CHAPTER 3: DISSOLUTION AND WINDING UP

Article 1828 2. The purchaser of a partner’s interest in the partnership

under Art. 1813 or 1814 after the termination of the specified
Dissolution: term or particular undertaking or if the partnership is at will
- The change in the relation of the parties caused by any when the interest was assigned or when the charging order was
partner ceasing to be associated in the carrying on, as might be issued
distinguished from the winding up of, the business. On application by or for a partner:
- Upon dissolution, a partnership continues and its legal
personality is retained until the complete winding up of its 1. A partner has been declared insane
business culminating in its termination. 2. A partner becomes incapable of performing his part
of the partnership contract
THREE FINAL STAGES OF A PARTNERSHIP 3. Guilty of conduct prejudicially affecting the carrying
1st: Dissolution 2nd: Winding Up 3rd: Termination on of the business
4. A partner wilfully or persistently commits a breach of
the partnership agreement
The change in The process of settling The point in time 5. The business of the partnership can only be carried
relation – that business affairs after after all the on at a loss
point of time the dissolution. partnership affairs 6. Other circumstances
partners cease to Paying previous have been wound A catch-all provision for grounds not mentioned
carry on the obligations, collection up. above
business together. of assets previously
demandable, *retirement - The On the application of the purchaser of a partner’s interest:
contracting for new dissociation of a
business needed to partner, inclusive of the purchaser of a partner’s interest after the
wind up (contracting resignation or termination of the specified term or particular
with a demolition withdrawal, from undertaking has the right to ask the court to dissolve
company) the partnership the partnership
thereby dissolves it. Article 1832
Rule: When a partnership is dissolved, any of the partners
Article 1829 cannot bind the partnership

*After dissolution, all the transactions of the partnerships Exceptions: Those provided in Articles 1833 and 1834.
should only pertain to liquidation or winding up which will
happen over a period of time. Dissolution does not terminate a Article 1833
partnership, it is only when all the affairs of the partnership Explanation:
have been winded up that termination is deemed to have been
completed. Transactions entered into by partners without their knowledge
of the withdrawal of another is valid and binding. If a partner,
Article 1830 who knows of another’s withdrawal (or death), transacts with
a third person, that third person who has no knowledge about
Kinds of dissolution:
said withdrawal and is acting in good faith, the transaction is
1. Extrajudicial dissolution (nos. 1 to 7) still valid and binding. (A liability is created where remaining
partners are liable. After a partner’s payment of his share to
2. Judicial dissolution (no. 8) third persons, he can ask reimbursement of his share from the
partner who transacted in spite of his knowledge of the
a. Without violation of the agreement between the partners
withdrawal).
b. In contravention of the agreement between the partners,
Article 1834
where the circumstances do not permit a dissolution under any
other provision of this article, by the express will of any Partnership is liable
partner at any time (Ex. A partner wants the partnership
dissolved on the 3rd year of a 5-year agreement) 1. Act appropriate for winding up partnership affairs

c. By any event which makes it unlawful for the business of 2. Act for completing transactions unfinished at dissolution
the partnership to be carried on or for the members to carry it
3. Transactions which would bind the partnership if
on in partnership
dissolution had not taken place and the other party to the
d. When a specific thing which a partner had promised to transaction:
contribute to the partnership, perishes before the delivery; in
a. Extended credit to the partnership prior to dissolution and
any case by the loss of the thing, when the partner who
hand no notice of such
contributed it having reserved the ownership thereof, has only
transferred to the partnership the use or enjoyment of the b. Though had not extended credit had known of the
same; by the partnership shall not be dissolved by the loss of partnership prior to dissolution, and, having no notice of such,
the thing when it occurs after the partnership has acquired the the fact of dissolution had not been advertised in a newspaper
ownership thereof or general circulation.
e. By the death of any partner Partnership is not liable:
f. By the insolvency of any partner or of the partnership 1. Where dissolution was caused by unlawfulness to carry on
(INSOLVENCY: the liabilities are greater than the assets) the business
g. By the civil interdiction of any partner (CIVIL 2. Partner has become insolvent
INTERDICTION: deprives the offender during the time of his
sentence of the right to manage his property, and the right to 3. Partner had no authority to wind up partnership affairs;
dispose of such property by any act or any conveyance inter except by a transaction with a third person who is in good faith
vivos)
Article 1835
Article 1831
General rule: Dissolution does not of itself discharge the
Those who can sue for judicial dissolution: existing liability of any partner

