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ART. 1828 - 1842 Dissolution and Winding Up Summary

Accountancy (Jose Maria College)

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ART. 1828. The dissolution of a partnership is the change in the ART. 1830. Dissolution is caused:
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up (1) Without violation of the agreement between the partners:
of the business. (n) (a) By the termination of the definite term or particular
Dissolution, winding up, and termination defined. undertaking specified in the agreement;

(b) By the express will of any partner, who must act in good
Dissolution – change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on of the business. faith, when no definite term or particular undertaking is
specified;
- represent the demise of the partnership
(c) By the express will of all the partners who have not
Winding up - Process of settling the business or partnership affairs assigned their interests or suffered them to be charged for
after dissolution their separate debts, either before or after the termination
of any specified term or particular undertaking;
Termination – Point in time where all partnership affairs are
completely wound up and finally settled (d) By the expulsion of any partner from the business bona
fi de in accordance with such a power conferred by the
- End of partnership life. agreement between the partners; Art. 1830 215
ART. 1829. On dissolution the partnership is not terminated, but (2) In contravention of the agreement between the partners,
continues until the winding up of partnership affairs is completed. where the circumstances do not permit a dissolution under any
(n) other provision of this article, by the express will of any partner at
Partnership not terminated by dissolution any time;

- Dissolution of partnership must not be understood to mean its (3) By any event which makes it unlawful for the business of the
extinguishment. partnership to be carried on or for the members to carry it on in
partnership;
- Principal significance of dissolution is, Thereafter, no new
partnership business should be taken but affairs should be (4) When a specific thing, a partner had promised to contribute to
liquidated and distribute it to those who are entitled of the partner’s the partnership, perishes before the delivery; in any case by the
affair. loss of the thing, when the partner who contributed it having
reserved the ownership thereof, has only transferred to the

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partnership the use or enjoyment of the same; but the partnership - Article 1831 enumerates the grounds for judicial dissolution of the
shall not be dissolved by the loss of the thing when it occurs after partnership.
the partnership has acquired the ownership thereof;
- Once partnership is dissolved, the same partner can create a new
(5) By the death of any partner; partnership with the same terms as of the old.

(6) By the insolvency of any partner or of the partnership; Dissolution effected without violation of partnership agreement.

(7) By the civil interdiction of any partner; (8) by decree of court (1) Termination of the definite term or particular undertaking.
under the following article. (1700a and 1701a)
- Partnership may be constituted for a fixed term or it may
Causes of dissolution. have for its object a specific undertaking.

- The events that cause dissolution of a partnership may be divided -Expiration of the term or particular undertaking constitutes
into four (4) categories: act of the parties not in violation of their automatic dissolution if the partners don’t have any
agreement; act of the parties in violation of their agreement; intention to extend the term.
operation of law; and court decree. Other causes are provided in
Article 1840. - If the partners continue the partnership it becomes
partnership by will.
 Dissolution may be caused without violation of the agreement
between the partners (No. 1.) or in contravention of said (2) By the express will of any partner
agreement. (No. 2.) - Partnership at will may be dissolved any time even without
 May be voluntary when caused by the will of one or more or all the consent of the co-partner
of the partners (Nos. 1 and 2.) or involuntary when brought
about independently of the will of the partners or by operation - The partner who wants to dissolve the partnership should
of law. (Nos. 3, 4, 5, 6, 7, and 8.) be acting in good faith.
 Voluntary dissolution of partnership may be effected extra-
- If there is bad faith in dissolution then it is wrongful.
judicially (Nos. 1 to 7.) or judicially, that is, by decree of court.
(No. 8, in relation to Art. 1831.) (3) By the express will of all the partners.
- It will be observed that the causes provided in Article 1830 result in - Agreement on dissolving partnership before expiration of a
the automatic dissolution of the partnership term or particular undertaking must be unanimous.

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- Majority consent alone is cannot dissolve the partnership - allows partner to have the power not necessarily right to
and those consent of the partner who assigned their dissolved partnership even though the co-partner still wants
equitable interest cannot effect dissolution only those to continue the partnership
remaining partners can.
(3) Legal effects of dissolution.
(4) By expulsion of any partner.
- Withdrawing partner is liable to any damages caused by
- decreasing the number of partners. unjustified dissolution.

