Dissolution Effected Without Violation of partners, it would not be right to let any Commented [327]: RTICLE 1785.

ted [327]: RTICLE 1785. When a partnership

Partnership Agreement of the partners remain in the Partnership for a fixed term or particular undertaking is continued
- There are four ways by which a Partnership under such an atmosphere of animosity after the termination of such term or particular
undertaking without any express agreement, the rights
may be dissolved without violation of the and, certainly, not against their will and duties of the partners remain the same as they
Partnership Agreement - Indeed, for as long as the reason for were at such termination, so far as is consistent with a
partnership at will.
1. Termination of the definite term or particular withdrawal of a partner is not contrary to
undertaking the dictates of justice and fairness, nor for A continuation of the business by the partners or such
of them as habitually acted therein during the term,
- A Partnership may be constituted for a fixed the purpose of unduly causing harm and without any settlement or liquidation of the partnership
term or it may have for its object a specific damage upon the Partnership, bad faith affairs, is prima facie evidence of a continuation of the
undertaking cannot be said to characterize the act partnership. (n)
- Articles 1785 and 1783: After the expiration - In the context used in the law, bad faith ARTICLE 1783. A particular partnership has for its
of the term or particular undertaking, the is no different from its normal concept of object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession or
Partnership is automatically dissolved a conscious and intentional design to do vocation. (1678)
without the partners extending the said term a wrongful act for a dishonest purpose or
Commented [328]: ARTICLE 1837. When dissolution is
or continuing the undertaking moral obliquity caused in any way, except in contravention of the
- Article 1785: The dissolution of the b. While the attendance of bad faith cannot partnership agreement, each partner, as against his co-
partners and all persons claiming through them in
Partnership will be but in pursuance of the prevent the dissolution of a Partnership, respect of their interests in the partnership, unless
agreement of the partners, which is the law it can result in Liability for damages otherwise agreed, may have the partnership property
between them - The guilty partner would be Liable for applied to discharge its liabilities, and the surplus
applied to pay in cash the net amount owing to the
- Article 1159 wrongful dissolution as provided in respective partners. But if dissolution is caused by
- Article 1785: If thereafter the partners Article 1837 expulsion of a partner, bona fide under the partnership
agreement and if the expelled partner is discharged
continue the Partnership without making a c. A violation of the Partnership Agreement from all partnership liabilities, either by payment or
new agreement, the firm becomes a by the exclusion of a partner from agreement under the second paragraph of article 1835,
he shall receive in cash only the net amount due him
Partnership at will participation in the management of the
from the partnership.
2. By the express will of any partner business of the firm has been held to give
- A Partnership at Will, regardless of whether the excluded partner the right to declare When dissolution is caused in contravention of the
partnership agreement the rights of the partners shall
the business is profitable or unprofitable, may the Partnership dissolved be as follows:
be dissolved at any time by any partner d. The partner who breaks off the
(1) Each partner who has not caused dissolution
without the consent of his co-partners Partnership with an unfair design, or for
wrongfully shall have:
without breach of contract, provided, the said selfish objects, discharges his co-partners ... [130]
partner acts in good faith from all Liabilities to him but he does not Commented [329]: (3) A partner who has caused the
- Here, each partner has both the power and the thereby free himself from his obligations dissolution wrongfully shall have:
right to terminate the relation at any time to them (a) If the business is not continued under the provisions
- If there is bad faith, the dissolution is - When he quits the Partnership that he of the second paragraph, No. 2, all the rights of a
wrongful may buy for himself what the Partnership partner under the first paragraph, subject to liability for
damages in the second paragraph, No. 1 (b), of this
FROM THE PDF has a right to purchase, or that he may article.
a. The existence of good faith will absolve make a profit for his own advantage and
(b) If the business is continued under the second
the partner exercising the right to to their prejudice, he is answerable to the paragraph, No. 2, of this article, the right as against his
dissolve the Partnership from Liability Partnership for the loss and damage; and co-partners and all claiming through them in respect of
for damages which result to his co- so, if he quits at an unreasonable time, their interests in the partnership, to have the value of his
interest in the partnership, less any damage caused to
partners by reason of his action which occasioned a deprivation of profit his co-partners by the dissolution, ascertained and paid
- In a case, where the withdrawal of a to the Partnership, it is but right that he to him in cash, or the payment secured by a bond
approved by the court, and to be released from all
partner has been spurred by should repair and make good such loss existing liabilities of the partnership; but in ascertaining
“interpersonal conflict’’ among the FROM THE BOOK the value of the partner's interest the value of the good-
will of the business shall not be considered. (n)
3. By the express will of all the partners conferred by the agreement between the
- The agreement to dissolve the Partnership partners
before the termination of the specified term - This power may be vested in one partner
or particular undertaking must be unanimous exclusively
- The majority alone cannot dissolve the - The partner expelled in bad faith (therefore,
Partnership without breach of contract on contravention of Partnership Agreement)
- It should be noted, however, that the consent can claim damages
of the partners who assigned their interests or
suffered them to be charged for their separate
debts (Article 1814) is not required to effect Dissolution Affected in Contravention of
dissolution without breach of the Partnership Partnership Agreement
Agreement 1. Dissolution may be for any cause or reason
- The remaining partners alone may dissolve - Any partner may cause the dissolution of the
the Partnership Partnership at any time without the consent
FROM THE PDF of his co-partners for any reason which he
By the express will of all the partners deems sufficient by expressly withdrawing
- No particular form of agreement is necessary therefrom even though the Partnership was
to dissolve a Partnership by consent entered into for a definite term or particular
- Such dissolution may be accomplished either undertaking
by an express agreement or by words and acts - Dissolution of such a Partnership is,
implying an intention to dissolve however, a contravention of the agreement
a. The agreement to dissolve the 2. Power of dissolution always exists
Partnership before the termination of the - The doctrine of delectus personae (Note 1
specified term or particular undertaking Article 1767) allows a partner to have the
must be unanimous power, although not necessarily the right, to
- The majority alone cannot dissolve the dissolve a Partnership, even though his co-
Partnership without breach of contract partners wish to continue the business
b. That the consent of the partners who have FROM THE PDF
assigned their interests or suffered them Power dissolution always exists
to be charged for their separate debts - No person can be compelled either to become