1. A partner or any of the 1 to 6 grounds for judicial Discharge of partner’s liability:

dissolution in the first paragraph
 CHAPTER 3: DISSOLUTION AND WINDING UP
In order for the liability of a partner to be discharged, the a. Those owing to partnership creditors (other than partners)
following must agree:
b. Those owing to partners (the partner or partners who gave a
1. The partner; 2. The other partners; and 3. The creditors loan to the partnership)
Article 1836 c. Those owing to partners in respect of capital; and

Kinds of winding-up or liquidation d. Those owing to partners in respect of profits (An industrial
Extrajudicial Juridical partner is entitled to participate; surplus is distributed to each
Liquidation is done without Liquidation is done under the partner according to the profit-sharing agreement)
court intervention. control and direction of the
court under proper cause that it Required new contribution: If the partnership assets were
exhausted, the partners shall contribute the amount to satisfy
Wind-up by: is shown in court.
the liabilities
- Liquidating partner (as agreed
upon by all the partners Wind-up by: Enforced by:
- Partners who have not - The person appointed by
wrongfully dissolved the court 1. An assignee for the benefit of creditors or any person
partnership appointed by the court shall have the right to enforce the
- Legal representative of the last contributions
surviving partner who is
insolvent 2. Any partner or his legal representative shall have the right
to implement the said enforced contributions, to the extent of
the amount which he has paid in excess of his share of the
Article 1837 liability

Right of partners in case of liquidation not caused by Individual property of a deceased partner:
violation/contravention of the agreement:
- Shall be liable for his share of the partnership liability
1. To have the partnership property applied to discharge the incurred while he was a partner. His separate creditors have
liabilities of the partnership; and preference over these individual properties

2. To have the surplus, if any, applied to pay in cash the net Preference of claims against the separate property of an
amount owing to the respective partners insolvent partner:

Right of partners in case of liquidation caused by - Where a partner has become insolvent or his estate is
violation/contravention of the agreement insolvent, the claims against his property shall rank in the
following order:
1. Rights of partner who has not caused dissolution wrongfully
1. Separate creditors; 2. Partnership creditors; and 3. Partners
a. To have the partnership property applied to discharge the by way of contribution
liabilities of the partnership;
Article 1840
b. To have the surplus, if any, applied to pay in cash the net
amount owing to the respective partners; Rationale:

c. To be indemnified for damages caused by the partner who Primarily deals with the exemption from liability in cases of
caused the dissolution wrongfully; and a dissolved partnership, of the individual property of the
deceased partner for debts contracted by the person or
d. To continue the business in the same name either by partnership which continues the business with the name of the
themselves or jointly with others during the agreed term of the deceased;
partnership and for that purpose may possess the partnership
property Secondly, the article treats a commercial partnership more
with a goodwill to protect rather than of a professional
Rights of the partner who wrongfully caused the dissolution: partnership, with no saleable goodwill but whose reputation
depends on the personal qualifications of its individual
a. If the business is not continued by the other partners: To
members
have the partnership property applied to discharge the
liabilities of the partnership and to receive in cash his share of General rule: upon the dissolution of a commercial
the surplus less damages caused by his wrongful dissolution partnership, the succeeding partners or parties have the right to
carry on the business under the old name, in the absence of a
b. If the business is continued by the other partners: To have
stipulation forbidding it, since the name of a commercial
the value of his interest in the partnership, less any damage
partnership is a partnership asset inseparable from the
caused to his co-partners by the dissolution, ascertained and
goodwill of the firm. On the other hand, upon dissolution of a
paid to him in cash, or the payment secured by a bond
professional partnership, no goodwill can be distributed since
approved by the court
the reputation of such partnership depends on the individual
ii. To be released from all existing liabilities of the partnership skill of the members

Article 1838 Article 1841

Three rights of a partner who is entitled to rescind: Rights of a partner who retires or dies and the business is
continued without any settlement of accounts:
1. Right of lien or right of retention;
1. To have the value of his interest at the date of dissolution
2. Right of subrogation; and ascertained
3. Right of indemnification 2. To receive as an ordinary creditor an amount equal to the
value of his interest in the dissolved partnership with interest
Article 1839 or, at his option or at the option of his legal representative, in
Assets of the partnership: lieu of interest, the profits attributable to the use of his right in
the property of the dissolved partnership.
a. Partnership property; and
Article 1842
b. Contributions of the partners’ necessary for the payment of
all liabilities Note: The right to an account of his interest shall accrue to any
partner, or his legal representative
Liabilities of the partnership shall rank in order if payment: