Sir: The law refers only to goods (appraisal ).

Student: While the article is explicit in only naming goods, we further discussed that if property
is to be appraised, it is also to be contained in an inventory attached to a Public Instrument. The
situation that we discussed yesterday with regards to the use of a property, which is the usufruct,
it follows the same rule, there is nothing in the law that prevents the parties from first agreeing
on that value of the use of the property and second, there is nothing that prevents them from
referring such appraisal to a third party or an expert who can appraise the use.
Sir: What is the objective of the appraisal?
Student: The objective of appraisal is for the parties to determine their respective contributions.
Sir: It is important to determine their contributions because
Student: In order that they may ascertain the obligations of each partner, and so that in the
absence of contrary agreement, it is their contribution which will become the basis for their share
on the profits or losses.
Sir: This could be the basis unless they had agreed on anything else. This is important because if
we do not appraise this now and we have not as well agreed of the sharing of profits or losses,
we will be arguing that I am entitled for more profits or I should be exempted from losses
because this is the value of my contribution. So regardless of whether or not it is goods or
usufruct, appraisal and evaluation of the contribution is important. So here, maybe, it was missed
by our legislators, if they did not specify goods or any contribution for that matter should be
appraised if they have not agreed on the value. More on industrial partner now.
Student: On industrial partner, we define it as a partner who contributes either his industry or his
service. As compared to a capitalist partner, his (capitalist) contributions are quantifiable. We
discussed that it is more difficult to appraise the value of service that would be contributed by the
industrial partner, such that we need to know the just and equitable evaluation. Because it is so
difficult to ascertain and that the law does not even provide for it, we came to the conclusion that
an industrial partner is expected to give his entire self, all of his waking hours and capabilities to
the partnership. Because a partnership is based on high level of trust, such that an industrial
partner is expected to perform what is expected of him.
Sir: As we said, there is no way of appraising how much of his industry or work should he
contribute, the law says then that he should contribute everything. So in our illustration regarding
the restaurant, what happened?
Student: One contributed the capital and the other would be the chef. That is a valid partnership
where one contributes capital and the other contributes industry. So, what if the chef would not

anymore perform up to the level that he was expected to do? We discussed that when a partner
(industrial) does not anymore perform accordingly what is expected of him, and the partnership
as a result incurs a loss, such partner would be liable for the damages and for the loss of income.
Sir: On the other hand, can he be compelled to perform?
Student: No, since the Constitution prohibits compelling someone to do something as it may
amount to involuntary servitude.
Sir: In other words, specific performance is not a remedy because that would violate his
constitutional right against involuntary servitude. On the other hand, if he engages in a separate
business, what could happen?
Student: If he engages in a separate business, the law prohibits him from engaging in a separate
business, whether it is of the same kind or different nature of business. So, if the industrial
partner engages into another business (bananaaaa-q potatoooo), first, the other partners can
exclude the erring partner in the partnership; second, the remaining partners can reap the benefits
from the other venture of the industrial partner; and third, they can seek damages against the
industrial partner for the potential loss of income or for failure to perform his obligations to the
partnership.
Sir: We change the situation now. What if he is a capitalist partner who engages in a separate
business; the capitalist partner put up a motorcycle parts beside the restaurant. Could the
industrial partner now invoke the same options like the capitalist partner?
Student: The capitalist partner may engage in a business separate from the original venture. In
this case, the restaurant and the motorcycle are not of the same classification.
Sir: So, the industrial partner stopped his separate business as he neither wanted to be kicked out
from the business nor did he want to share his profits. This time, the capitalist partner put up a
motorcycle business. Now, the industrial partner demands either the capitalist would be out of
the partnership or he will share his profits plus damages. Can he do that?
Student: No, because in the case of capitalist partner, the prohibition only extends to those kinds
of business which compete to that of the original business. In this case, the industrial partner
does not have a cause of action against the capitalist partner because the business put up by the
latter does not compete with the business of the partnership.
Sir: Are you saying that the law now allows discrimination?
Student: There is no discrimination as there is substantial distinction between an industrial
partner and a capitalist partner. The former is required by law to give all of his industry to the
partnership and engaging in another business would prejudice the partnership, in the sense that
his attention or industry would now be divided. However, in the case of a capitalist partner, the

law does not prohibit him from dividing his money into different businesses, to diversify his
resources and earn more.
Sir: So, that is the basis for the distinction. If you are an industrial partner, you are not supposed
to devote on anything else, just the partnership business. If you are a capitalist partner, you can
contribute any amount to the other business (motorcycle). There is no conflict there. However
Student: However, when he engages in a kind of business which would compete with the
business of the original partnership, the partnership would be prejudiced and the capitalist would
be violating the rights of the other partners and the partnership.
Sir: So if the capitalist partner decided to put up a SIOPAO business. What do you think this
time? Is there competition?
Student: Yes, there is competition as both are engaged in FOOD business. So the capitalist
partner violated the rights of the other partners.
Another thing that we discussed is about a situation where a partner is authorized by the
partnership to collect from its debtors and he was able to collect successfully. BUT he met a
person who enticed him to go somewhere else and spend the money. They were merry-making.
So, basically, the money is now lost. Therefore, the partner is liable for the loss but he is not
liable under the present provision.
Sir: So, what is the present provision?
Student: A partner who has in his hands partnership money and converts it to his own use shall
be automatically indebted to the partnership.
Sir: Conversion. What is the rule in conversion of partnership funds?
Student: The partner is automatically indebted to the partnership.
Sir: If the partner lost the money because of that boating incident. Would he be liable?
Student: No, he would only be liable due to circumstances outside his control. So, in that
situation that he lost the money during merry-making, there was contributory negligence on his
part
Sir: Lets continue next meeting. Assignment is until Art.1809.