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RFBT 2
DISSOLUTION AND WINDING UP OF PARTNERSHIP

DISSOLUTION, WINDING UP, AND TERMINATION

3 STAGES WHEN A PARTNERSHIP ENDS:
1. DISSOLUTION - CHANGE IN THE RELATION OF THE PARTNERS CAUSED BY
ANY PARTNER STOPPING TO BE ASSOCIATED IN THE CARRYING ON OF THE
BUSINESS .THE PARTNERS STOP TO CARRY ON THE BUSINESS TOGETHER
2. WINDING UP- PROCESS OF SETTLING THE BUSINESS OR PARTNERSHIP
AFFAIRS AFTER DISSOLUTION
3. TERMINATION- WHEN ALL PARTNERSHIP AFFAIRS ARE WOUND UP, OR
COMPLETED, AND IT IS THE END OF THE PARTNERSHIP

GENERAL EFFECTS OF DISSOLUTION

1. PARTNERSHIP NOT TERMINATED
2. PARTNERSHIP CONTINUES FOR A LIMITED PURPOSE
3. TRANSACTION OF NEW BUSINESS IS PROHIBITED

CAUSES OF DISSOLUTION: (EXTRAJUDICIAL-WITHOUT COURT INTERVENTION)

1, WITHOUT VIOLATION OF THE AGREEMENT BETWEEN THE PARTNERS
A. TERMINATION OF THE FIXED TERM OR PARTICULAR
UNDERTAKING
B. WHEN NO FIXED TERM OR PARTICULAR UNDERTAKING IS
SPECIFIED, BY THE EXPRESS WILL OF THE PARTNERS WHO MUST ACT
IN GOOD FAITH
C. BY THE EXPRESS WILL OF THE PARTNERS WHO HAVE NOT
ASSIGNED THEIR INTEREST OR SUBJECT THEM TO CHARGED FOR
THEIR SEPARATE DEBTS BEFORE OR AFTER THE TERMINATION OF THE
FIXED TERM OR PARTICULAR UNDERTAKING
D. EXPULSION OF ANY PARTNER FROM THE BUSINESS IN
ACCORDANCE WITH SUCH A POWER CONFERRED BY THE PARTNERSHIP
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AGREEMENT BETWEEN THE PARTNERS. THE RIGHT TO EXPEL A

PARTNER MUST BE GIVEN IN AN EXPRESS AGREEMENT , AND MUST BE
EXERCISED FAIRLY AND WITH REGARD TO THE GENERAL INTEREST OF
THE PARTNERSHIP.
2. VIOLATION OF THE AGREEMENT BETWEEN THE PARTNERS BY THE
EXPRESS WILL OF ANY PARTNER AT ANY TIME WHERE THERE IS
NO DISSOLUTION UNDER ANY OF THE PROVISIONS OF THE LAW
3. BY ANY EVENT WHICH MAKES IT UNLAWFUL FOR THE BUSINESS OF THE
PARTNERSHIP TO BE CARRIED ON OR FOR THE MEMBERS TO
CARRY IT ON IN PARTNERSHIP
4. LOSS OF SPECIFIC THING TO BE CONTRIBUTED -
-IF LOST BEFORE DELIVERY, PARTNERSHIP IS DISSOLVED BECAUSE
THERE IS NO CONTRIBUTION IS AS MUCH AS THE SPECIFIC THING
CANNOT BE SUBSTITUTED. THERE IS FAILURE OF THE PARTNER
TO FULFILL HIS OBLIGATION.
-IF LOST AFTER DELIVERY, THEN PARTNERSHIP IS NOT DISSOLVED BUT
PARTNERSHIP ASSUMES THE LOSS SINCE IT IS ALREADY OWNED BY
THE PARTNERSHIP.
-IF ONLY THE USE OF THE SPECIFIC THING IS CONTRIBUTED, THE LOSS
OF THE SPECIFIC THING BEFORE OR AFTER DELIVERY DISSOLVES
THE PARTNERSHIP BECAUSE THE PARTNER CANNOT FULFILL HIS
OBLIGATION TO CONTRIBUTE.
5. DEATH OF ANY PARTNER