(Article 1814) is not required to effect a partner or to remain one
dissolution without breach of the - The relation of partners is one of mutual
Partnership Agreement agency
- They are not given the right to have a - The agency is such an intimate personal one
voice or vote in the dissolution of the that equity cannot enforce it even where the
Partnership agreement provides that the Partnership shall
- The remaining partners alone may continue for a definite time
dissolve the Partnership - The right of a partner to dissolve is
FROM THE BOOK inseparably incident to every Partnership and
4. By expulsion of any partner there can be no indissoluble Partnership
- The expulsion has the effect of decreasing the NOTE: There is no such thing as an indissoluble
number of the partners, hence, the dissolution Partnership only in the sense that there always
- The expulsion must be made in good faith, exists the power, as opposed to the right, of
and strictly in accordance with the power dissolution. The doctrine of delectus personae
allows the partners to have the power, although - When the thing to be contributed is not
not necessarily the right, to dissolve the specific, Articles 1786 (par 1) and 1788 shall
Partnership. An unjustified dissolution by a govern
partner can subject him to a possible action for 1. Loss before delivery
damages - If the the specific thing to be contributed by a
FROM THE BOOK partner is lost before delivery, the Partnership
3. Legal effects of dissolution is dissolved because there is no contribution
- The withdrawing partner is Liable for inasmuch as the thing to be contributed
damages for unjustified dissolution but in no cannot be substituted with another
case can he be compelled to remain in the - There is here a failure of a partner to fulfill
Partnership his part of the obligation
- With his withdrawal, the number of members 2. Loss after delivery
is decreased; hence, its dissolution - If the loss occurred after the delivery of the
- The legal effects of this dissolution are laid thing promised, then the partnership is not
down in Article 1837, par 2, Nos 1, 2, and 3 dissolved, but it assumes the loss of the thing
FROM THE PDF having acquired ownership thereof
Legal effects of dissolution - The partners may contribute additional
- A partner guilty of wrongful dissolution is capital to save the venture (Article 1791)
not given the right to wind up Partnership 3. Loss where only use or enjoyment
affairs contributed
- Article 1836: But a minor cannot be guilty of - If only the use or enjoyment of the thing is
wrongful dissolution since he has the legal contributed, the partner having reserved the
right to avoid his contract ownership thereof, the loss of the same
FROM THE BOOK before or after delivery dissolves the
Business Becomes Unlawful Partnership because in either case, the partner
- Dissolution may be caused involuntarily cannot fulfill his undertaking to make
when a supervening event makes the business available the use of the specific thing
itself of the Partnership unlawful (e.g., a law contributed
makes the continuance of the business illegal; - Here, the partner bears the loss and, therefore,
declaration of war between countries of he is considered in default with respect to his
which the partners are respectively citizens) contribution
or makes it unlawful for the partners to carry - Article 1795, par 1: Upon dissolution, the
it on together partners may demand for an accounting and
- A Partnership must have a lawful object or liquidation
purpose (Article 1770) - The mere failure by a partner to contribute his
- The partners, however, can change the nature share of capital pursuant to an agreement to
of their business and continue the Partnership form a Partnership does not prevent the
with the new business existence of a firm
- Such failure may be waived by the other
Loss of Specific Thing partners to the agreement
- This provision of Article 1830 refers only to
specific things Death of Any Partner
- The deceased partner ceases to be associated
in the carrying of the business
- Hence, the dissolution of the Partnership by 3. Continuation of business without liquidation
death - A clause in the articles of co-partnership
- The Surviving Partners have no authority to providing for the continuation of the firm
continue the business except so far as is notwithstanding the death of one of the
necessary to wind up partners is legal
- Article 1836: The Partnership Agreement, - A view has been expressed that the death of
however, may provide that the death, one of the partners does not ipso facto
withdrawal, or admission of a partner will not dissolve the Partnership when, by common
effect a dissolution agreement, the Surviving Partners and the
- Under such stipulation, the estate of the heirs of the deceased decide to continue, the
deceased is not Liable for obligations said agreement being in such case considered
contracted after dissolution beyond the extent as a continuation of the original Contract of
of his capital or interest permitted to remain Partnership
in the business which is continued - In such a case, however, there is a dissolution
- The death is without prejudice to Article of the Partnership without winding up, and a
1833 continuance of the business of the dissolved
- Article 1840 [3] Partnership by a new Partnership, of which
FROM THE PDF the Surviving Partners and the heirs of the
Death of Any Partner deceased or executors are the members
- The deceased partner ceases to be associated becoming Liable as the old to the creditors of
in the carrying of the business; hence, the the firm
ipso facto dissolution of the Partnership by - Article 1840 [3]
his death by operation of law - It will be seen from the foregoing that it is
- The Surviving Partners have no authority to possible to continue a Partnership (actually, a
continue the business except so far as is new one) after the death of a partner, thereby
necessary to wind up (Article 1836) except as increasing the usefulness of the Partnership
provided in Article 1833 device, and decreasing its disadvantage as
- (Article 1840 [3]) compared with the corporate firm
1. Status of Partnership FROM THE BOOK
- The subsequent legal status of a Partnership Insolvency of Any Partner or of Partnership
dissolved by the death of a partner is that of a - The insolvency of the partner or of the
Partnership in liquidation, and the only rights Partnership must be adjudged by a court
inherited by the heirs are those resulting from 1. The insolvency of a partner subjects his
the said liquidation in favor of the deceased interest in the Partnership to the right of his
partner, and nothing more creditors (Article 1814) and makes it
- Before this liquidation is made, it is impossible for him to satisfy with his
impossible to determine what rights or property Partnership obligations to its
interests, if any, the deceased partner had creditors in the event that Partnership assets
2. Liquidation of its affairs have been exhausted
- The liquidation of its affairs is by law - Article 1816: Thus, by his insolvency, its
entrusted to the Surviving Partners, or to credit is impaired
liquidators appointed by them and not to the - An Insolvent Partner has no authority to act
administrator or executor of the deceased for the Partnership nor the other partners to
partner act for him
- Article 1833 - Mere derelictions of a member, such as
2. The insolvency of the Partnership renders its failure to pay his part of the expenses or to
property in the hands of the partners Liable promptly and faithfully perform his part of
for the satisfaction of Partnership obligations the services agreed to, do not ipso facto
resulting in their inability to continue the forfeit his right, or even authorize a court to
business, which practically amounts to a forfeit his right, to the common property or
dissolution assets of the Partnership
- But the reconveyance by the assignee of the - There may be, however, extreme and gross
properties of the Partnership pursuant to an faults which would work a forfeiture,
