ART. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up
of the business. (n)
Dissolution, winding up, and termination defined.
Dissolution – change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on of the business.
ART. 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular
undertaking specified in the agreement;
(b) By the express will of any partner, who must act in good
faith, when no definite term or particular undertaking is
specified;
- represent the demise of the partnership
Winding up - Process of settling the business or partnership affairs
after dissolution
Termination – Point in time where all partnership affairs are
completely wound up and finally settled
- End of partnership life.
ART. 1829. On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is completed.
(n)
Partnership not terminated by dissolution
- Dissolution of partnership must not be understood to mean its
extinguishment.
- Principal significance of dissolution is, Thereafter, no new
partnership business should be taken but affairs should be
liquidated and distribute it to those who are entitled of the partner’s
affair.
(c) By the express will of all the partners who have not
assigned their interests or suffered them to be charged for
their separate debts, either before or after the termination
of any specified term or particular undertaking;
(d) By the expulsion of any partner from the business bona
fi de in accordance with such a power conferred by the
agreement between the partners; Art. 1830 215
(2) In contravention of the agreement between the partners,
where the circumstances do not permit a dissolution under any
other provision of this article, by the express will of any partner at
any time;
(3) By any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it on in
partnership;
(4) When a specific thing, a partner had promised to contribute to
the partnership, perishes before the delivery; in any case by the
loss of the thing, when the partner who contributed it having
reserved the ownership thereof, has only transferred to the
partnership the use or enjoyment of the same; but the partnership
shall not be dissolved by the loss of the thing when it occurs after
the partnership has acquired the ownership thereof;
- Article 1831 enumerates the grounds for judicial dissolution of the
partnership.
(5) By the death of any partner;
- Once partnership is dissolved, the same partner can create a new
partnership with the same terms as of the old.
(6) By the insolvency of any partner or of the partnership;
Dissolution effected without violation of partnership agreement.
(7) By the civil interdiction of any partner; (8) by decree of court
under the following article. (1700a and 1701a)
(1) Termination of the definite term or particular undertaking.
Causes of dissolution.
- The events that cause dissolution of a partnership may be divided
into four (4) categories: act of the parties not in violation of their
agreement; act of the parties in violation of their agreement;
operation of law; and court decree. Other causes are provided in
Article 1840.
 Dissolution may be caused without violation of the agreement
between the partners (No. 1.) or in contravention of said
agreement. (No. 2.)
 May be voluntary when caused by the will of one or more or all
of the partners (Nos. 1 and 2.) or involuntary when brought
about independently of the will of the partners or by operation
of law. (Nos. 3, 4, 5, 6, 7, and 8.)
 Voluntary dissolution of partnership may be effected extrajudicially (Nos. 1 to 7.) or judicially, that is, by decree of court.
(No. 8, in relation to Art. 1831.)
- It will be observed that the causes provided in Article 1830 result in
the automatic dissolution of the partnership
- Partnership may be constituted for a fixed term or it may
have for its object a specific undertaking.
-Expiration of the term or particular undertaking constitutes
automatic dissolution if the partners don’t have any
intention to extend the term.
- If the partners continue the partnership it becomes
partnership by will.
(2) By the express will of any partner
- Partnership at will may be dissolved any time even without
the consent of the co-partner
- The partner who wants to dissolve the partnership should
be acting in good faith.
- If there is bad faith in dissolution then it is wrongful.
(3) By the express will of all the partners.
- Agreement on dissolving partnership before expiration of a
term or particular undertaking must be unanimous.
- Majority consent alone is cannot dissolve the partnership
and those consent of the partner who assigned their
equitable interest cannot effect dissolution only those
remaining partners can.
(4) By expulsion of any partner.
- decreasing the number of partners.
- must be in good faith and in accordance to the power
onferred by the partnership agreement, between partners.
- Power can be vested exclusively to one partner
- Partner who expelled in bad faith can claim damages.
