Professional Documents
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Actreg1 Notes 4
Actreg1 Notes 4
rendering false accounts, misuse or (without violation of the Partnership (1) Without violation of the agreement between the
misappropriation of Partnership Funds) are Agreement) although no suit has been partners:
(d) By the expulsion of any partner from the business
grounds for Judicial dissolution, for they instituted to that end bona fide in accordance with such a power conferred by
defeat and materially affect and obstruct the FROM THE BOOK the agreement between the partners;
purpose of the Partnership d. Business can be carried only at a loss
FROM THE PDF - Since the purpose of a Partnership is the
Misconduct and persistent breach of Partnership carrying of a business for profit, it may be
Agreement dissolved by decree of court when it becomes
- Temporary grievances, discourtesies, apparent that the business is unprofitable
disagreements, or mistakes of judgments that with no reasonable prospects of success or it
involve no permanent mischief or injury will can be carried on only at a loss
not suffice as the basis for a Judicial Decree FROM THE PDF
of dissolution Business can be carried only at a loss
- Where a Partnership had lost all its capital, or - Except so far as may be necessary to wind up
Commented [333]: ARTICLE 1833. Where the
had become insolvent, or that the enterprise Partnership affairs or to complete dissolution is caused by the act, death or insolvency of
for which it had been organized had been transactions begun but not then finished, a partner, each partner is liable to his co-partners for his
concluded or utterly abandoned, a provision dissolution terminates all authority of any share of any liability created by any partner acting for
the partnership as if the partnership had not been
in the Articles of Partnership prohibiting the partner to act for the Partnership: dissolved unless:
dissolution of the Partnership except by the 1. With respect to the partners
(1) The dissolution being by act of any partner, the
consent and agreement of two-thirds of its a. When the dissolution is not by the act, partner acting for the partnership had knowledge of the
partners, can in no wise limit or restrict the insolvency, or death of a partners; or dissolution; or
right of a less number of the partners to effect b. When the dissolution is by such act,
(2) The dissolution being by the death or insolvency of a
a dissolution of the Partnership through insolvency, or death of a partner, in cases partner, the partner acting for the partnership had
Judicial Intervention or otherwise where Article 1833 so requires knowledge or notice of the death or insolvency.
- It would be absurd and unreasonable to 2. With respect to persons not partners, as Commented [334]: ARTICLE 1834. After dissolution, a
partner can bind the partnership, except as provided in
hold that such an association could never declared in Article 1834 the third paragraph of this article:
be dissolved and liquidated without the
consent and agreement of two-thirds of Effects of Dissolution on Authority of Partner (1) By any act appropriate for winding up partnership
affairs or completing transactions unfinished at
all the partners 1. General Rule: Unless otherwise stipulated, dissolution;
- A court is authorized to decree a dissolution every partner is considered the Agent of the
(2) By any transaction which would bind the partnership
... [133]
notwithstanding that the Partnership has been Partnership with authority to bind the
Commented [335]: The liability of a partner under the
making profits where it appears at the time of Partnership as well as the other partners with
first paragraph, No. 2, shall be satisfied out of
the application that the business can only be respect to the transaction of its business partnership assets alone when such partner had been
carried on at a loss - Article 1803: Upon dissolution, the prior to dissolution:
FROM THE BOOK Partnership ceases to be a going concern and (1) Unknown as a partner to the person with whom the
e. Other circumstances the partner’s power of representation is contract is made; and
- Examples of circumstances which render a confined only to acts incident to winding up (2) So far unknown and inactive in partnership affairs
... [134]
dissolution equitable are abandonment of the or completing transactions begun but not then
Commented [336]: ARTICLE 1803. When the manner of
business, fraud in the management of the finished management has not been agreed upon, the following
business, refusal without justifiable cause to - The event of dissolution, therefore, rules shall be observed:
render accounting of Partnership affairs, etc. terminates the actual authority of a partner to (1) All the partners shall be considered agents and
- In a case, it was held that the sale of all real undertake new business for the Partnership whatever any one of them may do alone shall bind the
property (lots) of a Partnership did not work 2. Qualifications to the rule partnership, without prejudice to the provisions of article
1801.