THE ONLY RIGHTS INHERITED BY THE HEIRS ARE THOSE RESULTING

FROM LIQUIDATION IN FAVOR OF THE DECEASED PARTNER
THE LIQUIDATION OF THE PARTNERSHIP IS ENTRUSTED TO THE
SURVIVING PARTNERS OR TO LIQUIDATORS APPOINTED BY THEM AND
NOT THE EXECUTORS OR ADMINISTRATORS OF THE DECEASED
PARTNER
1. INSOLVENCY OF ANY PARTNER OR OF THE PARTNERSHIP
THE INSOLVENCY OF A PARTNER SUBJECTS HIS INTEREST IN THE
PARTNERSHIP TO THE RIGHT OF HIS CREDITORS AND HE HAS NO
AUTHORITY TO ACT FOR THE PARTNERSHIP NOR THE OTHER
PARTNERS TO ACT FOR HIM
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THE INSOLVENCY OF THE PARTNERSHIP RENDERS ITS PROERTY IN THE

HANDS OF THE PARTNERS LIABLE FOR THE SATISFACTION OF
PARTNERSHIP OBLIGATIONS RESULTING IN THEIR INABILITY TO
CONTINUE THE BUSINESS
2. CIVIL INTERDICTION OF ANY PARTNER
A PERSON UNDER CIVIL INTERDICTION CANNOT VALIDLY GIVE CONSENT
AS HIS CAPACITY TO ACT IS LIMITED BECAUSE THE LAW DEPRIVES HIM
OF THE RIGHT TO MANAGE HIS PROPERTY AND DISPOSE OF SUCH
PROPERTY BY ANY ACT OF SALE OR TRANSFER DURING THE TIME OF
HIS SENTENCE AND LIFETIME. HE CANNOT MANAGE PARTNERSHIP
PROPERTY BECAUSE HE IS WITHOUT CAPACITY TO MANAGE HIS OWN
PROPERTY.

CAUSES OF DISSOLUTION (JUDICIAL DETERMINATION AS TO DISSOLUTION).

DISSOLUTION IS BY DECREE OF COURT
BY APPLICATION OF A PARTNER , OR APPLICATION FOR A PARTNER
1. A PARTNER DECLARED INSANE IN ANY JUDICIAL PROCEEDING.
IF IT SHOWN THAT SAID PARTNER IS TO BE OF UNSOUND MIND WHICH
MUST BE DULY PROVEN . THE INSANITY MUST MATERIALLY AFFECT THE
CAPACITY OF THE PARTNER TO PERFORM HIS CONTRACTUAL DUTIES
AS A PARTNER.
2. INCAPACITY OF THE PARTNER IN PERFORMING HIS OBLIGATION OR
PART UNDER THE PARTNERSHIP AGREEMENT. SUCH INCAPACITY MUST
MATERIALLY AFFECT THE PARTNER’S PERFORMANCE OF HIS DUTY AS
A PARTNER.
3. MISCONDUCT OF A PARTNER WHICH IS PREJUDICIAL TO THE CARRYING
ON OF THE PARTNERSHIP BUSINESS
4. PERSISTENT BREACH OF PARTNERSHIP AGREEMENT , MUST BE
SERIOUS, INTENTIONAL
5. BUSINESS CAN BE CARRIED ON ONLY AT A LOSS. WHEN IT IS CLEAR
THAT IT IS UNPROFITABLE WITH NO REASONABLE POSSIBILITY OF
SUCCESS.
6. OTHER CIRCUMSTANCES LIKE ABANDONMENT OF THE BUSINESS,
FRAUD IN THE MANAGEMENT OF THE BUSINESS , UNJUSTIFIED REFUSAL
TO RENDER ACCOUNTING OF PARTNERSHIP AFFAIRS
BY APPLICATION OF A PURCHASER OF A PARTNER’S INTEREST
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1. AFTER THE TERMINATION OF THE FIXED TERM OR PARTICULAR