- must be in good faith and in accordance to the power Business becomes unlawful.
onferred by the partnership agreement, between partners.
- Dissolution may be caused involuntarily when a supervening event
- Power can be vested exclusively to one partner makes the business itself of the partnership unlawful or makes it
unlawful for the partners to carry it on together.
- Partner who expelled in bad faith can claim damages.
- Partnership must have a lawful object or purpose.
Dissolution effected in contravention of partnership agreement.
Loss of specific thing.
- Breach in agreement
(1) Loss before delivery.
(1) Dissolution may be for any cause or reason.
- If the contribution of a specific thing is lost before delivery
- Any partner can cause dissolution of the partnership any partnership is dissolved
time even without the consent of the co-partner at his own
pleasure even though the partnership is entered in a - The specific thing lost cannot be substituted.
definite term.
(2) Loss after delivery.
- ^ Constitutes contravention of the agreement or breach of
the agreement. - If the specific thing is loss after delivery then partnership is
not dissolved as long as the ownership was passed to the
(2) Power of dissolution always exists. partnership.

- Delectus personae - Partners may contribute additional capital to save the

venture.

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(3) Loss where only use or enjoyment contributed. Insolvency of any partner or of partnership.

- If only the use or enjoyment of the thing is contributed, - Insolvency of a partner subjects his interest in the partnership to
the partner having reserved the ownership thereof, the loss the right of his creditors.
of the same before or after delivery dissolves the
partnership. - Impossible for him to satisfy with his property partnership
obligations to its creditors in the event that partnership assets have
- Partner bears the loss and, therefore, he is considered in been exhausted.
default with respect to his contribution.
- Insolvent partner has no authority to act for neither the
- Upon dissolution, the partners may demand for an partnership nor the other partners to act for him.
accounting and liquidation.
- Insolvency of the partnership renders its property in the hands of
- The mere failure by a partner to contribute his share of capital the partners liable for the satisfaction of partnership obligations
pursuant to an agreement to form a partnership does not prevent resulting in their inability to continue the business, which practically
the existence of a firm amounts to dissolution.

- Failure may be waived by the other parties to the agreement. Civil interdiction of any partner.

Death of any partner. - A person under civil interdiction (or civil death) cannot validly give
consent as his capacity to act is limited thereby.
- Partner who died ceases to be associated with the partnership.
- Civil interdiction deprives the offender during the time of his
- surviving partner does not have the authority to continue business sentence of the right to manage his property and dispose of such
except so far as is necessary to wind up. property by any act or any conveyance.
- However, partnership agreement can stipulate that any death, ART. 1831. On application by or for a partner, the court shall
withdrawal or admission of a partner will cause dissolution. decree dissolution whenever:
- Estate of the deceased is not liable for obligation contracted by the (1) A partner has been declared insane in any judicial proceeding
partnership after dissolution beyond the excess of his capital or is shown to be of unsound mind;
permitted to remain in the business which is continued.

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(2) A partner becomes in any other way incapable of performing b. Incapacity – Incapacity must affect the ability of the
his part of the partnership contract; partner to perform his duties as a partner.

(3) A partner has been guilty of such conduct as tends to affect c. Misconduct and persistent breach of partnership
prejudicially the carrying on of the business; agreement – Prejudicial in carrying on the business and
persistent breach of partnership agreement.
(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in d. Business can be carried on only at a loss – Becomes
matters relating to the partnership business that it is not apparent that the business is unprofitable with no
reasonably practicable to carry on the business in partnership with reasonable prospect of success.
him;
e. Other circumstances – Abandonment of business, fraud,
(5) The business of the partnership can only be carried on at a loss; refusal to render accounting affairs without justifiable
reason.
(6) Other circumstances render dissolution equitable.
(2) Application by a purchaser of a partner’s interest
On the application of the purchaser of a partner’s interest under
Article 1813 or 1814: - Purchaser of a partner’s interest may apply for judicial dissolution
of the partnership as long as it’s after the termination of the specific
(1) After the termination of the specified term or particular undertaking or it is a partnership by will from the beginning.
undertaking;
ART. 1832. Except so far as may be necessary to wind up
(2) At any time if the partnership was a partnership at will when partnership affairs or to complete transactions begun but not then
the interest was assigned or when the charging order was issued. finished, dissolution terminates all authority of any partner to act
(n) for the partnership.
Grounds for dissolution by decree of court.
(1) With respect to the partners:
(1) Application by a partner (a) When the dissolution is not by the act, insolvency or
a. Insanity – should be previously declared in insane in death of a partner; or
judicial proceeding. If not declared must prove the insanity. (b) When the dissolution is by such act, insolvency or death
of a partner, in cases where Article 1833 so requires;