- allows partner to have the power not necessarily right to
dissolved partnership even though the co-partner still wants
to continue the partnership
(3) Legal effects of dissolution.
- Withdrawing partner is liable to any damages caused by
unjustified dissolution.
Business becomes unlawful.
- Dissolution may be caused involuntarily when a supervening event
makes the business itself of the partnership unlawful or makes it
unlawful for the partners to carry it on together.
- Partnership must have a lawful object or purpose.
Dissolution effected in contravention of partnership agreement.
- Breach in agreement
(1) Dissolution may be for any cause or reason.
- Any partner can cause dissolution of the partnership any
time even without the consent of the co-partner at his own
pleasure even though the partnership is entered in a
definite term.
- ^ Constitutes contravention of the agreement or breach of
the agreement.
(2) Power of dissolution always exists.
- Delectus personae
Loss of specific thing.
(1) Loss before delivery.
- If the contribution of a specific thing is lost before delivery
partnership is dissolved
- The specific thing lost cannot be substituted.
(2) Loss after delivery.
- If the specific thing is loss after delivery then partnership is
not dissolved as long as the ownership was passed to the
partnership.
- Partners may contribute additional capital to save the
venture.
(3) Loss where only use or enjoyment contributed.
- If only the use or enjoyment of the thing is contributed,
the partner having reserved the ownership thereof, the loss
of the same before or after delivery dissolves the
partnership.
- Partner bears the loss and, therefore, he is considered in
default with respect to his contribution.
- Upon dissolution, the partners may demand for an
accounting and liquidation.
Insolvency of any partner or of partnership.
- Insolvency of a partner subjects his interest in the partnership to
the right of his creditors.
- Impossible for him to satisfy with his property partnership
obligations to its creditors in the event that partnership assets have
been exhausted.
- Insolvent partner has no authority to act for neither the
partnership nor the other partners to act for him.
- The mere failure by a partner to contribute his share of capital
pursuant to an agreement to form a partnership does not prevent
the existence of a firm
- Insolvency of the partnership renders its property in the hands of
the partners liable for the satisfaction of partnership obligations
resulting in their inability to continue the business, which practically
amounts to dissolution.
- Failure may be waived by the other parties to the agreement.
Civil interdiction of any partner.
Death of any partner.
- A person under civil interdiction (or civil death) cannot validly give
consent as his capacity to act is limited thereby.
- Partner who died ceases to be associated with the partnership.
- surviving partner does not have the authority to continue business
except so far as is necessary to wind up.
- Civil interdiction deprives the offender during the time of his
sentence of the right to manage his property and dispose of such
property by any act or any conveyance.
- However, partnership agreement can stipulate that any death,
withdrawal or admission of a partner will cause dissolution.
ART. 1831. On application by or for a partner, the court shall
decree dissolution whenever:
- Estate of the deceased is not liable for obligation contracted by the
partnership after dissolution beyond the excess of his capital
permitted to remain in the business which is continued.
(1) A partner has been declared insane in any judicial proceeding
or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing
his part of the partnership contract;
b. Incapacity – Incapacity must affect the ability of the
partner to perform his duties as a partner.
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
c. Misconduct and persistent breach of partnership
agreement – Prejudicial in carrying on the business and
persistent breach of partnership agreement.
(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership with
him;
(5) The business of the partnership can only be carried on at a loss;
d. Business can be carried on only at a loss – Becomes
apparent that the business is unprofitable with no
reasonable prospect of success.
e. Other circumstances – Abandonment of business, fraud,
refusal to render accounting affairs without justifiable
reason.
(6) Other circumstances render dissolution equitable.
(2) Application by a purchaser of a partner’s interest
On the application of the purchaser of a partner’s interest under
Article 1813 or 1814:
(1) After the termination of the specified term or particular
undertaking;
(2) At any time if the partnership was a partnership at will when
the interest was assigned or when the charging order was issued.
(n)
Grounds for dissolution by decree of court.
(1) Application by a partner
a. Insanity – should be previously declared in insane in
judicial proceeding. If not declared must prove the insanity.
