Dissolution and Winding Up
Dissolution and Winding Up
Dissolution and Winding Up
Dissolution is the change in the relation of the partners caused by any partner ceasing
to be associated in the carrying on of the business; partnership is not terminated but
continues until the winding up of partnership affairs is completed
Effects of Dissolution
A. Authority of Partner to Bind the Partnership
General Rule: Authority of partners to bind partnership is terminated
Exception:
o
i. To wind up partnership affairs
ii. To complete unfinished transactions
QUALIFICATIONS:
1. With respect to partners
e. Authority of partners to bind partnership by new contract is immediately
terminated when dissolution is not due to ACT, DEATH or INSOLVENCY
(ADI) of a partner (art 1833);
f. If due to ADI, partners are liable as if partnership not dissolved, when the
ff. concur:
iii. If cause is ACT of partner, acting partner must have knowledge of
such dissolution
iv. If cause is DEATH or INSOLVENCY, acting partner must have
knowledge/notice
2. With respect to persons not partners (Art.1834)
g. Partner continues to bind partnership even after dissolution in ff. cases:
v. Transactions in connection to winding up partnership
affairs/completing unfinished transactions
vi. Transactions which would bind partnership if not dissolved, when
the other party/obligee:
1. Situation 1 -
a. Had extended credit to partnership prior to dissolution
&
b. Had no knowledge/notice of dissolution, or
2. Situation 2 -
c. Did not extend credit to partnership
d. Had known partnership prior to dissolution
e. Had no knowledge/notice of dissolution/fact of
dissolution not advertised in a newspaper of general
circulation in the place where partnership is regularly
carried on
h. Partner cannot bind the partnership anymore after dissolution:
vii. Where dissolution is due to unlawfulness to carry on with business
(except: winding up of partnership affairs)
viii. Where partner has become insolvent
ix. Where partner unauthorized to wind up partnership affairs, except
by transaction with one who:
1. Situation 1 -
a. Had extended credit to partnership prior to dissolution
&
b. Had no knowledge/notice of dissolution, or
2. Situation 2 -
c. Did not extend credit to partnership
d. Had known partnership prior to dissolution
e. Had no knowledge/notice of dissolution/fact of
dissolution not advertised in a newspaper of general
circulation in the place where partnership is regularly
carried on
B. Discharge of Liability