CHAPTER

DISSOLUTION
AND WINDING
UP
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EFFECTS OF CHANGE IN
MEMBERSHIP OF P’SHIP
ARTICLE . The dissolution of a
partnership is the change in the
relation of the partners caused by
any partner ceasing to be associated
in the carrying on as distinguished
from the winding up of the business
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DISTINGUISH
DISSOLUTION
-change in the relation of the
partners caused by any partner
ceasing to be associated in the
carrying on of the business. (Art.
1828.) It is that point in time when
the partners cease to carry on the
business together. It represents the
demise of a partnership
WINDING UP
-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. It is the final step
after dissolution in the termination
of the partnership
TERMINATION
-point in time when all partnership
affairs are completely wound up
and finally settled. It signifies the
end of the partnership life. It takes
place after both dissolution and
winding up have occurred.
EFFECT OF DISSOLUTION

-ARTICLE . On dissolution
the partnership is not terminated,
but continues until the winding
up of partnership affairs is
completed.
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P’SHIP NOT TERMINATED

-does not automatically result in the termination of the

legal personality of the partnership, or the cessation of his
business, nor the relations of the partners among
themselves who remain as co-partners until the
partnership is terminated

PSHIP CONTINUES for a limited existence - making

good all outstanding engagements, of taking and settling
all accounts, and collecting all the property, means and
assets of the partnership existing at the time of dissolution
PROHIBITIONS DURING
DISSOLUTION
-transaction of new business.

Principal significance of dissolution is that

thereafter, no new partnership business
should be undertaken, but affairs should
be liquidated and distribution made to
those entitled to the partners’ interest.
 CAUSES OF DISSOLUTION

ARTICLE . Dissolution is caused:

. Without violation of the agreement between the partners:

a. By the termination of the definite term or particular undertaking specified

in the agreement;
b. By the express will of any partner, who must act in good faith, when no
definite term or particular undertaking is specified;
c. By the express will of all the partners who have not assigned their interests
or suffered them to be charged for their separate debts, either before or
after the termination of any specified term or particular undertaking;
d. By the expulsion of any partner from the business bona fide in accordance
with such a power conferred by the agreement between the partners;
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 . In contravention of the agreement between the partners, where the circumstances
do not permit a dissolution under any other provision of this article, by the express
will of any partner at any time;
.By any event which makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership;
.When a specific thing, which a partner had promised to contribute to the
partnership, perishes before the delivery; in any case by the loss of the thing, when the
partner who contributed it having reserved the ownership thereof, has only
transferred to the partnership the use or enjoyment of the same; but the partnership
shall not be dissolved by the loss of the thing when it occurs after the partnership has
acquired the ownership thereof;
.By the death of any partner;
.By the insolvency of any partner or of the partnership;
.By the civil interdiction of any partner;
.By decree of court under the following article.
.
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CATEGORIES OF CAUSES OF
DISSOLUTION

a. act of the parties not in violation

of their agreement (No. );
b. act of the parties in violation of
their agreement ( );
c. operation of law ( - ); and
d. court decree ( )
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WITHOUT VIOLATION OF
AGREEMENT
a. By the termination of the definite term or particular undertaking specified in
the agreement (automatic dissolution w/o partners extending the term)
b. By the express will of any partner, who must act in good faith, when no definite
term or particular undertaking is specified (may be dissolved at any time by any
partner without the consent of his co-partners without breach of contract,
provided, the said partner acts in good faith);
c. By the express will of all the partners who have not assigned their interests or
suffered them to be charged for their separate debts, either before or after the
termination of any specified term or particular undertaking (No particular form
of agreement is necessary to dissolve a partnership by consent);
d. By the expulsion of any partner from the business bona fide in accordance with
such a power conferred by the agreement between the partners (the expulsion
has the effect of decreasing the number of the partners, hence, the dissolution.
The expulsion must be made in good faith, and strictly in accordance with the
power conferred by the agreement between the partners.);
DISSOLUTION EFFECTED IN
CONTRAVENTION OF PSHIP AGREEMENT

