Partnership ~ Chapter 3
The dissolution of a NOTE!! Dissolution: any partner na tumitigil
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.
Three Final Stages of a Partnership
1) 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.
*Due to one partner ceasing to be
associated in the carrying on of the
business: ibig sabihin ayaw na nang isang
partner na ipagpatuloy yung partnership,
technically a change in the relationship of
the partners (nung una gusto nilang
magbusiness later on isa sakanila ayaw
nang magbusiness).
2) WINDING UP – Is the process of settling
the business or partnership affairs after
dissolution.
*The business affairs are settled. Winding
up for liquidation (in case of liquidation:
binabayaran mga debts, kinocollect mga
credits and assets are liquidate (binebenta
para mas madaling paghatian nang mga
partners).
3) TERMINATION – Is the point in time after
all the partnership affairs are completely
wound up and finally settled.
*All partnership affairs have been settled.
Tapos na winding up: nabayaran na lahat
nang utang, nacollect na lahat nang
credits, nabalik na yung capital and
nakapagshare na sa surplus and mga
partners. In case of termination the
partneship is no longer an ongoing concern
(wala na ang partnership).
ma-associate sa isang business. Hindi lang
dahil may umalis o namatay na partner, may
dissolution din kapag may na-admit o
pumasok na bagong partner.
On dissolution the
partnership is not terminated, but
continues until the winding up of
partnership affairs is completed.
Effect and Causes of Dissolution
PARTNERSHIP NOT TERMINATED BY
DISSOLUTION
1) The principal significance of dissolution is
that, thereafter, no new partnership
business should be undertaken, but affairs
should be liquidated and distribution made
to those entitled to the partners9 interest.
*Wala na tayong bagong transaction na
papasok kasi ang dapat nalang ginagawa
nang partnership is to liquidate the affairs
and distribute the assets of the partnership.
2) The partnership continues until the
winding-up is completed. Thus, dissolution
refers to the change in the partnership
relation and not the actual cessation of the
partnership business.
*Until liquidation/winding up is completed
nagpapatuloy paden yung partnership
(buhay pa siya in so far as liquidation or
winding up of its affair is concern).
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;
(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 fide in accordance with
such a power conferred by the
agreement between the partners;
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, 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;
5) By the death of any partner;
6) By the insolvency of any partner or of
the partnership;
7) By the civil interdiction of any partner;
8) By decree of court under the following
article.
Causes of Dissolution
It can be majorly categorized as:
1) Judicial - In case of judicial dissolution any
of the partners even an assignee can go to
court and ask the court to issue an order
dissolving the partnership. (Need ng court
to dissolve)
2) Extrajudicial - The help of the court is not
required to dissolve the partnership even
the partners can dissolve it among
themselves. (No need na lumapit sa court)
Causes of Extrajudicial Dissolution
(LIVIDUW)
L - Loss
I - Insolvency of the partners or the partnership
V - Violation of the partnership contract
I - Civil Interdiction
D - Death
U - Unlawfulness of the business
W - Without violating the partnership contract
(has 4 causes)
1) Without violation of the agreement
between the partners.
*Dini-dissolve partnership without
necessarily violating the partnership
contract
a) By the termination of the definite term
or particular undertaking specified in
the agreement.
*Pag dumating na yung term nagexpire
na or the particular undertaking is
accomplished the partnership is
dissolve. There is no violation of the
agreement because specifically the
agreement of the partners is to dissolve
a partnership after a particular period or
definite term or after the
accomplishment of a particular
undertaking.
b) By the express will of any partner,
who must act in good faith, when no
definite term or particular
undertaking is specified
*Will apply in case of a partnership at
will because in 8partnership at will9
there is no definite term or particular
undertaking which is specified. Kailan
matatapos partnership at will: base on
the expressed will of any partner. So, if
any partner wants to terminate or
dissolve the partnership and he is in
good faith (remember that this is an
extrajudicial cause of dissolution) it does
 not violate the partnership contract
WHY? Because it is a partnership at will
it can end anytime base on the will of the
2) In violation of agreement
partner
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.
*Will apply to partnership for a specified
term/fixed term or partnership for a
particular undertaking. Even before the
arrival of the period/the expiration of the
period/ the accomplishment of the
particular undertaking the partners want
to dissolve the partnership already WHY
IS THERE NO VIOLATION? Because
all of the partners consent to the
dissolution. SINO LANG NEED NANG
CONSENT? Partners who have not
assigned their interest or suffered them
to be charge. This will have to do with
Art. 1813 and 1814(Assignment of
interest/Charging Order or Interest). It is
like a modification of the original
agreement tapos idi-dissolve nalang nila
this time by the will of the partners.
d) By the expulsion of any partner from
the business bona fide in accordance
with such a power conferred by the
agreement between the partners.
*If other partners did it in good faith,
they can expel the partners if it is
provided for in the partnership
agreement. The Expulsion in Good Faith
3) Unlawfulness of the business
is a right given to the partners because
it is conferred by agreement. It does not
violate the contract of partnership kasi
kasama naman sa pinagusapan nila yon
na pwedeng magexpel as long as it is
done in good faith. REASON WHY
EXPULSION LEADS TO
DISSOLUTION? The decrease in the
membership of the partnership. Any
increase or decrease in the number of
partners can lead to dissolution.
*Here, it happens when the circumstances
do not permit a dissolution under any of the
provisions of Article 1830 so bawal
magdissolve ng partnership but obviously
even if bawal magdissolve the partners can
still get out of the partnership kasi hindi
naman pwedeng pagpilitan. Here, if the
reason for getting out of the partnership is
not justifiable dito malalaglag yun in
violation of the partnership agreement. It
can also apply in case of partnership for a
fixed term and gusto mo nang umalis and
the other partners did not agree with your
choice dito pwede mo pa ring idissolve
yung partnership kasi hindi pwede
ipagpilitan at ang pinagkaiba lang niyan sa
number 3 is that number 3 all of the
partners consent to the dissolution even if
hindi pa tapos yung term at hindi pa
naaaccomplished yung purpose or
undertaking. Here, pwede namang
madissolve kahit hindi pa naaccomplished
yung purpose or di pa nagexpire yung term
but here since not all of the partnership it is
a violation of the partnership agreement.
So here, the withdrawing partner would be
liable for damages but you cannot compel
him to remain in the partnership since
partnership is based on mutual trust and
confidence if ayaw na niya and cannot trust
the partnership anymore or the other
partners he is allowed to get out but liable
to damages.
*Here, in case of the unlawfulness of the
business, there is a supervening event
which will make the lawful business
partnership unlawful, may biglang nangyari
and yung biglang nangyari from lawful
business naging unlawful business so this
is a ground for dissolution because the
business of the partnership can no longer
continue because of illegality of the
 business. Let us say for example,
partnership of A, B and C they are renting
a videoke machines and yung mga videoke
machines na ito as of now is legal to rent
up so pwede kang magparent ng ganiyan
tuwing may birthday or party. Now if
suddenly there is a law that prohibits
videoke since ang dahilan is maraming
namamatay pagkatapos gumamit ng video
at ang sabi ng presidente na huwag nalang
nating hayaan na magvideoke yung mga
tao kaya lahat ng machines ay sirain natin.
Here, the machines they have been
prohibited and they are be destroyed by the
government. Now, remember here, the
business in the partnership of A, B and C
which is lawful has already become an
unlawful business because of the
supervening event and the supervening
event is the declaration na hindi na pwede
ang mga videoke. Se here, we must
remember that a business that is lawful
from the start become unlawful business
which is caused by a supervening event
and this is a ground for dissolution of the
partnership.
4) Loss
*Here, loss of a specific thing before it is
contributed to the partnership it is lost
before it is delivered remember here
parang walang cinontribute yung partner
na yan that is why the partnership will be
dissolved for lack of contribution. What if a
partner only contributed the usufruct of
thing obviously if that is lost as well para
narin siyang walang contribution usufruct
na nga lang ang ibinigay niya tapos nasira
pa yung object so here loss of a specific
thing and usufruct lang ang cinontribute it
has the same effect as if is the partner did
not contribute anything. If the object is loss
after the delivery of the partnership the rule
is different it is the partnership who will
bear the risk of loss.
5) Death of any partner
*Here, a decrese in the number of partners
means automatic dissolution of the
partnership but kailangan pa rin ng
liquidation obviously.