the dissolution of the firm which was left - The foregoing, however, is a general rule that ... [135]
without the Real Property it originally had is subject to the qualifications set forth in Commented [331]: ARTICLE 1813. A conveyance by a
because the firm was not organized to exploit Articles 1833 and 1834 in relation to Article partner of his whole interest in the partnership does not
of itself dissolve the partnership, or, as against the other
the lots sold but to engage in buying and 1832 partners in the absence of agreement, entitle the
selling real estate, and “in general real estate a. In so far the partners themselves are assignee, during the continuance of the partnership, to
agency, and brokerage business” concerned interfere in the management or administration of the
partnership business or affairs, or to require any
2. On application by a purchaser of a partner’s - The authority of any partner to bind the information or account of partnership transactions, or to
interest Partnership by a new contract is immediately inspect the partnership books; but it merely entitles the
... [131]
- In either of the two cases mentioned in the terminated when the dissolution is not by the Commented [332]: ARTICLE 1814. Without prejudice to
last paragraph, a purchaser of a partner’s act, insolvency, or death of a partner the preferred rights of partnership creditors under article
1827, on due application to a competent court by any
interest under Article 1813 or 1814 may - Article 1832: When the dissolution is by judgment creditor of a partner, the court which entered
apply for Judicial dissolution of a Partnership such act, insolvency, or death, the the judgment, or any other court, may charge the
interest of the debtor partner with payment of the
termination of authority depends upon unsatisfied amount of such judgment debt with interest
Article 1832 whether or not the partner had knowledge or thereon; and may then or later appoint a receiver of his
share of the profits, and of any other money due or to
... [132]
notice of the dissolution as provided in 1. The cause of the dissolution is the act of a
Article 1833 partner and the acting partner had
b. With respect to third persons (Article 1834) knowledge of such dissolution; and
- The Partnership is generally bound by the 2. The cause of the dissolution is the death or
new contract although the authority of the insolvency of a partner and the acting
acting partner as it affects his co-partners is partner had knowledge or notice of the
already deemed terminated under Articles death or insolvency
1832 and 1833 - The rule in No. 1 is designed to protect the
- In such a case, however, the innocent partners remaining partner or partners who might
can always recover from the acting partner continue to act for the Partnership as a going
concern, not having actual knowledge of the
Article 1833 dissolution
- Where the dissolution is caused by the act, - The rule in No. 2 discards the fiction that
death, or insolvency of a partner, each partner everybody is presumed to have knowledge of
is Liable to his co-partners for his share of death or insolvency
any Liability created by any partner acting for FROM THE PDF
the Partnership as if the Partnership had not Knowledge or Notice of Cause of Dissolution
been dissolved unless: 1. Dissolution by death or insolvency
1. The dissolution being by act of any partner, - Under Article 1833, the authority of a partner
the partner acting for the Partnership had to act for the Partnership may still continue
knowledge of the dissolution; or notwithstanding its dissolution
2. The dissolution being by the death or - In the case of death, to hold that a partner
insolvency of a partner, the partner acting for acting for the Partnership bona fide (in good
the Partnership had knowledge or notice of faith) in ignorance of the death or his co-
the death or insolvency partners must assume the entire Liability,
even though all other partners are ignorant of
Right of Partner to Contribution from Co-partners the death of the partner, and even though such
- The above article speaks of dissolution deceased partner was entirely inactive and
caused by the act, insolvency, or death of a may have resided at any distance from the Commented [337]: ARTICLE 1834. After dissolution, a
partner actual place of business, is entirely unjust to partner can bind the partnership, except as provided in
the third paragraph of this article:
- Where a partner enters into a new contract the acting partner or partners
with a third person after dissolution, the new - What has been said of the death of a partner (1) By any act appropriate for winding up partnership
affairs or completing transactions unfinished at
contract generally will bind the partners applies also to the bankruptcy of a partner dissolution;
- Article 1834, par 1: Each of them is Liable - If there are a number of partners, and one of
for his share of any Liability created by the them becomes bankrupt, and another having (2) By any transaction which would bind the partnership
if dissolution had not taken place, provided the other
acting partner as if the Partnership had not no knowledge or notice of this fact makes a party to the transaction:
been dissolved contract in the ordinary course of the
(a) Had extended credit to the partnership prior to
business, there appears no reason why he dissolution and had no knowledge or notice of the
should not be able to call on his other dissolution; or
Authority of Partners, as Among Themselves, to partners, not bankrupt or deceased, to
(b) Though he had not so extended credit, had
act for the Partnership contribute towards any loss which his nevertheless known of the partnership prior to
- The authority of a partner as it affects his co- separate estate may sustain on account of the dissolution, and, having no knowledge or notice of
dissolution, the fact of dissolution had not been
partners (not third persons) is not deemed contract advertised in a newspaper of general circulation in the
terminated except in two instances, namely: place (or in each place if more than one) at which the
partnership business was regularly carried on.
2. Dissolution by court decree or resulting from a. Had extended credit to the Partnership
unlawfulness prior to dissolution and had no
- No substantial problem exists where knowledge or notice of the dissolution; or
dissolution is brought about, for example, by b. Though he had not so extended credit,
court decree, since this brings actual notice of had nevertheless known of the
the dissolution to all of the partners nor is a Partnership prior to dissolution, and,
problem presented where dissolution results having no knowledge or notice of
from unlawfulness, since the general rules dissolution, the fact of dissolution had
governing actions arising out of illegal not been advertised in a newspaper of
transactions would control in such cases general circulation in the place (or in
FROM THE BOOK each place if more than one) at which the
When a Partner has Knowledge or Notice of a Partnership was regularly carried on
Fact - The Liability of a panther under the first
- The Uniform Partnership Act defines the two paragraph, No. 2, shall not be satisfied out of
terms as follows: Partnership assets alone when such partner
1. “A person has knowledge of a fact within the had been prior to dissolution:
meaning of this Act not only when he has 1. Unknown as a partner to the reason with
actual knowledge thereof, but also when he whom the contract is made; and
has knowledge of such other facts as in the 2. So far unknown and inactive in Partnership
circumstances show bad faith” affairs that the business reputation of the
2. “A person has notice of a fact within the Partnership could not be said to have been in
meaning of this Act when the person who any degree due to his connection with it
claims the benefit of the notice: - The Partnership is in no case bound by any
a. States the fact to such person, or act of a partner after dissolution:
b. Delivers through the mail or by other 1. Where the Partnership is dissolved because it
means of communication, a written is unlawful to carry on the business, unless
statement of the fact to such person or to the act is appropriate for winding up
a proper person at his place of business Partnership affairs; or
or residence” 2. Where the partner has become insolvent; or
NOTE: Article 1833 applies only if the contract 3. Where the partner had no authority to wind
of the partner binds the Partnership. If the up Partnership affairs; except by a transaction
Partnership is not bound (Article 1834, par 4), with one who–
only the acting partner is personally Liable a. Had extended credit to the Partnership
prior to dissolution and had no
Article 1834 knowledge or notice of his want of
- After dissolution, a partner can bind the authority; or
Partnership, except as provided in the third b. Had not extended credit to the
paragraph of this article: Partnership prior to dissolution, and,
1. By an act appropriate for winding up having no knowledge or notice of his
Partnership affairs or completing transactions want of authority, the fact of his want of
unfinished at dissolution; authority has not been advertised in the
2. By any transaction which would bind the manner provided for advertising the fact
Partnership if dissolution had not taken place, of dissolution in the first paragraph, No.