- Purchaser of a partner’s interest may apply for judicial dissolution
of the partnership as long as it’s after the termination of the specific
undertaking or it is a partnership by will from the beginning.
ART. 1832. Except so far as may be necessary to wind up
partnership affairs or to complete transactions begun but not then
finished, dissolution terminates all authority of any partner to act
for the partnership.
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency or
death of a partner; or
(b) When the dissolution is by such act, insolvency or death
of a partner, in cases where Article 1833 so requires;
(2) With respect to persons not partners, as declared in article
1834. (n)
(b) With respect to third persons
Effect of dissolution on authority of partner.
- Partnership is still bound by the contract even though the
authority of the acting partner is already terminated.
(1) General rule.
- Innocent partners can claim damages to the acting partner.
- Unless otherwise stipulated, every partner is considered the agent
of the partnership with authority to bind the partnership as well as
the other partners with respect to the transaction of its business.
- Upon dissolution, the partnership ceases to be a going concern and
the partner’s power of representation is confined only to acts
incident to winding up.
- The event of dissolution, therefore, terminates the actual authority
of a partner to undertake new business for the partnership.
(2) Qualifications to the rule of Article 1832.
(a) In so far as the partners themselves are concerned
- AUTHORITY of any partner to bind the partnership by a
new contract is immediately terminated when the
dissolution is not by the act, insolvency, or death of a
partner.
- Dissolution is by such act, insolvency, or death, the
termination of authority DEPENDS upon whether or not the
partner had KNOWLEDGE OR NOTICE of the dissolution as
provided in Article 1833.
ART. 1833. Where the dissolution is caused by the act, death or
insolvency of a partner, each partner is liable to his co-partners for
his share of any liability created by any partner acting for the
partnership as if the partnership had not been dissolved unless:
(1) The dissolution being by act of any partner, the partner acting
for the partnership had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a partner,
the partner acting for the partnership had knowledge or notice of
the death or insolvency.
Right of partner to contribution from co-partners.
- Dissolution cause by the act, insolvency, death of the partner.
- Partner who enters in a new contract after dissolution binds
partners and each of them are liable to the third person.
Authority of partners, AS AMONG THEMSELVES, to act for the
partnership.
- Authority is terminated even the cause is Insolvency or death
(1) Cause of dissolution is of partner and acting partner knows the
dissolution. (to protect innocent partners)
(2) Cause of the dissolution is death or insolvency of a partner but
the acting partner has the notice of such death and insolvency. (to
avoid or eliminate the fiction that everybody is presumed to have
knowledge about the death or insolvency.
ART. 1834. After dissolution, a partner can bind the partnership,
except as provided in the third paragraph of this article:
(1) By an act appropriate for winding up partnership affairs or
completing transactions unfinished at dissolution;
When a partner has knowledge or notice of a fact.
(1) When a partner has knowledge of a fact, he had the actual
knowledge and other facts yet acted in bad faith .
(2) A person has notice of a fact
a. states the fact
b. through mail / any means of communication, Written
statement of the fact / proper person at his place of
business or residence.
Ex. A, B and C are partner and C communicated it to B(acting
partner) that he will resign.
Any acts that made by A who does not know of the dissolution is
binding to all of them
(2) By any transaction which would bind the partnership if
dissolution had not taken place, provided the other party to the
transaction:
(a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of the
dissolution; or
(b) Though he had not so extended credit, had
nevertheless known of the partnership prior to dissolution,
and having no knowledge or notice of dissolution, the fact
of dissolution had not been advertised in a newspaper of
general circulation in the place (or in each place if more
than one) at which the partnership was regularly carried
on.
But if B who has the knowledge but still entered in the contract
doesn’t binds the other partners but is personally liable.
The liability of a partner under the first paragraph, No. 2, shall be
satisfied out of partnership assets alone when such partner had
been prior to dissolution:
If A only knew the resignation from B then it is only a notice not
knowledge and still binds all partners.