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(2) With respect to persons not partners, as declared in article (b) With respect to third persons
1834. (n)
- Partnership is still bound by the contract even though the
Effect of dissolution on authority of partner. authority of the acting partner is already terminated.

(1) General rule. - Innocent partners can claim damages to the acting partner.

- Unless otherwise stipulated, every partner is considered the agent ART. 1833. Where the dissolution is caused by the act, death or
of the partnership with authority to bind the partnership as well as insolvency of a partner, each partner is liable to his co-partners for
the other partners with respect to the transaction of its business. his share of any liability created by any partner acting for the
partnership as if the partnership had not been dissolved unless:
- Upon dissolution, the partnership ceases to be a going concern and
the partner’s power of representation is confined only to acts (1) The dissolution being by act of any partner, the partner acting
incident to winding up. for the partnership had knowledge of the dissolution; or

- The event of dissolution, therefore, terminates the actual authority (2) The dissolution being by the death or insolvency of a partner,
of a partner to undertake new business for the partnership. the partner acting for the partnership had knowledge or notice of
the death or insolvency.
(2) Qualifications to the rule of Article 1832.
Right of partner to contribution from co-partners.
(a) In so far as the partners themselves are concerned
- Dissolution cause by the act, insolvency, death of the partner.
- AUTHORITY of any partner to bind the partnership by a
new contract is immediately terminated when the - Partner who enters in a new contract after dissolution binds
dissolution is not by the act, insolvency, or death of a partners and each of them are liable to the third person.
partner.
Authority of partners, AS AMONG THEMSELVES, to act for the
- Dissolution is by such act, insolvency, or death, the partnership.
termination of authority DEPENDS upon whether or not the
partner had KNOWLEDGE OR NOTICE of the dissolution as - Authority is terminated even the cause is Insolvency or death
provided in Article 1833. (1) Cause of dissolution is of partner and acting partner knows the
dissolution. (to protect innocent partners)

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(2) Cause of the dissolution is death or insolvency of a partner but ART. 1834. After dissolution, a partner can bind the partnership,
the acting partner has the notice of such death and insolvency. (to except as provided in the third paragraph of this article:
avoid or eliminate the fiction that everybody is presumed to have
(1) By an act appropriate for winding up partnership affairs or
knowledge about the death or insolvency.
completing transactions unfinished at dissolution;
When a partner has knowledge or notice of a fact.
(2) By any transaction which would bind the partnership if
(1) When a partner has knowledge of a fact, he had the actual dissolution had not taken place, provided the other party to the
knowledge and other facts yet acted in bad faith . transaction:

(2) A person has notice of a fact (a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of the
a. states the fact dissolution; or
b. through mail / any means of communication, Written (b) Though he had not so extended credit, had
statement of the fact / proper person at his place of nevertheless known of the partnership prior to dissolution,
business or residence. and having no knowledge or notice of dissolution, the fact
Ex. A, B and C are partner and C communicated it to B(acting of dissolution had not been advertised in a newspaper of
partner) that he will resign. general circulation in the place (or in each place if more
than one) at which the partnership was regularly carried
Any acts that made by A who does not know of the dissolution is on.
binding to all of them
The liability of a partner under the first paragraph, No. 2, shall be
But if B who has the knowledge but still entered in the contract satisfied out of partnership assets alone when such partner had
doesn’t binds the other partners but is personally liable. been prior to dissolution:

If A only knew the resignation from B then it is only a notice not (1) Unknown as a partner to the person with whom the
knowledge and still binds all partners. contract is made; and

If the other partner is Insolvent or died then the knowledge or

notice on the part of B will justify non-liability on the part of other
partners.