provided the other party to the transaction: 2 (b)
- Nothing in this article shall affect the - Articles 1832 and 1833: But the authority of
Liability under Article 1825 of any person a partner may apparently continue as regards Commented [338]: ARTICLE 1825. When a person, by
who after dissolution represents himself or third persons on the assumption that the words spoken or written or by conduct, represents
himself, or consents to another representing him to
consents to another representing himself as a Partnership is still existing anyone, as a partner in an existing partnership or with
partner in a Partnership engaged in carrying - Since a Partnership once established is, in the one or more persons not actual partners, he is liable to
any such persons to whom such representation has
on business absence of anything to indicate its been made, who has, on the faith of such
termination, presumed to exist, the law, for representation, given credit to the actual or apparent
Power of Partner to Bind Dissolved Partnership the protection of innocent third persons, partnership, and if he has made such representation or
consented to its being made in a public manner he is
to Third Persons imposes upon partners the duty of giving liable to such person, whether the representation has or
- Article 1834 enumerates the cases when a notice of the dissolution of the Partnership has not been made or communicated to such person so
giving credit by or with the knowledge of the apparent
partner continues to bind the Partnership 2. Where there is actual or constructive partner making the representation or consenting to its
even after dissolution (par 1, Nos 1 and 2) and knowledge by third persons of dissolution being made:
the cases when he cannot bind the Partnership - The measure of the right of third persons who
(1) When a partnership liability results, he is liable as
after dissolution (par 3, Nos 1, 2, and 3) continue to deal with a dissolved Partnership though he were an actual member of the partnership;
- Upon the dissolution of the partnership, as depends upon the question of whether they (2) When no partnership liability results, he is liable pro
rata with the other persons, if any, so consenting to the
between themselves, the power of one partner knew or should have known of the fact of contract or representation as to incur liability, otherwise
to act and bind the others is effectively dissolution separately.
terminated - If they did, the validity of their transactions is
When a person has been thus represented to be a
- Articles 1832 and 1833: But the authority of governed by the question whether those partner in an existing partnership, or with one or more
a partner may apparently continue as regards transactions were necessary to liquidate the persons not actual partners, he is an agent of the
persons consenting to such representation to bind them
third persons who subsequently extend credit Partnership affairs to the same extent and in the same manner as though
on the assumption that the Partnership is still FROM THE BOOK he were a partner in fact, with respect to persons who
rely upon the representation. When all the members of
existing Notice of Dissolution to Creditors the existing partnership consent to the representation, a
- Since a Partnership once established is, in the 1. As to persons who extended credit to partnership act or obligation results; but in all other
absence of anything to indicate its Partnership prior to dissolution cases it is the joint act or obligation of the person acting
and the persons consenting to the representation. (n)
termination, presumed to exist, the law, for - Customers of the Partnership or persons who
the protection of innocent third persons, extended credit to the Partnership prior to its
imposes upon the partners, the duty of giving dissolution must have knowledge or notice of
notice of the dissolution of the Partnership the dissolution to relieve the Partnership from
FROM THE PDF Liability
Power of Partner to Bind Dissolved Partnership 2. As to persons who had known of
to Third Persons Partnership’s existence
- Article 1834 enumerates the cases when a - As to persons who had not so extended credit
partner continues to bind the Partnership prior to its dissolution, but who had known of
even after dissolution (par 1, Nos. 1 and 2) its existence, the fact that the dissolution had
and the case when he cannot bind the been published in the newspaper would be
Partnership after dissolution (par 3, Nos. 1, 2, sufficient (par 1, No. 2 [a, b]), even if they
and 3) did not actually read the advertisement
1. Where there is no notice to third persons of 3. Where acting partner has no authority to wind
dissolution up Partnership affairs
- Upon the dissolution of the Partnership, as - Under the third paragraph, notice of
between themselves, the power of one partner dissolution is unnecessary except in case No.