order of the court after the termination of especially where there was an extreme
insolvency proceedings involving the emergency for him to perform his duty, and
Partnership has the effect of restoring the to be prompt and faithful
Partnership to its status quo 2. Industrial Partner engaging in business for
himself
Civil Interdiction of Any Partner - The law authorizes the Capitalist Partners to
- A Partnership requires the capacity of the exclude from the firm an Industrial Partner
partners who engages in business for himself without
- A person under civil interdiction (or civil the express permission of the Partnership
death) cannot validly give consent (Article - Article 1789
1327), as his capacity to act is limited thereby 3. Power expressly given by agreement
- Article 38 - A power of expulsion of a partner may be
- Article 34, Revised Penal Code: Under the expressly given by agreement
law, civil interdiction deprives the offender - The power is not validly exercised if it is
during the time of his sentence of the right to shown to have been exercised unfairly and
manage his property and dispose of such without regard to the general interest of the
property by any act or any conveyance inter Partnership
vivos (transfer of property during his - In theory, such power must be understood to
lifetime), i.e., to take effect during his exist not for the benefit of any particular
lifetime parties holding control of firm membership,
- Surely, one who is without capacity to but for the benefit of the whole Partnership
manage his own property should not be - Therefore, it cannot be exercised merely to
allowed to manage Partnership Property enable the Continuing Partners to appropriate
FROM THE PDF to themselves the share of the expelled
Right to Expel a Partner partner at a fixed value less than the true
- In the absence of an express agreement to that value
effect, there exists no right or power of any
member, or even a majority of the members, Article 1831
to expel all other members of the firm at will - On application by or for a partner, the court
- Nor can they at will forfeit the share or shall decree a dissolution whenever:
interest of a member or members and compel 1. A partner has been declared insane in any
him or them to quit the firm, even paying Judicial Proceeding or is shown to be of
what is due him unsound mind
1. Partner guilty of extreme and gross faults
2. A partner becomes in any other way enumerated in the first paragraph of Article
incapable of performing his part of the 1831
Partnership Contract FROM THE BOOK
3. A partner has been guilty of such conduct as Grounds for Dissolution by Decree of Court
tends to affect prejudicially the carrying on of - There are many situations or events that may
the business constitute a valid reason for dissolving a
4. A partner wilfully or persistently commits a Partnership but which are subject to dispute
breach of the Partnership Agreement, or or difference of opinion to make a Judicial
otherwise so conducts himself in matters dissolution necessary
relating to the Partnership Business that it is - Dissolution of a Partnership may be ordered
not reasonably practicable to carry on the Judicially after a hearing on application
Business in Partnership with him either: by a partner in the cases mentioned in
5. The Business of the Partnership can only be paragraph 1, numbers 1 to 6 or by the
carried on at a loss purchaser or assignee of a partner’s interest
6. Other circumstances render dissolution under paragraph 2, numbers 1 and 2
equitable 1. On application by a partner
- On the application of the purchaser of a a. Insanity
partner’s interest under Article 1831 or 1814: - The partner may have been previously
1. After the termination of the specific term or declared insane in a Judicial Proceeding;
particular undertaking otherwise, the fact of his being of unsound
2. At any time if the Partnership was a mind must be duly proved
Partnership at Will when the interest was - An insane person is incapacitated to enter
assigned or when the charging order was into a contract (Article 1327 [2])
issued - The insanity must materially affect the
FROM THE PDF capacity of the partner to perform his
Judicial Determination as to Dissolution contractual duties as a partner
- Events which make it impossible to carry on b. Incapacity
the business as intended may have such - The incapacity must be one which affects the
serious effect that the Partnership ought to be ability of a partner to perform his duties as a
dissolved by decree of the court partner
- Such events as unlawfulness, death, FROM THE PDF
insolvency of a partner are certain and Incapacity
unequivocal - Obviously, this refers to incapacity other than
- Their occurrence and effect is not a matter of insanity
dispute or doubt - Independent of any express stipulation, a
- On the other hand, the facts may be so far partner impliedly undertakes to advance the
open to dispute or difference of opinion as to success of the Partnership of which he is a
make a necessary Judicial Determination as member by devoting to it, within reasonable
to dissolution rather than allow them to be the limits, his time, effort, and ability
occasion for automatic dissolution by - His co-partners are entitled to his
operation of law contribution and if, for any reason, he fails to
- Among the facts or acts which will warrant a fulfill his duties they are thereby deprived, in
dissolution by Judicial Decree are those greater or less degree, according to the extent
of his failure, of the benefits of the contract
 which they have made, and of the fruits - But courts may order the dissolution of a
thereof to which they are legitimately entitled Partnership where the quarrels and
- Hence, the rule that courts have the disagreements are of such a nature and to
power to decree dissolution of a such extent that all confidence and
Partnership because of incapacity of a cooperation between the parties have been
partner which materially affects his destroyed, or where one of the parties, by his
ability to discharge the duties imposed by misbehaviour, materially hinders a proper
his Partnership Contract conduct of the Partnership Business
- However, it is not the mere fact of the - It is not only large affairs which produce
existence of insanity, infirmity, or other trouble
disability supervening that will justify a court - The continuance of overbearing and
to decree a dissolution vexatious petty treatment of one partner by
- The incapacity contemplated by law is another frequently is more serious in its
incapacity which is lasting, from which the disruptive character than would be larger
prospect of recovery is remote differences which would be discussed and
- If the disability is of a temporary nature, if it settled
be merely an occasional malady or accidental - For the purpose of demonstrating his own
illness, if there be a fair prospect of recovery preeminence in the business, one partner
within a reasonable time, then, and in such cannot constantly minimize and depreciate
cases, there is no fit ground to decree a the importance of the other without
dissolution, for every Partnership must be undermining the basic status upon which a
presumed to be entered into, subject to the successful Partnership rests
common incidents of life such as temporary - Where a partner is guilty of serious
illness, infirmity, or insanity misconduct, the only remedy ordinarily
FROM THE BOOK available to co-partners is to apply to the
c. Misconduct and persistent breach of court for dissolution
Partnership Agreement - But the Partnership Agreement may
- Like incapacity, conduct prejudicial to the expressly confer the power to expel a partner
carrying on of the business (e.g., inveterate under specified conditions
drunkenness) and persistent breach of the - Article 1830 [1, d]: When this power is Commented [330]: ARTICLE 1830. Dissolution is
Partnership Agreement (e.g., keeping and exercised in good faith, it causes dissolution caused:

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.