Legal effects of dissolution. — The

withdrawing partner is liable for
damages for unjustified dissolution but
in no case can he be compelled to
remain in the partnership. With his
withdrawal, the number of members is
decreased.
 JUDICIAL DETERMINATION AS
TO DISSOLUTION
-ARTICLE . On application by or for a partner the court shall decree a
dissolution whenever:
. A partner has been declared insane in any judicial proceeding or is shown to be
of unsound mind;
. A partner becomes in any other way incapable of performing his part of the
partnership contract;
. A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;
. A partner wilfully 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;
. The business of the partnership can only be carried on at a loss;
. Other circumstances render a dissolution equitable.
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 On the application of the purchaser of a
partner’s interest under article or :
. After the termination of the specified term
or particular undertaking;
. At any time if the partnership was a
partnership at will when the interest was
assigned or when the charging order was
issued.
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 EFFECT ON DISSOLUTION ON
AUTHORITY OF PARTNER
-ARTICLE . Except so far as may be necessary to wind up
partnership affairs or to complete transactions begun but not then
finished, dissolution terminates all authority of any partner to act
for the partnership:
. 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 so requires;

. With respect to persons not partners, as declared in article

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GR : every partner is considered the agent of the
partnership with authority to bind the partnership as
well as the other partners with respect to the
transaction of its business. (Art. .)

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.
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 QUALIFICATIONS TO THE
RULE
a. As to partners themselves - 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.
.) 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 Article .
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b. As to rd persons - partnership is
generally bound by the new contract
although the authority of the acting partner
as it affects his co-partners is already deemed
terminated under Articles and . In
such a case, however, the innocent partners
can always recover from the acting partner.
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 RIGHT OF PARTNER TO
CONTRIBUTION FROM CO-PARTNERS

-ARTICLE . Where the dissolution is caused by the act,

death or insolvency (AID) 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:
. The dissolution being by act of any partner, the partner
acting for the partnership had knowledge of the dissolution;
or
. 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.
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EFFECT

-Each of them is liable for his

share of any liability created by the
acting partner as if the partnership
had not been dissolved.
 AUTHORITY OF PARTNERS
INTER SE TO ACT FOR P’SHIP
The authority of a partner as it affects his co-partners (not third
persons) is not deemed terminated except in two instances, namely:
. The cause of the dissolution is the act of a partner and the acting
partner had knowledge of such dissolution; and (to protect the
remaining partner or partners who might continue to act for the
partnership as a going concern, not having actual knowledge of
the dissolution )
. The cause of the dissolution is the death or insolvency of a
partner and the acting partner had knowledge or notice of the
death or insolvency. (discards the fiction that everybody is
presumed to have knowledge of death or insolvency)
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KNOWLEDGE OR NOTICE OF
CAUSE OF DISSOLUTION
A. By death or insolvency - authority of
a partner to act for the partnership
may still continue notwithstanding
its dissolution.
B. By court decree or resulting from
unlawfulness - it brings actual notice
of dissolution to all partners
NOTE ON APPLICATION OF
ARTICLE

-it applies only if the contract of the

partner binds the partnership.

If the partnership is not bound

(Art. , par. .), only the acting
partner is personally liable.
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 POWER OF PARTNER TO BIND
DISSOLVED P’SHIP TO RD PERSONS
ARTICLE . After dissolution, a partner can bind the partnership, except as
provided in the third paragraph of this article:
. By any act appropriate for winding up partnership affairs or completing
transactions unfinished at dissolution;
. 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 prior to dissolution and had no

knowledge or notice of the dissolution; or
b. Though he had not so extended credit, had nevertheless known of the
partnership prior to dissolution, and, having no knowledge or notice of
dissolution, the fact of dissolution had not been advertised in a newspaper of
general circulation in the place (or in each place if more than one) at which the
partnership business was regularly carried on.
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 cont…

The liability of a partner under the first paragraph, No.

, shall be satisfied out of partnership assets alone
when such partner had been prior to dissolution:
. Unknown as a partner to the person with whom
the contract is made; and
. So far 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.
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 cont…
The partnership is in no case bound by any act of a partner after dissolution:
. 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
. Where the partner has become insolvent; or
. Where the partner has no authority to wind up partnership affairs; except
by a transaction with one who —

a. Had extended credit to the partnership prior to dissolution and 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. (b)
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cont…

Nothing in this article shall affect the

liability under article of any
person who after dissolution represents
himself or consents to another
representing him as a partner in a
partnership engaged in carrying on
business.
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WHERE NO NOTICE TO RD
PERSONS OF DISSOLUTION
-authority of a partner may apparently continue as
regards third persons on the assumption that the
partnership is still existing. Since a partnership
once established is, in the absence of anything to
indicate its termination, presumed to exist, the law,
for the protection of innocent third persons,
imposes upon partners the duty of giving notice of
the dissolution of the partnership.
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THERE IS ACTUAL/CONSTRUCTIVE
KNOWLEDGE BY RD PERSONS OF
DISSOLUTION

