PARTNERSHIP

DISSOLUTION -> WINDING UP OF AFFAIRS -> TERMINATION OF PARTNERSHIP

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. (Art. 1828.)

Causes and Effects of dissolution

Caveat: any change in membership dissolves a partnership and creates a

new one (meaning, a new contract would be created, a novation perhaps). When
dissolution is caused by a change in membership, it doesn’t necessarily mean that
the affairs would be wound up.

Dissolution is caused when: a new partner is admitted, when a partner

retires or dies, and when a partner withdraws or is expelled from the partnership,
etc. Primarily, it is classified into: voluntary causes, extrajudicially – that is with or
without a violation or contravention of the partnership agreement, or judicially –
through the application by a partner or an assignee or purchaser of a partner’s
interest before the court based on some legal grounds; and dissolution by
operation of law, either because there was an illegality on the object of the
partnership, or the specific thing to be contributed or contributed for the use of
the partnership has been lost, or a partner either died or became insolvent or
became civilly interdicted, or the partnership itself became insolvent.

Dissolution does not terminate the object for which it was created.
Dissolution by itself does not automatically result to the extinguishment or
termination of the legal personality of the partnership neither the cessation of its
business. There is no termination upon dissolution. There is only termination
when partnership affairs are completely wound up and finally settled. Therefore,
the partners who did not leave and remain to be co-partners after the dissolution
came up continue to be until the partnership is terminated.

The purpose of continuation has two separate paths: it’s either to create-
another/continue or to wind up a partnership.
 First is to settle accounts and outstanding obligations among themselves
and to third parties – this is the process of winding up of affairs. Ofcourse, this
necessarily means that the partnership should not enter into new businesses
since after dissolution its purpose is reduced only for liquidation and distribution
of interests among the partners, if any. Take note that businesses already existing
at the time of dissolution is among those obligations needed to be wound up and
are not included in the prohibition.

Second is to continue the business affairs of the partnership. In this case,

the partnership is not prohibited to enter into new businesses and the remaining
partners shall have the option to continue the business affairs. However, the
condition is that the dissolution must have sprung from a contravention of the
partnership agreement made by the partner causing the dissolution

Voluntary Causes of Dissolution (Partners causes the dissolution)

Extrajudicial Dissolution (Whether/not there is a violation of partnership

agreement)

When there is no violation of partnership agreement, it can be dissolved in 4

ways:

a.) Termination of a Term or Undertaking – After the expiration of the term or

particular undertaking, the partnership is automatically dissolved without
the partners extending the said term or continuing the undertaking.
b.) By express will of ANY partner at a partnership AT WILL – A partnership at
will may be dissolved any time by any partner without the consent of his
co-partners without causing any breach thereof provided he acts in good
faith. Presence of good faith absolves the dissolving partner from liability
for damages due to his action causing the dissolution.
c.) By express will of ALL partners in a partnership WITH A FIXED TERM – by
express agreement and does not need to be in a particular form.
Agreement to dissolve a partnership having a fixed term BEFORE THE
EXPIRATION of the term or undertaking needs to be decided by the co-
partners unanimously.
 d.) By expulsion of any partner – A change in the composition of partners
results in a dissolution. Expulsion must be done in good faith strictly in
accordance with the power to expel conferred by the partnership
agreement. A partner expelled in bad faith can claim damages.

**a partnership at will is a partnership without a definite term or particular undertaking specified in the
agreement.

When Dissolution was done in contravention of a partnership agreement:

Dissolution of this kind occurs when any partner intended to cause the
partnership’s dissolution even if the circumstances do not permit dissolution. The
partner causing dissolution in bad faith would be liable for damages for causing
the wrongful dissolution.

In this set-up, the partners who did not cause the wrongful dissolution have
the right to wind-up the partnership affairs by seeking the help of the court. This
is not a judicial dissolution. The matter to be taken up by the court here is the
exercise of right to wind up affairs.

**In any case, every partner has the right to dissolve the partnership since no one can be compelled to become a
partner or to remain one. It’s just that the partner seeking to dissolve the partnership must have been in good faith
most importantly if he does it contravening a partnership agreement.