indemnification the Partnership and its members are in

4. Liability of deceased partner’s Individual bankruptcy. Having secured priority over the
Property firm creditors against the Individual Property
- The Individual Property of a deceased partner of the firm members, the creditors are
shall be Liable for his share of the relegated to a secondary position to the firm
contributions necessary to satisfy the creditors, since the claim is not based on a
Liabilities of the Partnership incurred while firm obligation
he was a partner - Furthermore, Partnership is regarded as a Commented [351]: ARTICLE 1816. All partners,
- Articles 1816 and 1835, par 3 legal entity separate and distinct from its including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have
5. Priority to payment of Partnership members been exhausted, for the contracts which may be
creditor/partners’ creditors 6. Distribution of property of insolvent partner entered into in the name and for the account of the
partnership, under its signature and by a person
- When Partnership Property and Individual - If a partner is insolvent, his Individual authorized to act for the partnership. However, any
Properties of the partners are in possession of Property shall be distributed as follows: partner may enter into a separate obligation to perform
the court for distribution, Partnership a. First, to those owing to his separate creditors a partnership contract. (n)
creditors shall first be paid from Partnership b. Then to those owing to Partnership creditors Commented [352]: ARTICLE 1835. The individual
property of a deceased partner shall be liable for all
Property and separate creditors from the c. Lastly, to those owing to partners by way of obligations of the partnership incurred while he was a
Individual Properties of the partners contribution partner, but subject to the prior payment of his separate
debts. (n)
FROM THE PDF because of losses sustained by the
Additional Rules in Accounts Between Partners Partnership
After Dissolution
7. Loans and advances made by partners Article 1840
- Loans and advances made by partners to the - In the following cases, creditors of the
Partnership are not capital dissolved Partnership are also creditors of the
- Nor are undivided profits, unless otherwise person or Partnership continuing the
agreed business:
- Capital contributions are returnable only on 1. When any new partner is admitted into an
dissolution, but loans are payable at maturity existing Partnership, or when any partner
and accumulated profits may be withdrawn at retires and assigns (or the representative of
any time by consent of a majority the deceased partner assigns) his rights in
- Amounts paid into the Partnership in excess Partnership Property to two or more of the
of a partner’s agreed capital contributions partners, or to one or more of the partners and
constitute loans or advances which draw one or more third persons, if the business is
interest on which they are made continued without liquidation of the
- Accumulated profits do not draw interest, as Partnership affairs
they are not regarded as loans and advances 2. When all but one partner retire and assign (or
merely because they are left with the firm the representative of a deceased partner
8. Capital contributed by partners assigns) their rights in Partnership Property
- Capital represents a debt of the firm to the to the remaining partner, who continues the
contributing partners business without liquidation of Partnership
- If, on dissolution, Partnership assets are affairs, either alone or with others
insufficient to repay capital investments, the 3. When any partner retires or dies and the
deficit is a capital loss which requires business of the dissolved Partnership is
contribution like any other loss continued as set forth in Nos. 1 and 2 of this
- The return of the amount equivalent to the article, with the consent of the Retired
capital contribution of each partner shall be Partners or the representative of the deceased
increased by his share of undistributed partner, but without any assignment of his
profits or decreased by his share of net right in Partnership Property
losses 4. When all the partners or their representatives
- A partner who furnishes no capital but assign their rights in Partnership Property to
contributes merely his skill and services is one or more third persons who promise to pay
not entitled to any part of the firm capital on the debts and who continue the business of
dissolution in the absence of agreement the dissolved Partnership
- He must look for his compensation to his 5. When any partner wrongfully causes a
share of the profits remaining after dissolution and the remaining partners
repayment of the capital to the contributors continue the business under the provisions of
- The total capital contribution of the partners Article 1837, second paragraph, No. 2, either
is not equivalent to the gross assets to be alone or with others, and without liquidation
distributed to the partners at the time of the of the Partnership affairs
dissolution of the Partnership 6. When a partner is expelled and the remaining
- It may be impaired or become unavailable partners continue the business either alone or
for distribution or return to the partners
 with others without liquidation of the assign their rights in Partnership Property to
Partnership affairs third person
- The Liability of a third person becoming a - Any change in membership dissolves a
partner in the Partnership continuing the Partnership and creates a new one
business, under this article, to the creditors of
the dissolved Partnership shall be satisfied FROM THE PDF
out of the Partnership Property only, unless Additional to Dissolution of a Partnership by
there is a stipulation to the contrary Change in Membership
- When the Business of a Partnership after 1. Causes
dissolution is continued under any conditions - The change in the relation of the partners
set forth in this article the creditors of the resulting in the dissolution of the Partnership
dissolved Partnership, as against the separate may take place when a new partner is
creditors of the retiring partner or deceased admitted; or when a partner retires; or dies; or
partner or the representative of the deceased when a partner withdraws; or is expelled
partner, have a prior right to any claim of the from the Partnership; or when the other
retired partner or the representative of the partners assign their rights to the sole
deceased partner against the person or remaining partner; or when all the partners
Partnership continuing the business, on assign their rights in Partnership Property to
account of the retired or deceased partner’s third person
interest in the dissolved Partnership or on - Any change in membership dissolves a
account of any consideration promised for Partnership and creates a new one
such interest or for his right in Partnership 2. Continuation of Partnership without
Property liquidation
- Nothing in this article shall be held to modify - A Partnership dissolved by any of these
any right of creditors to set aside any happenings need not undergo the procedure
assignment on the ground of fraud relating to dissolution and winding of its
- The use by the person or Partnership business affairs
continuing the Business of the Partnership - The remaining partners (and/or new partners)
name, or the name of a deceased partner as may elect to continue the business of the old
part thereof, shall not of itself make the Partnership without interruption by simply
Individual Property of the deceased partner taking over the business enterprise owned by
Liable for any debts contracted by such the preceding partner and continuing the use
person or Partnership of the old name
- The rights and obligations of the partners as
Dissolution of a Partnership by Change in among themselves in case of such
Membership continuation are set forth in Article 1837
- The change in the relation of the partners - As the Partnership is the result of a contract,
resulting in the dissolution of the Partnership a change in the parties to the contract
may take place when a new partner is necessarily results in a new contract
admitted; or when a partner retires; or dies; or - Hence, a change in membership of a
when a partner withdraws; or is expelled Partnership creates a new Partnership upon
from the Partnership; or when the other the continuation of the business by the
partners assign their rights to the sole partners
remaining partner; or when all the partners FROM THE BOOK
Rights of Creditors of Dissolved Partnership creditors of the old Partnership are also the
which is Continued creditors of the new Partnership which
- Article 1840 deals with the rights of creditors continues the business of the old one without
when the Partnership is dissolved by a change liquidation of the Partnership affairs
of membership and its business is continued 2. Liability of persons continuing business
(Article 1837 [2]) by a former partner, either - NOTE: Under paragraph 2, the liability of
alone or with new partners, without the new or incoming partners shall be
liquidation of Partnership affairs satisfied out of partnership property only
- In such case, the law makes the creditors of unless there is a stipulation to the contrary
the dissolved Partnership also creditors of the - Article 1826 Commented [354]: ARTICLE 1826. A person admitted