-it 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 affairs.
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 NOTICE OF DISSOLUTION TO
CREDITORS
. As to persons who extended credit to partnership prior to dissolution. — Customers of
the partnership or persons who extended credit to the partnership prior to its
dissolution must have knowledge or notice of the dissolution to relieve the
partnership from liability.
. As to persons who had known of partnership’s existence. — As to persons who had
not so extended credit prior to its dissolution, but who had known of its
existence, the fact that the dissolution had been published in the newspaper
would be sufficient (par. , No. [a, b].), even if they did not actually read the
advertisement.
. Where acting partner has no authority to wind up partnership affairs. — Under the
third paragraph, notice of dissolution is unnecessary except in case No. , where
the partner has no authority to wind up partnership affairs. Third persons
dealing with the partner without such authority are protected under the same
circumstances mentioned in paragraph , No. ( )(a) and (b).
.
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 . Where acting partner has become insolvent.—As to insolvency,
the law makes a distinction between the right of a partner who
has no knowledge or notice of the other partner’s insolvency to
bind the partnership and the right of a third person to claim
that his contract with the partnership is valid, notwithstanding
its dissolution through insolvency of the partner with whom the
contract was made
. Where dissolution caused by death of a partner.—As to death, no
such distinction is made, largely because the deceased partner
no longer exists. Death, then, is not considered to be notice per
se whether as to the surviving partner or as to third persons.
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DORMANT PARTNER NEED
NOT GIVE NOTICE
-the liability of a partner unknown as such to
the person with whom the contract is made or
so far unknown and inactive in partnership
affairs shall be satisfied out of partnership assets
alone. This is a qualification of the rule that
partners are liable pro rata with all their
property after the assets of the partnership have
been exhausted for partnership obligations.
EFFECT OF DISSOLUTION ON
PARTNER’S EXISTING LIABILITY
ARTICLE . The dissolution of the partnership does not of itself
discharge the existing liability of any partner.
A partner is discharged from any existing liability upon dissolution of
the partnership by an agreement to that effect between himself, the
partnership creditor and the person or partnership continuing the
business; and such agreement may be inferred from the course of
dealing between the creditor having knowledge of the dissolution and
the person or partnership continuing the business.

The individual property of a deceased partner shall be liable for all

obligations of the partnership incurred while he was a partner, but
subject to the prior payment of his separate debts.
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Dissolution of a partnership does not of itself
discharge the existing liability of a partner

A partner may be relieved from all existing

liabilities upon dissolution only by an agreement to
that effect between himself, the partnership
creditor, and the other partners. The consent,
however, of the creditor and the other partners to
the novation may be implied from their conduct.
LIABILITY OF ESTATE OF
DECEASED PARTNER
-the individual property of a deceased
partner shall be liable for all obligations of
the partnership incurred while he was a
partner. Note that the individual creditors of
the deceased partner are to be preferred over
partnership creditors with respect to the
separate property of said deceased partner.
MANNER OF WINDING UP

-ART. . 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 the partnership affairs,
provided, however, that any partner, his legal
representative or his assignee, upon cause
shown, may obtain winding up by the court.
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HOW DONE

EITHER:
a. judicially, under the control and direction
of the proper court upon cause shown
by any partner, his legal representative,
or his assignee; or
b. extrajudicially, by the partners themselves
without intervention of the court.
 PERSONS AUTHORIZED TO
WIND UP
. The following are authorized to wind up the affairs of the
partnership:
a. The partners designated by the agreement;
b. In the absence of such agreement, all the partners who have not
wrongfully dissolved the partnership; or
c. The legal representative (executor or administrator)of the last
surviving partner (when all the partners are already dead), not
insolvent. (Art. [ ].)
. 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 to the best
interests of all persons concerned.
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SURVIVOR’S RIGHT AND DUTY
TO LIQUIDATE
-the duty of liquidating its affairs
devolves upon the surviving member
or members of the firm, not upon the
legal representative of the deceased
partner (except when such partner
was the last surviving partner).
REASON

The legal representative has no right to interfere

with the partnership business, so long as the
surviving partner proceeds in good faith to settle its
affairs, and it makes no difference how well qualified
such representative may be to assist. The executor or
administrator of a deceased partner cannot insist on
continuing the business in the absence of some
controlling agreement to that effect
POWERS OF LIQUIDATING
PARTNER
a. Make new contracts
b. Raise money to pay partnership debts
c. Incur obligations to complete existing
contracts or preserve partnership
assets
d. Incur expenses necessary in the
conduct of litigation.
f.
RIGHT OF PARTNER TO APPLICATION
OF P’SHIP PROPERTY ON DISSOLUTION