to act and bind the others is effectively 3, where the partner has no authority to wind
terminated up Partnership affairs
- Third persons dealing with the partner - Notice must be actual (by an advertisement in
without such authority are protected under a local newspaper)
the same circumstances mentioned in - Mere mailing of a letter to a former dealer is
paragraph 1, No. 2 (a) and (b) insufficient to relieve the Retiring Partner
4. Where acting partner has become insolvent from subsequent Liability, where the notice
- As to insolvency, the law makes a distinction was never received
between the right of a partner who has no - Furthermore, there is no duty on the part of a
knowledge or notice of the other partner’s prior dealer to inquire into the question of
insolvency to bind the Partnership and the retirement, even though the prior dealer had
right of a third person to claim that his the means of obtaining knowledge of such
contract with the Partnership is valid, retirement but failed to make use of it
notwithstanding its dissolution through - So, it was held that a prior dealer entitled as
insolvency of the partner with whom the such to actual notice, may not be said as a
contract was made matter of law to have received notice by
- The former is recognized under Article 1833 reason merely of the fact that the retirement
(2), while the latter is denied under Article was mentioned in a newspaper to which the
1834 (par 3, No. 2), i.e., the innocent partner prior dealer subscribed, or although the fact
is protected in his continued right to make of dissolution was mentioned editorially in
binding Partnership Agreements, but no the local newspaper
similar protection is extended to a third party - A prior or former dealer is one who has
who innocently makes a contract with an extended credit on the faith of the
insolvent partner because it is incumbent Partnership, through confidence in the
upon him to know the status of the insolvent solvency and probity of the firm
partner - Mere dealing with a firm on a cash basis does
FROM THE PDF not constitute one a prior dealer
Additional to Notice of Dissolution to Creditors - One who purchases goods from the supposed
5. Where dissolution caused by death of a Partnership is not a prior dealer
partner 2. As to all others
- As to death, no such distinction is made, - Notice is accomplished by an advertisement
largely because the deceased partner no in a local newspaper
longer exists - Actual notification is not necessary
- Death, then, is not considered to be notice per - It should be noted, however, that the
se (by itself) whether as to the Surviving requirement of newspaper notice appears to
Partner or as to third persons exist only where the third party knew of the
FROM THE BOOK partnership prior to dissolution
Character of Notice Required - If he did not, he is entitled to no notice
- The character of notice required to relieve a whatsoever
Retiring Partner or the representatives of a - It is not clear whether notice to others other
deceased partner from subsequent Liability than prior dealers, who had knowledge of the
on Partnership obligations varies in Partnership prior to dissolution, was
accordance with the class of persons required sufficient if given in ways other than by
to be notified newspaper notification
1. As to prior dealers
- Apparently, the law has made newspaper - A Partnership by Estoppel involves a
notification an exclusive method for giving “holding out” by parties as partners when, in
notice fact, they are not partners
Dormant Partner Need Not Give Notice - Article 1825 deals with Partnership by
- Under the second paragraph, the Liability of Estoppel
a partner unknown as such to the person with - It will be seen that Article 1769 (1) is not Commented [340]: ARTICLE 1769. In determining
whom the contract is made or so far unknown entirely accurate in stating that “Except as whether a partnership exists, these rules shall apply:
and inactive in partnership affairs shall be provided by Article 1825, persons who are (1) Except as provided by article 1825, persons who are
satisfied out of Partnership assets alone not partners as to each other are not partners not partners as to each other are not partners as to third
persons;
- This is a qualification of the rule that partners as to third persons,” since this overlooks the
are Liable pro rata with all their property after circumstances under which by virtue of
the assets of the Partnership have been Article 1834, third persons may claim the
exhausted for Partnership obligations validity of contracts made with dissolved
FROM THE PDF Partnerships in disregard of the fact of
Dormant Partner Need Not Give Notice dissolution
- A Dormant Partner is both inactive and secret
- His connection with the Partnership not Article 1835
having known, it cannot in any degree have - The dissolution of the Partnership does not of
contributed towards establishing its itself discharge the existing Liability of any
reputation or credit partner
- Third persons, not having dealt with the - A partner is discharged from any existing Commented [339]: ARTICLE 1825. When a person, by
partnership in reliance upon the membership Liability upon dissolution of the Partnership words spoken or written or by conduct, represents
himself, or consents to another representing him to
of the Dormant Partner, are accordingly not by an agreement to that effect between anyone, as a partner in an existing partnership or with
entitled to notice of his withdrawal himself, the Partnership creditor, and the one or more persons not actual partners, he is liable to
- The principle of Estoppel cannot operate to person or Partnership continuing the any such persons to whom such representation has
been made, who has, on the faith of such
continue his Liability or his authority after business; and such agreement may be representation, given credit to the actual or apparent
dissolution since prior thereto, he was never inferred from the course of dealing between partnership, and if he has made such representation or
consented to its being made in a public manner he is
known or held out as a partner the creditor having knowledge of the liable to such person, whether the representation has or
- He will, of course, be personally Liable for dissolution and the person or Partnership has not been made or communicated to such person so
Partnership debts arising at the time of his continuing the business giving credit by or with the knowledge of the apparent
partner making the representation or consenting to its
retirement - The Individual Property of a deceased partner being made:
shall be Liable for all obligations of the
(1) When a partnership liability results, he is liable as
Partnership by Estoppel After Dissolution Partnership incurred while he was a partner, though he were an actual member of the partnership;
- Article 1834 (last par) touches upon the but subject to the prior payment of his (2) When no partnership liability results, he is liable pro
subject of Partnership by Estoppel (Article separate debts rata with the other persons, if any, so consenting to the
contract or representation as to incur liability, otherwise
1825), since a Partnership is held to exist as separately.