persons or Partnership continuing the - NOTE: Paragraph 1, No. 4, applies only as a partner into an existing partnership is liable for all
the obligations of the partnership arising before his
business when the third person continuing the business admission as though he had been a partner when such
- In other words, both classes of creditors, the of the dissolved partnership promises to pay obligations were incurred, except that this liability shall
be satisfied only out of partnership property, unless
old and the new, are treated alike, being given the debts of the partnership. Otherwise, there is a stipulation to the contrary. (n)
equal rights in Partnership Property creditors of the dissolved partnership have no
- Purpose: To maintain the preferential rights claim on the person or partnership continuing
of the old creditors to the Partnership the business or its property unless the
Property as against the separate creditors of assignment can be set aside as a fraud on
the partners creditors under paragraph 4
FROM THE PDF 3. Prior right of dissolved Partnership creditors
Additional to Rights of Creditors of Dissolved against purchaser
Partnership which is Continued - When a retiring or deceased partner has sold
- Article 1840 deals with the rights of creditors his interest in the Partnership without a final
when the Partnership is dissolved by a change settlement with creditors of the Partnership,
of membership and its business is continued such creditors have an equitable lien on the
(Article 1837 [2]) by a former partner, either consideration paid to the retiring or deceased
alone or with new partners, without partner by the purchaser thereof
liquidation of Partnership affairs - This lien comes ahead of the claims of the
1. Equal rights of dissolved and new separate creditors of the retired or deceased
Partnership creditors partner
- In such case, the law makes the creditors of - Application of the rule set forth in paragraph
the dissolved Partnership also creditors of the 3 does and sometimes leave the retiring or
persons or Partnership continuing the deceased partner with a continuing Liability
business the exact duration of which is not specified
- In other words, both classes of creditors, the except that it shall apply only in favor of
old and the new, are treated alike, being given those creditors at the time of the retirement or
equal rights in Partnership Property death of a partner
- Purpose: To maintain the preferential rights FROM THE BOOK
of the old creditors to the Partnership Liability of Persons Continuing Business of
Property as against the separate creditors of Dissolved Partnership
the partners 1. Under the second paragraph, the liability of
- It is immaterial to determine under which one the new or incoming partners shall be
or more of the six (6) cases mentioned in satisfied out of partnership property only
Article 1840 the dissolution falls — the unless there is a stipulation to the contrary
2. Paragraph 1, No. 4, applies only when the assumed all the obligations of the rival
third person continuing the business of the company
dissolved partnership promises to pay the
debts of the partnership. Otherwise, creditors Exemption from Liability of Individual Property
of the dissolved partnership have no claim on of Deceased Partner
the person or partnership continuing the 1. Debts incurred by person or Partnership
business or its property unless the assignment continuing business
can be set aside as a fraud on creditors under - The last paragraph of Article 1840 primarily
paragraph 4 deals with the exemption from Liability to
FROM THE PDF creditors of a dissolved Partnership of the
Continuation of Dissolved Partnership Business Individual Property of the deceased partner
by Another Company for debts contracted by the person or
1. When corporation deemed a mere Partnership which continues the business
continuation of prior Partnership using the Partnership name or the name of the
- The weight of authority supports the view deceased partner as part thereof
that where a Corporation was formed by, - What the law contemplates is a hold-over
and consisted of, members of a Partnership situation preparatory to formal
whose business and property was conveyed reorganization
and transferred to the Corporation for the 2. Commercial Partnership continued after
purpose of continuing its business, in dissolution
payment for which corporate capital stock - Article 1840 treats more of a Commercial
was issued, such corporation is presumed to Partnership with a goodwill to protect rather
have assumed Partnership debts and is prima than a Professional Partnership (Article 1767,
facie Liable therefore par 2) with no saleable goodwill but whose Commented [355]: ARTICLE 1767. Two or more
- Reason: The members of the Partnership reputation depends on the personal persons may also form a partnership for the exercise of
a profession. (1665a)
may be said to have simply put a new coat, qualifications of its individual members
or taken on a corporate cloak, and the - General Rule: Upon the dissolution of a
Corporation is a mere continuation of the Commercial Partnership, the succeeding
Partnership partners or parties have the right to carry on
2. When obligations of company bought out the business under the old name, in the
considered assumed by vendee absence of stipulation forbidding it, since the
- In some cases, when one company buys out name of a Commercial Partnership is a
another and continues the business of the Partnership asset inseparable from the
latter company, the buyer may be said to goodwill of the firm
assume the obligations of the company - On the other hand, a Professional Partnership
bought out when said obligations are not of the reputation of which depends on the
considerable amount or value especially individual skill of the members, such as
when incurred in the ordinary course, and Partnerships of attorneys or physicians, has
when the business of the latter is continued no goodwill to be distributed as a firm asset
- However, when said obligation is of on its dissolution, however intrinsically
extraordinary value, and the company was valuable such skill and reputation may be,
bought out not to continue its business but to especially where there is no provision in the
stop its operation in order to eliminate Partnership Agreement relating to goodwill
competition, it cannot be said that the vendee as an asset
 1. To have the value of the interest of the
Retiring Partner or deceased partner in the
Partnership ascertained as of the date of
Article 1841 dissolution (i.e., date of retirement or
- When any partner retires or dies, and the death)
business is continued under any of the 2. To receive thereafter, as an ordinary
conditions set forth in the preceding article, creditor, an amount equal to the value of his
or in article 1837, second paragraph, No. 2, share in the dissolved Partnership with
without any settlement of accounts as interest, or, at his option, in lieu of interest,
between him or his estate and the person or the profits attributable to the use of his right
Partnership continuing the business, unless - As provided in Article 1840, the creditors of
otherwise agreed, he or his legal a dissolved Partnership have a prior right as
representative as against such person or against the separate creditors of the retired or
Partnership may have the value of his interest deceased partner
at the date of dissolution ascertained, and - If the Surviving Partners in case the
shall receive as an ordinary creditor an dissolution is caused by the death of a
amount equal to the value of his interest in the partner) continue the business without the
dissolved Partnership with interest, or at his consent of the deceased partner’s estate, they
option or at the option of his legal do so without any risk to the estate; if the
representative, in lieu of interest, the profits estate consents, it, in effect, becomes a new
attributable to the use of his right in the partner and would be answerable for all debts
property of the dissolved Partnership; and losses after the death but only to the
provided that the creditors of the dissolved extent of the decedent’s share in the
Partnership as against the separate creditors, Partnership’s assets
or the representative of the retired or
deceased partner, shall have priority on any Article 1842
claim arising under this article, as provided - The right to an account of his interest shall
by article 1840, third paragraph accrue to any partner, or his legal
representative as against the winding up
Rights of Retiring or of Legal Representative of partners or the Surviving Partners or the
Deceased Partner When Business is Continued person or Partnership continuing the
- The Business of the Partnership is not always business, at the date of dissolution, in the
terminated after dissolution absence of any agreement to the contrary
- This is true where the business has been
profitable and some of the partner’s may wish Partner’s Right to Account of his Interest
to continue the business rather than liquidate 1. Accrual of right
it - The right to demand an accounting of the
- When the dissolution is caused by the value of his interest (Article 1812) accrues to Commented [356]: ARTICLE 1812. A partner's interest
retirement or death of a partner and the any partner or his legal representative after in the partnership is his share of the profits and surplus.