UNDERTAKING
2. AT ANY TIME IF THE PARTNERSHIP WAS A PARTNERSHIP AT WILL WHEN
THE INTEREST WAS ASSIGNED OR WHEN THE CHARGING ORDER
WAS ISSUED
EFFECT OF DISSOLUTION ON AUTHORITY OF THE PARTNER
GEN. RULE:
1. PARTNER’S ACTS ARE CONFINED ONLY TO THOSE INCIDENTAL TO
WINDING UP OR COMPLETING TRANSACTIONS BEGUN BUT NOT THEN
FINISHED
2. TERMINATES THE ACTUAL AUTHORITY OF A PARTNER TO ACT FOR THE
PARTNERSHIP OR UNDERTAKE NEW BUSINESS FOR THE PARTNERSHIP

EXCEPT: A. WHEN THE DISSOLUTION IS CAUSED BY THE ACT , DEATH, OR

INSOLVENCY OF A PARTNER AND THE ACTING/MANAGING
PARTNER HAD NO KNOWLEDGE OF SUCH DISSOLUTION
RESULT: THE NEW CONTRACT ENTERED BY THE A PARTNER
WITH A THIRD PERSON AFTER DISSOLUTION WILL BIND THE
PARTNERS. EACH PARTNER IS LIABLE FOR HIS SHARE OF
ANY LIABILITY CREATED BY THE ACTING PARTNER AS IF THE
PARTNERSHIP HAD NOT BEEN DISSOLVED.
IF:
DISSOLUTION IS CAUSED BY THE ACT, DEATH OR
INSOLVENCY OF A PARTNER AND THE ACTING/MANAGING
PARTNER HAD KNOWLEDGE OF SUCH DISSOLUTION
RESULT: THE AUTHORITY OF A PARTNER AS IT AFFECTS HIS
CO-PARTNERS (NOT THIRD PERSONS) IS DEEMED
TERMINATED.
B. CASES WHEN A PARTNER CONTINUES TO BIND THE
PARTNERSHIP EVEN AFTER DISSOLUTION
1. BY AN ACT APPROPRIATE FOR WINDING UP PARTNERSHIP
AFFAIRS OR COMPLETING TRANSACTIONS UNFINISHED AT
DISSOLUTION
2. BY ANY TRANSACTION WHICH WOULD BIND THE
PARTNERSHIP IF DISSOLUTION HAD NOT TAKEN PLACE,
PROVIDED
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2.A. THE OTHER PARTY TO THE TRANSACTION HAD

EXTENDED CREDIT TO THE PARTNERSHIP PRIOR TO
DISSOLUTION AND HAD NO KNOWLEDGE OR NOTICE
OF THE DISSOLUTION
2.B. THOUGH HE DID NOT EXTEND CREDIT , HAD KNOWN
THE PARTNERSHIP PRIOR TO DISSOLUTION, AND HE
HAD NO NOTICE OR KNOWLEDGE OF THE
DISSOLUTION , AND THAT THE FACT OF DISSOLUTION
WAS NOT ADVERTISED IN A NEWSPAPER OF GENERAL
CIRCULATION IN THE PALCE WHERE THE
PARTNERSHIP REGULARLY CARRIED ITS BUSINESS
EXCEPTION: CASES WHEN A PARTNER CANNOT BIND THE
PARTNERSHIP AFTER DISSOLUTION
1. WHERE THE PARTNERSHIP IS DISSOLVED BECAUSE IT IS
UNLAWFUL TO CARRY ON THE BUSINESS, UNLESS THE ACT IS
APPROPRIATE FOR WINDING UP PARTNERSHIP AFFAIRS

2. WHERE THE PARTNER HAS BECOME INSOLVENT

3. WHERE THE PARTNER HAD NO AUTHORITY TO WIND UP

PARTNERSHIP AFFAIRS , EXCEPT:

3.A. BY A TRANSACTION WITH ONE WHO EXTENDED CREDIT TO

THE PARTNERSHIP PRIOR TO DISSOLUTION AND HE HAS NO
KNOWLEDGE OR NOTICE OF THE LACK OF AUTHORITY OF
SUCH PARTNER

3.B. BY A TRANSACTION WITH ONE WHO HAD NOT

EXTENDED CREDIT TO THE PARTNERSHIP PRIOR TO
DISSOLUTION, AND HE DID KNOW OF THE LACK OF AUTHORITY,
AND THE FACT OF SUCH LACK OF AUTHORITY WAS NOT
ADVERTISED IN THE MANNER PROVIDED BY LAW

