ART.

1828, 1829 – TERMS

WHAT IS DISSOLUTION?
Dissolution is a change in the relationship of the partners caused by any
partner ceasing to be associated in the carrying on of the business.
Partnership is not yet terminated.

EXAMPLE: Partners have an internal squabble about terminating some of

their branches during the pandemic.

WHAT IS WINDING-UP?
Winding up is the process of settling the business or partnership affairs after
dissolution.

EXAMPLE: Because of the losses, the partners are closing some branches and
started paying their obligations to their suppliers.

WHAT IS TERMINATION?
Termination is the point in time when all partnership affairs are completely
wound up and finally settled.

EXAMPLE: After all debts are paid and all contracts completed, the partners
close down all remaining branches.

ART. 1830 – CAUSES OF DISSOLUTION

A. Without violation of the agreement

a) Termination of the definite term or particular undertaking
b) Express will in partnership at will by any partner
c) Express will in partnership at will by all partners
d) Bonafide expulsion of a partner

B. With violation of the agreement

EXAMPLE: An industrial partner engage in another business.

C. Unlawful business
EXAMPLE: The business of the partnership is selling firecrackers. Recently, a
law was passed declaring the sale of firecrackers illegal.

D. Loss of the promised contribution before the existence of the partnership;

no dissolution after existence
E. Death of any partner
F. Insolvency of any partner or partnership
 G. Civil interdiction of any partner
EXAMPLE: A partner committed a crime which carries a penalty of civil
interdiction.

H. Court decree (see Art. 1831)

ART. 1831 – GROUNDS FOR DISSOLUTION BY COURT DECREE

On application by a partner

1) Insanity of a partner
2) Incapacity of a partner
EXAMPLE: A partner suffered a serious and incurable disease.

3) Guilty of conduct prejudicial to the partnership

EXAMPLE: A partner sold the trade secrets of the partnership.

4) Business can only be carried at a loss

5) Other circumstances

On application by a purchaser of a partner’s interest

1) Termination of specific term or particular undertaking

2) Anytime if a partnership at will

ART. 1832 – EFFECT OF DISSOLUTION ON AUTHORITY OF PARTNER

A. No more authority to act for the partnership, EXCEPT to wind up partnership

affairs or complete transactions.

WHAT IS THE LIABILITY OF A PARTNER WHO ENTERED INTO A CONTRACT

WITH THIRDS PERSONS DESPITE THE DISSOLUTION OF THE PARTNERSHIP
WITH RESPECT TO HIS PARTNERS?

- If the dissolution is not due to the act, insolvency or death of a partner,

the other partners may hold the contracting partner liable for whatever
damages incurred because of the said contract. This is because the
authority to enter into a contract in behalf of the partnership is
terminated.
 EXAMPLE: The fixed term of the partnership already terminated.
However, a partner continued acting for the partnership by borrowing
money from a lending company. In such case, the other partners may
demand the acting partner to pay the loan by himself or if they have paid
ask reimbursement plus damages.

- If the dissolution is due to the act, insolvency or death of a partner in

cases where Art. 1833 so requires, the liability of the contracting partner
depends on his knowledge or notice of dissolution. If no knowledge or
notice, then the innocent partners may not hold contracting partner
liable.
EXAMPLE: A partner acted for the partnership by borrowing money from
a lending company despite the fact that the partnership is already
dissolved because of the death of one of the partners. If the acting
partner was not aware of the said death, he may not be held liable for the
debt.

WITH RESPECT TO PERSONS WHO ARE NOT PARTNERS, WHAT IS THE

LIABILITY OF THE PARTNERS AND THE PARTNERSHIP FOR CONTRACTS
ENTERED INTO AFTER DISSOLUTION?
There is a partnership liability (pro rata and subsidiary). The partners or the
partnership are liable to third persons. But they may hold the acting partner
liable as stated above.