(n)
business is continued without settlement of dissolution in the absence of an agreement to
accounts, the retiring partner or the legal the contrary
representative of the deceased partner shall - Prescription begins to run only upon the
have the right: dissolution of the Partnership when the final
accounting is done
- Articles 1806, 1807, and 1809: The right to multiplying it by the length of time included Commented [357]: ARTICLE 1806. Partners shall render
demand an accounting exists as long as the between said periods on demand true and full information of all things
affecting the partnership to any partner or the legal
Partnership exists - CASE: Thus, assuming the liquidation of the representative of any deceased partner or of any
2. Person Liable to render an account Business of a Partnership for the period from partner under legal disability. (n)
- The right of a partner or the one who 1991 to 1995 could not be made, and the net ARTICLE 1807. Every partner must account to the
represents him as owner of his interest to an profit for the period between 1989 and 1990 partnership for any benefit, and hold as trustee for it any
account, i.e., to a statement of the Partnership is P16,000.00, the average of the profits for profits derived by him without the consent of the other
partners from any transaction connected with the
affairs, and, in due course of liquidation, to a each of these years is P8,000.00; and formation, conduct, or liquidation of the partnership or
payment of the amount of his interest, may be assuming the net profit for the year 1996 is from any use by him of its property. (n)
exercised as against: P11,000.00, the average between the net ARTICLE 1809. Any partner shall have the right to a
a. The Winding Up Partner profit for 1989 and 1990 and the net profit for formal account as to partnership affairs:
b. The Surviving Partner 1996 is P9,000.00, which may be considered
(1) If he is wrongfully excluded from the partnership
c. The person or Partnership continuing the as the average of the net annual profits for the business or possession of its property by his co-
business period between 1991 and 1995, which in five partners;
years make a total of P45,000.00 (2) If the right exists under the terms of any agreement;
When Liquidation Not Required 2. Share in the Partnership
(3) As provided by article 1807;
- General Rule: When a Partnership is - A partner’s share cannot be returned without
dissolved, a partner or his legal representative first dissolving and liquidating the (4) Whenever other circumstances render it just and
is entitled to the payment of what may be due Partnership, for the firm’s outside creditors reasonable. (n)
after a liquidation have preference over the assets of the
- But no liquidation is necessary when there is enterprise (Articles 1839 [2] and 1827) and Commented [358]: ARTICLE 1839. In settling accounts
already a settlement or an agreement as what the firm’s property cannot be diminished to between the partners after dissolution, the following
rules shall be observed, subject to any agreement to the
he shall receive their prejudice contrary:
FROM THE PDF - Upon the death of a partner, the Partnership (2) The liabilities of the partnership shall rank in order of
payment, as follows:
Liquidation Necessary for Determination of assumes the status of Partnership in
Partner’s Share liquidation (a) Those owing to creditors other than partners,
1. Share of the profits - The only right his heirs could have would be
(b) Those owing to partners other than for capital and
- The profits of a business cannot be to what might result, after such liquidation, to profits,
determined by taking into account the result belong to the deceased partner, and before
(c) Those owing to partners in respect of capital,
of one particular transaction instead of all the this is finished, it is impossible to determine
transactions had what rights and interests, if any, the deceased (d) Those owing to partners in respect of profits.
- Hence, the need for a general liquidation had.
ARTICLE 1827. The creditors of the partnership shall
before a member of a Partnership may claim - In other words, no specific amounts or be preferred to those of each partner as regards the
a specific sum as his share of the profits properties may be adjudicated to the heir or partnership property. Without prejudice to this right, the
private creditors of each partner may ask the
- When in liquidating a Partnership the profits legal representative of the deceased partner attachment and public sale of the share of the latter in
for a given period of time cannot be exactly without the liquidation being first terminated the partnership assets. (n)
determined for lack of evidence (e.g., the
books of accounts had been destroyed by
white ants [anay]), but the profits for certain CHAPTER 4: Limited Partnership
periods prior and subsequent thereto are FROM THE PDF
known, the profits corresponding to the said Brief History
given time may be determined by finding the - Though the Limited Partnership ame into
average of those profits already known and general use only recently, its history is
 perhaps more ancient than that of the shares of stock, transmissible from hand to
ordinary Partnership hand
- It is undoubtedly an outgrowth of the Roman - In such a case, the death of the Special
Law, which provided that one or more Partner does not dissolve the firm, the
persons might turn over property to a slave creation of transmissible shares being a
and avoid personal Liability by trading proof that the association is formed
through him respectu negotii (aspect), and not
- Gradually, there grew up in the civil law, respectu personarum (the law of persons
rules governing this form of business, occupying special relations to one
substituting, of course, for the slaves, free another); but even in such a Partnership,
persons who become general partners with the death of the General Partner effects a
unlimited Liability dissolution, unless it is expressly
- Louisiana: Which uses the civil instead stipulated otherwise
of the common law, recognized this form - But it would be wrong to extend the rule that
of organization a Partnership, of which the capital is divided
- 1822: The principal rules on Limited into transmissible shares, is not dissolved by
Partnership which grew up in the civil law the death of a stockholder, to a Special
were codified and enacted into a statute by Partnership, the capital of which is not so
the State of New York divided
- New York’s lead has been followed by - Statute of New York: Recognizes only the
most common law jurisdictions though latter kind of Partnership, the names of
England did not fall into line until 1907 parties being required to be registered, and
- La Societé en Commandite: The system of any change in the name working a
Limited Partnership that existed in France dissolution, and turning the firm into a
- Middle Ages: It was styled commanda General Partnership
- One of the most frequent combinations of - Such a Partnership has always been held to
trade, and was the basis of the active and be dissolved by the death of the Special
widely extended commerce of the Partner
opulent maritime cities of Italy - The Partnership remains under the dominion
- Italy: Accomenda of the common law
- At a period when capital was in the hands of - It has created between the Special and
nobles and clergy, who, from pride of caste, General Partner a tie, which is not subjected
or canonical regulations, could not engage to the caprice of unforeseen changes; it has
directly in trade, it afforded the means of produced mutual relations of confidence,
secretly embarking in commercial which the General Partners cannot be forced
enterprises, and reaping the profits of such to extend to strangers
lucrative pursuits, without personal risk
- The Special Partnership is, in fact, no
novelty, but an institution of considerable Sources of Civil Code Provisions
antiquity, well known, understood and - Chapter 4 (Articles 1843 to 1867) on Limited
regulated Partners was adopted, also with appropriate
- French Code: Permits aSspecial Partnership, amendments, from the Uniform Limited
