Castañeda, Rica Abigail B.

02/28/23
LAW02-A
BSBA III

DISSOLUTION AND WINDING UP (ARTICLE 1828-1842)

Article 1828: If there is a change in the relation of the partner, the partnership is dissolve.
Dissolution – change in relation of the partner caused by any partner ceasing to be part in the
carrying on of the partnership.
Winding up – process of setting the partnership affairs after dissolution.
Termination – point when all partnership affairs are settled and signifies the end of the
partnership.
Change in the membership of the partnership is due to:
 Retirement
 death of the partner
 Admission of a new member in the partnership
(This immediately dissolve the partnership relation and create a new partnership.)

Article 1829: On dissolution, the partnership is not terminated but continues until winding up
of partnership is completed.

Article 1830: Causes of dissolution:

- Termination of term
- Violation of agreements
- Partnership becomes unlawful to carry on the business
- Loss before delivery
- Death of any partner
- Insolvency of any partner
- Civil interdiction of any partner
- Court decree

Article 1831: The Court shall grant decree dissolution whenever:

1.) Grounds for dissolution by decree of the court:
- Insanity
- Incapacity
- Misconduct and persistent breach of partnership agreement
- Business is carried at loss
- Other circumstances
 2.) On application by a purchaser of a partner’s interest
- after the termination of the specified term
- particular undertaking or at any time if the partnership was a partnership at will
when the interest was assigned or when the charging order was issued.

Article 1832: When partnership dissolution has been done, the authority of the partners in the
partnership is also gone.

Effects of dissolution on the authority of partners:

1.) General rule: Unless stipulated, every partner is considered the agent of the partnership
with the authority to bind the partnership as well as the other partner with respect to
the transactions of its business
2.) Qualifications to the rule (Article 1833 and 1834)

Article 1833: If the dissolution is caused by an act, insolvency or death of a partner, then
each of the partner share liability of the partnership as if the partnership had not been
dissolved, unless:

- The cause is the act of a partner with knowledge of the dissolution.

- The cause is the death or insolvency of a partner and the acting partner with knowledge
or notice of the death or insolvency.

Article 1834: After the partnership has been dissolved, a partner can bind the partnership if
there are unfinished transactions or with respect to the winding up.

Binding transactions if:

- The credit was extended without the knowledge of the dissolution or before the
dissolution happens.
- No credit was extended but there was knowledge of the partnership’s existence and not
the dissolution.

The partnership is to announce the dissolution to the general public newspaper in order for
third persons to notice the dissolution of partnership.

Upon dissolution, the partnership is no longer bound these transactions:

 Unlawful to carry on business

 Insolvency of a partner
 Unauthorize winding up

Article 1835: The dissolution of the partnership does not terminate the liabilities of any
partner. The property of the deceased partner shall be used to clear his liabilities when he was
still a partner. This only happens when that partner has already paid his distinct debts.
Article 1836: Persons who are authorize to wind up:

- Designated partner in the agreement

- Partners who did not wrongfully cause the dissolution
- Legal representative of the last surviving partner

Article 1837: Right of partner to application of partnership property on dissolution

These rights depend whether the dissolution is caused by:

1.) In violation of the partnership agreement

2.) Without violation of the partnership agreement

If the dissolution is caused by something other than a violation of the partnership agreement:

- each partner can have the partnership's property used to pay off its debts,
- and any remaining money will be divided among the partners.

If the partnership is dissolved wrongfully, any partner who did not cause the wrongful
dissolution can still:

1.) claim their share of the partnership's assets and can also
2.) sue the partner who caused the wrongful dissolution for damages.

If the partner who caused the wrongful dissolution does not want to continue with the
partnership, they:

1.) Have the right to be paid the value of their share in the partnership, minus any damages
caused by their wrongful dissolution.
2.) They will also be released from any partnership debts. However, the value of any good-
will that the business had will not be considered when determining the partner's share.

Article 1838: If a partnership was void on the ground of fraud or misinterpretation of one of
the partners, he is entitled to revoke without prejudice to other rights.

The person who committed fraud or misrepresentation has to pay back any debts or other
financial losses that the partnership has because of their actions.

Article 1839: After the dissolution of the partnership, the following rules shall be applied
subject to any agreement:

- The partnership assets are the partnership property and the contributions of the
partners needed to pay the partnership's liabilities.
- Liabilities are ranked in order of payment: creditors outside the partnership, partners
owed money other than capital and profits, partners owed money for capital, partners
owed money for profits.
- The assets are used to pay the liabilities
 - Partners must contribute the necessary amount to pay the liabilities.
- Creditors or court-appointed individuals have the right to enforce partner contributions.
- Partners can enforce contributions if they've paid more than their share of the liability.
- The deceased partner's individual property is liable for paying contributions.
- Partnership creditors have priority on partnership property, and separate creditors have
priority on individual property.
- If a partner is insolvent, claims against their separate property are ranked in order of
payment: separate creditors, partnership creditors, partners owed money for
contributions.

Considers the case of liquidation and the distribution of the partnership asset in order to reduce
the property to cash then distribute the proceeds. Partners have the authority to sell
partnership property and collect obligations due to the partnership.

Order of payment during liquidation:

- Third persons or outside creditors

- Partner creditor
- Normal partners (in accordance with the agreement and in proportion to their
contribution.)

Article 1840: Creditors of a dissolved partnership are also creditors of the new partnership.

The Creditor will continue to be the creditor of the remaining or new partnership in all cases
except when:

- Rights are assigned to other people that is not an old partner

- Unless there is a promise to pay debt from the new partner or if the creditor can set
aside the right of the new partners on the ground of fraud.

The membership changes in cases:

 Retirement
 death of the partner
 Admission of a new member in the partnership

Article 1841: Retiring partner or the legal representative of the deceased partner shall have
the right:

1.) To have value of the interest of the retiring partner in the partnership as of the date of
the dissolution.
2.) To receive an amount equal to the value of his share in the dissolved partnership with
interest.

However, the creditors of the dissolved partnership can claim first than the retiring partner or
their legal representative's claim.
Article 1842: If there is no agreement to the contrary, any partner or their legal
representative has the right to an account of their interest in the partnership at the date of
dissolution which applies to the winding up partners, surviving and partners continuing the
business.

Partner’s Right to Account in his interest

1.) Accrual of Rights

2.) Person Liable to render an account