EFFECT OF DISSOLUTION ON PARTNER’S EXISTING LIABILITY

GEN. RULE :DISSOLUTION OF THE PARTNERSHIP DOES NOT OF ITSELF

DISCHARGE THE EXISTING LIABILITY OF ANY PARTNER .
EXCEPT: BY AN AGREEMENT DISCHARGING HIM FROM ANY
EXISTING LIABILITY UPON DISSOLUTION BETWEEN HIMSELF,
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THE PARTNERSHIP CREDITOR AND THE PERSON OR

PARTNERSHIP CONTINUING THE BUSINESS. SUCH AGREEMENT
MAY BE EXPRESS OR IMPLIED BY THE CONDUCT OF THE
PERSONS CONCERNED.
LIABILITY OF ESTATE OF DECEASED PARTNER
PROPERTY/SEPARATE PROPERTY OF A DECEASED PARTNER
SHALL BE LIABLE FOR OBLIGATIONS OF THE PARTNERSHIP
INCURRED WHILE HE WAS A PARTNER, PROVIDED THAT IF
THERE ARE INDIVIDUAL CREDITORS OF THE DECEASED
PARTNER, THEY MUST BE PAID FIRST WITH THE SEPARATE
PROPERTY OF THE DECEASED PARTNER BEFORE
PARTNERSHIP CREDITORS ARE PAID.
THIS IS NOT TRUE WITH REGARDS TO SURVIVING PARTNERS,
THEIR SEPARATE PROPERTIES ARE LIABLE FIRST FOR
PARTNERSHIP CREDITORS BEFORE INDIVIDUAL CREDITORS.

WINDING UP
MANNERS OF WINDING UP:
1. JUDICIALLY , UNDER THE CONTROL AND DIRECTION OF THE PROER
COURT UPON CAUSE SHOWN BY ANY PARTNER, HIS LEGAL
REPRESENTATIVE OR HIS ASSIGNEE

THE COURT MAY APPOINT A RECEIVER TO WIND UP THE PARTNERSHIP

AFFAIRDS WHERE IT IS TO THE BEST INTERESTS OF ALL PERSONS
CONCERNED

2. EXTRAJUDICIALLY, BY THE PARTNERS THEMSELVES WITHOUT

INTERVENTION OF THE COURT
PERSONS AUTHORIZED TO WIND UP:
1. THE PARTNERS DESIGNATED BY THE AGREEMENT OR
2. IN THE ABSENCE OF AGREEMENT , ALL THE PARTNERS WHO HAVE NOT
WRONGFULLY DISSOLVED THE PARTNERSHIP OR
3. THE LEGAL REPRESENTATIVE (EXECUTOR OR ADMINISTRATOR) OF THE
LAST SURVIVNG PARTNER (WHEN ALL PARTNERS ARE ALREADY DEAD)
NOT INSOLVENT OR
4. RECEIVER APPOINTED BY THE COURT
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NOTE: WHEN A PARTNER DIES, THE DUTY OF LIQUIDATING THE AFFAIRS