Judicial Dissolution (meaning, there is fraud or misrepresentation by other

parties, or a separate judicial decree declaring a partner insane, etc.):

Who may apply:

A partner is entitled to rescind if a co-partner causes fraud or misrepresentation.

Additional rights are as follows:

(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, 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 or making the representation against all debts and
liabilities of the partnership.

A partner may apply for dissolution if a co-partner has been declared insane in
any judicial proceeding or is shown to be of unsound mind; a partner becomes in
any other way incapable of performing his part of the partnership contract; a
partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business; 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; the business of the partnership can only be
carried on at a loss; other circumstances render a dissolution equitable.

Dissolution by application of assignee of a partner’s interest (subject to an

agreement entitling the assignee to interfere in the management of the
partnership business)

* A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership but
it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner
would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may
avail himself of the usual remedies. (This provision is the same as the granting of a partner’s right to rescind in case
of fraud with additional rights.)

A partner becomes in any other way incapable of performing his part of the partnership contract;

In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require
an account from the date only of the last account agreed to by all the partners. (n)

Article 1814.  on due application to a competent court by any judgment creditor of a partner, the court which
entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his
share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all
other orders, directions, accounts and inquiries which the debtor partner might have made, or which the
circumstances of the case may require.

The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the
court, may be purchased without thereby causing a dissolution:

(1) With separate property, by any one or more of the partners; or

(2) With partnership property, by any one or more of the partners with the consent of all the partners
whose interests are not so charged or sold.

Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his
interest in the partnership.
Involuntary Dissolution (dissolution by operation of law – the law causes
dissolution, not by the partners but due to the partners or the object of the
partnership)

It must be observed that partnership must have a lawful object or purpose, and
must be established for the common benefit or interest of the partners.
Otherwise, the partnership will lose its lawfulness. When an unlawful partnership
is dissolved by a judicial decree, the profits shall be confiscated in favor of the
State, without prejudice to the provisions of the Penal Code governing the
confiscation of the instruments and effects of a crime.

Necessarily, dissolution will be caused 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.

When a specific thing which 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
TRUST
Trust is the legal relationship between one person having an equitable ownership
of property and another person owning the legal title to such property, the
equitable ownership of the former entitling him to the performance of certain
duties and the exercise of certain powers by the latter.

Express trusts are those which are created by the direct and positive acts of the
parties, by some writing or deed, or will, or by words evincing an intention to
create a trust. Implied trusts are those which, without being express, are
deducible from the nature of the transaction as matters of intent, or which are
superinduced on the transaction by operation of law as matters of equity,
independently of the particular intention of the parties

Express or direct trusts are created by the direct and positive acts of the parties,
by some writing or deed, or will, or by oral declaration in words evincing an
intention to create a trust.[32]Implied trusts also called trusts by operation of law,
indirect trusts and involuntary trusts arise by legal implication based on the
presumed intention of the parties or on equitable principles independent of the
particular intention of the parties.[33] They are those which, without being
expressed, are deducible from the nature of the transaction as matters of intent
or, independently of the particular intention of the parties, as being inferred
from the transaction by operation of law basically by reason of equity.

Unlike express trusts concerning immovables or any interest therein which cannot
be proved by parol evidence, implied trusts may be established by oral evidence.

However, in order to establish an implied trust in real property by parol evidence,

the proof should be as fully convincing as if the acts giving rise to the trust
obligation were proven by an authentic document. It cannot be established upon
vague and inconclusive proof.
Implied trusts are further classified into constructive trusts and resulting
trusts. Constructive trusts come about in the main by operation of law and not
by agreement or intention. They arise not by any word or phrase, either expressly
or impliedly, evincing a direct intention to create a trust, but one which arises in
order to satisfy the demands of justice.[35] Also known as trusts ex
maleficio, trusts ex delicto and trusts de son tort, they are construed against one
who by actual or constructive fraud, duress, abuse of confidence, commission of a
wrong or any form of unconscionable conduct, artifice, concealment of
questionable means, or who in any way against equity and good conscience has
obtained or holds the legal right to property which he ought not, in equity and
good conscience, hold and enjoy.[36] They are aptly characterized as fraud-
rectifying trust,[37] imposed by equity to satisfy the demands of justice [38] and to
defeat or prevent the wrongful act of one of the parties. [39] Constructive trusts are
illustrated in Articles 1450, 1454, 1455 and 1456.[40]
 