ART. 1834 – THERE IS PARTNERSHIP LIABILITY WITH RESPECT TO THIRD PERSONS

IN THE FF:

1. Winding up
2. Complete unfinished transactions
3. Any transaction provided:
a) 3rd person extended credit to the partnership prior to dissolution;
no knowledge or notice of dissolution; satisfied out of partnership
asset alone when (1) unknown as a partner and (2) inactive partner

b) other transactions (no credit extended); no knowledge or notice of

dissolution; dissolution is not published in a newspaper of general
circulation
 4. No partnership liability, in case a partner acted after dissolution:
a) Dissolved due to unlawful business
b) Partner is insolvent
c) No authority to wind up except: no. 3(a) and 3(b) above.

ART. 1835 – EFFECT OF DISSOLUTION ON PARTNER’S LIABILITY

HOW CAN A PARTNER BE DISCHARGED OF LIABILITY TO THIRD PERSONS AFTER

DISSOLUTION AND THE REMAINING PARTNERS CONTINUED THE BUSINESS?
There must be an agreement that a partner is discharge from liability between and
among the following:
1. (a) partner, (b) partnership creditor), (c) persons or partnership continuing
the business.

2. The separate property of the partner shall be liable for partnership

obligations (subsidiary) but subject to prior payment of separate debts
(preferred)

ART. 1836 – WHO HAS AUTHORITY TO WIND UP PARTNERSHIP AFFAIRS.

1. Any partner by agreement.

2. Partners who have not wrongfully cause the dissolution.
3. Legal representative of the last surviving partner.
4. Any partner, legal representative, or assignee, by court order.

ART. 1837 – RIGHT OF PARTNERS TO APPLICATION OF PARTNERSHIP PROPERTY

ON DISSOLUTION.

A. When dissolution is caused (1) without violation of partnership agreement,

the partnership property shall be used for the following:
1. Payment of partnership liabilities.
2. Surplus to be distributed to the respective partners.
3. In case of expulsion, the expelled partner can received in cash his share.
 B. When dissolution is caused (1) with violation of partnership agreement:
1. Rights of the partners who has not wrongfully caused the dissolution:
a) Same in A above.
b) Indemnity for damages against guilty partner.
c) Continue the business upon payment of a bond in court (prior to
payment of his interest) or pay the partner who wrongfully caused
dissolution the value of his interest less damages.

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

a) If the business is not continued, Same in A above subject to liability for
damages
b) If business is continued, paid the value of his interest less damages or
require the payment of a bond in court.

ART. 1838 – RIGHT OF PARTNER TO RESCIND CONTRACT OF PARTNERSHIP

If a partner was induced by fraud or misrepresentation to join a partnership

(voidable contract),

1. Right of restitution of his contribution.

2. Right of lien on the surplus of partnership property.
3. Right of subrogation in place of partnership creditors after payment of
partnership liabilities.
4. Right of indemnity from guilty partners.

EXAMPLE: A partner join the partnership after the other partners misrepresented
to him that the partnership has no debts or obligations. The truth, however, is that
the partnership is already bankrupt.

ART. 1839 – LIQUIDATION AND DISTRIBUTION OF ASSETS OF DISSOLVED

PARTNERSHIP.

1. Order of satisfaction of liabilities of the partnership (who are paid first)

a) Partnership creditors
b) Partners who are creditors
c) Return of capital
d) Surplus to the partners
 2. Right of partners in case assets are insufficient.
a) Additional contribution
b) Reimbursement from non-contributing partners.

3. Liability of separate property of partners

a) Pay partnership liability after exhaustion of partnership assets

4. Partnership creditors are preferred with regards to partnership assets

while separate creditors are preferred with partner’s separate assets.

ART. 1840 –RIGHTS OF PARTNERSHIP CREDITORS OF DISSOLVED PARTNERSHIP BY

CHANGE OF MEMBERSHIP

1. Creditors of the old partnership shall become creditors of the new

partnership
2. Maintain preferential rights to the partnership assets.
3. Liability of incoming partners limited to his contribution (Art. 1826)

ART. 1841 – RIGHT OF RETIRING OR DECEASED PARTNER WHEN BUSINESS IS

CONTINUED.

1. Value of interest is ascertained.

2. Receive as an ordinary creditor his interest.
3. Partnership creditors have preferred rights over the right of retiring or
deceased partner.

ART. 1842 – RIGHT TO ACCOUNT OF INTEREST.

1. After dissolution.
2. Persons liable to account:
a) Winding up partner
b) Surviving partner
c) Continuing partner.