6) Insolvency of any partner of partnership
*Here, it has the same effect it will dissolve
the partnership because it can no longer
satisfy yung kaniyang obligations and
probably it cannot also conduct its
business dahil nga wala at kulang na sa
pera. Now in case of a solvency of a
partner kaya nga yan ground for dissolution
incase that the assets of the partnership
are exhausted remember that the partner
will be liable using their separate property
and if wala na silang separate property ano
na ang ipangsasalo nila sa partnership
obligation. Here, the partner who is
insolvent has no authority to act for the
partnership
7) Civil interdiction of any partner
*Here, ang pwede nalang gawin nung
partner who is suffering from civil
interdiction is to dispose his property
mortis causa or via last will and testament
so here he cannot enter into contracts
which will dispose his property inter vivos
or during his lifetime so we must rememer
that walang valid consent na I ibibigay ang
partner who is suffering from civil
interdiction kasi nga isa ito sa mga
incapacity which is defined by law.
On application by or for a
partner the court shall decree a dissolution
whenever:
(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;
(3) A partner has been guilty of such
conduct as tends to affect prejudicially
the carrying on of the business;
(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;
(6) Other circumstances render a
dissolution equitable.
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.
Causes of Judicial Dissolution
A. Dissolution by Judicial Decree on
Application by a Partner
1) Insanity
*Insanity on the part of one of the
partners. An insane person cannot give
valid consent so dissolution may be
asked from the court. Insane partner is
incapacitated to contract kaya ito
nagiging ground for dissolution.
2) Incapacity
B. Dissolution by Judicial Decree on
*Incapacity which will affect the
capability of a partner to perform
partnership duties. For example,
partners who will enter government
duties or partners who will go to abroad,
they are otherwise incapacitated to
perform partnership obligation so this is
another ground for dissolution.
3) Misconduct and persistent breach of
partnership agreement
*Take note of this as to guilty of such
conduct as tends to affect prejudicially
the carrying on of the business. For
example, palagi siyang hindi nag-
aattend ng meeting. This conduct is a
breach of the partnership agreement
and also, it is prejudicially affecting the
partnership.
4) Business of the partnership can only
be carried on at a loss
*The business of the partnership is
hopeless, kumbaga, palugi na siya. So
bakit mo pa siya itutuloy kung 8yong
purpose ng partnership is to gain profit
ay hindi na pwedeng ma-achieve. If the
business of the partnership can only be
carried on at a loss, this is also a ground
again for judicial dissolution.
5) A partner has been guilty of such
conduct as tends to affect
prejudicially the carrying on of the
business
*Connected siya with number. In here,
aside from number 3, pwede ring isama
yung acts which causes conflicts of the
interest as to the part of the partner and
the partnership.
6) Other circumstances which render
dissolution equitable.
*Itong other circumstances na ito
usually 8yong reason kung bakit siya
judicial, because it will be vented out in
court.
Application by a Purchaser of a
partner’s interest
1) When the specified term or particular
undertaking has been terminated
*Meaning, the partnership is for a
specific term or a particular
undertaking. Pagka nag-expire na yong
term or na-accomplish na yong
particular undertaking, itong purchaser
of partners interest under 1813 or 1814
can ask for dissolution of the
partnership in court.
 2) In case of a partnership at will, at any
time when the interest was assigned
or when the charging order was
issued
*Yung purchaser can ask for dissolution
at any time the interest was assigned
when the charging order was issued.
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.
Liability in Case of Dissolution
A. General Rule:
Dissolution terminates all authority of the
partners to act for the partnership
You take this together with 1829. In 1829, it
was said that no new business can be
transacted. However, there are time na
talagang may biglang bagong business which
the partners will enter into.
Ang tanong diyan, ang bagong business ba na
to after dissolution has already been taken
place. Is it binding on the partnership? Is the
partner allowed to enter into that kind of
transaction? If an acting partner enters into
that kind of transaction, yong mga co-partners
ba niya are also liable?
Meaning, bawal na silang pumasok sa mga
new transactions. That is the general rule
Exceptions:
Article 1833 and 1834.
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.
B. As Among Partners (Articles 1832 and
1833)
Question: If the partnership is made liable, can
the other partners ask for reimbursement from
the acting partner? - Applies only if there is
partnership liability.
If it is declared partnership liability, sino ba ang
may taya? Iyong partner acting lang or yung
iba pang partners? - GENERAL RULE: The
partners are still bound to each other.
Kapag ba pinasukan ng acting partner ang
transaction na ito, nagkaroon ng liability ang
partnership, sino ang magtataya? The acting
partner lang ba or the other partners who did
not enter the transaction? - It depends if the
dissolution not by act, insolvency or death.
