chapter >
pissOLUTION AND WINDING Up
lution of @ partnership
sn ofthe partners Caused
associated in tl
from the winding
partners cease to carry on the
the demise of a partnership.
he process of settling the business or
poinin time when all partn
und up and finally sett
Partnership life.
ART. 1829. On dissojut
re a the partnership is
Up of partnership attarn nus until the wi
iP affairs is completed. (n)
Partnership not termi (al
‘erminated by dissolution,
2%
OLUTION AND WINDING UP
The principal significance of dissol
no new partnership business shoul
partne
Fas, dissolution refers to the change in partnership relation
‘and not the actual cessation of the partnership business.
solution of a partnership must also be distinguished
from a mere suspension in the conduct of its business oF
operations. (68 CJS. 842.)
ART. 1830. Dissolution is caused:
(1) Without violation of the agreement be-
tween the partners:
(a) By the termination of the definite term
or particular undertaking specified in the
agreement;
{b) By the express will of any partner,
who must act in good faith, when no definite 4
term or particular undertaking is specified;rece
psi or
pain
ant 1890 [DISSOLUTION AND WINDING U?
dul for
orner sti be carried on, (4) It will also be observed that the causes provided
the business of cary tn in partnership; in Article 1890 repli the automatic dissolution of the
‘e mem neal partnership. This is not the case under Arti 31 whic!
or for te ego whee eee Pamerates the grounds for the judicial dissolution of the
(4) When 2 SP ripute to the partnership, eect
S sad tess ONE in any case by Be” i
‘Note that once a partnership is dissolved, the same part-
he partner
when the P wha ners may form a new partnership to continue the business
thing,
the loss of the carved the ownershi
it having "25 Pp der the same terms.
conte i haeaered 1 the partnership a
enjoyment a ea is) tha th Dissolution effected without violation
partnership shall not Be ee artn erat ‘of partnership agreement.
ig when it occur ” ‘There are four ways by which a partnership may be
dissolved without violation of the partnership agreement:
(1) Termination ofthe definite term or particular undertaking
__ A partnership may be constituted for a fixed term oF
it may have for its object a specific undertaking, (Arts.
(6) By thedeath of any partner;
1
(6) By teinsovency of any partner or of the
partnership; 1785, 1783.)
(7) By the gh interdition of any partner; undertaking, ip i i is
(6) By decree of court under the following without Eee in or ed Pe
article. (1700a and 1701a)
Causes of dissolution,
les 1830 and 1 ‘
causes of soles Sl inf) provide for the statu
ll be
thou stone hey that dissolution
std agreement (No.2). »Any
sab patmership wi pts
ated, however, that
» eeagned thelr interes are laid down in Article
‘The legal effects of this dissoh
a 1837, par. 2, Nos. 1,2, and 3.
Business becomes unlawful.
; hence,
faith, and a
ened by the agreement be J the pa
may be vested in one part ‘A partnershi
inbad faith (therefore, (see Art. 1770.)
ership agreement) can claim dam.
y iton together
‘ip must have a lawful obj
or purpose.
EXAMPLE
Aisa partner in alaw firm. Later on, Ai
of the Regional Trial Court. Under the law,
tional Trial Court is prohibited from engaging in the practice
ef law. In this case, it would be unlawful for A to continue as
4 partner in the law firm. His appointment dissolves the part=
nership of which he is a member.
ointed Judge
2 for any cause or reason. — Any
dissolution of the partnership at
Loss of specific thing.
This provision of Article 1830 refers only to specific
=
sentredinto fora definite term or particular fj ‘ings. When the thing to be contributed is not sp
ertaking. isolation fica partnership is, howevea fe Atiles 1786 (par Land I
the agreement. d ulness
va
Art 1831 DISSOLUTION AND WINDING UP
actically amounts to @
capacity of the partners. A
the accessory penalty of
ly give consent
roby. (Art. 38.)
(Art. 1327.) as his ca
Under the law, ci
the time of his
ner.
