A, B and C are partners with C as the industrial partner.

A contributed P50,000 and B contributed

P100,000. The partnership operates a burger joint and agreed that the industrial partner will
receive 10% of the profits.

1. At the end of the year, the partnership suffered losses of P50,000. How will the losses be
shared?

- There is no agreement made between and among the partners on how they are going to divide
the losses. Therefore, the losses should be divided according to their original capital contributions.
But, industrial partners shall not be liable for losses as he cannot withdraw the work or labor
already done by him, so only partners A and B will carry and divide the losses up to their capital
contributions.

2. If due to said losses, they decided to use the burger joint as a hub to resell “smuggled”
meats and using thereby their existing freezer and grounding machine. Is the partnership
valid? what are the effects of such operation? Explain.

- The partnership is not valid as reselling smuggled meats which is their object or purpose is
unlawful. The effects of unlawful operation are: (1) the contract is void ab initio, which means the
contract was invalid right from the beginning/start. (2) The profit of the operation shall be
confiscated in favor of the government according to Art.1770; It is unjust for the law to permit a
profit from an industry prohibited by it and not confiscating profit will just encourage other
partnership to do the same unlawful operations. (3) The grounding machine, freezer and proceeds
of the crime shall be forfeited in favor of the government (4) The contributions of the partners
should be confiscated as the operation fall under number 3. Also, partnership is dissolved by
operation of law upon the happening of an event which makes it unlawful for the business of the
partnership to be carried on.