ARTICLE . When dissolution is caused in any way, except in

contravention of the partnership agreement, each partner, as against
his co-partners and all persons claiming through them in respect of
their interests in the partnership, unless otherwise agreed, may have
the partnership property applied to discharge its liabilities, and the
surplus applied to pay in cash the net amount owing to the respective
partners. But if dissolution is caused by expulsion of a partner, bona
fide under the partnership agreement and if the expelled partner is
discharged from all partnership liabilities, either by payment or
agreement under the second paragraph of article , he shall
receive in cash only the net amount due him from the partnership.
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 cont…

When dissolution is caused in contravention of the

partnership agreement the rights of the partners shall be
as follows:
. Each partner who has not caused dissolution
wrongfully shall have:
a. All the rights specified in the first paragraph of this
article, and
b. The right, as against each partner who has caused
the dissolution wrongfully, to damages for breach of
the agreement.
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. The partners who have not caused the dissolution wrongfully,

if they all desire to continue the business in the same name
either by themselves or jointly with others, may do so, during
the agreed term for the partnership and for that purpose may
possess the partnership property, provided they secure the
payment by bond approved by the court, or pay any partner who
has caused the dissolution wrongfully, the value of his interest in
the partnership at the dissolution, less any damages recoverable
under the second paragraph, No. (b) of this article, and in like
manner indemnify him against all present or future partnership
liabilities.
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 cont..
. A partner who has caused the dissolution wrongfully shall have:

a. If the business is not continued under the provisions of the second

paragraph, No. , all the rights of a partner under the first paragraph, subject
to liability for damages in the second paragraph, No. (b), of this article.
b. If the business is continued under the second paragraph, No. , of this
article, the right as against his co-partners and all claiming through them in
respect of their interests in the partnership, to have the value of his interest
in the partnership, less any damage caused to his co-partners by the
dissolution, ascertained and paid to him in cash, or the payment secured by
a bond approved by the court, and to be released from all existing liabilities
of the partnership; but in ascertaining the value of the partner’s interest the
value of the good-will of the business shall not be considered.
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 RIGHTS WHERE DISSOLUTION NOT
IN CONTRAVENTION OF AGREEMENT

Unless otherwise agrees, the ff are the rights of each

partner:
. To have the partnership property applied to discharge
the liabilities of the partnership; and
. To have the surplus, if any, applied to pay in cash the net
amount owing to the respective partners.

NOTE : no partner is liable for any loss since the

dissolution is proper and rightful (in accordance with
agreement)
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DISSOLUTION IS CAUSED BY
EXPULSION
-expelled partner may be discharged
from all partnership liabilities either by
payment or by an agreement between
him, the partnership creditors, and the
other partners. (Art. .) He shall have
the right only to receive in cash the net
amount due him from the partnership.
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 RIGHTS WHERE DISSOLUTION IN
CONTRAVENTION OF AGREEMENT
A. PARTNER NOT WRONGFULLY CAUSED THE
DISSOLUTION
.To have partnership property applied for the payment of its
liabilities and to receive in cash his share of the surplus;
. To be indemnified for damages caused by the partner guilty
of wrongful dissolution;
.To continue the business in the same name during the
agreed term of the partnership, by themselves or jointly with
others; and
.To possess partnership property should they decide to
continue the business.
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B. PARTNER WHO WRONGFULLY
CAUSED THE DISSOLUTION

BUSINESS IS NOT CONTINUED BUSINESS IS CONTINUED

1. To have the value of his interest

in the partnership at the time of
the dissolution, less any damage
-have the partnership property
caused by the dissolution to his
applied to discharge its liabilities
co-partners, ascertained and
and to receive in cash his share of
paid in cash or secured by bond
the surplus less damages caused by
approved by the court; and
his wrongful dissolution.
2. To be released from all existing
and future liabilities of the
partnership.
 RIGHT OF PARTNER TO
RESCIND CONTRACT OF P’SHIP
ARTICLE . Where a partnership contract is rescinded on the ground
of the fraud or misrepresentation of one of the parties thereto, the party
entitled to rescind is, without prejudice to any other right, entitled:
. To a lien on, or right of retention of, the surplus of the partnership
property after satisfying the partnership liabilities to third persons for
any sum of money paid by him for the purchase of an interest in the
partnership and for any capital or advances contributed by him;
. To stand, after all liabilities to third persons have been satisfied, in the
place of the creditors of the partnership for any payments made by him
in respect of the partnership liabilities; and
. To be indemnified by the person guilty of the fraud or making the
representation against all debts and liabilities of the partnership.
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 RIGHT OF INJURED PARTNER