1. Dissolution not by act, insolvency or
death
Authority of the any partner to bind other
partners is terminated immediately. If the
reason of dissolution is not by act,
insolvency or death, the partners cannot
bind the other partners.
Examples are: If business becomes
unlawful, that reason for dissolution not
by the act of a partner, by insolvency or
by death. Other examples are: expiry of
the term, accomplishment of the purpose,
 loss of a partnership property, civil
interdiction and decree of court.
After dissolution, a partner
can bind the partnership, except as
provided in the third paragraph of this
article:
(1) By any act appropriate for winding up
partnership affairs or completing
transactions unfinished at dissolution;
(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 business was regularly
carried on.
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:
(1) Unknown as a partner to the person
with whom the contract is made; and
(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 has 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.
C. As to Third Persons
GENERAL RULE: The partnership is liable.
❖ ACTS BINDING ON THE PARTNERSHIP
1) Transactions necessary for winding-
up
*These are valid kasi In Article 1829,
partners can no longer enter into new
transactions. However, transactions
which are necessary for winding-up are
always binding on the partnership kasi
po they are trying to liquidate the
assets.
2) Transactions begun but not yet
finished as of the time of dissolution
*Obviously, these are binding on the
partnership because at the time these
transactions occurred (or nung nag-
umpisa sila), the partnership is still an
on-going concern.
3) New business with innocent third
persons
 *Binding rin po ito kahit na new
business siya because the third person
is innocent subject to qualifications.
(a) Former client with no knowledge or
actual notice of dissolution
3) Acting partner is not liquidating
*So, if the third person is a former client
with no knowledge or actual notice of
the solution, the transaction is binding
on the partnership kasi kapag former
client yan, the law requires you to give
actual notice of dissolution to the former
clients. If the notice of the dissolution is
published in a newspaper, it will not
matter since pagkadating sa former
client what is required is that they are
personally notified or they have actual
notice of dissolution.
(b) New client who knows of the
partnership but has no knowledge or
notice of dissolution and the fact of
dissolution not having been
published
*A transaction with a new client may be
entered into and again this is binding if
the new client is an innocent third
person. So here po, a new client is
aware of the existence of the
partnership but he is not
knowledgeable or he has no notice
regarding the dissolution because the
fact of dissolution was not published.
Dahil siya nga ay isang innocent third
person, the good faith of the new client
will make the partnership liable.
❖ ACTS NOT BINDING ON THE
PARTNERSHIP
1) When dissolution is due to
unlawfulness of the business
*Because the business has already
become illegal, it is no longer binding on
the partnership. Kapag unlawful
business, hindi lang siya partnership
liability kasi yung acting partner is solely
liable.
2) When the acting partner is insolvent
*This is not binding on the partnership
because the acting partner who is
insolvent is not capacitated to enter into
contracts or dahil wala siyang legal
capacity.
partner EXCEPT if the transaction is
with –
GENERAL RULE: Acting partner is not
liquidating partner
*So here, ang dapat pumasok sa
transactions na ito since this is for winding
up, is usually ang liquidating partner.
However, the partner who enters into the
transaction is not a liquidating partner.
So, acting partner is not a liquidating
partner kaya this is not binding on the
partnership kasi ang mga new
transactions for liquidation should always
be entered into by the liquidating partner.
EXCEPTION:
1) Former client who had no
knowledge or actual notice of the
lack of authority.
*However here, the acting partner
who enters into the transaction is not
the liquidating partner. As a general
rule, dapat sana hindi binding iyon—
pero may exception. Except if the
transaction is again with a former
client who was not personally
notified of the lack of authority of the
acting partner—meaning, hindi niya
alam na yung acting partner is not
supposed to be liquidating the
partnership. So, because the former
client is in good faith and wala talaga
siyang notice of authority, the
transaction is binding.
2) New client who has no knowledge
or notice of want of authority and
the fact of want of authority not
having been published.
 *Here, ang nakipag-transact sa
client is not a liquidating partner so
hindi siya authorized to enter into a
transaction which will liquidate the
partnership business. But
remember here that there is no
publication of the lack of authority of
the acting partner who is not a
liquidating partner that is why here
in number 2, it is binding on the
partnership.
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 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.
Rules in Discharging Liability upon Dissolution
Just because the firm is dissolved does not
automatically mean that the existing liability of
any partner is discharged.
*Ang tatandaan lang po dito is hindi madaling
i-discharge ang partner from liability even if
there is already dissolution of the partnership.