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(2) So far unknown and inactive in partnership affairs that another representing him as a partner in a partnership engaged in
the business reputation of the partnership could not be carrying on business. (n)
said to have been in any degree due to his connection with
it.

The partnership is in no case bound by any act of a partner after Power of partner to bind dissolved partnership to third persons.
dissolution: - 1834 enumerates where partners can still bind partnership even
(1) Where the partnership is dissolved because it is after dissolution (Par. 1 Nos. 1-2) and cases cant bind partnership
after dissolution (Par. 3 Nos. 1,2 and 3)
unlawful to carry on the business, unless the act is
appropriate for winding up partnership affairs; or - Upon the dissolution of the partnership, as between themselves,
the power of one partner to act and bind the others is effectively
(2) Where the partner has become insolvent; or
terminated.
(3) Where the partner had no authority to wind up
- Authority of a partner apparently continues as to third person who
partnership affairs, except by a transaction with one who
— doesn’t know of the dissolution because dissolution is not made
public.
(a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of his Notice of dissolution to creditors.
want of authority; or (1) As to persons who extended credit to partnership prior to
(b) Had not extended credit to the partnership dissolution.
prior to dissolution, and, having no knowledge or -partnership or persons who extended credit to the partnership
notice of his want of authority, the fact of his want prior to its dissolution must have knowledge or notice of the
of authority has not been advertised in the manner dissolution to relieve the partnership from liability.
provided for advertising the fact of dissolution in
the first paragraph, No. 2(b). (2) As to persons who had known of partnership’s existence.

Nothing in this article shall affect the liability under article 1825 of - Persons who had not so extended credit prior to its dissolution, but
any person who after dissolution represents himself or consents to who had known of its existence, the fact that the dissolution had
been published in the newspaper would be sufficient.

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- Mere mailing of a letter to a former dealer is insufficient to

relieve the retiring partner from subsequent liability, where
the notice was never received.
(3) Where acting partner has no authority to wind up partnership *prior or former dealer is one who has extended credit on the faith
affairs. of the partnership, through confidence in the solvency and probity
- Notice of dissolution is unnecessary except in case No. 3, where of the fi rm.
the partner has no authority to wind up partnership affairs. (2) As to all others.
- Third persons dealing with the partner without such authority are - Notice is accomplished by an advertisement in a local newspaper.
protected under the same circumstances mentioned in paragraph 1, Actual notification is not necessary.
No. (2)(a) and (b).
Dormant partner need not give notice.
(4) Where acting partner has become insolvent.
- Person with whom the contract is made or so far unknown and
- Law makes a distinction between the right of a partner who has no inactive in partnership affairs shall be satisfied out of partnership
knowledge or notice of the other partner’s insolvency to bind the assets alone.
partnership and the right of a third person to claim that his contract
with the partnership is valid - His connection with the partnership not having known, it cannot in
any degree have contributed towards establishing its reputation or
- Innocent partner is protected in his continued right to make credit.
binding partnership agreements, but no similar protection is
extended to a third party who innocently makes a contract with an ART. 1835. The dissolution of the partnership does not of itself
insolvent partner. discharge the existing liability of any partner.

Character of notice required. A partner is discharged from any existing liability upon the
dissolution of the partnership by an agreement to that effect
- Notice is required to relieve retiring partner or representative of between himself, the partnership creditor and the person or
the deceased partner of any subsequent liability on partnership. partnership continuing the business; and such agreement may be
(1) As to prior dealers. inferred from the course of dealing between the creditor having
knowledge of the dissolution and the person or partnership
- must be actual continuing the business.

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The individual property of a deceased partner shall be liable for all (2) extra-judicially – among themselves.
obligations of the partnership incurred while he was a partner, but
subject to the prior payment of his separate debts. (n) Persons authorized to wind up

(1) Person designated by the agreement. (liquidating partner)