On the other hand, resulting trusts arise from the nature or circumstances
of the consideration involved in a transaction whereby one person becomes
invested with legal title but is obligated in equity to hold his title for the benefit
of another. This is based on the equitable doctrine that valuable consideration
and not legal title is determinative of equitable title or interest and is always
presumed to have been contemplated by the parties.[41] Such intent is presumed
as it is not expressed in the instrument or deed of conveyance and is to be found
in the nature of their transaction.[42] Implied trusts of this nature are hence
describable as intention-enforcing trusts.[43] Specific examples of resulting trusts
may be found in the Civil Code, particularly Articles 1448, 1449, 1451, 1452 and
1453.

While resulting trusts generally arise on failure of an express trust or of the

purpose thereof, or on a conveyance to one person upon a consideration from
another (sometimes referred to as a purchase-money resulting trust), they may
also be imposed in other circumstances such that the court, shaping judgment in
its most efficient form and preventing a failure of justice, must decree the
existence of such a trust.[47] A resulting trust, for instance, arises where, there
being no fraud or violation of the trust, the circumstances indicate intent of the
parties that legal title in one be held for the benefit of another.[48] It also arises in
some instances where the underlying transaction is without consideration, such
as that contemplated in Article 1449 [49] of the Civil Code. Where property, for
example, is gratuitously conveyed for a particular purpose and that purpose is
either fulfilled or frustrated, the court may affirm the resulting trust in favor of
the grantor or transferor,[50] where the beneficial interest in property was not
intended to vest in the grantee.[51]

Intention although only presumed, implied or supposed by law from the nature
of the transaction or from the facts and circumstances accompanying the
transaction, particularly the source of the consideration is always an element of
a resulting trust[52] and may be inferred from the acts or conduct of the parties
rather than from direct expression of conduct.[53] Certainly, intent as an
indispensable element, is a matter that necessarily lies in the evidence, that is,
by evidence, even circumstantial, of statements made by the parties at or before
the time title passes.[54] Because an implied trust is neither dependent upon an
express agreement nor required to be evidenced by writing,[55]Article 1457[56] of
our Civil Code authorizes the admission of parole evidence to prove their
existence. Parole evidence that is required to establish the existence of an
implied trust necessarily has to be trustworthy and it cannot rest on loose,
equivocal or indefinite declarations

As a trustee of a resulting trust, the trustee is merely a depositary of legal title

having no duties as to the management, control or disposition of the property
except to make a conveyance when called upon by the cestui que trust.

As differentiated from constructive trusts, where the settled rule is that

prescription may supervene, in resulting trust, the rule of imprescriptibility may
apply for as long as the trustee has not repudiated the trust. Once the resulting
trust is repudiated, however, it is converted into a constructive trust and is
subject to prescription. A resulting trust is repudiated if the following requisites
concur: (a) the trustee has performed unequivocal acts of repudiation amounting
to an ouster of the cestui qui trust; (b) such positive acts of repudiation have been
made known to the cestui qui trust; and, (c) the evidence thereon is clear and
convincing.

In Tale v. Court of Appeals the Court categorically ruled that an action for
reconveyance based on an implied or constructive trust must perforce prescribe
in ten (10) years, and not otherwise, thereby modifying previous decisions holding
that the prescriptive period was four (4) years. So long as the trustee recognizes
the trust, the beneficiary may rely upon the recognition, and ordinarily will not be
in fault for omitting to bring an action to enforce his rights. There is no running of
the prescriptive period if the trustee expressly recognizes the resulting trust.