. 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;
. Right to subrogation in place of partnership
creditors after payment of partnership liabilities;
and
. Right of indemnification by the guilty partner
against all debts and liabilities of the partnership.
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 LIQUIDATION AND DISTRIBUTION OF
ASSETS OF DISSOLVED PARTNERSHIP

ARTICLE . In settling accounts between the

partners after dissolution, the following rules shall
be observed, subject to any agreement to the
contrary:
. The assets of the partnership are:
a. The partnership property,
b. The contributions of the partners necessary for
the payment of all the liabilities specified in No. .
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 cont…

. The liabilities of the partnership shall rank

in order of payment, as follows:
a. Those owing to creditors other than partners
b. Those owing to partners other than for
capital and profits,
c. Those owing to partners in respect of capital,
d. Those owing to partners in respect of
profits.
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 cont…
.The assets shall be applied in the order of their declaration in No. of this article to the
satisfaction of the liabilities.
.The partners shall contribute, as provided by article , the amount necessary to
satisfy the liabilities.
.An assignee for the benefit of creditors or any person appointed by the court shall have
the right to enforce the contributions specified in the preceding number.
.Any partner or his legal representative shall have the right to enforce the contributions
specified in No. , to the extent of the amount which he has paid in excess of his share of
the liability.
.The individual property of a deceased partner shall be liable for the contributions
specified in No. .
.When partnership property and the individual properties of the partners are in
possession of a court for distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual property, saving the rights of
lien or secured creditors.
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 cont..

. Where a partner has become insolvent or

his estate is insolvent, the claims against his
separate property shall rank in the following
order:
a. Those owing to separate creditors;
b. Those owing to partnership creditors;
c. Those owing to partners by way of
contribution.
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 RULES IN SETTLING ACCOUNTS BETWEEN
PARTNERS AFTER DISSOLUTION

ASSETS OF P’SHIP
a. Partnership property (including
goodwill); and
b. Contributions of the partners
necessary for the payment of all
liabilities in accordance with Article
.
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 ORDER OF APPLICATION OF
ASSETS
The partnership assets shall be applied to the satisfaction of the
liabilities of the partnership in the following order:
. Those owing to partnership creditors;
. Those owing to partners other than for capital and profits
such as loans given by the partners or advances for business
expenses;
. Those owing for the return of the capital contributed by the
partners; and
. If any partnership assets remain, they are distributed as
profits to the partners in the proportion in which profits are
to be shared.
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LIABILITY OF DECEASED
PARTNER’S INDIVIDUAL PROPERTY

-individual property of a deceased

partner shall be liable for his share
of the contributions necessary to
satisfy the liabilities of the
partnership incurred while he was
a partner.
DISTRIBUTION OF PROPERTY
OF INSOLVENT PARTNER
If partner is insolvent, his individual
property shall be distributed as follows:
a. First, to those owing to separate creditors;
b. Then, to those owing to partnership
creditors; and
c. Lastly, to those owing to partners by way
of contribution.
 DISSOLUTION OF P’SHIP BY
CHANGE IN MEMBERSHIP
ARTICLE . In the following cases creditors of the dissolved partnership
are also creditors of the person or partnership continuing the business:
. When any new partner is admitted into an existing partnership, or when
any partner retires and assigns (or the representative of the deceased
partner assigns) his rights in partnership property to two or more of the
partners, or to one or more of the partners and one or more third persons,
if the business is continued without liquidation of the partnership affairs;
. When all but one partner retire and assign (or the representative of a
deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;
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 CONT…

. When any partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. and of this article, with
the consent of the retired partners or the representative of the deceased
partner, but without any assignment of his right in partnership
property;
.When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay
the debts and who continue the business of the dissolved partnership;
.When any partner wrongfully causes a dissolution and the remaining
partners continue the business under the provisions of article ,
second paragraph, No. , either alone or with others, and without
.
liquidation of the partnership affairs;
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 cont..
. When a partner is expelled and the remaining partners continue the business either
alone or with others without liquidation of the partnership affairs.

