DISSOLUTION AND WINDING UP

➣ Article 1828

Three stages of a partnership

1. Dissolution – is the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the business.

2. Winding Up – is the process of settling business affairs after dissolution.

3. Termination – is the point in time that signifies the end of the partnership life.

➣ Article 1829

Effects of dissolution

1. Partnership not terminated – means that the dissolution does not automatically result in the
termination of the legal personality of the partnership.

2. Partnership continues for a limited purpose – means that a partnership is considered as

maintaining a limited existence after dissolution.

3. Transaction of new business prohibited – means that the partnership as a business enterprise
remains viable only for the purpose of winding up its affairs after dissolution.

➣ Article 1830 & 1831

Cause of dissolution

1. No violation of agreement – dissolution effected without violation of partnership agreement

wherein a. termination of the definite term, b. express will of a partner who must act in good
faith, c. express will of all partners, and d. expulsion in good faith of a member are not a
violation of agreement of the partnership.

2. Violation of agreement – the withdrawing partner is liable for damages.

3. Unlawfulness of the business – it is contrary to a requisite that a partnership must have a

lawful object or purpose.

4. Loss – refers to specific things only wherein the loss is before and after delivery.

5. Death – the partnership dissolves on the death of a partner.

6. Insolvency – the liabilities are greater than the assets.

7. Civil interdiction – a person under civil interdiction cannot validly give consent.

8. Decree of court – the court shall decree the dissolution under certain circumstances.

Person that can sue for juridical dissolution

1. A partner or any of the 1 to 6 grounds for judicial dissolution

2. The purchaser of a partners’ interest in the partnership under Art. 1813 or 1814 provided that
the period has expired or if it is a partnership at will

➣ Article 1832

General rule: Any of the partners cannot bind the partnership when a partnership is dissolved
except in Articles 1833 and 1834.

➣ Article 1833 & 1834

I. Partnership is liable

1. Act appropriating 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
II. Partnership is not liable

1. Where the partnership was dissolved because it was unlawful to carry on the business

2. Where the partner has become insolvent

3. Where the partner had no authority to wind up partnership affairs

➣ Article 1835

General rule: The dissolution of the partnership does not of itself discharge existing liability
of any partner.

Partners’ liability is discharged – the liability of a partner will be discharged if the partner,
other partners, and the creditors agreed.

➣ Article 1836

Kinds of winding up or liquidation

1. Extrajudicial – liquidation is done without the intervention of the court

2. Judicial – liquidation is done under the control and direction of the court

➣ Article 1837

Rights of partners in case of liquidation caused by violation or non-violation

1. Without contravention or violation of the partnership agreement

a. To have the partnership property applied to discharge the liabilities

b. To have surplus, if any, applied to pay in cash

2. Contravention or violation of the partnership agreement

a. Rights of a partner who has not caused dissolution wrongfully

b. Rights of partner who wrongfully caused the dissolution

➣ Article 1838

Rights of a partner who is entitled to rescind

1. Right of lien or retention; 2. Right of subrogation; 3. Right of indemnification

➣ Article 1839

Assets of the partnership

a. Partnership property; and b. Contributions of the partners for the payment of all liabilities

Liabilities of the partnership shall rank in order of payment

Those owing to a. partnership creditors, b. to partners, and c. in respect of capital and profits

➣ Article 1840

General rule: The succeeding partners have the right to carry on the business under the old name
upon the dissolution of a commercial partnership, in the absence of a stipulation forbidding it.

➣ Article 1841

Rights of a partner who retires or dies and the business is continued

1. To have the value of his interest at the date of dissolution ascertained

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 the option of his legal representative

➣ Article 1842

Person that has the right to an account of his interest

The right to an account of his interest shall accrue to any partner or his legal representative