PAT REVIEWER

For March 16 to March 21: Chapter 3 Dissolution and Winding-up to Chapter 4 on limited partnership

 DISSOLUTION is a change of relation B. In contravention of the agreement between

causing by partners ceasing to be
associated in carrying on the business
 WINDING UP is actual process of settling
the partnership business or affairs after
dissolution which involves collection and
distribution of assets, payment of debts,
determination of the value of each partner’s
interest in the partnership, defending
claims against the firm
 TERMINATION exist when all
partnership affairs are wound up
completely which signifies the end of
partnership life
Effect of Dissolution - partnership is not yet
terminated it continues until the winding up is
terminated
Effect on Partners – as to previous obligations
does not relieve the partners for existing
obligations
As to new obligations, spares the partners to
obligations which they did not assent
Dissolution does not automatically terminate the
legal personality of partnership and instant
cessation of business
partners, where the circumstances do not permit the
disslolution under provision of this article; by the
express will or any partner at any time;
-a partner can seek for dissolution with or without
justifiable cause but liable for damages;
C.By any event that makes it unlawful for the
business partnership to be carried on
D. In case of loss of a thing
-In which a partner had promise to contribute to the
parternship, perishes before delivery;
-When the partner contribute only usufruct of the
property
Reason: because the partner failed to give his
contribution, if loss after delivery the firm bears the
loss
This refers only to specific things
The failure to provide may be waived by the
partners
E. Death of a partner
-Automatically dissolves the partnership as here is
reduction of numbers

After dissolution, the business remains only for the F. Civil Interdiction
purpose of winding up of affairs, no new
partnership should be undertaken but affairs should -deprives the partner to manage his property and
be liquidated and distribution made to those dispose the same
entitled to partners’ interest.
G. Insolvency of the partner
TYPES OF DISSOLUTION
-must be adjudged by the court
EXTRAJUDICIAL -insolvency makes the partner incapable of paying
his liabilities in case partnership assets have been
 Without violation of agreement of parties exhausted
-Expiration of term or particular
undertaking H. By decree of court order
-if contract continues after the period it
turns out to be partnership by will of -decree must be final order by the court
parties
 By Express will of any partner, who must JUDICIAL DISSOLUTION
in good faith when no definite term or
particular undertaking is specified -dissolution decreed by court based on the
-a partner who withdraws where such following grounds:
conduct is not allowed, cannot hinder his
withdrawal but is liable for damages -partner commits misconduct or breach of
-Unanimous agreement may be done by agreement by
partners to terminate the partnership even
before the period; majority vote cannot A. partner willfully or persistently commits a
suffice. breach of the partnership agreement or otherwise
 By express will of partners who have not conducts himself in a matter relating to the
assigned their interests or suffered them to partnership business that is not reasonably
be charged for their separate debts either practicable to carry on business with him
before or after the termination of any
specified term or particular undertaking Guilty of conduct to affect prejudicially the
-Consent of partners who have assigned carrying of business
 their interest or suffered them to be
charged for their separate debts is not
required to effect dissolution without
breach of partnership agreement; not given
right to voice in the dissolution
A. By the expulsion of any partner from the
business bona fide in accordance with such
a power conferred by the agreement
between partners
-must be in good faith otherwise the
expelled partner can claim for damages
D. Business partnership can only be carried out at a
loss
Reason: purpose of partnership for profit
E. Other circumstances that render the dissolution
equitable
Example: abandonment
EFFECTS OF DISSOLUTION
As to authority of partner to act for the partnership
Gen rule: terminates the authority of all partners
a. Acts necessary to wind up affairs
b. Actions to complete transactions begun but
not finished
Qualifications to general rule:
With respect to partners:
A. Dissolution is not by Act, Insolvency or
Death
B. Dissolution not by Act, Insolvency or
Death – authority of partners to act for
partnership is not deemed terminated. Each
partner is liable to his co-partners
Exception to B:
-the cause of dissolution is act of partner and acting
partner has knowledge of the dissolution;
-the cause of the death is death or insolvency of
partner and acting had knowledge of a parther.
With respect to third persons:
Partnership is generally bound although authority
of partner is terminated but the innocent partners
can recover to guilty partner
When partnership is not bound to partnership after
dissolution
-partnership is unlawful to carry
-where the acting partner in the transaction is
insolvent;
-partner is unauthorized to wind up;
DISSOLUTION ORDINARILY DOES NOT
DISCHARGE THE EXISTING LIABILITIES
General Rule: dissolution does not discharge the
B.A partner has been insane or of unconscious
mind – must declared insane in a judicial
proceeding
C.A partner becomes incapable of performing his
part in the partnership
Incapacity- affects the carrying of business by the
partner is a ground
Dissolution
-to be indeminified
-to have partnership property applied to liabilities
-possess the property should they continue with the
business
-to receive in cash his share of surplus
-to continue the business in the same name
RIGHTS OF THE PARTNER WHO HAS
WRONGFULLY CAUSED DISSOLUTION
When business is not continued by other partners:
-to have partnership property applied to liabilities
-to receive his cash his share of surplus less
damages caused by his wrongful dissolution
Business continued:
-to have the value of his interest in the partnership
at the time of dissolution, surplus less damages
-to be released from future liabilities
GOODWILL
Advantage it has for the establishment or from the
patronage of customers above its value and capital
-In bad faith partners do not enjoy this value
PARTNER’S LIEN
Right of every partner claiming through them in
respect to of their interests as partners. To have the
partnership property applied to discharge existing
liabilities
RIGHT OF THE INNOCENT PARTNERS TO
CONTINUE
Innocent partners may continue but for a new
partnership
RIGHTS OF A PARTNER WHERE
PARTNERSHIP CONTRACT IS RESCINDED
ON THE GROUND OF FRAUD OR
MISREPRESENTATION
-Right of subrogation
-Right of indemnification
-Right of retention
MANNER OF WINDING UP
Extrajudical – without intervention of court
Judicial – under control and direction of court
liability
Exception: if there is agreement to that effect
between himself, partnership creditor and the
person or partnership continuting the business
DEATH OF A PARTER
The individual property of a deceased partner shall
be liable to all obligations incurred while he was a
partner
RIGHTS OF THE PARTNER AFTER
DISSOLUTION
A. When dissolution is not in contravention of
the partnership agreement
-Have partnership property applied to discharge
liabilities;
-Receive in cash his share of surplus
B. When dissolution is contravention of
agreement
-In good faith partners who have not caused the
-Failure to amend does not mean dissolution
CONSENT OR RATIFICATION OF LIMITED
PARTNER IS NECESSARY
General Rule: General partner shall have the rights
and powers be subject to all restrictions and
liabilities of a partner without limited partner
Exception: General partners has no authority unless
consented and ratified of all limited partners:
-do act in contravention of the certificate
-do act which would render impossible to carry
business
-confess judgment
-possess partnership property or assign rights
-admit a person as a general partner
-admit a person as a limited partner
-continue the business partnership on death,
retirement, insanity, civil interdiction, insolvency
of a general partner
Above are acts of strict dominion and are beyond
the scope of the general partner
RIGHTS OF A LIMITED PARTNER
-To have partnership books kept at the principal
place of business of partnership
-to inspect and have access of books
-to demand full information
-demand formal account
-ask dissolution and wind up by court decree
-to receive share of profits
-to receive cash return of contribution
Exception:
When partners stipulated other than cash
PERSONS AUTHORIZED TO WIND UP
-Partners designated by the agreement
- in the absence of agreement, all partners who
have wrongfully dissolved the partnership
-legal representative of the last surviving partners
RULES IN SETTLING THE ACCOUNTS
BETWEEN PARTNERS AFTER
DISSOLUTION
Determine the assets of the partnership which are
as follows
-partership property
-contributions of the partners necessary for the
payment of all liabilities
Payment of liabilities in winding up in the
following order
exercise if rights as a limited partner, provided that
in ascertaining mistakes promptly renounces his
interest in the profits of business.
Conditions for exemption:
1. He renounces in the business
2. Surname does not appear in the firm name
3. Does not participate in the management
business
Compensation is subject to the condition that
partnership assets will still be in excess of
partnership liabilities after such payment. Third
party creditors have priority over limited partner’s
rights
Liabilities of limited partners may be waived
provided consented by all partners
SUBSTITUTED LIMITED PARTNER
-person admitted to all rights of a limited partner
who has died or assigned his interest in the
partnership
General rule: he has all the rights and powers and is
subject to all restrictions and liabilities of his
assignor
REQUISITES TO BECOME A SUBSTITUE
-Consent of all partners
-amended certificate and registered
CAUSES OF DISSOLUTION
ALLOWABLE TRANSACTIONS RIDIC

