RIGHTS OF A PARTNER UPON DISSOLUTION

Rightful dissolution – no contravention of the partnership agreement.

- Partner has the right to receive a partner’s lien or right of

retention
- Right of subrogation
- Right of indemnification

Partnership property applied to discharge partnership liabilities

Receive in cash his share of the surplus

- Subject to contrary agreement

- In case of expelled partner, he is to receive the net amount due to
him fromm the partnership
- Dissolution is proper, then no partner is liable for any loss arising
from dissolution. Oher losses, he will be liable.

WRONGFUL Dissoltuion – in contravention

Rights of partners who has not caused the wrongful dissolution, the
innocent partners

a. Have partnership property applied to partnership liabilities

b. Receive in cash his share of surplus
c. To be indemnified for damages caused by the partner who caused
the wrongful dissolution
d. Continue the business in the same name during the agreed term of
the partnership either by themselves or jointly with others
e. Possess partnership property if they continued the business

Rights of the partners who did cause the wrongful dissolution

2 Scenarios”

- Other parties do not continue the partnership

Right is only to receive the partner’s lien (Partner's right to apply the
contributions of all other partners towards the partnership's debts, and to deduct
such debts from what is owed to the partners by the partnership.)

In other words to Have partnership property applied to partnership

liabilities Receive in cash his share of surplus less the damages he is
liable for.

- Other partners continue the business

Right of the persons who caused the wrongful dissolution would be to

have the value of his interest in the partnership at the time of the
dissolution and the surplus less the damages he is liable for
ascertained. Once value is ascertained, it will be paid to him or have it
secured by a bond approved by the court. (corporate debt issued by
companies and securitized as tradeable assets).

He is also entitled to be released from all existing and future liabilities

after he pays for the damages.

*The goodwill of the business is not considered in ascertaining the

value of the interest of the guilty partner.
A partner may have the Contract of Partnership rescinded. Failure to
contribute the promised property or money is not ground for recission.
Remedy of failure to contribute is: Specific Performance.

The only time rescission can be done or exist in favor of the partner if
he was induced by fraud or misrepresentation to become a partner. In
such a case the Contract of Partnership is Voidable, and that partner
can have that contract annulled, if he succeeds in the annulment then
that partner will be entitled to restitution. That is to say he will get
what he has given as a consequence of rescission.

Voidable contracts are valid until they are annulled, in the case of a
partnership the partnership relations exist until the contract is
annulled.

Frauded partner is liable for all obligations to third persons.

Right of the partner who asks for rescission (annulled (fraud

misrepresentation))

- Right of lien on or retention of the surplus of partnership property

after satisfying partnership liabilities for any sum of money that
was paid for the purchase of an interest in the partnership or for
any capital or advances that he contributed
- Right to be subrogated in place of partnership creditors after
payment pf partnership liabilities for any payments he have made
for those liabilities
 - Right of indemnification by the guilty partner against all debts and
liabilities of the partnership

WINDING UP PROCESS

Winding up – process of settling the business or partnership affairs after

dissolution. JUDICIAL OR EXTRAJUDICIAL.

In the process of winding up the business is not continued, it consists of

converting the property to cash and distributing the proceeds.

The property must be liquidated and distributed to those entitled thereto.

Liquidating partners- one or more partners who are assigned or delegated with he
authotrity to sell partnership property and collect obligations due to the
partnership.

Partners authorized are either partners designated in the agreement or the

contract of partnership but If there is no agreement then it Is those partners who
did not wrongfully dissolve the partnership or the legal representatives of the last
surviving partner who is not insolvent.

Other partners will not have the right to participate in the winding up of the
partnership affairs.

If the partnership Is settled by a partner who had no authority to wind up, then
the partnership is not bound by his acts, except of course if he had transacted
with a third person who extended credit in good faith, which is to say they had no
knowledge of the dissolution of the partnership. Or if he had transacted with a
third person who despite had no knowledge or received any notice of dissolution
is charged through a contructive notice in the form of an advertisement like in the
newspapers
1842. The partner has the right to demand an accounting of his interest in the
partnership against the person who is in charge of settling the affairs of the
business or against the surviving partners or thos continuing the partnership after
the date of dissolution except if there is an agreement to the contrary.

POWERS of LIQUIDATING PARTNERS

-make contracts for liquidation purpose only

-raise money for partnership debts

-Incur obligations to complete existing contracts or to preserve partnership assets

-Incur expenses necessary in the conduct of litigation, meaning a case in court.

ASSETS OF THE PARTNERSHIP

- Partnership property including the good will

- The contributions of the partners necessary for the payment of all liabilities

Partnership obligations will be satisfied out of partnership assets before the

separate property of each partner may be proceeded against

ORDER OF PAYMENT WHEN IT COMES to WINDING UP

1. Pay liabilities owing to creditors who are not partners

2. Those owing to partners other than for capital or for profit
3. Those owing to partners for capital
-industrial partners not included
4. Those owing to partners for profits
-industrial partners included
If the assets are insufficient meaning there is an overall loss to the partnership
then the deficit is a capital loss which requires the partners to contribute to meet
that loss.

Contribute the necessary to meet thel liability according to agreement of

distribution. If no agreement then it is through pro rata. In proporting

Liability may be enforced by an assignee for the benefit of creditors, any persons
appointed by the court, any partner or his legal representative to the extent
which he has paid in excess of his share of the liability

Inc ase o f a deceased partner, his individual property shall be liable for the
contribution if the assets of the partnership is insufficient.

Before partners are paid their shares, the creditors of the partnership must first
be compensated. Whatever is left of the assets after all the compensation was
paid, it will become available for the payment of the partners shares.

RIGTHS OF PARTNERSHIP CREDITORS AND INDIVIDUAL CREDITORS

Partnreship creditors enjoy preference over the creditors of each individual

partner with respect to partnership property

Individual creditors are entitled to be paid only out of the individual parnters
share in the surplus which remains after the firm debts have been paid.

Individual debts will have to wait after the partnership debts have been paid.

They also have to wait after the equities among the partners have been adjusted.

He has to wait for the debtor-partner share has been ascertained and settled.
Individual partner has a claim from an individual partner who is insolvent then the
individual creditor will have the preference.

With regards to separate property of the individual partner, it is the individual

creditor of each partner that enjoys preverence over the partnership creditors.

Partnership property and individual property is under the possession of the court
for distribution, we follow the Doctrine of Marshalling of Assets which under
Article 1839 paragraph 9.

1. Partnership creditors have preference in partnership assets

2. Separate or Individual Creditors have preference in separate or individual
property
3. Anything left from either goes to the other.

These rules are subject to the Right of Lien of secured creditors

Partner has become insolvent, the claims of his separate property will also
have an order

1. That which is owing to separate creditors, then

2. That which is owing to partnership creditors.
3. That which is owing to partners by way of contribution

1840 Dissolution of a partnership by a change of membership

New partner is admitted

When a partner retires, withdraws, dies or is expelles

Other partners assign their rights to the sole remaining partner

All partners assign their property to a third person

All of these constitute a change in the membership of the partnership

This change dissolves a partnership and creates a new one