ART.

1828 Dissolution – change in relation of the partners caused by

any of the partner ceasing to be associated in the carrying on of the
partnership

- Point in time when the partners cease to carry on the business

together
- Significance of dissolution is that no new partnership business
should be taken but affairs should be liquidated and distribution
of partnership interest should be made tol those who are entitled
thereto

Winding up – process of settling the business or partnership affairs

Different from Termination- point of time where it is the end of the

partnership, winding up is completed, affairs are wound up

Art. 1829 Dissolution the partnership is not terminated but continues

until the winding up of the partnership affairs is completed

Continues to exist. Still are co-partners

Even if partnership is dissolved the partners may form a new

partnership to continue the business under the same terms

ART. 1830

Causes of Dissolution

Extrajudicial: grounds for dissolution is exclusive, any other grounds

is not a legal cause for dissolution.
 Grounds provided by law will result to an automatic dissolution of
the partnership

Extrajudicial: Without violation of Partnership’s Agreement or the

Contract of Partnership (Involuntary) or With Violation or in
Contravention

Without violation: T

- Termination of the term

- In case of partnership at will (express will of the parner) no
definite term or particular undertaking specified, in good faith.
*in bad faith, partnership will still dissolve but the person in bad
faith may be liable for damages

- express will of all of the partners (unanimous consent or choice to

dissolve)

*Consent of those who have assigned their interests or had their

interests charged is not necessary to affect dissolution. Because their
interest in the partnership is not with them anymore

Remaining partners in that case will dissolve the partnership

-by expulsion of the partner in accordance to a power that was

granted by their agreement between the partners.

*IF the partners continue the partnership after the agreed term
or after the undertaking has been completed then that partnership
will be a partnership at will.
 IN CONTRAVENTION /WITH VIOLATION: (VOLUNTARY)

Dissolved by any partner at any time; Available even if the

partnership was entered into for a definite term or undertaking. Any
time and for any cause without the consent of the other partners.

Partner cannot be compelled to stay in the partnership

*Partner unjustly or without justification dissolves the firm he

may be liable for damages, depending on the circumstanes.

Voluntary – by express will or impetus of the partners

1. Compulsory Dissolution
2. By Agreement
3. Notice of partnership at will
4. On the occasion of certain contingencies

INVOLUNTARY (by operation of law)

- Partnership is a contract, the essential elements must be there

and one of those is the object of the element, the object must not
be contrary to law, morals and etc. If the object of the partnership
is unlawful from the beginning the partnership never acquired
juridical personality
- OR if the partnership was lawful in the beginning then became
subsequently unlawful then the partnership will be dissolved by
operation of law.
- NEXT, a specific thing that the partner promised to contribute to
the partnership perished before delivery. We can think about the
 rule or law, Res Perit Domino, meaning the owner bears the loss.
Whoever owns the thing bears the loss. It is deemed that the
partner did not give what he was supposed to as agreed in the
Partnership Contract.
= use or enjoyment, lost before and after delivery, dissolution
= ownership of the thing, lost before deilivery, dissolved
*all in presumption that partner cannot contribute other specific
thing
= ownership of the thing, lost after delivery, not dissolved. RES
PERIT DOMINO, owner bears the loss

- (5) By the death of any of the partner. If the partner dies, the firm
is dissolved, but the other partners still have an option to
continue the partnership
- (6) By insolvency of any of the partneror even by the partnership
itself. If any of the partner is insolvent, his credit is impaired and it
is impossible for him to pay for partnership liabilities in case the
partnerships’ assets have been exhausted. Partners are liable pro
rata and subsidiarily for partnership liabilities in case the assets of
the partnership are insufficient.
*In case of insolvency of partnership, it results to the inability to
continue the business which will then result to a dissolution

- (7) By civil interdiction of any of the partners. (deemed incapable

of managing his or her own property) One who has no capacity to
manage his own property should not be allowed to manage the
property of the partnership.
Judicial Dissolution (Art. 1831)

By decree of the court

- Ordered after hearing upon application (who can apply? Either

the partner or a purchaser or assignee of a partner’s interest)
Applied by partner, the court may order dissolution in the ff cases:
1. Partner is declared insane in any judicial proceedings, unsound
mind. *Insanity has to be previously declared judicially or if not
must be duly proven. Materially affect the capacity of the
partner engage in his contractual duties .
2. A partner becomes in any other way incapable of performing
his part of the contract. In nature, there is ery little to no
chance that the partner will recover his ability to perform his
duties.
3. A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business.
4. Partner willfully or persistently breaches the contract. It
becomes impractical to continue or carry on the business with
him due to his conduct. WHY? Purpose of the partnership is
defeated, materially affected or obstructed.
5. Business of the partnership can only be carried on at a loss. If
we remember the purpose of the partnership is to earn profit.
This purpose is defeated.
6. Other circumstances that render the dissolution of the
partnership equitable. EXAMPLE: Abandonment of the
business, fraud in management, refusal without just cause to
render an accountinf of the partnership affairs
 ASSIGNEE or PURCHASER of partner’s interest may also file an
APPLICATIOn

- Grounds to enable filing of application: after the termination of

the specified term or particular undertaking
- OR any time if the partnership is a partnership at will when the
interest was assigned or when charging order was issued.

Why is Judicial Order necessary? The facts incolved in proving these

grounds may be open to dispute. One party may allege it while other
would like to counter or defend against it. There is a need for
judicial determination to find out if the solutions is warranted. We
leave it to the court.