OF THE PARTNERSHIP IS UPON THE SURVIVING PARTNER, NOT UPON
THE LEGAL REPRESENTATIVE OF THE DECEASED PARTNER

POWERS OF LIQUIDATING PARTNER

1. AS THE SOLE AGENT OF THE PARTNERSHIP, HE ACTS FOR A SPECIFIC
PURPOSE WHICH IS TO WIND UP THE PARTNERSHIP. IF WITH EXPRESS
AUTHORIZATION HE CAN MAKE NEW CONTRACTS OR CREATE NEW
LIABILITES LIKE GIVING PROMISSORY NOTES BINDING ON THE
PARTNERSHIP, EXTENDING THE TIME OF PAYMENT OF EXISTING
OBLIGATIONS OF DEBTORS OF THE PARTNERSHIP, OR
ACKNOWLEDGING THE VALIDITY OF CLAIMS AGAINST THE
PARTNERSHIP.
2. GENERAL POWER TO BIND THE FIRM AS HE HAD BEFORE FOR THE
PURPOSE OF WINDING UP THE CONCERN OF THE PARTNERSHIP, AND
HE MAY BIND THE PARTNERSHIP BY BORROWING MONEY TO MEET ITS
ACCRUING LIABILITIES, AND MAY SELL ITS REAL ESTATE TO RAISE
MONEY TO PAY ITS DEBT.
3. POWER TO INCUR OBLIGATIONS NECESSARY TO THE COMPLETION OF
EXISTING CONTRACTS, AND TO INCUR DEBTS OR OTHER OBLIGATIONS
NECESSARY FOR THE REASONABLE PRESERVATION OF PARTNERSHIP
ASSETS OR IN PROCURING A FAVORABLE MARKET FOR THEIR
DISPOSAL.
4. IF THERE IS A CASE BY OR AGAINST THE PARTNERSHIP RELATING TO
THE WINDING UP THE AFFAIRS OF THE PARTNERSHIP , HE HAS THE
POWER TO EMPLOY AN ATTORNEY, TO PROSECUTE AND DEFEND THE
ACTION AND TO INCUR OTHER EEXPENSES NECESSARY IN THE
CONDUCT OF THE CASE.
5. HE HAS FULL AUTHORITY TO DO EVERY THING THAT MAY BE
NECESSARY TO THE PURPOSE OF WINDING UP THE PARTNERSHIP
AFFAIRS
RIGHTS OF PARTNERS WHEN DISSOLUTION IS NOT IN VIOLATION OF THE
PARTNERSHIP AGREEMENT
1. TO HAVE THE PARTNERSHIP PROPERTY APPLIED TO DISCHARGE THE
LIABILITIES OF THE PARTNERSHIP
2. TO HAVE THE SURPLUS, IF ANY, APPLIED TO PAY IN CASH THE NET
MOUNT OWING TO THE RESPECTIVE PARTNERS
3. IF A PARTNER IS EXPELLED (WITHOUT A VIOLATION OF THE
PARTNERSHIP AGREEMENT) , HE MAY BE DISCHARGED FROM ALL
PARTNERSHIP LIABILITIES IF THERE IS PAYMENT OR AN AGREEMENT
BETWEEN HIM, THE PARTNERSHIP CREDITORS AND THE OTHER
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PARTNERS , AND HAS THE RIGHT ONLY TO RECEIVE IN CASH THE NET
AMOUNT DUE HIM FROM THE PARTNERSHIP.

RIGHTS WHERE DISSOLUTION IS DUE TO CONTRAVENTION OF THE

PARTNERSHIP AGREEMENT
1. IF PARTNERS ARE NOT THE GUILTY PARTNER
1.A. TO HAVE THE PARTNERSHIP PROPERTY APPLIED FOR THE
PAYMENT OF ITS LIABILITIES AND TO RECEIVE IN CASH HIS SHARE
OF THE SURPLUS
1.B. TO BE INDEMNIFIED FOR DAMAGES CAUSED BY THE PARTNER
GUILTY OF WRONGFUL DISSOLUTION
1.C. TO CONTINUE THE BUSINESS IN THE SAME MANNER DURING THE
AGREED TERM OF THE PARTNERSHIP, BY THEMSELVES OR
JOINTLY WITH OTHERS
1.D. TO POSSESS PARTNERSHIP PROPERTY SHOULD THEY DECIDE TO
CONTINUE THE BUSINESS
2. GUILTY PARTNER
2.A. IF BUSINESS NOT CONTINUED BY THE OTHER PARTNERS, TO
HAVE THE PARTNERSHIP PROPERTY APPLIED TO DISCHARGE ITS
LIABILITIES AND TO RECEIVE IN CASH HIS SHARE OF THE
SURPLUS LESS DAMAGES CAUSED BY HIS WRONGFUL
DISSOLUTION
2.B. IF BUSINESS IS CONTINUED BY THE OTHER PARTHERS,
- TO HAVE THE VALUE OF HIS INTEREST IN THE
PARTNERSHIP AT THE TIME OF THE DISSOLUTION
ASCERTAINED AND PAID IN CSH OR SECURED BY BOND
APPROVED BY THE COURT
- TO BE RELEASED FROM ALL EXISTING AND FUTURE
LIABILITIES OF THE PARTNERSHIP

