Art. 1828. d.

Expulsion of any partner in accordance with the power conferred by the

The DISSOLUTION OF A PARTNERSHIP is the change in the relation of the agreement between the partners.
partnership caused by any partner ceasing to be associated in the carrying on (as
distinguished from the winding up) of the business. 2. Dissolution effected in contravention of partnership agreement, by express will
of any partner any time.
 Any change in the membership of the partnership, either by the 3. Business becomes unlawful.
retirement or death of partner, or by the admission of new members into 4. Loss of specific thing before delivery to the partnership, or a thing where only
the partnership, produces, technically, an immediate dissolution of the use or enjoyment is contributed.
existing partnership relation, and the formation of a new one, although 5. Death of any partner.
common business usage speaks of the admission of a partner to a firm and 6. Insolvency of any partner or of the partnership.
regards the firm as subsisting so long as the course of its business is not 7. Civil interdiction of any partner.
materially interrupted. 8. Decree of court. DBL-DICD

When a partnership ends, it involves 3 STAGES:
1. Dissolution – see Art. 1828. Represents the demise of the partnership. This
does not necessarily mean the business must cease to exist for the partners
may be allowed to continue the partnership.
2. Winding Up – the actual process of settling the business or partnership
affairs after dissolution, involving the collection and distribution of
partnership assets, payment of debts, and determination of the value
of each partner’s interest in the partnership.
3. Termination – the point in time when all partnership affairs are completely
wound up and finally settled.
- It signifies the end of the partnership life.
Art. 1829.
On dissolution, the partnership is not terminated, but continues until the winding
up of partnership affairs is completed.
 The dissolution refers to the change in partnership relation and not the
actual cessation of the partnership business. It is not necessarily followed
by a winding up of partnership affairs.
Art. 1830.
Dissolution is caused:
1. Without violation of the agreement between the partners, by: TEEE
a. Termination of the definite term or particular undertaking;
b. Express will of any partner, in good faith;
c. Express will of all the partners;
4 Categories of the Causes of Dissolution of a Partnership: AAOC
1. Act of the parties not in violation of the agreement;
2. Act of the parties in violation of their agreement;
3. Operation of law;
4. Court decree.
Dissolution Effected Without Violation of Partnership Agreement:
1. Termination of the definite term or particular undertaking.
 After the expiration of the term or particular undertaking, the partnership is
automatically dissolved without the partners extending said term or continuing
the undertaking.
 If after said expiration the partners continue the partnership without making a
new agreement, the firm becomes a partnership at will.
2. By the express will of any partner.
 The partner must act in good faith, otherwise, the dissolution is wrongful and
he will be liable for damages.
3. By the express will of all the partners.
 The agreement of all the partners must be UNANIMOUS. The majority alone
cannot dissolve the partnership without breach of contract.
4. By expulsion of any partner.
 The expulsion must be made in good faith, and strictly in accordance with
the power conferred by the agreement between the partners. This
power may be vested in 1 partner exclusively. The partner expelled can
claim damages.
Dissolution Effected in Contravention of Partnership Agreement.
 The withdrawing partner is liable for damages for unjustified dissolution but in
no case can he be compelled to remain in the partnership.
 A partner guilty of wrongful dissolution is not given the right to wind up
partnership affairs. But a minor cannot be guilty of wrongful dissolution since
he has the legal right to avoid his contract.
 The doctrine of delectus personae allows the partners to have the power,
although not necessarily the right, to dissolve the partnership.
Business Becomes Unlawful.
 A partnership must have a lawful object or purpose.
 Example: J is a partner in a law firm. Later on, J is appointed Judge of the
RTC. Under the law, a Judge of the RTC is prohibited from engaging in the
practice of law. In this case, it would be unlawful for J to continue as a partner
in the law firm. His appointment dissolves the partnership of which he is a
member.
Loss of Specific Thing.
1. Loss before delivery – the partnership is dissolved because there is no
contribution inasmuch as the thing to be contributed cannot be substituted
with another. There is here a failure of a partner to fulfill his part of the
obligation.
2. Loss after delivery – the partnership is not dissolved, but it assumes the
loss of the thing having acquired ownership thereof.
3. Loss where only use or enjoyment contributed – the loss of the same
before or after delivery dissolves the partnership because in either case,
the partner cannot fulfill his undertaking to make available the use of the
specific thing contributed. Here, the partner bears the loss and, therefore, he
is considered in default with respect to his contribution.
Death of any partner.
 When a partner dies, the partnership is ipso facto dissolved by operation of
law.
 “By authorizing B to manage partnership property (which a limited partner
could not be authorized to do), C recognized her as a general partner, and is
in estoppel to deny her position as a general partner with authority to
administer and alienate partnership property.”
Insolvency of Any Partner or Of Partnership.
 Must be adjudged by a court.
 An insolvent partner has no authority to act for the partnership nor the