Death of any Pat tobe associated in the
esto be 2880
& ee ee sr dissolution of the paring
3 business He ng partners have No auth
xcept so far as iS necessary y
2 partnership agreement, ho
he death, withdrawal, or admis
ion, Under such stipul
tthe deceased isnot liable for obligation
extent of his capit
yy act or any
Code), ie., to
conveyance i
take effect di
ART. 1831. On aj ion by or for a partner,
a dissolution whenever:
aN at
5 abate becomes in any other way inca:
‘pale of performing his part of the partnership
‘contract; | s
107%) aartner
as tend to affect prejudicial the
the business; &
(4) A partner wilfully or
breach of the partnership ag
wise so conducts himself in
the partnership business that
rs in the event that partnershi
Partner has no author 7 (see Art, 1816,) An insolvett
P
othe 7 ct fe a
ee ee toact forhim (A ee patna nor aoty practicable to carry on the B
property in eta of fe peace nership with him;
a ershi
OF partnership ciel Ptesableter ne asa <8) The busin ofthe
tons resulting in Ta ‘carried on at aloss;der a dissolut
irene ren ution
her
he purchaser of
ie 1813 or 1814: q
f the specific term
of tl
ination oF
r undertakings :
the partnership was
onthe interest Was assigneg
order was issued. (N)
(1) afte
or particule
(2) At a
artnership a
Sr when the chargind
Grounds for diss' decree of court.
E May constitus|
2 partnership but which ay
to make a judici)
ary
‘era hearing on application either’
cases mentioned in paragraph 1, Nos.
1 ofa partner’s interest under
Incapacity —
pa incapacity must be one whit
Partner to perform his duties 254
501
and persistent brea
re istent breach
aa Brounds for judi
and materially affer “4
Partnership, — fect and og
Partnership aj
lution, for they eles
uct the purpose of the
jon equite
partnership affai
sale of all real proper!
‘work the dissolution of the firm which w
yecause
the real property it originally had bs
not organized to exploit the lots
buying and selling real estate, and
agency, and brokerage busines:
108 Phil. 984 [1960].)
ld
purchaser of a partner's interest
may apply for judicial
EXAMPLES:
‘with no reasonable prospects of success
Lichauco, 33 Phil. 350.) or it can be carried
ss.
general real e
” (Goquiolay vs. Sycip,
(c
1ces— Examples of circumstances
able are abandonment
ementof the business
ler accounting of
fas held that the
ership did not
but to engage
@. ‘A B, and C formed a partnership to continue for 2
term of five (6) years. On the third year,
esttoD
sold his entire inter-[DISSOLUTION AND WINDING
ding up or completing
cd.
terminatesthe actual,
jew business for the
The Sozegaing, however
mm set forth,
authority ofany P:
a sntract is immediately terminated when the dissolution
so not by the act, insolvency, or death of a partner. (A
1832) When the dissolution is by such act, insolvency,
or death, the termination of authority depends upon
oF other or not the partner had knowledge or notice of
the dissolution as provided in Article 1835.
(b) With respect to third persons (Art. 1834), the
be neces.
1832. Except 50 Fa 36 may a
sanyo wind up parnersil affair® OF to com:
pl gun but not then finished,
erceelution terminates all authority of any part-
ner to act for the partnership:
(1) With respect tothe partners,
(a) When the dissolution is not by the act,
insolvency or death of a partner; or
(b) When the dissolution is by such act,
or death of a partner, in cases
le 1833 so requires;
although the author acting, partner as it affects
his co-partners is already deemed terminated under
‘Articles 1832 and 1833. In such. a case, however, the
innocent partners can always recover from the acing
partner.
Ee jot partners, aS EXAMPLE:
: 'A.B, and C were partners in X & C
Effect of dissolution ona cence of the partnership as fixed in
of partner. uthority expired ‘yesterday.
solution was caused
(1) General rute, —
P:t a
xeRsH "a
pat
and C ar i
arate 1004 Band Care ni
ution is causeg
partner, each
being by act of any part.
(1)
earner acting for Ne partnership had
ner, ti Mer
fon being by the death or
vrtner, the partner acting for
a partnership had knowledge of notice Of the
death or insolvency.
he dissolution
Right of partner to contribution
from co-partners.
The above article speaks of dissolution caused by the
act, insolvency, or death of a partner.
Where a partner enters into a new contract with a thitd
person after dissolution, the new contract generally will
perme ae 1), and each of thém is
of any liability created by the acting
+f thepaeship had not been dissolved.
Authority of partners, as a
to act for the partners
mong themselves,
hip.
19
The cause of the dissolutions the death or insolvency
sr had knowledge or notice
No. 1 is designed to protect the remaining
partner or partners who might continue to act for the part
joing concern, not having actual knowledge of
The rule in No. 2 discards the fiction that
presumed to have knowledge of death or in-
When a partner has knowledge
or notice of a fact.
‘The Uniform Partnership»Actdefines the two terms as
follows
“ Aperson has knowledge of afact within the meaning
of this Act not only when he has actual knowledge thereof,
Dut also when he has knowledge of such other facts asin the
circumstances show bad. faith.”