GOODWILL OF A BUSINESS
1. DEFINED TO BE THE ADVANTAGE WHICH IT HS FROM ITS
ESTABLISHMENT OR FROM THE PATRONAGE OF ITS CUSTOMERS,
OVER AND ABOVE THE MERE VALUE OF ITS PROERTY AND CAPITAL.
IT RESTS IN THE PROBABILITY THAT ITS OLD CUSTOMERS WILL
CONTINUE THEIR PATRONAGE AND WILL COMMEND THE
PARTNERSHIP TO OTHERS.
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2. IN THE ABSENCE OF A CONTRACT ON THE CONTRARY, EXPRESS OR

IMPLIED, IT IS USUALLY CONSIDERED PART OF THE PROPERTY AND
ASSETS OF THE PARTNERSHIP.
3. THE NAME OF A FIRM OR PARTNESHIP IS AN IMPORTANT PART OF
GOODWILL AND ITS USE MAY BE PROTECTED ACCORDINGLY.
4. IT CAN BE SALEABLE ONLY IN A COMMERCIAL PARTNERSHIP NOT IN
A PROFESSIONAL PARTNERSHIP.

RIGHTS OF A PARTNER TO RESCIND CONTRACT OF PARTNERSHIP

IF A PARTNER IS INDUCED BY FRAUD OR MISREPRESENTTION TO BECOME A
PARTNER, THE CONTRACT OF PARTNERSHIP IS VOIDABLE OR ANNULABLE
( VALID UNTIL DECLARED OF NO LEGAL EFFECT BY THE COURT) .

RIGHTS OF INJURED PARTY IF CONTRACT IS RESCINDED/ ANNULLED :

1. RIGHT OF LIEN OR RETENTION OF THE SURPLUS OF PARTNERSHIP
PROPERTY AFTER SATISFYING PARTNERSHIP LIABILITIES FOR ANY SUM
OF MONEY PAID OR CONTRIBUTED BY HIM
2. RIGHT TO SUBROGATION IN PLACE OF PARTNERSHIP CREDITORS
AFTER PAYMENT OF PARTNERSHIP LIABILITIES (RIGHT TO TAKE THE
PLACE OF PARTNERSHIP CREDITORS AND EXERCISED THEIR RIGHTS IF
INJURED PARTY HAS ALREADY SETTLED THE DEBTS OR OBLIGATIONS
OF THE PARTNERSHIP)
3. RIGHT OF INDEMNIFICATION BY THE GUILTY PARTNER AGAINST ALL
DEBTS AND LIABILITIES OF THE PARTNERSHIP (RIGHT TO BE PAID OR
REIMBURSED BY THE GUILTY PARTNER OF ANY AMOUNT PAID BY THE
INJURED PARTY TO THIRD PESRONS WITH REGARDS TO THE DEBTS OR
LIABILITIES OF THE PARTNERSHIP)

LIQUIDATION AND DISTRIBUTION OF ASSETS OF DISSOLVED PARTNERSHIP

IF BUSINESS OF THE DISSOLVED PARTNERSHIPP IS NOT CONTINUED, THE
PROCESS OF WINDING UP CONSISTS IN
1. REDUCING THE PROPERTY TO CASH AND DISTRIBUTING THE
PROCEEDS.
2. THE PROPERTY MUST BE LIQUIDATED AND DISTRIBUTED.
3. PARTNERS SEVERALLY HAVE THE IMPLIED AUTHORITY TO SELL
PARTNERSHIP PROPERTY AND TO COLLECT OBLIGATIONS DUE TO THE
PARTNERSHIP.
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4. THE PARTNERSHIP IS NOT REQUIRED TO CONVERT ALL ITS ASSETS