(1) Unknown as a partner to the person with whom the
contract is made; and
If the other partner is Insolvent or died then the knowledge or
notice on the part of B will justify non-liability on the part of other
partners.
(2) So far unknown and inactive in partnership affairs that
the business reputation of the partnership could not be
said to have been in any degree due to his connection with
it.
The partnership is in no case bound by any act of a partner after
dissolution:
(1) Where the partnership is dissolved because it is
unlawful to carry on the business, unless the act is
appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner had no authority to wind up
partnership affairs, except by a transaction with one who
—
(a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of his
want of authority; or
(b) Had not extended credit to the partnership
prior to dissolution, and, having no knowledge or
notice of his want of authority, the fact of his want
of authority has not been advertised in the manner
provided for advertising the fact of dissolution in
the first paragraph, No. 2(b).
Nothing in this article shall affect the liability under article 1825 of
any person who after dissolution represents himself or consents to
another representing him as a partner in a partnership engaged in
carrying on business. (n)
Power of partner to bind dissolved partnership to third persons.
- 1834 enumerates where partners can still bind partnership even
after dissolution (Par. 1 Nos. 1-2) and cases cant bind partnership
after dissolution (Par. 3 Nos. 1,2 and 3)
- Upon the dissolution of the partnership, as between themselves,
the power of one partner to act and bind the others is effectively
terminated.
- Authority of a partner apparently continues as to third person who
doesn’t know of the dissolution because dissolution is not made
public.
Notice of dissolution to creditors.
(1) As to persons who extended credit to partnership prior to
dissolution.
-partnership or persons who extended credit to the partnership
prior to its dissolution must have knowledge or notice of the
dissolution to relieve the partnership from liability.
(2) As to persons who had known of partnership’s existence.
- Persons who had not so extended credit prior to its dissolution, but
who had known of its existence, the fact that the dissolution had
been published in the newspaper would be sufficient.
- Mere mailing of a letter to a former dealer is insufficient to
relieve the retiring partner from subsequent liability, where
the notice was never received.
(3) Where acting partner has no authority to wind up partnership
affairs.
- Notice of dissolution is unnecessary except in case No. 3, where
the partner has no authority to wind up partnership affairs.
- Third persons dealing with the partner without such authority are
protected under the same circumstances mentioned in paragraph 1,
No. (2)(a) and (b).
(4) Where acting partner has become insolvent.
- Law makes a distinction between the right of a partner who has no
knowledge or notice of the other partner’s insolvency to bind the
partnership and the right of a third person to claim that his contract
with the partnership is valid
- Innocent partner is protected in his continued right to make
binding partnership agreements, but no similar protection is
extended to a third party who innocently makes a contract with an
insolvent partner.
Character of notice required.
- Notice is required to relieve retiring partner or representative of
the deceased partner of any subsequent liability on partnership.
(1) As to prior dealers.
- must be actual
*prior or former dealer is one who has extended credit on the faith
of the partnership, through confidence in the solvency and probity
of the fi rm.
(2) As to all others.
- Notice is accomplished by an advertisement in a local newspaper.
Actual notification is not necessary.
Dormant partner need not give notice.
- Person with whom the contract is made or so far unknown and
inactive in partnership affairs shall be satisfied out of partnership
assets alone.
- His connection with the partnership not having known, it cannot in
any degree have contributed towards establishing its reputation or
credit.
ART. 1835. The dissolution of the partnership does not of itself
discharge the existing liability of any partner.
A partner is discharged from any existing liability upon the
dissolution of the partnership by an agreement to that effect
between himself, the partnership creditor and the person or
partnership continuing the business; and such agreement may be
inferred from the course of dealing between the creditor having
knowledge of the dissolution and the person or partnership
continuing the business.
The individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner, but
subject to the prior payment of his separate debts. (n)
Effect of dissolution on partner’s existing liability.
- The dissolution of a partnership does not of itself discharge the
existing liability of a partner.
