Chapter 3

• ARTICLE 1828

  The dissolution of the partnership is the change in relations of the partners caused by any partner ceasing to be associated in the carrying on distinguished from the winding up of the business
• Article 1828


  Dissolution is the change in relation of the partner caused by any partner ceasing to be associate in the carrying out of the business together
• Article 1828

  Winding up is the process of settling the partnership affairs after dissolution
• Article 1828

  Termination is that point in time where all partnership affairs are completely wound up and finally settled
• Article 1829

  On the dissolution the partnership is not terminated but continues until the winding up of the partnership affairs is completed
• Article 1829

  The principle significance of the dissolution is that no new partnership business should be undertaken but affairs to liquidate and distribution made to those entitled to partners interest.
• Article 1830, Dissolution Cause:

  1. Without contravention to the agreement between partner
  2. With contravention to the agreement between partner
  3. Business is unlawful
  4. Loss on specific thing
  5. Death of a partner
  6. Insolvency of the partner/partnership
  7. Civil interdiction of the partner
  8. By decree of court
• Article 1830, Dissolution Cause:

  Without contravention to the agreement between partner

  • Termination on term or particular undertaking - as the partner agreed time or particular undertaking arrive automatic dissolution of none of the partner want to continue the partnership
  • Express by ANY partner - a partnership at will partner had right anytime to dissolved the partnership anytime without consent of other as long as it act in good faith. Bad faith= wrongful dissolution.
• Article 1830, Dissolution Cause:

  Without contravention to agreement

  • Express by all partner - An agreement as to the dissolution before the term or particular undertaking occur required a UNANIMOUS CONSENT, there is a breach of contract.
  • Expulsion of a partner - Expulsion = decrease partner same as dissolution. If in good faith means in accordance to power vested agreed between partner and assigned exclusive to on partner. If bad faith he can claim for damages
• Dissolution Cause

  1. Contravention to the agreement among partners

  2. Any cause of reason - a partner may cause dissolution of the partnership without consent of the partner by his sole purpose which he deems sufficiently by expressly withdrawing even in fixed terms
• Power of Dissolution(Article 1830) 


  Always exist - A delectus Personae is a right of partner to dissolve the partnership even remain partner wish to continue the business
• Article 1830: With contravention to agreement

  Legal effect of dissolution - withdrawing partner who's guilty for unjustified dissolution is liable for the damages can be compelled by remain partner.
• Article 1830: Dissolution Cause

  1. Business become unlawful - this will lead to a involuntary Dissolution of the partnership where proven that partnership is contrary to law, morals, good custom, public order or policy.
• Article 1830: Dissolution Cause


  Loss of a Specific Thing:

  1. Before Delivery - Partnership is Dissolved, as specific things cannot be substituted and there is a failure on partner to fulfill his obligations
  2. After delivery - Partnership not dissolved, as they already acquired ownership over things, remedy: additional capital contribution to partner to save venture of business.
  3. Usage of thing is contributed -, Partnership dissolved, loss bear by partner who had preserve right on things. Remain partner demand accounting and dissolution.
• Article 1830: Dissolution Cause

  1. Death of a Partner - Automatic dissolution. Survival partner had no authority to continue partnership affairs unless it is subject for winding up.
  2. In stipulations that act, insolvency or death of partner does not affect dissolution. Death partner liability incur as he was a partner is up to the extent of his capital contribution or interest remain on partnership.
• Article 1830: Dissolution Cause

  1. Insolvency of the partner subject his interest to the right of his creditor means there is a failure for him to fullfil partnership obligations if all the assets is exhausted. He had no authority to act on partner nor remain partner for himself.
  2. Insolvency of partnership render partnership property to the hands of partner liable to satisfy the partnership obligations inability to continue business = dissolution.
• Article 1830, Dissolution Cause


  Civil interdiction of the partner

  • Partnership requires partner to have a capacity. Civil interdiction person cannot give his valid consent due to limited capacity to act
• Article 1831: Court shall decree dissolution


  Ground for dissolution by decree of court

  • By partner in any cases mentioned in paragraph 1
  • By the purchaser of assignee interest after termination of the partnership. If at will anytime or when charging order is issued.
• Article 1831: Dissolution caused by judicial decree 


  On application of the partner:

  1. Insanity - declared insane by judicial preceding or unsound mind
  2. Incapacity - took affect to the fulfilment of his obligations
  3. Misconduct or persistent breach of partnership agreement - just like incapacity. In ground as it defeat, materially affect and obstruct purposed of partnership.
  4. Business can be carried only at loss - apparent that it is unprofitable & no prospect of success.
  5. Other Reason- fraud in mngmt, abandonment
• Article 1832: Effect on the authority of the partner in dissolution


  General Rule: In absence of stipulations partner are all agent they can bind partnership as well other respect to business transaction
• Article 1832: Exception 


  With respect to partner

  1. Not cause by act, insolvency or death of partner - authority to bind is automatic terminated
  2. Caused by act, insolvency or death of partner - termination as to authority will depend if the acting partner had knowledge or notice on dissolution.
  3. With respect to 3rd person - partnership will be bound despite the termination but the 3rd person and remain partner can recover damages from acting partner.
• Article 1833:

  General Rule: If dissolution caused by act, insolvency and death of partner, each partner is liable to liability created by acting partner as if there is no dissolution happened:


  Exemption:

  1. Dissolution caused by act of partner and had knowledge of the Dissolution ( protect remain partner wish to continue partnership that had no knowledge)
  2. The cause of dissolution is death or insolvency of partner where acting partner had knowledge or notice on it. ( Presumed everyone had knowledge)
• Article 1832

  1. Person had knowledge of the facts = bad faith
  2. Person had notice of facts in two ways: (1) states fact to suc person, (2) delivers through mail of by other means of communication.
• Article 1834: After dissolution partner can bind partnership:

  • If subsequent creditors extend his credit without knowledge that the partnership is Dissolved
  • General rule: As to establishment of partnership without notice it is presumed existing in protection to innocent 3rd person.
• Article 1834: After dissolution partner can bind partnership:

  • General rule: As to establishment of partnership without notice it is presumed existing in protection to innocent 3rd person.


  Exception:

  1. Person who extend credit to partnership have knowledge or notice of dissolution to relieve partnership
  2. The fact that the dissolution have been published in the newspaper would be sufficient enough even if they did not actually read.
  3. Acting partner had no authority to wind up the partners affairs.
  4. Acting partner become insolvent
• Article 1834 


  Character of notice required:

  1. As to prior dealers ( 3rd person extend credit in faith to partnership) - Notice must be actual. Mere mailing of letter to former dealer is insufficient to relieve retiring partner from subsequent liability
  2. As to all others - Notice is accomplished in advertisement of local newspaper an exclusive method of giving notice.
• Article 1835

  General Rule: The Dissolution of the partnership does not itself discharge partner on the existing liability of any partner 


  Exception:

  1. If there is agreement between himself, partnership creditors and other partner
  2. Death partner is liable for all the obligations of partnership incurred while he is a partner. Personal creditors over partnership creditor.
• Article 1836:

  Manner of winding up

  • Judicially - control and direction of proper court
  • Extrajudicially - by partner themselves 


  Person authorized to wind up

  1. Person designated by agreement
  2. All partner who's not wrongfully dissolved partnership
  3. Legal representative of the last survival partner that is not insolvent
• Article 1836

  • Surviving partner not the legal representative of deceased will be charged to the winding up process
  • If they wish to continue business deceased partner will not be liable to the subsequent obligations they acquired.
• Article 1837: Right of a partner to the partnership property 


  Without contravention to agreement

  • Have right to partnership property to settle liability
  • Received surplus applied amount to owing respective creditors
• Article 1837: Right to partnership property:

  With contravention to agreement

  Right of partner not wrongfully act

  • Applied partnership property to liability and received surplus
  • Indemnification of damages
  • Continue business in the same name during agreed term
  • Posses partnership property if wish to continue to partnership

  Right fo partner wrongfully act dissolve

  • If not continue: applied partnership property to liabilities and surplus less damages
  • If continued: Right to value of interest could be paid in cash or secured bond approved by court & relieve from all existing and future liabilities
• Article 1838:

  Right of partner to rescind (annulled) contract of partnership

  • If it induced by fraud or misrepresentation to become partner, however until it is not annulled by contract partnership relation exist & defraud partner is liable.


  Right of injured person

  1. Right to lien on or retention on surplus of partnership property after settlement of all liability.
  2. Right to subrogation in place of partnership creditors after payment of partnership liabilities.
  3. Indemnification of the damages due to fraud or misrepresentation.
• Article 1839: Settling Account between partners after dissolution

  • These consist in reducing liabilities to cash & disbursing the proceeds 


  Assets of the partnership

  • Property partnership
  • Contribution of the partners if necessary to payment of liability

  Order of application of assets

  • Owing to partnership creditors
  • Owing to partner other than capital and profit ( partner to partner)
  • Owing to return capital contributed
  • Share of profits if any due to each partners
• Rules in settling accounts between partners after dissolution(ART. 1839)


  Assets is Insufficient - Capital contribution to loss is required.Excess on contribution of any partner or assignee appointed by court shall have right to enforce contribution
• Liability of deceased partner's individual property


  They shall be liable for their share contribution necessary to satisfy liabilities of partnership incurred while they were a partner
• Priority to payment of partnership/partner creditors

  Partnership payment must be satisfied first in partnership property
• Distribution of property of insolvent partners(Art. 1839)


  • Owing to separate creditor
  • Owing to partnership creditors
  • Owing to partner by way of contribution
• Dissolution caused by changing of members and business continued( Article 1840)


  1. Right creditors of dissolved partnerhip is continued

  • Law make the creditors of dissolved partnership(old), also creditor of person or partnership continuing new business (new) treated alike and given equal rights in partnership property
• Article 1840: Liability of person continuing business dissolved partnership


  • Liability of new or incoming partners shall be satisfied out of partnerhip property (stipulations)

  • 3rd person promises to pay the debts of the partnership and continue business unless creditors of the dissolved partner had no claim on continuing business or property
• Article 1841: Dissolution caused by retiring or dies and business continued to operate 


  Right of retiring or legal representative of deceased partner

  1. Value of Interest of retiring partner or deceased partner as of date of dissolution
  2. Ordinary creditors right to receive equal amount of value on his share with interest