to third persons though it does not exist as a Effect of Dissolution in Partner’s Existing
When a person has been thus represented to be a
going concern so far as the partners Liability partner in an existing partnership, or with one or more
themselves are concerned - The dissolution of a Partnership does not of persons not actual partners, he is an agent of the
- The situation differs from a Partnership by itself discharge the existing Liability of a persons consenting to such representation to bind them
to the same extent and in the same manner as though
Estoppel, however, in that a Partnership did partner he were a partner in fact, with respect to persons who
once exist and Liability is based upon its - A partner may be relieved from all existing rely upon the representation. When all the members of
the existing partnership consent to the representation, a
continuance as a matter of law as far as third Liabilities upon dissolution only by an partnership act or obligation results; but in all other
persons are concerned cases it is the joint act or obligation of the person acting
and the persons consenting to the representation. (n)
agreement to that effect between himself, the 2. In the absence of such agreement, all the
Partnership creditor, and the other partners partners who have not wrongfully dissolved
- The consent, however, of the creditor and the the Partnership
other partners to the novation may be implied 3. The legal representative of the last Surviving
from their conduct Partner (when all the partners are already
dead), not insolvent (Article 1830 [6]) Commented [343]: ARTICLE 1830. Dissolution is
Liability of Estate of Deceased Partner FROM THE PDF caused:
6) By the insolvency of any partner or of the
- In accordance with Article 1816, the Persons Authorized to Wind Up partnership;
Individual Property of a deceased partner 1. The following are authorized to wind up the Commented [341]: ARTICLE 1816. All partners,
shall be Liable for all obligations of the affairs of the Partnership including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have
partnership incurred while he was a partner a. The partners designated by agreement been exhausted, for the contracts which may be
- NOTE: The individual creditors of the b. In the absenc of such agreement, all the entered into in the name and for the account of the
deceased partner are to be preferred over partners who have not wrongfully dissolved partnership, under its signature and by a person
authorized to act for the partnership. However, any
Partnership creditors with respect to the the Partnership partner may enter into a separate obligation to perform
separate property of said deceased partner c. The legal representative (executor or a partnership contract. (n)
- Article 1839 [8] administrator) of the last Surviving Partner Commented [342]: ARTICLE 1839. In settling accounts
(when all the partners are already dead), not between the partners after dissolution, the following
rules shall be observed, subject to any agreement to the
Article 1836 insolvent (Article 1830 [6]) contrary:
- Unless otherwise agreed, the partners who 2. The court may, in its discretion, after (8) When partnership property and the individual
properties of the partners are in possession of a court
have not wrongfully dissolved the considering all the facts and circumstances of for distribution, partnership creditors shall have priority
Partnership or the legal representative of the the particular case, appoint a receiver to wind on partnership property and separate creditors on
last Surviving Partner, not insolvent, has the up the Partnership affairs where such step is individual property, saving the rights of lien or secured
creditors.
right to wind up the Partnership affairs, shown to be to the best interests of all persons
provided, however, that any partner, his legal concerned
representative or his assignee, upon cause - An insolvent partner does not have the right
shown, may obtain winding up by the court to wind up Partnership affairs (Articles 1830
[6] and 1833)
Manner of Winding Up Nature of Action for Liquidation
- The winding up of the dissolved Partnership - An action for the liquidation of a Partnership
may be done either: is a personal one; hence, it may be brought in
1. Judicially the place of residence of either the plaintiff or
- Under the control and direction of the proper the defendant
court upon cause shown by any partner, his - Thus, the fact that the plaintiff prays for the
legal representative, or his assignee sale of the assets of the Partnership including
2. Extrajudicially a fishpond located in a province other than
- By the partners themselves without that where the action was brought, does not
intervention of the court change the nature or character of the action,
such sale being merely a necessary incident
Persons Authorized to Wind Up to the liquidation of the Partnership, which
- The following are authorized to wind up the should precede and/or is a part of its proper
affairs of the Partnership liquidation
1. The partners designated by the assignment
Survivor’s Right and Duty to Liquidate
- When a member of a Partnership dies, the Partner has the same general power to
duty of liquidating its affairs devolves upon bind the firm as he had before, and he
the surviving member or members of the may bind the Partnership by borrowing
firm, not upon the legal representative of the money to meet its accruing Liabilities,
deceased partner (except when such partner and may sell its real estate to raise money
was the last Surviving Partner) to pay its debts
1. The legal representative has no right to 3. Incur obligations to complete existing
interfere with the Partnership Business, so contracts or preserve Partnership assets
long as the Surviving Partner proceeds in - A Liquidating Partner has power to incur
good faith to settle its affairs, and it makes no obligations necessary to the completion
difference how well qualified such of existing contracts, and to incur debts
representative may be to assist or other obligations necessary for the
- The executor or administrator of a deceased reasonable preservation of Partnership
partner cannot insist on continuing the assets or in procuring a favorable market
business in the absence of some controlling for their disposal
agreement to that effect 4. Incur expenses necessary in the conduct of
2. Under the Uniform Partnership Act, “a litigation
Surviving Partner is entitled to reasonable - Where a Liquidating Partner s confronted
compensation for his services in winding up with the necessity of litigation in order to
Partnership affairs” perform his duty in winding up the affairs
- Sec 18 [f]: Our law is silent on this point. It of the Partnership, he has power to
is believed, however, that even in the absence employ an attorney, with resultant
of agreement, the Surviving Partner or obligations, to prosecute and defend the
Liquidating Partner is entitled to reasonable action or to incur other expenses
compensation in exceptional situations as necessary in the conduct of such
where the services rendered are extraordinary litigation
or substantial in nature - In other words, for the purpose of winding up