Effect of dissolution on partner’s existing liability.
(2) If no agreement, all partners who have not wrongfully
- The dissolution of a partnership does not of itself discharge the dissolved the partnership.
existing liability of a partner. (3) Legal representative of the last deceased partner NOT
INSOLVENT
- A partner may be relieved from all existing liabilities upon
dissolution only by an agreement to that effect between himself, the - If there is remaining partners they are the one who is responsible
partnership creditor, and the other partners. in winding up the business not the LEGAL REPRESENTATIVE of the
deceased partner unless the DECEASED IS THE LAST SURVIVING
Liability of estate of deceased partner. PARTNER.
- The individual property of a deceased partner shall be liable for all ART. 1837. When dissolution is caused in any way, except in
obligations of the partnership incurred while he was a partner. contravention of the partnership agreement, each partner, as
- Individual creditors of the deceased partner are to be preferred against his co-partners and all persons claiming through them in
over partnership creditors with respect to the separate property of respect of their interests in the partnership, unless otherwise
said deceased partner. agreed, may have the partnership property applied to discharge its
liabilities, and the surplus applied to pay in cash the net amount
ART. 1836. Unless otherwise agreed, the partners who have not owing to the respective partners. But if dissolution is caused by
wrongfully dissolved the partnership or the legal representative of expulsion of a partner, bona fide under the partnership agreement
the last surviving partner, not insolvent, has the right to wind up and if the expelled partner is discharged from all partnership
the partnership affairs, provided, however, that any partner, his liabilities, either by payment or agreement under the second
legal representative or his assignee, upon cause shown, may paragraph of article 1835, he shall receive in cash only the net
obtain winding up by the court. (n) amount due him from the partnership.

Manner of winding up. When dissolution is caused in contravention of the partnership

agreement, the rights of the partners shall be as follows:
(1) Judicially – Endorsed in the court by the surviving partner or by
the legal representative of the last surviving partner.

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(1) Each partner who has not caused dissolution wrongfully shall interest in the partnership, less any damage caused to his
have: co-partners by the dissolution, ascertained and paid to him
in cash, or the payment secured by a bond approved by the
(a) All the rights specified in the first paragraph of this court and to be released from all existing liabilities of the
article, and partnership; but in ascertaining the value of the partner’s
(b) The right, as against each partner who has caused the interest, the value of the good will of the business shall not
dissolution wrongfully, to damages for breach of the be considered. (n)
agreement. Right of partner to application of partnership property on
(2) The partners who have not caused the dissolution wrongfully, if dissolution.
they all desire to continue the business in the same name either by - Partners has the right to have the partnership property applied to
themselves or jointly with others, may do so, during the agreed discharge partnership liabilities and to have the surplus distributed
term for the partnership and for that purpose may possess the to them respectively depending on the cause:
partnership property, provided they secure the payment by bond
approved by the court, or pay to any partner who has caused the a. without violation to partnership agreement
dissolution wrongfully, the value of his interest in the partnership b. with violation to the partnership agreement
at the dissolution, less any damages recoverable under the second
Rights where dissolution not in contravention of agreement.
paragraph, No. 1(b) of this article, and in like manner indemnify
him against all present or future partnership liabilities. (1) To have the partnership property applied to discharge
partnership liabilities
(3) A partner who has caused the dissolution wrongfully shall have:
(2) To have the surplus distributed to the partners respectively
(a) If the business is not continued under the provisions of
- Dissolution caused by expulsion of a partner, the expelled partner
the second paragraph, No. 2, all the rights of a partner
under the first paragraph, subject to liability for damages will be relieved from all the partnership liabilities with the payment
or agreement with the PARTNERSHIP CREDITORS , and OTHER
in the second paragraph, No. 1(b), of this article.
PARTNERS.
(b) If the business is continued under the second
- expelled only have the right to receive cash the next amount due
paragraph, No. 2, of this article, the right as against his co-
partners and all claiming through them in respect of their him from partnership but if its rightful diss. Then no partner is liable
interests in the partnership, to have the value of his Rights where dissolution in contravention of agreement.

