MS. CLAUDINE B.
ESGUERRA
DISSOLUTION
Article 1828. 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.
Article 1829. On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is completed.
DISSOLUTION VS. WINDING UP VS. PARTITION
OR DISTRIBUTION
The dissolution of the partnership did not mean that the juridical
entity was immediately terminated and that the distribution of
the assets to its partners should perfunctorily follow. On the
contrary, the dissolution simply effected a change in the
relationship among the partners. The partnership, although
dissolved, continues to exist until its termination, at which time
the winding up of its affairs should have been completed and the
net partnership assets are partitioned and distributed to the
partners.
THREE FINAL STAGES OF A PARTNERSHIP
Even if partners had agreed to dissolve the partnership, such
agreement will not automatically put an end to the partnership,
since the partners still had to sell the goods on hand and collect the
receivables from debtors. In short, the partners will still undergo the
process of winding up the affairs of the partnership.
(1) Dissolution (2) Winding-up (3) Termination
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. It is that point of time the partners cease to carry
on the business together.
WINDING-UP
- the process of setting business affairs after dissolution
Example: The paying of previous obligations; the collecting
of assets previously demandable; even the contracting for
new business if needed to wind up, such as the contracting
with a demolition company for the demolition of the garage
used in a "used car" partnership.
TERMINATION
- is the point in time after all the partnership affairs have
been wound up.
RETIREMENT
-the dissociationby a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves it.
IS THE AGREEMENT OF THE PARTNERS
AFFECTING LIQUIDATION VALID?
The liquidation of the assets of the partnership following its
dissolution is governed by various provisions of the Civil Code;
however, an agreement of the partners, like any other contract, is
binding among themand normally takes precedence to the
extent applicable over the Code's general provisions.
ARTICLE 1830. DISSOLUTION IS CAUSED:
(1) 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 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;
ARTICLE 1830. DISSOLUTION IS CAUSED:
(2) 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;
(3) 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;
(4) 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;
ARTICLE 1830. DISSOLUTION IS CAUSED:
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)
ARTICLE 1831. ON APPLICATION BY OR FOR A PARTNER THE
COURT SHALL DECREE A DISSOLUTION WHENEVER:
(1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
ARTICLE 1831. ON APPLICATION BY OR FOR A PARTNER THE
COURT SHALL DECREE A DISSOLUTION WHENEVER:
(4) 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;
(5) The business of the partnership can only be carried on at a
loss;
ARTICLE 1831. ON APPLICATION BY OR FOR A PARTNER THE
COURT SHALL DECREE A DISSOLUTION WHENEVER:
(6) Other circumstances render a dissolution equitable. On the
application of the purchaser of a partner's interest under article
1813 or 1814:
(1) After the termination of the specified term or particular
undertaking;
(2) 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. 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:
(1) 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 1833 so requires;
(2) With respect to persons not partners, as declared in
article 1834.
Article 1833. Where the dissolution is caused by the act,
death or insolvency 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:
(1) The dissolution being by act of any partner, the partner
acting for the partnership had knowledge of the
dissolution; or
(2) 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.
I. PARTNERSHIP IS LIABLE
1. Act appropriate 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
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;
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 at which the
partnership was regularly carried on.
I. PARTNERSHIP IS NOT LIABLE
1. Where the partnership was dissolved because it was unlawful
to carry on the business, unless the act is appropriate for
winding up partnership affairs
2. Where the partner has become insolvent
3. When the partner had no authority to wind up partnership
affairs; except by a transaction with a third person who is in
good faith.
1835. GENERAL RULE: THE DISSOLUTION OF THE
PARTNERSHIP DOES NOT OF ITSELF DISCHARGE THE
EXISTING LIABILITY OF ANY PARTNER.
Partner's liability is discharged. In order for the liability of a partner to be discharged, the
following must agree:
1. The partner
2. The other partners
3. The creditors
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.
Article 1836. 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.
KINDS OF WINDING-UP OR LIQUIDATION
I. Extrajudicial - liquidation is done without the intervention of the
court.
Who will wind up?
1. The liquidating partner or partners as agreed upon by all of the
partners.
2. The partners who have not wrongfully dissolved the
partnership.
3. The legal representative of the last surviving partner who is not
insolvent.
KINDS OF WINDING-UP OR LIQUIDATION
II. Judicial - liquidation is done under the control and direction of
the court, upon proper cause that is shown to the court.
Who will wind-up?
The person appointed by the court.
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