INTO CASH BEFORE MAKING A DISTRIBUTION TO THE PARTNERS.
5. IT IS WITHIN THE POWER OF THE COURT TO ORDER A DISTRIBUTION OF
THE PARTNERSHIP ASSETS IN CASH, PROERTY OR A COMBINATION OF
CASH AND PROPERTY.
6. PROPERTY WHICH MAY BE AVAILABLE FOR DISTRIBUTION INCLUDES
CONTRIBUTIONS WHICH MAY BE COLLECTED FROM THE PARTNERS
NECESSARY FOR THE PAYMENT OF PARTNERSHIP OBLIGATIONS TO
CREDITORS AND TO PARTNERS.
7. A PARTNER HAS A RIGHT TO DEDUCT FROM THE RESPECTIVE SHARES
OF THE HIS CO-PARTNERS THE DEBTS THEY OWED TO THE
PARTNERSHIP.
8. EACH PARTNER IS ENTITLED TO A SHARE IN THE SURPLUS PROPERTY
OF THE PARTNERSHIP, IF ANY, IN PROPORTION TO HIS INTEREST IN THE
PARTNERSHIP

RULES IN SETTLING ACCOUNTS BETWEEN PARTNERS AFTER DISSOLUTION

NOTE: SUBJECT TO VARIATION BY AGREEMENT OF THE PARTIES ,
EITHER IN THE ORIGINAL PARTNERSHIP AGREEMENT OR IN A
DISSOLUTION AGREEMENT AND SUBJETC TO THE RIGHT OF
PARTNERSHIP CREDITORS .
1. ASSETS OF THE PARTNERSHIP ARE:

1.A. PARTNERSHIP PROPERTY (INCLUDING GOODWILL)

1.B. CONTRIBUTIONS OF THE PARTNERS NECESSARY FPR THE
PAYMENT OF ALL LIABILITIES
2. ORDER OF APPLICATION OF THE ASSETS:
2.A. FIRST, TO THOSE OWING TO PARTNERSHIP CREDITORS
2.B. SECOND, THOSE OWING TO PARTNERS OTHER THAN FOR
CAPITAL AND PROFITS SUCH AS LOANS GIVEN BY THE PARTNERS OR
ADVANCES FOR BUSINESS EXPENSES
2.C. THIRD, THOSE OWING FOR THE RETURN OF CAPITAL
CONTRIBUTED BY THE PARTNERS
`2.D. FOURTH, THE SHARE OF THE PROFITS, IF ANY, DUE TO EACH
PARTNERS
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SITUATION:
UPON DISSOLUTION OF ABC PARTNERSHIP , ASSETS ARE WORTH
P50,000.00
PARTNERS CONTRIBUTIONS CREDITORS LIABILITIES
A– P15,000 D P7,000.00
B - P10,000 E P5,000.00
C– P5,000 PARTNER A P2,000.00
1. D & E AS PARTNERSHIP CREDITORS WILL BE PAID FIRST, TOTAL
AMOUNT IS P12,000.00
2. PARTNER A AS A CREDITOR WILL BE PAID P2,000.00
3. CONTRIBUTIONS OF A, B & C WILL BE RETURNED TO THEM IN THE
TOTAL AMOUNT OF P30,000.00
4. THE BALANCE IN THE ASSETS AFTER DEDUCTING ALL 1,2 & 3 OR
PROFIT OF P6,000.00 WILL BE DIVIDED AMONG A, B & C BASED ON
THE AGREEMENT, IF NO AGREEMENT, BASED ON THEIR CAPITAL
CONTRIBUTION , A GETS P3,000 (15,000/30,0000 OR 3/6), B GETS
P2,000 (10,000/30,000 OR 2/6), C GETS P1,000 (5,000/30,000 OR 1/6)
IF LIABILITIES OF THE PARTNERSHIP ARE P56,000.00, THEN
1. THE PARTNERSHIP ASSETS OF P50,000.00 SHALL BE EXHAUSTED TO
PAY THE PARTNERSHIP LIABILITIES TO THE CREDITORS. SINCE
P6,000.00 IS STILL LACKING, A, B & C WILL BE LIABLE FOR THEIR
SEPARATE PROPERTIES IN THE TOTAL AMOUNT OF P6,000 BASED ON
THE AGREEMENT, IF NONE, BASED ON THEIR CAPITAL
CONTRIBUTIONS ,SO
A PAYS 3,000 (15,000/30,0000 OR 3/6), B PAYS 2,000 (10,000/30,000 OR
2/6), AND C PAYS P1000 (5,000/30,000 OR 1/6)
IF C GETS A PROFIT OF P1,000.00 BUT HE OWES MR X, PRIVATE
CREDITOR, AN AMOUNT OF P4,000.00, THEN ONLY THE AMOUNT OF
P1,000.00 HE GETS FROM THE PARTNERSHIP WILL BE PAID TO MR X AND
THE P3,000.00 SHALL BE TAKEN FROM THE SEPARATE PROPERTY OF C.
IF THE PARTNERSHIP INCURRED LOSS, C IS SUPPOSED TO PAY THE
PARTNERSHIP LIABILITIES OUT OF HIS SEPARATE PROPERTY.
SUPPOSE HIS SEPARATE PROPERTY AMOUNTS TO P4,500.00 AND HIS
SHARE IN THE LOSSES OF THE PARTNERSHIP IS P1,000.00, AND HE HAS
A PERSONAL DEBT OF P4,000.00. HIS SEPARATE PROPERTY WOULD
FIRST BE LIABLE FOR THE PAYMENT OF HIS PERSONAL DEBT IN THE
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AMOUNT OF P4,000.00. SINCE HE HAS ONLY REMAINING P500.00 IN HIS

