: ehare of HE Partne® we ele ler aie SEY but WithOUL prejuga” py reditOrs ther” Be parearerst rea art 1827 ap i the FEMAINING. ggg, tre debts, his priv? “palate Assets git, rior, (See Art. 1839) or atter he ‘ gcor) eaiifor cat 8 fy he (prvate cred Pp DISSOLUTION AND WINDING U! mination, concept in the relation of the partner, 10 be associated in the Dissolution, winding up and fe 1 Dissolution is the change easing t caused by any partner ceasing ‘Anning on of the business. (Art, 1828) s of settling the business o; Windin, is the proces: inding up P dissolution. (See Art, affairs of the partnership after 1829) Termination refers to the point when all the business or affairs of the partnership are completely wound up. Causes of dissolution I. Without violation of the agreement of the partners. a By the termination of the definite term o: particular undertaking specified in the agreement b. By the express will 1 : cd partner who must actin good fa no definite ter ee undertaking is epeeter™ OF Partin 2) Of all the . thelr ie Partners who have not assign Tests or suffered them to °PARTNERSII ehagged ter thet separate debi, evtties Before er alter the teenie at ay specified ter By the exputsion of any partner bom the buat bona fide in accer We ae gener Sonferted by the agreement between the parties In contravention of the agreement between the parties by the express will of any partir at anytime The withdrawing partner ean be id damages, able to When any event makes it unlawful for the busine Partnership to be carried on or for the members to carry 1! on in partnership, of the In the following cases of loss: a Loss before or after delivery of property where the partner contributed only its use or enjoyment, he having reserved the ownership thereof The partner who owns the property bears the loss, b. Loss before delivery of specific thing, which a partner had promised to contribute to. the partnership. If the loss occurs after delivery, the partnership is not dissolved. The partnership, being already the owner, bears the loss. By the death of any partner. By the insolvency of any partner or of the partnership. By the civil interdiction of any partner. (Art. 1930) By decree of court in the following cases: a On the application by or for a partner (ic, @ partner or his legal representative files the application) to dissolve the partnership whenever:082 eclared insane in any di er has been 4 shown to yo ARS. ‘rovecd g or is SHOWN 10 be of judici und mind ae aoa becomes in. any way IHCAPAbT of 2) A partner berommcpart of the partnership performing bis contract an guilty of such conduc on of the business. ily or persistently commits . rtner willful A Parmeat the partnership agreement, o: P otherwise so conducts himself in matters Telating to the partnership business that i: is not reasonably practicable to carry on ti business in partnership with him 5) The business of the partnership can only tx carried on at a loss. 6) Other circumstances render a dissolutio equitable, (Art. 1831) be On the application of the purchaser of a partner's interest 1) After the termination of the specific term ot particular undertaking, 2) At any time when the partnership was « Partnership at will when the interest was assigned nee the charging order was Effect of dissolution on authority of g partn er Dissolution terminat tes, for the partnership, except with res i Acts to wind up partnership 2 Aets to 6 comple transactions begun by F is applies efore dissolution contracts, “PMS 80 wholly gp : 7 Partly exectPARTNERSHIP In the above partnership. Ifthe eg 2mm the act of the Ie assets of the He partner binds the pay the liabilities, the ares Partnership are not sufficient to their separate Ts can be held liable te the extent of Properties, (Arts. 1832, 143%, 1494 and 1429) When autho: pees ty of 8 Partner to enter into new transactions is “ ated é the partners (Arts. 1832, 1833, 1834) If the cause of dissolution is not by the act, insolvency or death of a Partner (such as by the eee ch as by the expiration of the term court) ich the partnership was constituted or by decree of Notice or ki leds nowledge of the acting partner of the cause of dissolution is immaterial 7 If the cause of dissolution is the act of a partner and the partner who entered into the new transaction had knowledge of the dissolution If the cause of dissolution is the insolvency or death of @ partner and the partner who entered into the new transaction had notice or knowledge of such insolvency or death When authority of a partner to enter into new transaction is not terminated among the partners (Art. 1832) 1 If the cause of dissolution is the act of a partner and the acting partner had no knowledge of the dissolution 2. If the cause of dissolution is the insolvency or death of @ partner and the acting pertner hadi oo natice or knowledge Bf such insolvency or death. When the act of a partner after dissolution binds the partnership (Art 1834) 1 When the act is necessary for winding UP of partnership affairs. 2. when the act is necessary to complete transactions begun before dissolution. Bree ot area ranesceion or Uae the follow:ns cases:ost not liable with his separate prope: rt of partnership assets: poe a PARTNERSHtp sitesiierps belore dissolution (i.¢ ty to the (18 A previous creditor is entitled to @ spe he must be specially noti the dissolution. Mere _ publication dissolution is not notice to him, Howev be bound by the dissolution if he had re publication if there was one or had obt knowledge of the dissolution in some manner. Without such notice or knowledge, Partnership will be bound by the transaction. attention; hence If the other party to the transaction had not s extended credit before dissolution (ie. a creditor) but had nevertheless known of Partnership before dissolution, and the fact dissolution had not been advertised in newspaper of general circulation in the place (or each place if more than one) at which the busines. is regularly carried on. A new creditor is not entitled to a special attention; hence, mere publication of the dissolution is constructive notice to him although he had not read it. So if there was no publication and he had not come to learn of the dissolution in some other manner, he will not be bound by the dissolution, ‘The partnership will thus be liable to im, jn the above cases [No. 3(a) and (bj), a partner is y after the exhaustion ibs is unknown as a partner to the Person with whom the contract is made, andPARTNERSHI Where althous Partnership att the partie: fairs, the ote has a One who had extended ¢ a inieas before dissolution (Le, previotis cietiin), a had no notice or knowlege ot the pactiter's authority b. One who had not so , extend civ dissolution (Le, new creditor) ans hav or knowledge of the partner's lack of aut fact of want of authority has not been ety @ newspaper of general circulation in the play in each place if more than one! business is conducted. at whiel Except for the subject matter of the notes or knowledge which is the lack of authority of Oe partner to wind up, the explanation for No. 4 and (b) is similar to No. 3 (a) and (b), frst paragraph. When the act of a partner after dissolution does not bind the partnership (Art. 1834) a Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs Where the acting partner is insolvent Where the partner had no authority to wind up partnership affairs, except with ianocent third persons [Please refer to No. 4 (a) ancl (b} of the unmestacel preceding topic.] 's y dy terminated among ‘a partner's authority is alrea \ wet partners ‘and the third person had actual ov constructive knowledge, as the case may ve, ot (lv dissolution of the firm.w PARTNERS Hy, of the partners and ¢, after dissolution. sd among, the part pority in terminated 1H the partirer, tian authority. to act) but tne the transaction 1 Ira par such partner has rtnership in bound b " The third person ean go after the assets of thy partnerst b, IF the assets of the partnership are not sufficient, the third person can go alter the separate assets of each partner « Thereafter, the other partners can go after the acting partner to recover the amount they paid out of their separate assets and to demand the return of the amount paid out of the partnership assets, This is so because in so far as the partners are concerned, the authority of the acting partner was already terminated. IF a partner's authority is not terminated among the Partners and the partnership is bound by the transaction a The third person can go after the assets of the partnership. b. If the assets of the partnership are not sufficient, the third person can go after the each partner separate assets of © Thereafter, the other partners cannot go after the acting partner for recovery because after all the authority of the latter was not terminated among all the partners, Here, the partnership and. the riners are liable as if there had been no dissolution of the firm Ia partner's authority is terminated among the partners (or has no authority to act for the partnership) and the Partnership is not bound by the transaction * The partnership assets cannot be held to answer for the liability to the third personPARTNERSHIP 687 Fi tcting partner alone is liable to the third Person with whom he contracted. and he cannot on the other partners to share in the payment. If @ partner's authority jis jority is not terminated among the partners, but the partne e transaction 1¢ partnership is not bound by the disso a May occur for instance, when a partnership is y Teason of the death of a partner and the acting partner has no knowledge of such death. Then such acting partner enters into a new transaction with a Previous creditor who had notice or knowledge of the dissolution of the partnership by reason of such death. This situation seems not to be covered by the provisions of partnership. However, the author Tespectfully submits that the transaction does not bind either the partnership or the acting partner by reason of the bad faith of the third person in view of Art. 1931 on ‘Agency which provides that, ‘(A]nything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith.” Thus, if the third person had knowledge of the dissolution of the partnership (which is the principal), then he is considered Pe bad faith and will not be protected by the law. (See Buason vs. Panuyat, 105 Phil 795.) Examples 1 Madrid, Acosta, Platon, Lovina and Espina are partners in MAPLE Enterprises which is engaged in trading dry goods Madrid is the manager. Espina dies. Madrid knows of the Malth of Espina but he still