Powers of Liquidating Partner the affairs of a dissolved Partnership, the
1. Make new contracts Surviving Partner has full authority to do
- For the purpose of winding up the everything that may be necessary, but his
Partnership, a Liquidating Partner is sole power is limited to the performance of acts
agent of the Partnership, but merely for which are indispensable to that end
that one specific purpose - The deceased partner’s estate is not Liable for
- Thus, without express authorization, he any subsequent debts or losses incurred by
cannot make new contracts or create new the Surviving Partners who continued the
Liabilities, as by giving promissory notes Partnership Business without the consent of
binding on the firm nor can he extend the the estate
time for the payment of existing
obligations to the firm, or make Article 1837
acknowledgments of the validity of - When dissolution is caused in any way,
claims against the firm except contravention of the Partnership
2. Raise money to pay Partnership debts Agreement, each partner, as against his co-
- For the purpose of winding up the partners and all persons claiming through
concern, however, the Liquidating them in respect of their interests in the
Partnership, unless otherwise agreed, may b. If the business is continued under the second
have the Partnership Property applied to paragraph, No. 2, of this article, the right as
discharge its Liabilities, and the surplus against his co-partners and all claiming
applied to pay in cash the net amount owing through them in respect of their interests in
to the respective partners. But if dissolution the Partnership, to have the value of his
is caused by expulsion of a partners, bona interest in the Partnership, less any damage
fide under the Partnership Agreement and if caused to his co-partners by the dissolution,
the expelled partner is discharged from all ascertained and paid to him in cash, or the
Partnership Liabilities, either by payment or payment secured by a bond approved by the
agreement under the second paragraph of court and to be released from all existing
Article 1835, he shall receive in cash only the Liabilities of the Partnership; but in
net amount due him from the Partnership ascertaining the value of the partner’s
- When dissolution is caused in contravention interest, the value of the good will of the
of the Partnership Agreement, the rights of business shall not be considered
the partners shall be as follows:
1. Each partner who has not caused dissolution Right of Partner to Application of Partnership
wrongfully shall have: Property on Dissolution
a. All the rights specified in the first paragraph - The right of the partners to have the
of this article Partnership Property applied to discharge
b. The right, as against each partner who has Partnership Liabilities and the surplus, if any,
caused the dissolution wrongfully, to distributed in cash to the respective partners,
damages for breach of the agreement depends on whether the dissolution is caused:
2. The partners who have not caused the 1. Without violation of the Partnership
dissolution wrongfully, if they all desire to Agreement
continue the business in the same name either 2. In violation of the Partnership Agreement
by themselves or jointly with others, may do FROM THE PDF
so, during the agreed term for the partnership Right of Partner to Application of Partnership
and for that purpose may possess the Property on Dissolution
partnership Property, provided they secure - The liquidation of the assets of the
the payment by bond approved by the court, Partnership following its dissolution is
or pay to any partner who has caused the governed by various provisions of the Civil
dissolution wrongfully, the value of his Code such as Article 1837
interest in the Partnership at the dissolution, - However, an agreement of the partners, like
kess any damages recoverable under the any other contract, is binding among them
second paragraph, No. 1 (b) of this article, and normally takes precedence to the extent
and in like manner indemnify him against all applicable over the general provisions of the
present or future Partnership Liabilities Civil Code
3. A partner who has caused the dissolution - The objectives of Article 1837 are, in the
wrongfully: main, to provide for the payment of the
a. If the business is not continued under the partner who leaves the firm, and to indemnify
provisions of the second paragraph, No. 2, all him against existing or possible future
the rights of a partner under the first Liability
paragraph, subject to Liability for damages in - The right of every partner, on a dissolution,
the second paragraph, No. 1 (b), of this article against the other partners and persons
claiming through them in respect of their
interests as partners, to have the Partnership Rights Where Dissolution in Contravention of
Property applied to discharge Partnership Agreement
Liabilities and the surplus assets, if any, - When the Partnership is dissolved in
distributed in cash to the respective partners, violation of the Partnership Agreement, the
after deducting what may be due to the firm rights of a partner vary depending upon
from them as partners, constitutes what is whether he is the innocent or the guilty
known as the “partner’s lien” (A partner's partner
right to have the partnership property applied 1. Rights of partner who has not caused the
in payment of the partnership's debts and to dissolution wrongfully
have whatever is due the firm from fellow a. To have Partnership Property applied for
partners deducted from what would the payment of its Liabilities and to receive
otherwise be payable to them for their shares) in cash his share of the surplus
- The extent of this right depends on whether b. To be indemnified for damages caused by
the dissolution is caused without violation of the partner guilty of wrongful dissolution
the Partnership Agreement, or in violation of c. To continue the business in the same name
the Partnership Agreement during the agreed term of the Partnership,
- The guilty partner is given by law certain by themselves or jointly with others
rights d. To possess Partnership Property should
FROM THE BOOK they decide to continue the business
Rights Where Dissolution Not in Contravention 2. Rights of partner who has wrongfully
of Agreement caused the dissolution
- Unless otherwise agreed, the rights of each a. If the business is not continued by the other
partner in case of dissolution without partners, to have the Partnership Property
violation of Partnership Agreement are as applied to discharge its Liabilities and to
follows: receive in cash his share of the surplus less
1. To have the Partnership Property applied to damages caused by his wrongful
discharge the Liabilities of the Partnership dissolution
2. To have the surplus, if any, applied to pay b. If the business is continued:
in cash the net amount owing to the 1. To have the value of his interest in the
respective partners Partnership at the time of the dissolution,
- When the dissolution is caused by expulsion less any damage caused by the
of a partner bona fide (so without violation of dissolution to his co-partners, ascertained
the partnership agreement), such expelled and paid in cash or secured by bond