EFFECTS OF DISSOLUTION

Is the partnership dead? Not yet, there is still a need for winding up
the partnership’s affairs. Partnership continues and legal personality
is retained until the winding up process is completed upon which the
partnership is terminated

Partners’ authority, every partner is considered the agent of the

partnership with authority to bind both partners and partnership
with respect of transcations of partnership business, Therefore as
GENERAL RULE: dissolution results in the PSHIP ceasing to be a going
concern, it also terminates all authority of any of the partner to act
for it or to represent it except in:
- Authority is retained for act =s with regards to winding up the
business
- Acts necessary to complete transactions which are begun but
unfinished, to complete unfinished business.

The right of the partner to bind the partnership with transactions is

terminated upon dissolution except for winding up or to complete
unfinished business.

1832 Dissolution is not due to the act, insolvencty or death of the

partner such as termination of the term or completion of the
particular undertaking then we follow the general rule.

Dissolution IS by ACT, INSOLVENCY or DEATH of a partner then the

termination of his authority will depend wheter the partner had
knowledge of notice of dissolution under 1833.

- Generally, each partner is liable to his co-partners for his share of

any liability created by any partner acting for the partnership as if
it had not been dissolved.
*Authority is not terminated and the partner can bind the
partnership to third persons
- If the dissolutoin is caused by the act, death or insolvency of any
partner, the partner who had knowledge of the death or
insolvency, then the authority to act for the partnership is
deemed terminated. The partner cannot therefore bind the
partnership to third persons for a new transaction.
If a partner did not know that a partner died then in his mind that
partner still exists or is still living then in his case he has reason to
act and bind the partnership.
If he knew that a partner has died and by now we know that the
death of a partner to a partnership is grounds to dissolution then
it is logical that he cannot bind the partnership with someone
else.

1834 gives the rule regarding third persons. Upon dissolution the
power of one partner to act and bind the partners is generally
terminated. But the authority may continue to bind the
partnership to third persons who extend credit on the assumption
that the partnership is still existing.

On the absence of anything that can prove or indicate the

termination of the PSHIp, it is presumed to exist, for the
protection of the innocent third persons.

This is why the law enforces the duty to inform or give a notice of
the dissolution of the PSHIp upon the partners to the third party.

3rd party does not need to ask everytime if the partnership is still
dead or existing, they have every right to presume that the
partnership is still existing. If he gives credit to the partnership
then the partnership Is bound. This rule is existing to protect the
innocent third persons who in good faith transact with the
partnership. It is the duty of the partnership to inform the third
persons.
 Partnership is bound to third persons after dissolution for acts:
- Winding up the partnership affairs
- Acts to complete partnership business
- For completing new transactions only if the third person was in
good faith and is previous creditor who had extended prior credit
(prior to dissolution) without knowledge of the dissolution
Or he is not a previous creditor and the fact of dissolution has
not been published in newspaper of general circulation

Key here is the knowledge of dissolution.

Partnership will not be bound to third persons after dissolution:

- Parnership is dissolved because it is unlawful to carry on the
business, except for acts for winding up the partnership
- Partner who acts in the transaction becomes insolvent
- When partner is unauthorized to wind up except
if the transaction is with third persons in good faith who didn’t
know about the dissolution.
- Act is not appropriate for winding up or for completing unfinished
transactions
- For completely new transactions that whould have bound the
partnership if dissolution had not tken place with third persons in
bad faith.

HOW TO APPLY THE RULES

PSHIP dissolved because the term arrives, then it is not an act insolvent
or death of a partner.

If a partner enters into a new contract with a third person it should not
bind the partnership but only the partner who acted because his
authority to act in behalf of the partnership is terminated.

If the partnership is dissolved because of the act, death or insolvency of

a partner and the partner had knowledge of this then that partner
cannot bind that also

But if the partner and the third person had no knowledge of the act
deathor insolvency of the partner then the partnership is bound even fi
the firm is dissolved.

Notice of dissolution must be given to the following:

- Persons who give credit to the firm prior to dissolution

- Persons who while did not extend credit to the firm, they had
knowledge of its existence. They know that the partnership exists.

Otherwise if they are not given a notice they are entitled to presume
that the partnership is still existing until such notice of dissolution is
given to them. If no notice is given, the partnership continues to be
liable to such third persons.

Creditors who extended credit --- actual notice

All others --- advertisement, newspaper

Giving of such notice will terminate the power of every partner to bind
the partnership or other partners to new obligations.
Notice is not required if partnership dissolved because it is unlawful to
carry on the business or where the partner has become insolvent.

1834 Partner is unknow or dormant, his liabilities with respect to

obligations incurred after dissolution shall be satisfied out of
partnership assets only or only up to the extent of his shares.

1835 Effect of dissolution to a partner’s existing liability, general rule is

that dissolution does not automatically discharge the liability the
existing liability of any partner. This rule applies to continuing partners.

Retiring partners, they will be discharged from all existing liabilities

upon dissolution only by an agreement between the partner
concerned, the other partners who are continuing the partnership and
partnership creditors. Given necessary notice of withdrawal the retiring
partner will not be liable for subsequent partnership obligations.

Individual property of deceased partner shall liable for all obligations of

the partnership incurred while he was a partner. But of course subject
to prior payment of his separate debts. Individual creditors of that
deceased partner are preferred over the partnership creditorwith
regard to the separate property of that deceased partner.
Who will wind up EXTRAJUDICIAL : liquidating partners or the partner
as agreed by all others

Partners who have not wrongfully dissolved the partnership

Legal representative of the last surviving partner who is not insoven

JUDICIAL person assigned by the court.