The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be satisfied
out of the partnership property only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions
set forth in this article the creditors of the dissolved partnership, as against the separate
creditors of the retiring or deceased partner or the representative of the deceased partner,
have a prior right to any claim of the retired partner or the representative of the deceased
partner against the person or partnership continuing the business, on account of the
retired or deceased partner’s interest in the dissolved partnership or on account of any
consideration promised for such interest or for his right in partnership property.
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cont..

Nothing in this article shall be held to modify any right

of creditors to set aside any assignment on the ground
of fraud.

The use by the person or partnership continuing the

business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable
for any debts contracted by such person or partnership.
CAUSES OF CHANGE IN
RELATION
a. new partner is admitted;
b. partner retires;
c. dies;
d. a partner withdraws;
e. expelled from the partnership; or
f. other partners assign their rights to the sole
remaining partner; or
g. when all the partners assign their rights in
partnership property to third persons.
CONTINUATION OF P’SHIP W/O
LIQUIDATION
-remaining partners (and/or new partners)
may elect to continue the business of the old
partnership without interruption by simply
taking over the business enterprise owned by
the preceding partner and continuing the use
of the old name. The rights and obligations of
the partners as among themselves in case of
such continuation are set forth in Article
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NOTE : a change in the parties to the
contract necessarily results in a new
contract. Hence, a change in
membership of a partnership creates a
new partnership upon the continuation
of the business by the partners.
 RIGHTS OF CREDITORS OF DISSOLVED
P’SHIP WHICH IS CONTINUED

. Equal rights of dissolved and new partnership creditors. — the law

makes the creditors of the dissolved partner- ship also creditors of the
persons or partnership continuing the business. In other words, both
classes of creditors, the old and the new, are treated alike, being given
equal rights in partnership property
. Liability of persons continuing business. — the liability of the new or
incoming partners shall be satisfied out of partnership property only
unless there is a stipulation to the contrary. (par. )
. Prior right of dissolved partnership creditors as against purchaser. —
When a retiring or deceased partner has sold his interest in the
partnership without a final settlement with creditors of the partnership,
such creditors have an equitable lien on the consideration paid to the
retiring or deceased partner by the purchaser thereof.
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 BUSINESS IS CONTINUED : RIGHTS OF
RETIRING OR ESTATE OF DECEASED PARTNER

ARTICLE . When any partner retires or dies, and the business is

continued under any of the conditions set forth in the preceding article, or in
article , second paragraph, No. , without any settlement of accounts as
between him or his estate and the person or partnership continuing the
business, unless otherwise agreed, he or his legal representative as against such
person or partnership may have the value of his interest at the date of
dissolution ascertained, and shall 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 at the option of his legal representative, in lieu of interest, the
profits attributable to the use of his right in the property of the dissolved
partnership; provided that the creditors of the dissolved partnership as against
the separate creditors, or the representative of the retired or deceased partner,
shall have priority on any claim arising under this article, as provided by article
, third paragraph.
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 The retiring partner or the legal representative of the
deceased partner shall have the right:
. To have the value of the interest of the retiring partner
or deceased partner in the partnership ascertained as
of the date of dissolution (i.e., date of retirement or
death); and
. To receive thereafter, as an ordinary creditor, an
amount equal to the value of his share in the dissolved
partnership with interest, or, at his option, in lieu of
interest, the profits attributable to the use of his right.
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ACCRUAL AND PRESCRIPTION OF PARTNER’S
RIGHT TO ACCOUNT OF HIS INTEREST

ARTICLE . The right to an account of

his interest shall accrue to any partner, or his
legal representative as against the winding
up partners or the surviving partners or the
person or partnership continuing the
business, at the date of dissolution, in the
absence of any agreement to the contrary.
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 . The right to demand an accounting of the value
of his interest (Art. .) accrues to any partner
or his legal representative after dissolution in the
absence of an agreement to the contrary
. Prescription begins to run only upon the
dissolution of the partnership when the final
accounting is done. Under Articles , ,
and , the right to demand an accounting
exists as long as the partnership exists.
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PERSONS LIABLE TO RENDER
ACCOUNT

a. The winding up partner;

b. The surviving partner; or
c. The person or partnership
continuing the business.
LIQUIDATION NECESSARY FOR
DETERMINATION OF PARTNER’S SHARE

a. Share in the profits

b. Share in the partnership
WHEN LIQUIDATION NOT
REQUIRED

-when there is already a

settlement or an agreement as to
what he shall receive.