partner may be discharged from all approved by the court
Partnership Liabilities either by payment or 2. To be released from all existing and
by an agreement between him, the future Liabilities of the Partnership
Partnership creditors, and the other partners - NOTE: Innocent partners have more rights
- Article 1835: He shall have the right only to than the guilty partners and that the latter are
receive in cash the net amount due him from made Liable for damages caused by their
the Partnership wrongful dissolution, and in ascertaining the
- If the dissolution is proper or rightful, no value of their interest, the value of the
partner is Liable for any loss sustained as a goodwill of the business is not considered,
result of the dissolution obviously as a penalty for their bad faith. If
the innocent partners decide to buy the guilty passes with a sale of the Partnership
partner’s interest, they may continue the Property and goodwill
Partnership Business in the same firm name. - Being unquestionably Partnership
The guilty partner is entitled to his share of Property, the representative of a deceased
the appraised value of the business less the partner, therefore, is entitled to have an
damages recoverable by the innocent accounting of the value of the goodwill of
partners. If they decide otherwise, they may the Partnership and a partner may insist that
wind up the Partnership Business upon dissolution, the goodwill should be
FROM THE PDF sold as part of the Partnership assets
Goodwill of a Business 3. Existence of saleable goodwill
- Goodwill of a business: The advantage - The goodwill of a business is a proper
which it has from its establishment or from subject of sale
the patronage of its customers, over and - However, a saleable goodwill can exist
above the mere value of its property and only in a Commercial Partnership
capital - It cannot arise in a Professional
- Goodwill of a Partnership: Rests in the Partnership, such as Partnership of
probability that its old customers will attorneys or physicians, the reputation of
continue their custom and will commend the which depends on the individual skill or
Partnership to others, making the latter new personal qualifications of its members
customers - Where the goodwill of the business is
- Goodwill: My also include the advantages dependent solely on the skill or professional
which may be derived from the partners ability, reputation or standing of the partners
holding themselves out as carrying on the (as attorneys, physicians) its goodwill is not
business identified with the name of a subject to sale, and the name by which it is
particular firm known may not be appropriated by any
1. Goodwill as part of Partnership assets person to the exclusion of any other person
- Inasmuch as the word “assets” in the Law
of Partnership is not to be confined to assets Article 1838
at law, but includes all assets applicable to - Where a Partnership Contract is rescinded on
the payment of the Partnership debts, the the ground of the fraud or misrepresentation
goodwill of the Partnership, if of money of one of the parties thereto, the party entitled
value, is usually considered part of the to rescind is, without prejudice to any other
property and assets of the firm, in the right, entitled:
absence of a contract, express or implied, 1. To a lien on, or right of retention of, the
to the contrary surplus of the Partnership Property after
2. Firm name as part of goodwill satisfying the Partnership Liabilities to third
- The name of a firm is an important part of persons for any sum of money paid by him
the goodwill and its use may be protected for the purchase of an interest in the
accordingly Partnership and for any capital or advances
- The firm name of the Partnership, as contributed by him
distinguished from the name of an 2. To stand on, after all Liabilities to third
individual, is an element of the Partnership persons have been satisfied, in the place of
enterprise, a substantial asset thereof, and the creditors of the Partnership for any
payments made by him in respect of the - In settling accounts between the partners
Partnership Liabilities after dissolution, the following rules shall be
3. To be indemnified by the person guilty of the observed, subject to any agreement to the
fraud of making the representation against all contrary:
debts and Liabilities of the Partnership 1. The assets of the Partnership are:
a. The Partnership Property
Right of Partner to Rescind Partnership Contract b. The contributions of the partners necessary
- If one one is induced by fraud or for the payment of all Liabilities specified in
misrepresentation to become a partner, the No. 2
contract is voidable or annullable 2. The Liabilities of the Partnership shall rank
- Article 1390 [2] in order of payment, as follows: Commented [344]: Art. 1390. The following contracts are
- If the contract is annulled, the injured partner a. Those owing to creditors other than partners voidable or annullable, even though there may have
been no damage to the contracting parties:
is entitled to restitution b. Those owing to partners other than for capital (2) Those where the consent is vitiated by mistake,
- Article 1398: Here, the fraud or and profits violence, intimidation, undue influence or fraud.
misrepresentation vitiates consent c. Those owing to partners in respect of capital Commented [345]: Art. 1398. An obligation having been
annulled, the contracting parties shall restore to each
- Article 1330: However, until the partnership d. Those owing to partners in respect of profits other the things which have been the subject matter of
contract is annulled by a proper action in 3. The assets shall be applied in the order of the contract, with their fruits, and the price with its
court, the partnership relations exist (Article their declaration in No. 1 of this article to the interest, except in cases provided by law.
1390) and the defrauded partner is liable for satisfaction of their Liabilities In obligations to render service, the value thereof shall
all obligations to third persons 4. The partners shall contribute, as provided by be the basis for damages. (1303a)
Article 1797, the amount necessary to satisfy Commented [346]: Art. 1330. A contract where consent
Rights of Injured Partner Where Partnership the Liabilities is given through mistake, violence, intimidation, undue
influence, or fraud is voidable. (1265a)
Contract Rescinded 5. An assignee for the benefit of creditors or any
Commented [347]: Art. 1390. The following contracts are
- This article speaks of the rights of the injured person appointed by the court shall have the voidable or annullable, even though there may have
partner where the Partnership Contract is right to enforce the contributions specified in been no damage to the contracting parties:
rescinded (should be “annulled”) on the the preceding number (1) Those where one of the parties is incapable of giving
consent to a contract;
ground of fraud or misrepresentation. They 6. Any partner or his legal representative shall (2) Those where the consent is vitiated by mistake,
are as follows: have the right to enforce the contributions violence, intimidation, undue influence or fraud.