other partners to act for him.
Civil Interdiction of Any Partner.
 A partnership requires the capacity of partners. A person under civil
interdiction cannot validly give his consent, as his capacity to act is limited
thereby.
Art. 1831.
On application by or for a PARTNER, the court shall decree a dissolution
whenever:
1. A partner has been declared INSANE in any judicial proceeding or is shown
the be of UNSOUND MIND. (INSANITY)
2. A partner becomes in any other way INCAPABLE of performing his part of
the partnership contract; (INCAPACITY)
3. A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business; (MISCONDUCT)
4. A partner willfully or persistently COMMITS A BREACH of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him; (PERSISTENT BREACH OF
PARTNERSHIP AGREEMENT)
5. The business of the partnership can only be CARRIED ON AT A LOSS;
6. OTHER CIRCUMSTANCES render a dissolution equitable.
On the application of the purchaser of a partner’s interest under article 1813 or
1814:
1. After the termination of the specified term or undertaking;
2. At ANY TIME of the partnership was a partnership at will when the
interest was assigned or when charging order was issued.
 The incapacity contemplated by law is incapacity which is lasting, from
which the prospect of recovery is REMOTE. The disability of a temporary
nature, if it be merely an occasional malady or accidental illness, of there be a
fair prospect of recovery within a reasonable time, then, in such cases, there is
no fir ground to decree a dissolution.
  Where a partner is guilty of serious misconduct, the only remedy
ordinarily available is to apply to the court for dissolution. Exception: When
the partnership agreement expressly confers to power to expel a partner
under specified conditions and this power is exercised in good faith, it causes
dissolution, although no suit has been instituted to that end.
 Since the purpose of the partnership is the carrying of a business for profit, it
may be dissolved by decree of court when it becomes apparent that it is
unprofitable with no reasonable prospects of success.
 A court is authorized to decree a dissolution notwithstanding that the
partnership has been making profits where it appears at the time of the
application that the business can only be carried on at a loss.
 “For the purpose of adjudicating to a partner damages which he alleges to
have suffered as such as a result of the fraudulent management of the
partnership, it is first necessary that a liquidation of the business thereof
be made to the end that the profits and losses may be known, and the causes
of the latter and the responsibility of the managing partner, as well as the
damages which each of the partner may have suffered, may be determined.”
On application by a purchaser of a partner’s interest:
Example par. 1 – A, B, and C formed a partnership to continue for a term of 5 years.
On the 3rd year, C sold his entire interest to D. Under Art. 1813, such conveyance does
not dissolve the partnership, and D does not become a partner, his only right being to
receive the profits to which C would otherwise be entitled. Hence, D cannot ask for
judicial dissolution of the partnership.
However, after the 5th year, the partnership is continued, D is entitled to ask
for judicial dissolution. The partnership as continued may or may not be a partnership
at will.
Example par. 2 – Suppose now, after the 5th year, the partnership was continued by
the partners without express agreement, becoming a partnership at will. If C’s
interest was purchased by D or a charging order was issued against C in favor
of D, his judgment creditor, when the partnership was already a partnership at will, D,
at any time, may ask for judicial dissolution.
Note that the rule in Art. 1831, par. 2(2) applies only if (1) in continuing
the business, a partnership at will is created, or (2) the partnership is a partnership at
will from the beginning.
Art. 1832.
Except so far as may be necessary to wind up partnership affairs or to complete
transaction begun but not then finished, dissolution TERMINATES ALL
AUTHORITY of ANY PARTNER to act for the partnership.
1. With respect to the 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, INSOLVENCY or DEATH of a
partner, in cases where article 1833 so requires;
2. With respect to persons not partners, as declared in article 1834.
 Upon dissolution, the partnership ceases to be a going concern and the
partner’s power of representation is confined only to acts incident to
winding up or completing transactions begun but not then finished.
 The event of dissolution, therefore, terminates the actual authority of a
partner to undertake new business for the partnership.
 Insofar as the partners themselves are concerned – the authority of
any partner to bind the partnership by a new contract is immediately
terminated when the dissolution is not by the act, insolvency or death of
a partner. (Art. 1832)
- When the dissolution is by such act, insolvency or death, the
termination of authority depends upon whether or not the partner had
knowledge or notice of the dissolution as provided in Art. 1833.
 With respect to third persons (Art. 1834) – the partnership is
generally bound by the new contract although the authority of the acting
partner as it affects his co-partners is already terminated under Art. 1832 and
1833. In such case, however, the innocent partners can always recover
from the acting partner.
Art. 1833.
Where the dissolution is cause by the ACT, DEATH or INSOLVENCY of a partner,
each partner is liable to his co-partners for his share of any liability created by any
partner acting for the partnership as if the partnership had not been dissolved unless:
1. The dissolution is caused by 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.