- A partner may be relieved from all existing liabilities upon
dissolution only by an agreement to that effect between himself, the
partnership creditor, and the other partners.
Liability of estate of deceased partner.
- The individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner.
- Individual creditors of the deceased partner are to be preferred
over partnership creditors with respect to the separate property of
said deceased partner.
ART. 1836. Unless otherwise agreed, the partners who have not
wrongfully dissolved the partnership or the legal representative of
the last surviving partner, not insolvent, has the right to wind up
the partnership affairs, provided, however, that any partner, his
legal representative or his assignee, upon cause shown, may
obtain winding up by the court. (n)
Manner of winding up.
(1) Judicially – Endorsed in the court by the surviving partner or by
the legal representative of the last surviving partner.
(2) extra-judicially – among themselves.
Persons authorized to wind up
(1) Person designated by the agreement. (liquidating partner)
(2) If no agreement, all partners who have not wrongfully
dissolved the partnership.
(3) Legal representative of the last deceased partner NOT
INSOLVENT
- If there is remaining partners they are the one who is responsible
in winding up the business not the LEGAL REPRESENTATIVE of the
deceased partner unless the DECEASED IS THE LAST SURVIVING
PARTNER.
ART. 1837. When dissolution is caused in any way, except in
contravention of the partnership agreement, each partner, as
against his co-partners and all persons claiming through them in
respect of their interests in the partnership, unless otherwise
agreed, may have the partnership property applied to discharge its
liabilities, and the surplus applied to pay in cash the net amount
owing to the respective partners. But if dissolution is caused by
expulsion of a partner, bona fide under the partnership agreement
and if the expelled partner is discharged from all partnership
liabilities, either by payment or agreement under the second
paragraph of article 1835, he shall receive in cash only the net
amount due him from the partnership.
When dissolution is caused in contravention of the partnership
agreement, the rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall
have:
(a) All the rights specified in the first paragraph of this
article, and
(b) The right, as against each partner who has caused the
dissolution wrongfully, to damages for breach of the
agreement.
(2) The partners who have not caused the dissolution wrongfully, if
they all desire to continue the business in the same name either by
themselves or jointly with others, may do so, during the agreed
term for the partnership and for that purpose may possess the
partnership property, provided they secure the payment by bond
approved by the court, or pay to any partner who has caused the
dissolution wrongfully, the value of his interest in the partnership
at the dissolution, less any damages recoverable under the second
paragraph, No. 1(b) of this article, and in like manner indemnify
him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of
the second paragraph, No. 2, all the rights of a partner
under the first paragraph, subject to liability for damages
in the second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second
paragraph, No. 2, of this article, the right as against his copartners and all claiming through them in respect of their
interests in the partnership, to have the value of his
interest in the partnership, less any damage caused to his
co-partners by the dissolution, ascertained and paid to him
in cash, or the payment secured by a bond approved by the
court and to be released from all existing liabilities of the
partnership; but in ascertaining the value of the partner’s
interest, the value of the good will of the business shall not
be considered. (n)
Right of partner to application of partnership property on
dissolution.
- Partners has the right to have the partnership property applied to
discharge partnership liabilities and to have the surplus distributed
to them respectively depending on the cause:
a. without violation to partnership agreement
b. with violation to the partnership agreement
Rights where dissolution not in contravention of agreement.
(1) To have the partnership property applied to discharge
partnership liabilities
(2) To have the surplus distributed to the partners respectively
- Dissolution caused by expulsion of a partner, the expelled partner
will be relieved from all the partnership liabilities with the payment
or agreement with the PARTNERSHIP CREDITORS , and OTHER
PARTNERS.
- expelled only have the right to receive cash the next amount due
him from partnership but if its rightful diss. Then no partner is liable
Rights where dissolution in contravention of agreement.
(1) Partner who doesn’t caused the wrongful dissolution
- Partnership property applied for the payment of its liabilities and
to receive in cash his share of the surplus
- indemnified for damages from the guilty partner that caused
wrongful dissolution.