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(1) Partner who doesn’t caused the wrongful dissolution (1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership liabilities to
- Partnership property applied for the payment of its liabilities and third persons for any sum of money paid by him for the purchase
to receive in cash his share of the surplus of an interest in the partnership and for any capital or advances
- indemnified for damages from the guilty partner that caused contributed by him;
wrongful dissolution. (2) To stand on, after all liabilities to third persons have been
- Continue the business in the same name during the agreed term of satisfied, in the place of the creditors of the partnership for any
the partnership, by themselves or jointly with others. payments made by him in respect of the partnership liabilities; and

- To possess partnership property if they want to continue. (3) To be indemnified by the person guilty of the fraud of making
the representation against all debts and liabilities of the
(2) Partner who wrongfully caused the dissolution: partnership. (n)

- NOT CONTINUED by the other partners to have the partnership Right of partner to rescind contract of partnership.
property applied to discharge its liabilities and to receive in cash his
share of the surplus LESS DAMAGES. - Contract to create partnership, induced with fraud can be voidable
or annullable but it doesn’t mean that the partnership doesn’t exist
- Business is continued: as long as the contract is not yet annulled by the proper action of
court.
- Value of his interest in the partnership at the time of the
dissolution, less any damage in cash or secured by bond - Defrauded partner is still liable for all obligations to third person
approved by the court. but can indemnify.

- Released from all existing and future liabilities of the Rights of injured partner where partnership contract rescinded.
partnership.
(1) Retention of, the surplus of partnership property after satisfying
ART. 1838. Where a partnership contract is rescinded on the partnership liabilities for any sum of money paid or contributed by
ground of the fraud or misrepresentation of one of the parties him
thereto, the party entitled to rescind is, without prejudice to any
other right, entitled: (2) Subrogation in place of partnership creditors after payment of
partnership liabilities.

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(3) Indemnification by the guilty partner against all debts and (6) Any partner or his legal representative shall have the right to
liabilities of the partnership enforce the contributions specified in No. 4, to the extent of the
amount which he has paid in excess of his share of the liability.
ART. 1839. In settling accounts between the partners after
dissolution, the following rules shall be observed, subject to any (7) The individual property of a deceased partner shall be liable for
agreement to the contrary: the contributions specified in No. 4.

(1) The assets of the partnership are: (8) When partnership property and the individual properties of the
partners are in possession of a court for distribution, partnership
(a) The partnership property, creditors shall have priority on partnership property and separate
(b) The contributions of the partners necessary for the creditors on individual property, saving the rights of lien or secured
payment of all the liabilities specified in No. 2. creditors.
(2) The liabilities of the partnership shall rank in order of payment, (9) Where a partner has become insolvent or his estate is
as follows: insolvent, the claims against his separate property shall rank in the
(a) Those owing to creditors other than partners, following order:
(b) Those owing to partners other than for capital and profits, (a) Those owing to separate creditors;
(c) Those owing to partners in respect of capital, (b) Those owing to partnership creditors;
(d) Those owing to partners in respect of profits. (c) Those owing to partners by way of contributions. (n)
(3) The assets shall be applied in the order of their declaration in Liquidation and distribution of assets of dissolved partnership.
No. 1 of this article to the satisfaction of the liabilities.
- Distribution subject to variation by agreement of partnership.
(4) The partners shall contribute, as provided by article 1797, the
amount necessary to satisfy the liabilities. Assets of the partnership (what to liquidate)

(5) An assignee for the benefit of creditors or any person - Partnership property (including goodwill)
appointed by the court shall have the right to enforce the
contributions specified in the preceding number. - Contributions of the partners necessary for the payment of
all liabilities in accordance with Article 1797

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Order of application of the assets 2. Partnership creditor

3. Partners
1. Partnership creditors
2. Partner Creditor ( a member of partnership who extends ART. 1840. In the following cases, creditors of the dissolved
credit to the partnership) partnership are also creditors of the person or partnership
3. Return on capital to the Partners continuing the business:
4. Profits or surplus made after paying all liabilities or
obligations are due to each partner. (1) When any new partner is admitted into an existing partnership,
or when any partner retires and assigns (or the representative of
Assets were insufficient 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
- If the partnership acquires loss partners or any legal representative one or more third persons, if the business is continued without
can enforce the contribution provided in Article 1797. liquidation of the partnership affairs;
- If any partner does not pay their losses remaining partners have to (2) When all but one partner retire and assign (or the
pay but they can sue the non-paying partner. representative of a deceased partner assigns) their rights in
Liability of deceased partner’s individual property. partnership property to the remaining partner, who continues the
business without liquidation of partnership affairs, either alone or
- Personal estate of the deceased partner is subject to the liabilities with others;
of the partnership incurred while he was a partner.
(3) When any partner retires or dies and the business of the
Priority to payment of partnership creditors/partners’ dissolved partnership is continued as set forth in Nos. 1 and 2 of
this article, with the consent of the retired partners or the
- Partnership property and personal properties of partners are in the
representative of the deceased partner, but without any
possession of the court for distribution.
assignment of his right in partnership property;
- Creditors are paid first from the partnership property then, if
(4) When all the partners or their representatives assign their
partnership property is insufficient then to partners separate
rights in partnership property to one or more third persons who
property.
promise to pay the debts and who continue the business of the
Distribution of property of insolvent partner dissolved partnership;