 “Knowledge of a fact” – involves actual knowledge of such fact and
knowledge of such other facts as in the circumstances show bad faith.
 “Notice of a fact” – a person has notice of a fact within the meaning of this
act when the person who claims the benefit of the notice:
1. States the fact to such person; or
2. Delivers thru the mail or by other means of communication, a written
statement of the fact to such person or to a proper person at his place of
business or residence.
 Art. 1833 applies only of the contract of the partner binds the partnership.
If the partnership is not bound, only the acting partner is personally liable.
Art. 1834.
After dissolution, a partner can bind the partnership, except as provided in the third
paragraph of this article:
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 the other party to the transaction:
a. Had extended credit to the partnership (1) prior to the dissolution of
the partnership and (2) had no knowledge or notice of the dissolution; or
b. Though he had not so extended credit, had nevertheless (1) known of
the partnership prior to dissolution, and (2) having knowledge or notice
of dissolution, the fact that (3) dissolution had not been advertised in a
newspaper of general circulation in the place at which the partnership was
regularly carried on.
The liability of the partner under the first paragraph, 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 as unknown and inactive in partnership affairs that the business
reputation of the partnership could not be said to have been in any degree
due to his connection with it.
The partnership is in no case bound by any act of a partner 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; or
2. Where the partner has become insolvent;
3. Where the partner had no authority to wind up partnership affairs,
except by a transaction with one who –
a. Had extended credit to the partnership (1) prior to dissolution and (2)
had no knowledge or notice of his want of authority; or
b. Had not extended credit to the partnership prior to dissolution, and,
having no knowledge or notice of his want of authority, the fact of his
want of authority has not been advertised in the manner provided for
advertising the fact of dissolution in the first paragraph, No. 2(b).
Nothing in this article shall affect the liability under Art. 1825 of any person who after
dissolution represents himself or consents to another representing him as partner in a
partnership engaged in carrying on business.
 Partner continues to bind the partnership even after dissolution –
Par. 1, Nos. 1 and 2.
 Partner cannot bind the partnership after dissolution – Par. 3, Nos. 1,
2, and 3.
 The measure of the right of third persons who continue to deal with a
dissolved partnership depends upon the question of whether they knew or
should have known of the fact of dissolution . If they did, the validity of their
transactions is governed by the question whether those transactions were
necessary to liquidate the partnership.
Notice of Dissolution to Creditors:
1. As to persons who extended credit to partnership prior to dissolution
– they must have knowledge or notice of the dissolution to relieve the
partnership from liability.
- Notice must be actual.
- Prior or former dealer – one who has extended credit on the faith of
the partnership, thru confidence in the solvency and probity of the firm.
2. As to persons who had known of partnership’s existence – notice is
accomplished by an advertisement in a local newspaper. Actual notification is
not necessary.
- The requirement of newspaper notice appears to exist only where the
third party knew of the partnership prior to dissolution. If he did not, he is
entitled to no notice whatsoever.
3. Where acting partner has no authority to wind up partnership affairs
– no notice is necessary. Exceptions: Par 3(3)(a)(b).
4. Where acting partner has become insolvent – the law makes a
distinction between the right:
 a. Of a partner who has no knowledge of the other partner’s insolvency to
bind the partnership (recognized under Art. 1833(2); and
b. Of a third person to claim that his contract with the partnership is valid,
notwithstanding its dissolution thru insolvency of the partner with whom
the contract was made (denied under Art. 1834, par. 3, No. 2).
5. Where dissolution is caused by death of a partner – no such distinction
is made, largely because the deceased partner no longer exists. Death is not
considered to be notice per se whether as to the surviving partner or as to
third persons.
Art. 1835.