SEPARATE PROPERTY, HE APPLIES IT PARTLY TO THE PARTNERSHIP
DEBT OF P1,000.00.
DISSOLUTION OF A PARTNERSHIP BY CHANGE IN MEMBERSHIP
CAUSES:
1. A NEW PARTNER IS ADMITTED
2. A PARTNER RETIRES
3. A PARTNER DIES
4. A PARTNER WITHDRAWS
5. A PARTNER IS EXPELLED FROM THE PARTNERSHIP
6. OTHER PARTNERS ASSIGN THEIR RIGHTS TO THE SOLE REMAINING
PARTNER
7. ALL THE PARTNERS ASSIGN THEIR RIGHTS IN PARTNERSHIP
PROERTY TO THIRD PERSONS
EFFECT: A HAPPENING OF ANY OF THESE CAUSES NEED NOT SUBJECT
THE PARTNERSHIP TO LIQUIDATION. THE REMAINING PARTNERS MAY
ELECT TO CONTINUE THE OLD PARTNERSHIP WITHOUT INTERRUPTION
OF BUSINESS .
CREDITORS OF THE DISSOLVED PARTNERSHIP ARE CREDITORS OF THE
PERSON OR PARTNERSHIP CONTINUING THE BUSINESS .

RIGHTS OF RETIRING OR OF THE ESTATE OF DECEASED PARTNER

WHEN BUSINESS IS CONTINUED WITHOUT SETTLING OF ACCOUNTS:
1. TO HAVE THE VALUE OF THE INTEREST IN THE PARTNERSHIP
DETERMINED AS OF THE DATE OF DISSOLUTION
2. TO RECEIVE THEREAFTER AS AN ORDINARY CREDITOR AN
AMOUNT EQUAL TO THE VALUE OF HIS SHARE IN THE DISSOLVED
PARTNERSHIP WITH INTEREST OR AT HIS OPTION, INSTEAD OF
INTEREST, THE PROFITS ATTRIBUTABLE TO THE USE OF HIS RIGHT
NOTE: THE CREDITORS OF A DISSOLVED PARTNERSHIP HAVE A PRIOR
RIGHT AS AGAINST THE SEPARATE CREDITORS OF THE RETIRED OR
DECEASED PARTNER

LIQUIDATION NECESSARY FOR DETERMINATION OF PARTNER’S SHARE

3. THERE MUST BE A GENERAL LIQUIDATION BEFORE A PARTNER
MAY CLAIM A SPECIFIC SUM AS HIS SHARE OF THE PROFITS
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4. A PARTNER’S SHARE CANNOT BE RETURNED WITHOUT FIRST

DISSOLVING AND LIQUIDATING THE PARTNERSHIP FOR THE
FIRM’S OUTSIDE CREDITORS HAVE PREFERENCE OVER THE
ASSETS OF THE PARTNERSHIP AND THE FIRM’S PROPERTY CANNOT
BE DIMINISHED TO THEIR PREJUDICE.