DISSOLUTION AND WINDING UP
dissolved, any of the partners cannot bind the
3 FINAL STAGES OF A PARTNERSHIP
1. Dissolution- change in the relation of partners
2. Winding Up- settling business affairs after
dissolution
3. Termination- point in time after all the
partnership affairs have been wound up
KINDS OF DISSOLUTION
I. EXTRAJUDICIAL DISSOLUTION
1. Without violation of the agreement between
partners
a. By the termination of the definite term/
particular undertaking
b. By the express will of any partner
c. By the express will of all the partners
d. By the expulsion of any partner
2. In contravention of the agreement between the
partners
3. Business becomes unlawful
4. Loss of specific thing
a. Loss where ownership contributed
c. Loss where only use or enjoyment
contributed
5. Death of any partner
6. Insolvency of any partner/partnership
7. Civil Interdiction of any partner
II. JUDICIAL DISSOLUTION
1. On application by or for a partner the court
shall decree a dissolution whenever:
a. Insanity
b. Incapacity
c. Misconduct
d. Persistent breach of partnership
agreement
e. Business can be carried on only at a loss
f. Other circumstances render a dissolution
equitable
2. On the application of the purchaser of
anpartner’s interest under 1813 or 1814:
a. After the termination of the specified
term or particular undertaking
b. At any time if the partnership was a
partnership at will when the interest was assigned
or when the charging order was issued.
GENERAL RULE: When a partnership is
partnership
EXCEPTIONS: Article 1833 & 1834
Article 1833
1. The dissolution being act of any partner,
the partner acting for the partnership had
knowledge of the dissolution; or
2. The dissolution being by the death or
insolvency of a partner, the partner acting for the
partnership had knowledge or notice of the
death or insolvency.
Article 1834
I. PARTNERSHIP IS LIABLE
1. Act appropriate for winding up partnership
affairs;
2. Act for completing transactions unfinished at
dissolution.
3. Any transaction which would bind the
partnership if dissolution had not taken place
provided the other party to the transaction:
a. Had extended credit to the partnership
prior to dissolution and had no knowledge or
notice of the dissolution;
b. Though he had not so extended credit,
had nevertheless known the partnership prior to
dissolution, and, having no knowledge or notice
of dissolution, the fact of dissolution had not been
advertised in a newspaper of general circulation in
the place at which the partnership was regularly
carried on.
II. PARTNERSHIP IS NOT LIABLE
1. Where the partnership was dissolved because it
was unlawful to carry on the business, unless the
act is appropriate for winding up the partnership
affairs.
2. Where the partner has become insolvent.
3. Where the partner had no authority to wind up
partnership affairs; except by a transaction with
a third person who is in good faith.
EFFECT OF DISSOLUTION ON
PARTNER’S EXISTING LIABILITY
1. It does not discharge the existing liability of a
partner.
2. A partner is discharged from any existing
liability upon dissolution by an agreement of the
following:
a. The partner
b. The other partners
c. The creditors
3. The individual property of a deceased partner
shall be liable for all obligations of the
partnership incurred while he was a partner, but
subject to the prior payment of his separate debts.
KINDS OF WINDING-UP OR
LIQUIDATION
I. Extrajudicial- done without the intervention
of the court
Persons authorized to Wind up:
1. Liquidating Partner/ Partner designated
by the agreement
2. Partner who have not wrongfully
dissolved the partnership
3. Legal representative of the last
surviving partner who is not insolvent
II. Judicial- done under the control and direction
of the court
Person authorized to Wind up:
1. Person appointed by the court
RIGHTS OF PARTNERS IN CASE OF
LIQUIDATION CAUSE BY VIOLATION OR
NON-VIOLATION OF THE PARTNERSHIP
CONTRACT
I. Without contravention/violation of the
partnership agreement
1. To have the partnership property applied
to discharge the liabilities of the partnership; and
2. To have the surplus, if any, applied to
pay in cash the net amount owing to the
respective partners.