HOW A PARTNER’S LIABILITY IS
DISCHARGED?
- There must be an agreement.
WHO MUST AGREE (in the agreement)?
a. The partner concerned.
b. The other partners.
c. The creditors.
The creditors must give their consent so that
yung particular partner na ito is ma-discharge
siya from liability—meaning, wala na siyang
liability to third persons.
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.
Manner of Winding Up
A. EXTRAJUDICIAL WINDING UP
1) The partners designated in the
agreement.
*It is the liquidating partner who will
wind up partnership affairs.
2) By the partners who have not
wrongfully dissolved the
partnership.
*The innocent partners will
extrajudicially wind up partnership
affairs.
3) By the legal representative of the last
surviving partner (when all the
partners are already dead), provided
the last survivor was not insolvent.
*Kung last surviving partner, all the
partners are dead kasi nga legal
representative lang siya nung last
surviving partner.
BUT: hindi lang basta legal
representative of the last surviving
partner. The last survivor must also be
solvent.
B. JUDICIAL WINDING UP
- Under the control and direction of the
court, upon proper cause that is shown
to the court.
 *Obviously, control and direction of the
court. So, ang court na ang bahala and the
court may even appoint a receiver.
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 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 co-partners 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.
Application of Partnership Property
In case of application of partnership property,
simple lang yung meaning. Partnership
property is use to pay for the liability of the
partners. Nadiscuss na’to sa 1817, gamitin
muna natin yung 1817 in relation to 1797,
gamitin muna yung partnership assets, ibawas
muna iyon bago maging personally liable ang
mga partners.
Right of Partner to Application of Partnership
Property on Dissolution
The right of the partners to have the
partnership property applied to discharge
liabilities and the surplus, if any, distributed in
cash to the respective partners, depends on
whether the dissolution is caused without
violation of the partnership agreement or in
violation of the partnership agreement.
*This will talk about the right of the partners to
have partnership property to applied to
discharge liabilities and kung mayroong
surplus from the specific partnership property
idistribute sa partners. Anyway, it will depend
in dissolution without violation or in violation of
partnership.
4. To possess partnership property should
Rights Where Dissolution Not in Contravention of
Agreement
So, if it is not in violation in the partnership
agreement, remember that the rights are:
A. To have the partnership property applied
to discharge the liabilities of the
partnership.
B. To have the surplus, if any, applied to pay
in cash the net amount owing to the
respective partners
*Kung may natira, applied to pay in cash the
net amount owing to the respective partners,
so they can get yung kanilang share doon sa
surplus paid in cash.
Application of Partnership Property Rights Where
Dissolution in Contravention of Agreement
If the dissolution is in violation to the
partnership agreement, remember these are
B. GUILTY PARTNERS
the rights. Obviously, because it is in violation
of the partnership agreement, there is an
innocent partner and a guilty partner. The
guilty partner being the partner who wrongfully
cause the dissolution of the partnership.
A. INNOCENT PARTNERS
1. To have the partnership property
applied for the payment of its liabilities
and to receive in cash his share of the
surplus.
2. To be indemnified for damages caused
by the partner guilty of wrongful
dissolution.
*To be paid damages for caused of the guilty
partner because of the wrongful dissolution.
3. To continue the business in the same
name during the agreed term of the
partnership, by themselves jointly or
with others.
*To continue the business in the same
name or yung mga innocent partners,
they can do it by themselves or pwede
silang magpasok ng ibang partners.
they decide to continue the business,
provided they secure the payment by
bond approved by the court, or pay any
partner who has caused the dissolution
wrongfully, the value of his interest in the
partnership at the dissolution, less any
damages recoverable, and in like
manner indemnify him against all
present or future partnership liabilities.
*Remember, if they want to possess a
specific partnership property, instead of
selling it and distributing yung mga
proceeds, kailangan nilang magbayad
ng mga bond approved by the court. So,
in short, if they do not file a bond, they
have to buy out yung interest ng guilty
partner. Remember, if they buy the
interest of the guilty partner, it is less
damage recoverable.
1. If the business is 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
caused by his wrongful dissolution.
2. If the business is continued:
a. To have the value of his interest in
the partnership at the time of the
dissolution ascertained and paid in
cash or secured by bond approved
by court.
*Remember that the right of the
guilty partner is to have the value
of his interest in the partnership
determined and also paid in cash.