1. Right of a lien on, or retention of, the specified in No. 4, to the extent of the amount These contracts are binding, unless they are annulled
surplus of Partnership Property after which he has paid in excess of his share of the by a proper action in court. They are susceptible of
ratification. (n)
satisfying Partnership Liabilities for any Liability
sum of money paid or contributed by him 7. The Individual Property of a deceased partner
2. Right to subrogation in place of Partnership shall be Liable for the contributions specified
creditors after payment of Partnership in No. 4
Liabilities 8. When Partnership Property and the
3. Right of indemnification by the guilty Individual Properties of the partners are in
partner against all debts and Liabilities of possession of a court for distribution,
the Partnership Partnership creditors shall have priority on
- It is to be noted that the rights of the partner Partnership Property and separate creditors
entitled to rescind (to annul) are without on Individual Property, saving the rights of
prejudice to any other rights under other lien or secured creditors
provisions of law 9. Where a partner has become insolvent or his
estate is insolvent, the claims against his
Article 1839
separate property shall rank in the following - It is within the power of the court to order a
order: distribution of its assets in cash, property, or
a. Those owing to separate creditors a combination of both
b. Those owing to Partnership creditors 1. Property which may be made available for
c. Those owing to partners by way of distribution includes, in addition to the
contributions Partnership Property, contributions which
may be collected from the partners so far as
Liquidation and Distribution of Assets of may be necessary for the payment of
Dissolved Partnership Partnership obligations to creditors and to
- The process of winding up, where the partners
business of the dissolved Partnership is not 2. A partner has a right to have debts owing to
continued, consists in reducing the property the Partnership from his co-partners deducted
to cash and distributing the proceeds from their respective shares.
- The property ,ust be liquidated and - Right: Called “equitable lien” or “quasi-lien”
distributed to those entitled thereto in American law
- Partners have the implied authority to sell - It exists only when the affairs of the
Partnership Property and to collect Partnership are rounded up and the shares of
obligations due to the Partnership the partners are computed after dissolution
- These powers may be delegated to one or 3. Each partner is entitled to a share in the
more of their number as Liquidating Partner/s surplus property of the Partnership, if any, in
FROM THE PDF proportion to his interest in the Partnership
Liquidation and Distribution of Assets of - Article 1812: This rule is called the Commented [348]: RTICLE 1812. A partner's interest in
Dissolved Partnership “partner’s lien law” in American law the partnership is his share of the profits and surplus.
(n)
- The process of winding up, where the FROM THE BOOK
business of the dissolved Partnership is not Rules in Accounts Between Partners After
continued, consists in Liquidating Dissolution
Partnership Property (turning it into cash), - Article 1839 sets forth a priority system for
paying outstanding debts, collecting the distribution of Partnership Property
Commented [349]: ARTICLE 1810. The property rights
outstanding receivables, distributing the (Article 1810) and Individual Property when
of a partner are:
proceeds, and any other actions required to a Partnership is dissolved to those entitled
bring partnership business to a close thereto (1) His rights in specific partnership property;
- Until the Partnership accounts are - The following rules as to distribution are (2) His interest in the partnership; and
determined, it cannot be determined how subject to variation by agreement of the
(3) His right to participate in the management (n)
much any of the partners is entitled, if at all partners, either in their original Partnership
- Partners severally have the implied authority Agreement or in a dissolution agreement Commented [350]: ARTICLE 1797. The losses and
profits shall be distributed in conformity with the
to sell Partnership Property and to collect (Ibid), subject to the rights of Partnership agreement. If only the share of each partner in the
obligations due to the Partnership creditor profits has been agreed upon, the share of each in the
losses shall be in the same proportion.
- These powers may be delegated to one or 1. Assets of the Partnership
more of their number as Liquidating Partner/s - They are: In the absence of stipulation, the share of each partner
- The law, however, does not require a a. Partnership Property (including goodwill) in the profits and losses shall be in proportion to what
he may have contributed, but the industrial partner shall
Partnership to convert all its assets into cash b. Contributions of the partners necessary for not be liable for the losses. As for the profits, the
before making a distribution to the partners the payment of Liabilities in accordance with industrial partner shall receive such share as may be
just and equitable under the circumstances. If besides
Article 1797 his services he has contributed capital, he shall also
2. Order of application of the assets receive a share in the profits in proportion to his capital.
(1689a)
- The Partnership assets shall be applied to the - Neither class of creditors is allowed to
satisfaction of the liabilities of the trespass on the fund belonging to the other
partnership in the following order: until the claims of that other shall have been
a. First, those owing to Partnership creditos satisfied
b. Second, those owing to partners other than - General Rule: “Partnership assets to
for capital and profits such as loans given by Partnership creditors, individual assets to
the partners or advances for business individual creditors; anything left from either
expenses goes to the other”
c. Third, those owing for the return of the - It involves the ranking of assets in a certain
capital contributed by the partners order toward the payment of outstanding
d. Finally, the share of the profits, if any, due to debts
each partner - Rule: Known as the doctrine of the
3. Right of a partner where assets insufficient marshalling of assets
- If the assets enumerated in No. 1 are - In an American case, it was held that the
insufficient (i.e., there is an overall loss), the United States does not have the right to be
deficit is a capital loss which requires paid its income taxes due from individual
contribution like any other loss partners out of the assets of a bankrupt firm
- Any partner or his legal representative (to the in preference to the claim of Partnership
extent of the amount which he has paid in creditors
excess of his share of the Liability), or any - In line with the rule is the second paragraph
assignee for the benefit of creditors or any of Article 1835 Commented [353]: ARTICLE 1835. A partner is
person appointed by the court, shall have the - CASE: Suppose one is a creditor of all the discharged from any existing liability upon dissolution of
the partnership by an agreement to that effect between
right to enforce the contributions of the partners solidarily on a transaction himself, the partnership creditor and the person or
partners provided in Article 1797 independent of the Partnership, may he, partnership continuing the business; and such
agreement may be inferred from the course of dealing
- If any of the partners does not pay his share under the bankruptcy law, share pari passu between the creditor having knowledge of the
of the loss, the remaining partners have to pay (equal footing) with the Partnership creditors dissolution and the person or partnership continuing the
but they can sue the non-paying partner for in its assets? No. This is so even though both business.