-Transacting other business with the partnership Exception:

-receiving pro rate share of partnership assets
-granting loans to partnership
PROHIBITED
-Receiving or holding collateral security any
partnership property;
-receiving any for release of liabilities if assets are
less than liabilities
-violation is presumption to defraud partnership
creditors, not absolute if assets sufficient
PREFERRED LIMITED PARTNERS
-preference is made by agreement of all as to
return of contributions, compensation by way of
income, any other matter
-if the business is continued by remaining general
partners
-All limited partners ceased to be such
-Expiration of the term or period of existence of
the partnership
-misconduct of a general partner or fraud
-limited partner demanded return of his
contribution but same was unjustifiably denied
Above is not exclusive
RIGHTS OF CREDITORS OF LIMITED
PARTNERS TO CHARGE THE INTEREST
OF INDEBTED LIMITED PARTNER

LIABILITIES -Creditor of a limited partner may file petition to

charge the interest of indebted limited partner with
General Rule: not liable as a general partner the payment of unsatisfied amount.
-A receiver may be appointed by court
Exception: when he exercise actions as a general -court may issue orders and directives
partner
SETTLING OF ACCOUNTS AFTER
STATUS OF PERSON ERRONEOUSLY
BELIEVING HIMSELF TO BE A LIMITED DISSOLUTION
PARTNER
-those owing to creditors in order
-Not personally liable as general partner by reason -those owing to limited partners with respect to
of their share of profits and other compensation.
-those owing to limited partners in respect to
capital contributions
-those owing to general partners other than for
capital and profits;
-those owing to general partners in respect of
profits
-those owing to general partners in respect to
capital

CANCELLATION OF CERTIFICATE

-When the partnership is dissolved

-when all limited partners ceases to be such

AMENDMENT OF CERTIFICATE
REQUIREMENTS:

-Must be in writing
-must be signed and sworn to by all members
including the new members
-cancellation must be recorded
-must be signed by all members

Cancellations are due to among others change of

name, substitution, additional partner, admitted
limited partner, general partner dies, retires…

STATUS OF A LIMITED PARTNER

-Mere contributor