of which the capital may be divided into Partnership Act
- The provisions on Limited Partnerships in the 3. One or more Limited Partners contribute
Code of Commerce (Articles 145 to 150) to the capital and share in the profits but
were considered too meager and inadequate do not participate in the management of
to govern this juridical institution the business and are not personally Liable
FROM THE BOOK for Partnership obligations beyond the
Article 1843 amount of their capital contributions
- A Limited Partnership is one formed by two (Articles 1845, 1848, and 1856)
or more persons under the provisions of the 4. The Limited Partners may ask for the
following article, having as members one or return of their capital contributions under
more General Partners and one or more the conditions prescribed by law (Articles
Limited Partners. The Limited Partners as 1844 [h] and 1857)
such shall not be bound by the obligations of 5. The Partnership debts are paid out of
the Partnership Common Fund and the individual
properties of the General Partners
Concept of Limited Partnership - A Limited Partnership is thus composed of
- This article defines a Limited Partnership two classes of partners, General and Limited
- The term is sometimes used to designate Joint - The Liability of a Limited Partner is limited
Ventures and Partnerships limited only in to the amount of money he has put into the
respect of the nature and scope of the Partnership
business to be carried on - It is an exception to the general rule that all
- The correct usage of the term confines it to partners including Industrial Partners are
the form of business association composed of Liable pro rata with all their property for
one or more General Partners and one or Partnership Debts
more Special Partners, the latter not being - Article 1816: Thus, a Limited Partner has the
personally Liable for the Partnership debts same type of Liability as a stockholder of a
- A Limited Partnership is thus composed of Corporation
two classes of partners - There is no prohibition against a Limited
- It is so called because the Liability to third Partner engaging in business for himself
persons of one or more of its members - Articles 1789 and 1808: In the absence of
referred to as limited (or special) partners is statutory restriction, a Limited Partnership
limited to a fixed amount, heir capital may carry on any business which could be
contributions or the amount they have carried on by a General Partnership
invested in the Partnership
- Key Characteristic: Limited Liability Business Reason and Purpose of Statutes
Authorizing Formation of Limited Partnerships
Characteristics of Limited Partnership 1. Secure capital from others for one’s business
- General Rule: The characteristics of a and still remain control
Limited Partnership are as follows: - The business reason for the adoption of acts
1. A Limited Partnership is formed by making provisions for Limited or Special
compliance with the statutory Partners is that men in business often desire
requirements (Article 1844) to secure capital from others
2. One or more General Partners control the - There are at least three classes of contracts
business and are personally Liable to which can be made with those from whom the
creditors (Articles 1848 and 1850) capital is secured:
 - First, the ordinary loan on interest - They are the following:
- Second, the loan where the lender, in lieu 1. A General Partner is personally Liable for
of interest, takes a share in the profits of Partnership obligations (Article 1816), while
the business a Limited Partner’s Liability extends only to
- Third, those cases in which the person his capital contribution (Articles 1845, 1848,
advancing the capital secures, besides a and 1856)
share in the profits, some measure of 2. When the manner of management has not
control over the business been agreed upon, all of the General Partners
- The lender who takes a share in the profits have an equal right in the management of the
does not by reason of that fact, run a risk of business (Articles 1803 and 1810 [3]),
being held as a partner whether or not the General Partner has made
- If, however, his contract falls within the third any capital contribution, while a Limited
class mentioned and he has any measure of Partner has no share in the management of a
control over the business, he at once runs Limited Partnership, his rights being limited
serious risk of being liable for the debts of the to those enumerated in Article 1851, such
business as a partner that he renders himself liable to creditors as a
2. Share in profits of a business without risk of general partner if he takes part in the control
personal Liability of the business (Article 1848)
- The policy of laws authorizing the formation 3. A General Partner may contribute money,
of Limited Partnerships is to bring into trade property, or industry to the Partnership
and commerce funds of those not inclined to (Article 1767), while a Limited Partner must
engage in that business, who are disposed to contribute cash or property to the Partnership
furnish capital upon such limited Liability but not services (Article 1845)
with a view to the share of profits which 4. Unlike a General Partner, a Limited Partner
might be expected to result to them from its is not a proper party to proceedings by or
use against a Partnership unless he is also a
3. Associate as partners with those having General Partner (Article 1853), or where the
business skill object of the proceeding is to enforce a
- The primary purpose of the statute Limited Partner’s right against, or Liability
authorizing the formation of Limited to, the Partnership (Article 1866)
Partnerships is to encourage those having 5. A General Partner’s interest in the
capital to become partners with those having Partnership (Article 1812) may not be
skill, by limiting the Liability of the former to assigned as to make the assignee a new
the incidental amount actually contributed by partner without the consent of the other
them partners (Article 1813) although he may
- The object of such a statute is to furnish associate a third person with him in his share
reasonable protection to those dealing with (Article 1804), while a Limited Partner’s
the concern by requiring acts to be done and interest is freely assignable, with the assignee
public notice thereof given so that all who acquiring all the rights of the Limited Partner
desire may know the essential features of the subject to certain qualifications (Article
arrangement 1859)
6. The name of a General Partner may appear in
Differences Between a General and a Limited the firm name (Article 1815), while, as a
Partner
 general rule, that of a Limited Partner must - Two or more persons desiring to form a
not (Article 1846) Limited Partnership shall
7. A General Partner is prohibited from 1. Sign and swear to a certificate, which shall
engaging in a business which is of the kind of state–
business in which the Partnership is engaged, a. The name of the Partnership, adding
if he is a Capitalist Partner (Article 1808), or thereto the word “Limited”
in any business for himself if he is an b. The character of the business
Industrial Partner (Article 1789), while there c. The location of the principal place of
is no such prohibition in the case of a Limited business
Partner who is considered as a mere d. The name and place of residence of each
contributor to the Partnership (Article 1866) member, General and Limited Partners
8. The retirement, death, insanity, or insolvency being respectively designated
of a General Partner dissolves the Partnership e. The term for which the Partnership is to
(Articles 1860, 1830, and 1831), while the exist
retirement, etc. of a Limited Partner does not f. The amount of cash and description of
have the same effect, for his executor or and the agreed value of the other property
administrator shall have the rights of a contributed by each Limited Partner
Limited Partner for the purpose of selling his g. The additional contributions, if any, to be
estate (Article 1861) made by each Limited Partner and the
times at which or events on the