purchases gocds from Romero Geattreditor who had granted credit to MAPLE before Giesolution, Romero was not aware of the dissolution of CHS MAPLE Enterprises by reason of the death of Espina a. Since Madrid knows of the death of Espina, then hie authority is already terminated among the partners.i 5 r PARTNERS ty, mero who is a previo} Sie ee te nd by the purens’ dissolution, MAPLE is bound by PUTCHase made by Madrid. a 1 after the assets of MAPLE, this case, Romero can g ae MAPLE‘ assets ane not sufiient, then he can go alter yt separate assets of all the partners including those Espina. Thereafter, Acosta, Platon, ovina and the leg 1 ter Madrid fo, representative of ‘Espina can go al en See coer ene Madrid's authority to enter into a new transaction wa. terminated by reason of his knowledge of the death of Espina. In the above example, if Madrid was not aware of the death of Espina, then his authority was not yet terminated among the partners. Accordingly, he can call on his Partners and on Espina’s legal representative for contribution from the partners’ separate assets if MAPLE's assets are not sufficient to pay the liability to Romero The partners shall be liable as if MAPLE has not been dissolved With respect to No. 1, if Romero was specially notified of he dissolution, then only Madrid will be liable to Romero, Madrid cannot call on the other partners and Espina’s legal representative to share in the payment {sere was publication ofthe dissolution but Romero hes not read it, Romero as a previous creditor is deemed to be Without notice or knowledge. Accordingly, MAPLE is liable te Fomero, If Romero is a new eredite” MAPLE will not Pe a to fg because he is not entitled to a special atten aPAR ENE RSL bine rrr hation Dy the a SOMONE OL the ' fallow The partuer hinett Phe partners Mp creditor, aud Me person contin Heh agree RENE May be ilerted Hoty Fhe ctr ae of Between the pa Knowledge of the de partnership contin dealing ating (etuliy creditor th The individual property of a deceased partner (ue. estate) shall be liable tor obligations of the partnership while he was a partner, but su of his separate debts eto the prior payment Who may wind up partnorabip affairs (Art. 1836) 1 Extra-judicually a By the partner or partners designated by the agreement b. none was designated 1) By the partner or partners who have not wrongfully dissolved (he partnership Ines are dead, the legal {surviving partner At all the representative of the la not insolvent who wa 2 sJudiciaily ol of the court, upon ne direction and cont Under the direction spon by any partner, his proper enuise shey representative oF 49s ppointes of the court should be a surviving siete the deceased hot the legal representative of Ceppiel not insolvent except when he partner who wa nerPARTNERS Hy, 090 Application of partnership property and other rights oy persis on dissolution (Art - 1897) , ' Dissolution without contravention of the partnershy agreement teach partner shall have the following Fights ve the partnership property applied (, To ave apiities ofthe partnership b. To have the surplus, if anys applied to pay in cast, the net amount owing to the respective partners. jf the cause of dissolution is the bona fide expulsion of a partner and the expelled partner is discharged from all partnership abilities, either by payment or the agreement of the expelied partner, the partnership creditor and the person continuing the business, he shall receive in cash only the net amount due him from the partnership. vention of the partnership agreeme: However, 2. Dissolution in contr Rights of partner who has not caused tlw dissolution wrongfully 1) To have the partnership property applied to discharge the liabilites of the partnership. 2) To have the surplus, if any, applied to pay in cash the net amount owing to the respective partners. 3) To be indemnified for damages from the partner who has caused the wrongful dissolution of the partnership. 4) To continue the business of the partnership in the same name, either by themselves °° jointly with others, and for that purpos* possess partnership property provided thot a) They pay the partner who has caused the wrongful dissolution ¢! the partnership the value of his interest. in the partnership. es* damages; or aDAICEUNE MSHI bj ‘They secure its payment by a bond approved by the court. b. Rights of paru of partner who has cat iissolution een caused the dissolute: 1) If the business is not continued a) To have the partnership property applied to discharge the habilnes of the partnership. b) To receive his share in the surph less damages suffered by the other partners by reason of his having caused the wrongful dissolution o: the partnership, 2) If the business is continued a) ‘To have the value of his interest 1 the partnership less damages paic to him in cash or have its payment secured by a bond approved by the court In ascerta the value of the such partner's interest, the value of the goodwill shail not be included, To be released from all existing > liabilities of the partnership. Rescission of partnership contract (Art. 1838) 1, Grounds for rescission a. Fraud or t. Misrepresentation to enter inte the partnershin contract, a, Rights of pertners whe was induced by fraud 0 misrepresentation mire pight often on, oF