- Continue the business in the same name during the agreed term of
the partnership, by themselves or jointly with others.
- To possess partnership property if they want to continue.
(2) Partner who wrongfully caused the dissolution:
- NOT CONTINUED by the other partners to have the partnership
property applied to discharge its liabilities and to receive in cash his
share of the surplus LESS DAMAGES.
- Business is continued:
- Value of his interest in the partnership at the time of the
dissolution, less any damage in cash or secured by bond
approved by the court.
- Released from all existing and future liabilities of the
partnership.
ART. 1838. Where a partnership contract is rescinded on the
ground of the fraud or misrepresentation of one of the parties
thereto, the party entitled to rescind is, without prejudice to any
other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for the purchase
of an interest in the partnership and for any capital or advances
contributed by him;
(2) To stand on, after all liabilities to third persons have been
satisfied, in the place of the creditors of the partnership for any
payments made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud of making
the representation against all debts and liabilities of the
partnership. (n)
Right of partner to rescind contract of partnership.
- Contract to create partnership, induced with fraud can be voidable
or annullable but it doesn’t mean that the partnership doesn’t exist
as long as the contract is not yet annulled by the proper action of
court.
- Defrauded partner is still liable for all obligations to third person
but can indemnify.
Rights of injured partner where partnership contract rescinded.
(1) Retention of, the surplus of partnership property after satisfying
partnership liabilities for any sum of money paid or contributed by
him
(2) Subrogation in place of partnership creditors after payment of
partnership liabilities.
(3) Indemnification by the guilty partner against all debts and
liabilities of the partnership
ART. 1839. In settling accounts between the partners after
dissolution, the following rules shall be observed, subject to any
agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the
payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment,
as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in
No. 1 of this article to the satisfaction of the liabilities.
(6) Any partner or his legal representative shall have the right to
enforce the contributions specified in No. 4, to the extent of the
amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for
the contributions specified in No. 4.
(8) When partnership property and the individual properties of the
partners are in possession of a court for distribution, partnership
creditors shall have priority on partnership property and separate
creditors on individual property, saving the rights of lien or secured
creditors.
(9) Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall rank in the
following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contributions. (n)
Liquidation and distribution of assets of dissolved partnership.
- Distribution subject to variation by agreement of partnership.
(4) The partners shall contribute, as provided by article 1797, the
amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
Assets of the partnership (what to liquidate)
- Partnership property (including goodwill)
- Contributions of the partners necessary for the payment of
all liabilities in accordance with Article 1797
Order of application of the assets
1. Partnership creditors
2. Partner Creditor ( a member of partnership who extends
credit to the partnership)
3. Return on capital to the Partners
4. Profits or surplus made after paying all liabilities or
obligations are due to each partner.
Assets were insufficient
- If the partnership acquires loss partners or any legal representative
can enforce the contribution provided in Article 1797.
- If any partner does not pay their losses remaining partners have to
pay but they can sue the non-paying partner.
Liability of deceased partner’s individual property.
- Personal estate of the deceased partner is subject to the liabilities
of the partnership incurred while he was a partner.
Priority to payment of partnership creditors/partners’
- Partnership property and personal properties of partners are in the
possession of the court for distribution.
- Creditors are paid first from the partnership property then, if
partnership property is insufficient then to partners separate
property.
Distribution of property of insolvent partner
1. Separate creditor
2. Partnership creditor
3. Partners
ART. 1840. In the following cases, creditors of the dissolved
partnership are also creditors of the person or partnership
continuing the business:
(1) When any new partner is admitted into an existing partnership,
or when any partner retires and assigns (or the representative of
the deceased partner assigns) his rights in partnership property to
two or more of the partners, or to one or more of the partners and
one or more third persons, if the business is continued without
liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rights in
partnership property to the remaining partner, who continues the
business without liquidation of partnership affairs, either alone or
with others;
(3) When any partner retires or dies and the business of the
dissolved partnership is continued as set forth in Nos. 1 and 2 of
this article, with the consent of the retired partners or the
representative of the deceased partner, but without any
assignment of his right in partnership property;
(4) When all the partners or their representatives assign their
rights in partnership property to one or more third persons who
promise to pay the debts and who continue the business of the
dissolved partnership;
(5) When any partner wrongfully causes a dissolution and the
remaining partners continue the business under the provisions of
article 1837, second paragraph, No. 2, either alone or with others,
and without liquidation of the partnership affairs;
deceased partner liable for any debts contracted by such person or
partnership. (n)
(6) When a partner is expelled and the remaining partners
continue the business either alone or with others without
liquidation of the partnership affairs.
