Case 7 - Property Rights

Bert and Ernie are partners in the rent a car business. Ernie had personal guests from UK who wanted to
go for scuba diving in Moalboal. Ernie brought his guests using one of the vans for rental for that
purpose. This was not made known to Bert, who, unfortunately, had booked 8 foreigners for that van
on the same day. The 4 remaining vans were already dispatched leaving Bert with such a burden on
how to address the issue.

a) If you were Bert what are you going to do?

b) Because of the incident, Bert and Ernie had a strained relationship. Ernie then started
contemplating on how to put up a business for himself. He applied for a loan from a bank. The
latter required for collaterals. He told the bank that he owned a portion of the partnership
property near the South Road Properties being a part of the partnership; so he can assign one
half of the property to the bank. The value of the partnership property was P 10 Million, while
his loan amounts to P 5 million. Is this allowed under the law?

Case 8 – Expulsion of a Partner

Let us say there are three law partners who started as friends but, as time goes by, two of the partners
want nothing more to do with the third. This third partner is Rody who apparently got a windfall when
he received a P15 million professional fee from a 15 year old expropriation case resolved in his favor.
These three law partners used to be associates of one of the big law firms in Cebu. Rody, at that time
was the counsel in charge of an expropriation case handled by the law firm. When Rody and his two
colleagues, decided to put up their own law firm, the client decided to stick out with Rody as his
personal counsel.

The partnership agreement provides that “Any member may be expelled from the law firm with or
without cause by a majority vote of the partners representing the controlling interest. ” Among the
causes of expulsion mentioned are as follows :

 the partner engaged in wrongful conduct that adversely and materially affected the partnership
business

 the partner materially and willfully breached the partnership agreement, or

  the partner’s conduct makes it not reasonably practicable to carry on the partnership business
with that partner.

In this case, each of the partner of Rody had 30% interest, while the latter had 40% interest.

Unfortunately, there was no agreement among the three regarding the expropriation case that Rody
handled. The other two presumed that since the case continued to be handled by Rody using the
facilities and staff of the firm, he will also share with them the boon according to the profit sharing
agreement. Alas, Rody gave them only a million each.

The two partners voted to expel Rody from the partnership.

a) Rule of the validity of the expulsion. If you were Rody what are your next legal moves?

b) Is there a basis also on the part of Rody’s partners to resort to judicial dissolution? If so, explain.