retention of the SA of the partnership property, alter the satisfaction Philties for any sum of money Pts partnership 1by way by him te the PAE advances of subrs » Right oredite partnership Liquidation of dissolved partnership (Art- 1839) 1 Liquidation or winding up, concert This involves the sale of the partnership, the payment of its liad: distribution of the [Link] cash or othe: partners. ip liabilities Order of payment of partne Those owing to the creditors other than pe a b. Those owing to partners other than for profits. Those owing to partne: Those owing to partners in respect of F in respect of ca . Assets of the partnership The following are the assets of the part be applied in the order they are declared for the paymer a. Partnership property b. The contributions of the part payment of such liabilities. 1) The contributions shall be in a x with the rules on the division of profits a" losses 2) ‘The individual property of a decease partner shall be liable for 3 contributionsMerynreuny 693. ine yee payment of the eonnty ations ny An assignee for the benefit of erealilors 1) Any person appointed by the court. ‘ Any pariner or his legal tepresentative to the extent of the himount which he paid in excess of his share of the liability. ‘ Vriority 4 Prtrlty tn the payment of liabilities if partnership property and the individual property of the partners are in possession of the court for distribution Subject to the rights of lien or of secured creditors, the priority st payment of the liabilities shall be as follows a Partnership creditors for partnership property. 1. Separate creditors for individual property: Ss Priority of claims against separate property of a debtor avhe is insolvent or whose estate is insolvent Those owing to separate creditors. » hose owing to partnership creditors. ‘ Those owing, to partners by way of contribution: When liabilities of dissolved partnership are also liabilities of the person or partnership “Continuing the business (Art. 1840) 1 When a new js admitted into an existing partnership: partner itis liability for the obligations of the dissolved partnership shall be ei tisfed out of partnership proper! ve Seontrary stipulation. (Art, 1826) unless there the representative ts in partnersh'p more of the + retires and assigns (oF partner assigns) his righ more partners, oF to one OF more third persons.os PARTNERSHip ariner retire and assign (or the When all ut one pane te signe) thei rte in’ partnership property to the remailing Partner, ng continues the business without liquidation of partnership, aflairs, either alone or with others. " and the business of the When any partner retires or dies an dissolved partnership is continued, with the consent of the retired partner or the representative of the deceased Partner, but without any assignment of his right in specific partnership property. When all the partners or their representatives assign their ights in partnership property to one or more third persons who promise to pay the debts and who continue the dissolved partnership, When any partner wrongfully causes the dissolution of the partnership and the remaining partners continue the business without liquidation of partnership affairs When a partner is expelled and the remaining partners continue the business cither alone or with others without liquidation of the partnership affairs, Rights of partner who retires or the legal representative of a deceased partner if business is continued without settlement of accounts (Art. 1841) 1 To have the value of the interest of the retiring or deceased Partner ascertained as of the date of dissolution, To receive as ordinary creditor an amount equal to value of his interest in the dissolved partnership with interest, profits attributable to the use of his right in the property of the dissolved partnership. Preference of partnership creditors Partnership creditors enjoy a prior right as against the the chat wtltOrs of a retiring or deceased partner with respect 10 eect of & Fetiring partner or of a deceased partners legal epresentative, (Arts. 184 nd 1842)AE Lo accor Rig! accounting (Art 1842) Any : eyewneniative of a dlev eased st Ins uintetent agaaint the HAE UP part 2 The surviving 3 The person or stay contiaauang the Intsaness LIMITED PARTNERSHIP Limited partnership, concept A limited partnership is a partners whieh has one ot more general partners and one or more liuted partiers The limited partners as such shall not be bound by the obhgabions of the partnership, (An. 1843) except up fo the extent of thew contribution. Requirements for formation (Art. 1844) Two or more persons desiring 1 partnership must comply with the following requpentents form a hinted 1 They must subscribe and swear to a certificate, which shall state: of the partnership, adding thereto the he name a word “Limited! pict of omission of the term ‘Limited™ in the firm name The name cannot te considered as the fret name of a limited parciership.(thungman Yoo vs Kicng Siang Cheng, © Pht 498) The partiershiy ill therefore be a general partnership b The character of the business c ihe tocation at the prineyal place of Dusitess a The name are place of veaidenee of eae 16 miber general andl Tianited pariners Beinn reapectively desienated ihe term for whet tthe partnerstay (0 ext