“ dopersonvhas notie”of a faet within the meaning
of this Act when the person who claims the benefit of the
notice:
{@) States the fact to such person, oF
(b) Delivers through the mail or by
communication, a written ste
person or to a proper pers
residence.” (Sec. 3, U.P.apr, 18%, afer assolution, @ partner can
‘partnership, except as provided in the
third paragraph of this article:
(1) By an act appropriate for winding up part-
nership affairs or completing transactions unfin-
ished at dissolut
apyany transaction which would bind the
partner dissolution had not taken place,
provided the other party to the transaction:
(2) Had extended credit to th
adexten partnershi
prior to dissolution and had no. inrowica je af
notice of the dissolution; or 2
(b) Though he had not so extended
credit, had neverthe
ar nevertheless kx
es ome Prior to dissolutic nown of the
nowledge or not ion, and, having
fact of dissolution nag jot dissolution, the
in a news; rp ad ot ti
paper een advertised
place (orm eage tea circulation in the
e if
Ship Were than one) at
which th
on. © Parte
regularly carried
DISSOLUTION AND WINE
The liability of a partner under the first pars-
graph, No. 2, shall be satisfied out of partnership
assets alone when such partner had been prior
to dissolution:
(1) Unknown as a partner to the person with
whom the contract is made; and
(2) So far unknown: and inactive in partner-
ship affairs that the usiness reputation of the
partnership could not be said to have been in
any degree due to his connection with it.
The partnershi no case bound by any
act of a partner after dissolution:
(1) Where the partnership is dissolved be-
cause it is unlawful to carry on the businesS,
caioss the act is appropriate for winding UP Part-
nership affairs; oF
(2) Where the partner has become insolvent;
or
(3) Where the partnerhad noauthoritytowind
up partnership affairs; except by & transaction
with one who — :
(a) Had extended credit to the P
prior to dissolution and had no kno
notice of his want of f5 ‘a
act 1884 DISSOLUTION AND WINDING UP
ents to an
for cons
ne ner I partnersiet
tution fing i 3, business: co to act on behalf of the partnership,
reper cao ‘pia, Band Cy able
5p. 262-263)
Notice of dissolution to creditors.
(a) As to persons who extended credit to partnership P70"
issolution. — Customers of the partnership or Peto who
ditended credit to the partnership prior to its dissolution
onist have knowledge or notice of the dissolution ‘o relieve
the partnership from liability.
(2) As to persons who had known of partnership
Pe erone sho had not so extended eredit POY
Ee dissolution, but who had known of its exisienc®, the fact
i he dissolution had been published in the news OPT
tha id be sufficient (pat. 1, No. 2, bh; see Singsont
Vabela Sawmill, 88 SCRA 623, Feb. 28, 19791), even if they
did not actually read the advertisement,
(3) Where acting partner has no authority t0 wind MP part
hip afars. — Under the third paragraph, nove of dis-
wefation is unnecessary except in case No. 3 whete the part
erty; Sch ee aH a
(4) When alll the p s
tives assign their rights
to one or more third persons wh
th
and who |person becoming
ip continuing the busi,
fo the creditors of the
pall be satisfied out of
unless there is g
this a!
sarnesnip hall
dssnersip property ON?
stipulation to the ‘contrary: ;
When the business of 2 partnership after dis.
ne oninued under any conditions set
solution is co, the creditors of the dissolved
as against the separate creditors
Pathe ratring or deceased partner or the repre-
of the deceased partner, have a prior
right to any claim of the retired partner or the
representative of the deceased partner against
the person or partnership continuing the busi-
ness, on account of the retired or deceased part-
ner’s interest in the dissolved partnership or on
account of any consideration promised for such
for his right in partnership property.”
Nothing in this a
Fi ees shall be held to modify
on the ground of fraud,
‘set aside any assignment
DISSOLUTION AND WINDING UP.
Dissolution of a partnership by change
in membership.
‘The change in the relation of the partners resull
dissolution of the partnership. It may take pl
new partner is admitted; or when a partner
ot withdraws or is expelled from the partner:
the other partners assign their rights to the sole remaining,
partner (Bemardo vs. Pascual, 109 Phil. 936.) or when all
the partners assign their rights in partnership property t
third persons.
“Any change in membership dissolves a partnership and
creates a new partnership.
Rights of creditors of dissolved partnership
which is continued.