1. Separate creditor

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(5) When any partner wrongfully causes a dissolution and the deceased partner liable for any debts contracted by such person or
remaining partners continue the business under the provisions of partnership. (n)
article 1837, second paragraph, No. 2, either alone or with others,
Dissolution of a partnership by change in membership
and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners Dissolution can happen in any of the following:
continue the business either alone or with others without - New partner is admitted
liquidation of the partnership affairs. - Partner is retired, expelled, dies or withdraws
- Partners assign their right to sole remaining partner
The liability of a third person becoming a partner in the
partnership continuing the business, under this article, to the - All partners assign their right to a third person.
creditors of the dissolved partnership shall be satisfied out of the Rights of creditors of dissolved partnership which is continued.
partnership property only, unless there is a stipulation to the
contrary. - Rights of the creditors if the business continues by a partner alone
or with new partner without liquidation.
When the business of a partnership after dissolution is continued
under any conditions set forth in this article the creditors of the - They are still creditor of the new partnership or of the
dissolved partnership, as against the separate creditors of the person.
retiring partner or deceased partner or the representative of the
Ex. C is admitted as a new partner to the existing partnership of A &
deceased partner, have a prior right to any claim of the retired
B
partner or the representative of the deceased partner against the
person or partnership continuing the business, on account of the - C is liable to the extent of his contribution to the old creditors of
retired or deceased partner’s interest in the dissolved partnership the partnership, but is liable to the extent of his individual property
or on account of any consideration promised for such interest or if the credit was incurred subsequent to his entry.
for his right in partnership property.
Liability of persons continuing business
Nothing in this article shall be held to modify any right of creditors
to set aside any assignment on the ground of fraud. - Liability of the incoming partner shall be satisfied out of
partnership property unless there is stipulation to the contrary.
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

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- If third person promises to pay the debt of the partnership then becomes a new partner and is liable to all liable and
creditors don’t have claims on the dissolved partnership or partners, obligation arising after death only to the extent of the
but to the third person unless it is fraud. contribution of the deceased.

ART. 1841. When any partner retires or dies, and the business is ART. 1842. The right to an account of his interest shall accrue to
continued under any of the conditions set forth in the preceding any partner, or his legal representative as against the winding up
article, or in article 1837, second paragraph, No. 2, without any partners or the surviving partners or the person or partnership
settlement of accounts as between him or his estate and the continuing the business, at the date of dissolution, in the absence
person or partnership continuing the business, unless otherwise of any agreement to the contrary. (n)
agreed, he or his legal representative as against such person or
Partner’s right to account of his interest.
partnership may have the value of his interest at the date of
dissolution ascertained, and shall receive as an ordinary creditor (1) Accrual right – Right to demand an accounting of the value of his
an amount equal to the value of his interest in the dissolved interest accrues to any partners or his legal representative after
partnership with interest, or at his option or at the option of his dissolution in the absence of the agreement to the contrary.
legal representative, in lieu of interest, the profits attributable to
the use of his right in the property of the dissolved partnership; (2) Person liable to render an account
provided that the creditors of the dissolved partnership as against
- Winding partner
the separate creditors, or the representative of the retired or
- Surviving partner
deceased partner, shall have priority on any claim arising under
- Person or partnership continuing the business.
this article, as provided by article 1840, third paragraph. (n)
When liquidation not required.
Rights of retiring, or of estate of deceased, partner when business
is continued. - No liquidation required if there is already settlement or agreement
to what he shall receive.
- To have the value of the interest of the retiring or deceased
partner ascertained on the date of dissolution.

- To receive Interest or profits attributable to the use of his right in

equal to the value of his contribution

-If the surviving partner continues the business with the

consent of the Legal representative of the deceased

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