The dissolution of the partnership does not of itself discharge the existing
liability of any partner.
A partner may be relieved from all existing liabilities upon dissolution only be an
agreement to that effect between (1) himself, (2) the partnership creditor, and
(3) the other partners. The consent, however, of the creditor and the other partners
to the novation may be implied from their conduct.
The individual property of a deceased partner shall be liable for obligations of the
partnership incurred while he was a partner, but subject to the prior payment of
his debts.
 Individual creditors of the deceased partner are to be preferred over
partnership creditors with respect to the separate property of said deceased
partner.
Art. 1836.
Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not
insolvent, has the right to wind up partnership affairs, provided, however, that
any partner, his legal representative or his assignee, upon cause shown, may
obtain winding up by the court.
Manner of Winding Up:
1. Judicially – under the control and direction of the proper court upon cause
shown by any partner, his legal representative, or his assignee; or
2. Extrajudicially – by the partners themselves without intervention of the
court.
Persons Authorized to Wind Up;
1. The partners designated by the agreement.
2. In the absence of such agreement, all the partners who have not wrongfully
dissolved the partnership; or
3. The legal representative of the last surviving partner, not insolvent.
 The court may, in its discretion, after considering all the facts and
circumstances of the particular case, appoint a receiver to wind up the
partnership affairs where such step is shown to be the best interests of all
persons concerned.
 The surviving partner has full authority to do everything that may be
necessary, but his power is limited to the performance of acts which are
indispensable to that end.
Art. 1837.
 The objectives of this article are to provide for the payment of the partner who
leaves the firm, and to indemnify him against existing or possible future
liability.
Rights Where Dissolution Not in Contravention of Agreement
Unless otherwise agreed upon, the rights of each partner in case of dissolution without
violation of partnership agreement are:
1. To have Partnership property applied to discharge the liabilities of the
partnership;
2. To have the Surplus, if any, applied to pay in cash the net amount owing to
the respective partners.
When the dissolution is caused by the expulsion of a partner bona fide, such
expelled partner may be discharged from all partnership liabilities either (1) by
payment or (2) by an agreement between him, the partnership creditors, and the other
partners. He shall have the right only to receive the net amount due him from
the partnership.
 If the dissolution is proper or rightful, no partner is liable for any loss
sustained as a result of the dissolution.
Rights Where Dissolution in Contravention of Agreement
1. Rights of a partner who has NOT CAUSED the dissolution wrongfully:
a. To Have partnership property applied for the payment of its liabilities and
to receive in cash his share of the surplus.
b. To be Indemnified for damages caused by the partner guilty of wrongful
dissolution;
c. To Continue the business in the same name during the agreed term of
the partnership, by themselves or jointly with others; and
 d. To Possess partnership property should they decide to continue the
business.
HICP

2. Rights of partner who has wrongfully caused the dissolution:

a. If the business is NOT continued by the other partners, (1) to
have the partnership property applied to discharge its liabilities and (2) to
receive in cash his share of the surplus less damages caused by his
wrongful dissolution.

b. If the business is continued:

(a) To have the value of his interest in the partnership at the time of the
dissolution, less any damage caused by the dissolution to his co-
partners, ascertained and paid in cash or secured by bond approved
by the court; and
(b) To be released from all existing and future liabilities of the
partnership.

Art. 1838.
This article speaks of the rights of the injured partner where the partnership contract is
rescinded (annulled) on the ground of fraud or misrepresentation. They are as
follows:
1. Right of a Lien on, 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;
3. Rights of Indemnification by the guilty partner against all debts and liabilities
of the partnership.

The rights of the partner entitled to rescind are without prejudice to any other rights
under other provisions of law.