Article 1840 deals with the rights of creditors when the
partnership is dissolved by a change of membership and
its business is continued (Art. 1337(2],) by a former partner,
cither alone or with new partners, without liquidation of
partnership affairs. In such case, the law makes the creditors
of the dissolved partnership, also creditors of the persons or
partnership continuing the business. In other words, both
Classes of creditors, the old and the new, are treated alike,
being given equal rights in partnership property:
The purpose of the law is to maintain the
rights of the old creditors to the partr P
against the separate creditors of the partners.ip Act provides:
on first by A,
) Under the second paragraph, thi ity of the ney’
coming pariners shall be satisfied out of partnership
only unless there is a stipulation to the contrary
2) Paragraph 1, No. 4, applies only when the third per
promises to pay the debts of the partnership; otherwise
cc rs of the dissolved partnership have no claim ot
Partnership continuing the business or its property ute
ss the assignment y
Partnership of A, B, af
it, pp. 265-266.)
Art 1841 DISSOLUTION AND WIND
ART. 1841. When any partner retires or dies,
and the business is continued under any of the
conditions set forth in the preceding article, or
in article 1837, second paragraph, No. 2, without
any settlement of accounts as between him or
his estate and the person or partnership contin-
uing the business, unless otherwise agreed, he
or his legal representative as against such per-
son or partnership may have the value of his in-
terest at the date of dissolution ascertained, and
shall receive as an ordinary creditor an amount
equal to the value of his interest in the dissolved
partnership with interest, or, at his option or at
the option of his legal representative, in lieu of
interest, the profits attributable to the use of his
ht in the property of the dissolved partner-
ship; provided that the creditors of the dissolved
partnership as against the separate creditors,
or the representative of the retired or deceased
partner, shall have priority on any claim arising
under this article, provided by article 1840, third
paragraph. (n)
Rights of retiring or of legal representative
of deceased partner when business
is continued.
When any partner retires or dies and the
settlement of accounts, the
(1) Tohave the value 0{partner
the dissolution ig
the partnership bug
partner’s estate
decease’
a
debts and jor"
Mwerable fOr al and
ate aiipe deceased Partner but oni
a jecedent’sshare it the partnerships a
EXAMPLE:
A.B,and Care partn
te amount of P50 00000
essinX & Co. which is indebted gp
Later on, X & Co. was dissoly
by reason ofthe withdrawal (oF death) of C. The business ya
bye by Aand B without any settlement of account
centr and B, onthe one hand, and C, on the other.
or his legal representative, has the right to have ty
value of bis interes in the partnership ascertained and pai
to him, Assuming tat the interest of C has been ascertain
to be P30,00000,D has priority over the claim of C, his leg
representative or his separate creditor.
ae aCe The right to an account of his ii
| accrue to any partner, or his I |
representative as against the winding up ae
be the surviving partners or the person
a uing the business, at the date
the absence of any ag
Partner's right
of his rte account
(Accrual ofr
ight —Theri ,
ightto demand ana
LUTION AND WINDING UP
‘agreement to the contrary.
le fo render an account, — The right of a
partnership af-
f the
interest, may be exercised as against
(a) The winding up partner;
(b) The surviving partner; or
(c) The person or partnership continui
ness.
When liquidation not required.
‘As a general rule, when a partnership is dissolved, a
partner of his legal representative is entitled to the payment
bf what may be due after a liquidation. But no liquidation
is necessary when there is already a settlement or an agree-
ment as to what he shall receive.
STUDY GUIDE
I. Definitions
Define or give the meaning of the
1. dissolution;Give at east four grounds for the jug (separate creditor) — P10,000.
dissolution of partnership. Separate property of Y and Z each amounts only
to P20,000 and P10,000, respectively; and advance by X
IL, Problems to partnership — P30,000.
DISSOLUTION AND WINDING UP ci
(b)_ What right, if any, is given to Y and 2?
4, Same partnership. The partnership was
dissolved. Assume the following information:
Partnership assets — P320,000; Advances by X to
partnership — 20,000; Capital contribution of each
partner — P30,000
Liability of partnership — to M — 150,000.
5. Same example. Suppose the liability of
the partnership to W is P335,000; Y is indebted to
C (separate creditor — P15,000; Z is indebted to D
Her partnership wey
jolation of par’
rights of an injured partner
nd or annulled on the
n committed against hin |
-xpain or ate beefy the rule OF Teas0m for ya
answers.
1X, ¥and Z are partners in a ps
which was dissolved by the withdrawal of X.
was notified by Z of X’s withdrawal, entered into ng
transaction with W in the name of the partnership. |
(a) Isthe partnership liable to W?
(b) AreXand Z liable to Y for their s
the lability?
__ 2. Same partnership. X, acting for the
chip boghtacar tom Wctacheataa b
by C. ¥ acquired knowledge of the claim of
W nor Y informed X of the dla
er the i laim. C was able
00
3. Sane
the partnershipoim; tap. The term of exis
into a contrac, ib pes Thisnotwiths
@) inthe name of the
Is
“epatership tab