Differences Between a General and a Limited happening of which they shall be made
Partnership h. The time, if agreed upon, when the
- The above indicate the differences between a contribution of each Limited Partner is to
General Partnership and a Limited be returned
Partnership i. The share of the profits or the other
1. A General Partnership may, as a general compensation by way of income which
rule, be constituted in any form by each Limited Partner shall receive by
contract or conduct of the parties, while a reason of his contribution
Limited Partnership is created by the j. The right, if given, of a Limited Partner
members after compliance with the to substitute an assignee as contributor in
requirements set forth by law his place, and the terms by reason of his
2. A General Partnership is composed only contribution
of General Partners k. The right, if given, of the partners to
3. It must operate under a firm name which admit additional Limited Partners
in the case of a Limited Partnership must l. The right, if given, of one or more of the
be followed by the word “Limited: Limited Partners to priority over other
(Article 1844 [1, a]) Limited Partners, as to contributions or
4. Their dissolution and winding up are as to compensations by way of income,
governed by different rules and the nature of such priority
- A Limited Partnership, unless prohibited by m. The right, if given, of the remaining
law, may carry on any business which could General Partner or partners to continue
be carried on by a General Partnership the business on the death, retirement,
civil interdiction, insanity, or insolvency
Article 1844 of a General Partner
 n. The right, if given, of a Limited Partner - Under Article 1844, there are two essential
to demand and receive property other requirements for the formation of a Limited
than cash in return of his contribution Partnership:
2. File for record the certificate in the Office 1. The certificate or articles of the Limited
of the Securities and Exchange Partnership which states the matters
Commission enumerated in the article, must be signed
- A Limited Partnership is formed if there has and sworn to
been substantial compliance in good faith 2. Such certificate must be filed for record in
with the foregoing requirements the Office of the Securities and Exchange
Commission
Limited Partnership Not Created by Mere - Purpose of filing of the certificate: To give
Voluntary Agreement actual or constructive notice to potential
- The creation of a Limited Partnership is a creditors or persons dealing with the
formal proceeding and is not a mere Partnership of the limited Liability of the
voluntary agreement, as in the case of a Limited Partners
General Partnership - A strict compliance with the legal
- Accordingly, the requirements of the statute requirements is not necessary
must be followed so that public notice may - It is sufficient if there is substantial
be given to all who desire to know the compliance
essential features of the Partnership FROM THE PDF
- A Limited Partnership is formed if there has Additional to Requirements for Formation of a
been substantial compliance in good faith Limited Partnership
with the requirements set forth in Article - The purpose of requiring the filing of the
1844, last paragraph; otherwise, the Liability certificate is to give actual or constructive
of the Limited Partners becomes the same as notice to potential creditors or persons
that of General Partners dealing with the Partnership to acquaint them
FROM THE PDF with its essential features, foremost among
Additional to Limited Partnership Not Created by which is the limited Liability of the Limited
Mere Voluntary Agreement Partners so that they may not be defrauded or
- As owner of a business can avoid personal misled
Liability for business debts only if this is - As no time is fixed by the law for the filing
provided by statute of the certificate for a Limited Partnership, a
- Since in a Limited Partnership a person is reasonable time is allowed depending on the
allowed to share in the profits without circumstances of the particular case
becoming personally Liable to Partnership - To show failure to comply with certificate
creditors, a Limited Partnership can be created requirements and resulting General Liability,
only where permitted by statute the burden is on the one seeking to fix
FROM THE BOOK General Liability
Requirements for Formation of a Limited - Article 1844 does not specify the time within
Partnership which the certificate must be filed with the
- A Limited Partnership cannot be constituted Securities and Exchange Commission
orally FROM THE BOOK
Presumption of General Partnership
- A Partnership transacting business is, prima other required papers are filed with the
facie, a General Partnership Securities and Exchange Commission
1. Those who seek to avail themselves of the 4. A person who files a false certificate thereby
protection accorded by law to Limited renders himself Liable as a General Partner
Partnerships must show due compliance - The filing of a false affidavit does not result
with statutory requirements. In other in imposing personal Liability as a penalty,
words, to obtain the privilege of a Limited but merely as a consequence of the fact that
Partnership Liability, one must conform to the law refuses protection to one filing a false
the requirements of Article 1844 regulating affidavit
the formation of Limited Partnerships - The perjurious “Limited Partner” becomes a
2. The failure of a Limited Partnership to General Partner, since he is a contributor of
extend its term when it expired (Article capital to a Partnership operating in his behalf
1844 [1, e]), and to register it anew with the
Securities and Exchange Commission, has Substantial Compliance in Good Faith Sufficient
the effect of divesting the Limited Partners - A strict compliance with the legal
of the privilege of Limited Liability. As far requirements is not necessary
as third persons are concerned, the law - It is sufficient that there is substantial
considers the firm as a General Partnership compliance in good faith
having Juridical Personality - If there is no substantial compliance, the
FROM THE PDF Partnership becomes a General Partnership as
Execution of the Prescribed Certificate far as third persons are concerned, in which
- Prime Requisite of Limited Partnership: all the members are Liable as General
Execution of the prescribed certificate Partners
- This document, as a rule, must contain 1. Rules applicable where there is no substantial
the matters enumerated in said article compliance
- Thus, a Limited Partnership cannot be - There is authority to the effect that the firm is
constituted orally such a General Partnership only as to its
1. The requirement of statements as to the relation to third persons; that the firm, in form
names of the partners, the capital contributed is a Limited Partnership, subject to all the
by the Limited Partners, and the duration of rules applicable to such Partnership; that as
the Partnership, is manifestly designed for the between the partners they are bound by their
protection of those who deal with the firm, agreement; and that all the Limited Partner’s
and must be strictly observed by the partners relations to his co-partners and their
- The certificate need not contain anything obligations to him growing out of the relation
concerning the amounts to be contributed by remain unimpaired
the General Partners - Where neither the rights of third parties nor a
2. It is immaterial that the certificate purports to partner’s claim of limited Liability is
be one for the renewal or continuance of an involved, it is difficult to see how the failure
existing Limited Partnership when it is in fact to comply with the legal requirements could
one for the formation of a new Limited affect the existence of a Limited Partnership
Partnership, as long as the essential insofar as the parties, inter se (among or
requirements of the law have been satisfied between themselves), are concerned where
3. The statements required in the certificate the written agreement executed by them is
must be true at the time the certificate and clear and unambiguous