Dissolution can happen in any of the following:
The liability of a third person becoming a partner in the
partnership continuing the business, under this article, to the
creditors of the dissolved partnership shall be satisfied out of the
partnership property only, unless there is a stipulation to the
contrary.
When the business of a partnership after dissolution is continued
under any conditions set forth in this article the creditors of the
dissolved partnership, as against the separate creditors of the
retiring partner or deceased partner or the representative of the
deceased partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner against the
person or partnership continuing the business, on account of the
retired or deceased partner’s interest in the dissolved partnership
or on account of any consideration promised for such interest or
for his right in partnership property.
Dissolution of a partnership by change in membership
- New partner is admitted
- Partner is retired, expelled, dies or withdraws
- Partners assign their right to sole remaining partner
- All partners assign their right to a third person.
Rights of creditors of dissolved partnership which is continued.
- Rights of the creditors if the business continues by a partner alone
or with new partner without liquidation.
- They are still creditor of the new partnership or of the
person.
Ex. C is admitted as a new partner to the existing partnership of A &
B
- C is liable to the extent of his contribution to the old creditors of
the partnership, but is liable to the extent of his individual property
if the credit was incurred subsequent to his entry.
Liability of persons continuing business
Nothing in this article shall be held to modify any right of creditors
to set aside any assignment on the ground of fraud.
The use by the person or partnership continuing the business of
the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the
- Liability of the incoming partner shall be satisfied out of
partnership property unless there is stipulation to the contrary.
- If third person promises to pay the debt of the partnership then
creditors don’t have claims on the dissolved partnership or partners,
but to the third person unless it is fraud.
ART. 1841. When any partner retires or dies, and the business is
continued under any of the conditions set forth in the preceding
article, or in article 1837, second paragraph, No. 2, without any
settlement of accounts as between him or his estate and the
person or partnership continuing the business, unless otherwise
agreed, he or his legal representative as against such person or
partnership may have the value of his interest at the date of
dissolution ascertained, and shall receive as an ordinary creditor
an amount equal to the value of his interest in the dissolved
partnership with interest, or at his option or at the option of his
legal representative, in lieu of interest, the profits attributable to
the use of his right in the property of the dissolved partnership;
provided that the creditors of the dissolved partnership as against
the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under
this article, as provided by article 1840, third paragraph. (n)
Rights of retiring, or of estate of deceased, partner when business
is continued.
- To have the value of the interest of the retiring or deceased
partner ascertained on the date of dissolution.
- To receive Interest or profits attributable to the use of his right in
equal to the value of his contribution
-If the surviving partner continues the business with the
consent of the Legal representative of the deceased
becomes a new partner and is liable to all liable and
obligation arising after death only to the extent of the
contribution of the deceased.
ART. 1842. The right to an account of his interest shall accrue to
any partner, or his legal representative as against the winding up
partners or the surviving partners or the person or partnership
continuing the business, at the date of dissolution, in the absence
of any agreement to the contrary. (n)
Partner’s right to account of his interest.
(1) Accrual right – Right to demand an accounting of the value of his
interest accrues to any partners or his legal representative after
dissolution in the absence of the agreement to the contrary.
(2) Person liable to render an account
- Winding partner
- Surviving partner
- Person or partnership continuing the business.
When liquidation not required.
- No liquidation required if there is already settlement or agreement
to what he shall receive.