II. In contravention/violation of the
partnership agreement
1. Rights of partner who has not caused
dissolution wrongfully
a. To have the partnership property applied
to discharge the liabilities of the partnership;
b. To have the surplus, if any, applied to
pay in cash the net amount owing to the
respective partners;
c. To be indemnified for damages caused
by the partner who caused the dissolution
wrongfully; and
d. To continue the business in the same
name either by themselves or jointly with others
during agreed term of the partnership and for that
purpose may possess the partnership property.
2. Rights of partner who wrongfully caused the
dissolution
a. If the business is not continued by the
partners
a1. To have the partnership property applied to
discharge the liabilities of the partnership;
a2. To receive in cash his share of the surplus less
damages caused by his wrongful dissolution.
b. If the business is continued by the other
partners
b1. To have the value of his interest in the
partnership, less any damage caused to his co-
partners by the dissolution, ascertained and paid
to him in cash, or the payment secured by a bond
approved by the court;
b2. To be released from all existing liabilities of
the partnership.
3 RIGHTS OF A PARTNER WHO IS
ENTITLED TO RESCIND
1. Right of lien or right of retention;
2. Right of subrogation; and
3. Right of indemnification
RULES IN SETTLING ACCOUNTS
BETWEEN PARTNERS AFTER
DISSOLUTION
1. Assets of the Partnership
a. Partnership property
b. Contributions of the partners necessary
for the payment of all liabilities
2. Liabilities of the Partnership shall rank in
order of payment
a. Partnership creditors
b. Partners
c. Capital
d. Profits
3. Assets shall be applied in the order of their
declaration in No. 1 to the satisfaction of the
liabilities.
4. Partners shall contribute the amount necessary
to satisfy the liabilities if partnership assets were
exhausted.
5. Who can enforce?
a. An asignee for the benefit of creditors
or any person appointed by the court
b. Any partner or his legal representative
6. Individual Property of a Deceased Partner
a. Liable fo his share of the partnership
liability incurred while he was a partner
b. Separate creditors have preference over
these individual properties.
7. Preference with Respect to Properties in
Possession of the Court
a. Partnership Property- partnership creditors
b. Individual Property- separate creditors
8. Preference of Claims against the Separate
Property of an Insolvent Partner
a. Separate Creditors
b. Partnership Creditors
c. Partners by way of contribution
CASES WHERE CREDITORS OF THE
DISSOLVED PARTNERSHIP ARE ALSO
CREDITORS OF THE
PERSON/PARTNERSHIP CONTINUING
THE BUSINESS
1. When any new partner/ any retiring partner
assigns his partnership property rights to one or
more partners/third persons if the business
continued without liquidation.
2. When all but one retiring partner assign their
partnership property rights to the remaining
partner if the business continued without
liquidation.
3. When any retiring/ deceased partner’s
representative when business continued give
consent but without assignment of his right in
partnership property.
4. When all the partners/representatives assign
their partnership property rights to one or more
third persons who promised to pay the debts and
who continued the business of the dissolved
partnership.
5. When any partner wrongfully causes a
dissolution and the remaining partners continue
the business without liquidation under the
provisions of article 1837, 2nd paragraph, no. 2.
6. When a partner is expelled and the remaining
partners continued the business without
liquidation.
RIGHTS OF RETIRING/ DECEASED
PARTNER WHEN BUSINESS IS
CONTINUED WITHOUT ANY
SETTLEMENT OF ACCOUNTS
1. To have the value of his interest at the date of
dissolution ascertained; and
2. To 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
right in the property of the dissolved partnership.
PARTNER’S RIGHT TO ACCOUNT OF HIS
INTEREST
1. Who has the right to an account?
a. Any partner; or
b. Legal Representative
2. Who has an obligation to render an account?
a. Winding up partners
b. Surviving partners
c. Person/Partnership continuing the business
3. When to render an account?
a. Date of dissolution, except of any stipulation to
the contrary