new partnership is formed with D as the new partner.

3. What is Partnership by Estoppel?

A partnership is a type of business that involves the organization of two or more parties to be
the owner of the business for a profit.

If one partner is allowed by the other to represent the business either through advertisement
or solicitation, therefore in the eyes of the law, both are liable in the event that a liability is
incurred by either party. The liability or the mistake of the other is also the liable of the other
partner.

A partnership by estoppel refers to the person not technically a partner but is representing the
original partner can be held accountable to the liabilities he incurred while representing the
original partner. It is the third party partner which is not originally a part of the partnership
but was allowed by the original partner to represent him on his behalf.

Therefore, the third party partner authorized by the original partner will also be held liable to
the action or actions of the partner he is representing. Regardless of the intent to form the
third party partnership or has no intention to cause harm for as long as it was proven in court
that there is partnership between the original partner and the third party partner and it
represents the other as a partner, the third party partner will also be held liable.

a. Two conditions in which Partnership by estoppel is created?

1. the partner is directly represented by the third party as part of the existing or non-existing
partnership

2. indirectly representing the partner by allowing the third party to represent the original
partners as an part of the existing and non-existing partnership

b. Cite a situational example for each way.

c. What are the eight (8) criteria in distinguishing a partnership from a corporation?

The difference between a partnership and a corporation are as follows:

1. Structure

Corporation is an independent entity owned by shareholders which are also the decision
makers on how the company will be managed and who will manage.

Partnership is a business with two or more individual joining together to form the business
and share the ownership responsibilities and management duties between partners.

2. Definition

A corporation is the voluntary association of person and formed for a common purpose. It is
registered as a company
A partnership is the collective relationship of two or more individual to form a business and
agreed to share the profit of the business with them acting for everyone for the benefit of the
business. Collectively the partnership is called a firm

3. Registration

The company is formed based on its Articles of Incorporation and must be registered with the
Securities and Exchange Commission

The partnership is formed based on Deed of partnership and must be registered with the
Department of Trade and Industry

4. Lifetime

The existence of a corporation is not affected by the change of membership or death or

insolvency of a member,

The existence of the partnership is dependent on or ends with the death or insanity of any of
its partner or insolvency of the business
and permit to operate.

5. Liability

In partnership, all the general partners are liable to the debt and obligations and legal
responsibilities of the business. The assets of the company can be used to pay the debt of the
business depending on the agreement of the partners on the amount that will represent the
share of each partner.

In a corporation, the corporation itself is the one responsible and will assume all the debt and
obligation and legal fees. Shareholders are not liable to any debt of legal obligation of the
company and do not have the risk of losing its personal investment.
4. In what ways or by what means can the existence of a corporation come to an end?

Dissolution is the legal term that describes the end of the legal existence of the corporation
and is commonly called "corporate death". Dissolution is different from liquidation wherein
the creditors are paid and the remaining assets are distributed.

Types of dissolution

a. Voluntary dissolution is the unanimous and voluntary decision of the stockholder with a
written consent to dissolve the corporation. With the majority of the stockholders approving
the dissolution of the corporation by adopting a resolution through a vote even without the
approval of some of the stockholders. Stockholder is however must be given the right to vote
on the dissolution of the corporation. Upon the approval of the dissolution, the corporation
may be dissolved by filing a certificate of dissolution with the Securities and Exchange
Commission (SEC) as the company may begin to wind up its operations, the corporation
must all notify all its creditors of the intention to liquidate the assets. The remainder of the
assets upon settlement of obligations should be distributed to its stockholders

b. Involuntary dissolution can be brought about by the state to a corporation on the following
grounds:

1. failure to file an annual report and pay taxes

2. fraud in the creation of the corporation
3. excessive or abusive use of corporate powers, privileges and franchise an authority given
by the state
4. failure within thirty days (30) to appoint and maintain a registered agent
5. failure of the corporation to notify the state of a change of registered office or agent

c. Judicial Liquidation an action by the stockholder

Stockholders may file in court a suit requesting the court to dissolve the company that is
irreparably injured due to the deadlock between directors in the management of the
corporation which the stockholder could not break the deadlock. In this case, stockholders
can sue for the liquidation if the assets of the corporation were misapplied or wasted or the
directors or those in controlled authorized by the company acted illegally, oppresively or
fraudulently
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?

Depending on the agreement of the partners to dissolve the partnership or enter into another
partnership with Y-Corp as the new partner. Y corp can enter into the management contract
if both partnership agrees with the conditions and has gone through legal procedures

Y-Corp is not considered a partner since it has not entered into a partnership agreement. The
net profit are payment for the debt of X Partnership.