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Atp
1837
(1) Two Aspects of Causes of Dissolution
Dissolution may be caused:
(a) although the partnership contract is NOT VIOLATED
(Example: death, or arrival of term) (The rights of
partners are governed by the FIRST PARAGRAPH of
this article.)
(b) Because the partnership contract is VIOLATED
Example: Deliberate withdrawal of a partner although the
period of the firm has not yet expired, thus causing
damage to the firm.
(NOTE: The rights of the partners here are governed
BUT the SECOND PARAGRAPH of this article.)
(2) Better Rights for Innocent Partners
Note that innocent partners have better rights than guilty
partners, and that the latter are required to indemnify for
the damages caused.
(3) Right of Innocent Partners to Continue
Note also that the innocent partners may continue the
business (but this time, there is really a NEW
partnership). They can even use the same firm name if
they wish to; moreover, they can ask new members to
join, BUT always, the rights granted to the guilty partners
are safeguarded by:
(a) a BOND approved by the court;
(b) a PAYMENT of his interest at the time of dissolution
MINUS damages. (Moreover, the guilty partner who is
excluded will be indemnified against all PRESENT or
FUTURE partnership liabilities. This is because he is no
longer a partner.)
(4) Right to Get Cash
In case of non-continuance of the business, the interest
of the partner should, if he desires, be given in CASH.
(Firm assets may be sold for this purpose.)
[NOTE: The right given to each partner, where no
agreement to the contrary has been made to have his
share of the surplus paid to him in CASH makes certain
an existing (under the old law) uncertainty. At present
(under the old law) it is not certain whether a partner
may or may not insist on a physical partition of the
property remaining after third persons have been paid.
(5) No Share in Goodwill for Guilty Partner
A guilty partner, in ascertaining the value of his interest is
NOT entitled to a proportionate share of the value of the
GOODWILL. (This is a necessary consequence of his
bad faith.)
[NOTE: The deprivation of his share in the goodwill is
not unconstitutional, and cannot be considered as
unlawful taking of property without due process of law.
(6) Partner Wrongfully Excluded
When a partner is excluded wrongfully, he should be
considered as the innocent partner, and the others as
the guilty partners. It is now said that other partners
must account not only for what is due to him at the date
of the dissolution but also for damages or for his share of
the profits realized from the appropriation of the
partnership business and good will. (Of course), it is
otherwise if the excluded partner had substantially
broken the partnership agreement. Indeed, he has a
pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership
and assets at the time he was wrongfully expelled.
(7) Division of Losses
Although such things as depreciation, obsolescence, or
diminished market value of capital assets are not strictly
speaking to be considered losses because they merely
constitute a decrease in capital assets (and not the
result of business transactions), still they should, in
fairness be considered as losses, and the rules on
losses must apply, provided that their real market values
at the time of liquidation are the values considered.
Art. 1838.
(1) Rescission or annulment of Partnership Contract
(a) Although the law here uses the term rescind, the
proper technical term that should have been used is
annulled, in view of the fraud or misrepresentation.
(b) The fraud or misrepresentation here vitiates the
consent whereby the contract of partnership had been
entered into, hence, it is really dolo causante.
(2) Three Rights
The Article speaks of 3 rights (without prejudice to his
other rights under other legal provisions):
(a) right of LIEN or RETENTION
(b) right of SUBROGATION
(c) right of INDEMNIFICATION
Art. 1839.
(1) Rules for Settling Accounts
(a) Commissioners Comment on No. (1) subdivision (b)
the contributions of the partners necessary for the
payment of all liabilities . . .:
The adoption of this clause will end the present (under
the old law) confusion as to whether the contribution of
the partners toward the losses of the partnership are
partnership assets or not. The Commissioners believe
that the opinion that such contributions are assets is
supported by the better reasoning.
(b) Art. 1839 speaks of the methods of settling the
accounts of the partnership, that is to say its
LIQUIDATION.
[NOTE: Before liquidation is made, no action for
accounting of a partners share in the profit or for a
return of his capital assets can properly be made, since
it is essential to first pay-off the creditors. Thus, a partner
who has retired must first ask for the liquidation before
he can recover his proportionate share of the partnership
assets.
[NOTE: The managing partner of a firm is not a debtor of
the other partners for the capital embarked by them in
the business; thus, he can only be made liable for the
capital, when upon liquidation of the business, there are
found to be assets in his hands applicable to the capital
account.
(c) Art. 1839 can apply only if there is a contrary
agreement.
Of course, such agreement cannot prejudice innocent
third parties.
(2) The Assets of the Partnership
(a) The partnership property (including goodwill).
(b) The contributions of the partners, which are made to
pay off the partnership liabilities.
(3) Order of Payment of Firms Liabilities
(a) First give to creditors (who are strangers), otherwise
they may be prejudiced.
(b) Then give to partners who are also creditors (they
should be placed in a subordinate position to outside
creditors for otherwise they may prefer their own
interests).
[NOTE: Example of credits owing to partners which are
neither capital nor profits, are those for reimbursement of
business expenses.
(c) Then give to the partners their capital.
(NOTE: Capital should be given ahead of profi t for it is
only the surplus profi t over capital that should be
considered as the gain or the profi t of the fi rm.)
[NOTE: An industrial partner, who has not contributed
money or property at all is, in the absence of stipulation,
not entitled to participate in the capital. He shares in the
profi ts, however.
(d) Lastly, the profi ts must be distributed.
[NOTE: If, during the liquidation of a fi rm, the profi ts for
a certain period of time cannot be exactly determined
because no evidence or insuffi cient evidence thereof is
available, the court should determine the profi t for the
period by fi nding the average profi ts during the period
BEFORE and AFTER the period of time in question.
(4) New Contributions
Art. 1865.
(1) Requisites for Amending or Cancelling the Certifi
cate
This is a new provision of the new Civil Code.
Source: Sec. 25, Uniform Limited Partnership Act.
(2) Problems
(a) X, a limited partner, assigned his interest to Y, who
thereby acquired the right to be a substituted limited
partner. Aside from the others, should X and Y sign the
amendment?
ANS.: Yes.
(b) In the preceding problem, suppose X refuses to sign
the amendment, may Y petition the court to order the
court to order the amendment?
ANS.: Yes.
Art. 1866.
When Contributors (Other Than General Partners)
Should Be Made Parties to Proceedings
The Article is self-explanatory.
Art. 1867.
Transitional Provisions on Limited Partnerships
(a) This is a new provision of the new Civil Code.
Source: Sec. 30, Uniform Limited Partnership
Act.
(b) On June 1, 1946, a limited partnership was formed.
May it become a limited partnership under the new Civil
Code?
ANS.: Yes, by following the conditions in Art.
1867.
(c) Suppose the limited partnership in question (b) does
not want to become one under the new Civil Code, what
laws will govern said partnership?
ANS.: The old law.