Meaning, ibuy out yung kaniyang
 interest or kung hindi pa
babayaran ng partners yan or ng
partnership it can be secured by a
bond approved by the court.
b. To be released from all existing
and future liabilities of the
partnership.
*May right naman sila kasi nga
hindi na sila kasama sa pagtuloy
nung business. So, dapat wala na
siyang liability existing and future.
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, 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.
Right to Annul Partnership Contract Due to Fraud
or Misrepresentation
In the law, remember the term use was
receded. Again, mali iyan dahil hindi naman ito
rescissible contract because there is fraud or
misrepresentation. Remember fraud is one of
the vices of consent. Kapag may vices of
consent on the part of the one of the contract
parties, remember that the contract is
voidable. So, the right is not to recede but the
right is to annual the partnership contract.
– If one is induced by fraud or
misrepresentation to come a partner, the
contract is voidable or annullable. (Article
1390) If the contract is annulled, the injured
partner is entitled to restitution. (Article 1398)
Rights of Injured Partner Where Partnership
Contract Is Annulled
1. Right of lien or retention
They can retain specific partnership property
hanggang sila ay mabayaran nung kanilang
claim. This can also apply to surplus of the
partnership property, reretain lang naman.
2. Right of subrogation
Remember the innocent partner or the partner
who was defrauded can be subrogated to the
place of creditors, magiging creditors siya ng
partnership para yung kaniyang mga claims ay
mabayaran.
3. Right of indemnification
Right of indemnification by the guilty partner or
yung nanloko sa innocent partner to enter on
a voidable contract of partnership. Right to ask
for damages.
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.
(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.
(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
contribution.
Rules for Settling Accounts
A. ASSETS OF THE PARTNERSHIP
1. The partnership property including
goodwill. *or name reputation etc.
2. The contributions of the partners,
which are made to pay off the
partnership liabilities.
B. ORDER OF PAYMENT OF FIRM’S
LIABILITIES/ORDER OF APPLICATION
OF THE ASSETS (after the dissolution)
1. First give to creditors who are
strangers, otherwise they may be
prejudiced.
*Bayaran muna yung mga creditors
who are third persons.
2. Then give to partners who are also
creditors.
*Meaning, pwede natin gamitin na term
is inside creditors. Partners who are
likewise creditors. Kailan ba nangyayari
yan? If the partners advance money on
behalf of the partnership. Example may
inabonohan sila, bayaran muna yung
inabonohan ng partners because with
the respect to the partnership, they are
also creditors, but there right is to
subordinate to the rights of third
persons who are creditors.
3. Then give to the partners their capital.
4. Lastly, the profits must be distributed.
*Unahin muna raw yung capital bago
yung profit.
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 retires 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 these articles, 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;
(6) When a partner is expelled and the
remaining partners continue the
business either alone or with others
without liquidation of the partnership
affairs.
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 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.
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 deceased partner
liable for any debts contracted by such
person or partnership.
Dissolution of A Partnership by Change in
Membership
When a firm is dissolved either by the
admission of a new partner into an existing
partnership, by the retirement or assignment of
the rights of all but one partner including their
representatives if deceased, by the retirement
or death of any partner, by the assignment of
the rights of all the partners, by any wrongful
cause committed by any partner or by the
expulsion of any partner and the business is
continued without liquidation, the new
partnership assumes the obligation of the old
partnership. Any change in membership
dissolves a partnership and creates a new
partnership. The liability of a third person who
joins the new partnership shall be satisfied out
of the partnership property only.
*Kailan ba mangyayari yung change of
membership? Simple, there is a new partner
who is admitted, there is retirement on the part
of one of the partners, assignment of the rights
of all but one so lahat sila nag assign ng rights
except one. Pwede rin naman na retirement or
death, assignment of the rights of all the
partners or any wrongful cause committed by
any partner or expulsion. Remember na on
those cases, nagkakaroon ng change in
membership. But again, in case of change in
membership, ang result niyan is to dissolve the
partnership.
Now the question is, pwede ba nilang
ipagpatuloy yung business kapag nagkaroon
ng changes sa membership? Pwede, usually
tinutuloy nila yung business.
Now the question is, yung mga creditors ba ng
mga dating partnership ay creditors pa rin ng
bagong partnership na itinuloy? Remember
the rule is that business is continued without
liquidation, the new partnership assumes the
obligation of the old partnership. So dahil na
nagkaroon ng changes in membership,
nagkaroon ng dissolution. Dahil pinagpatuloy
ng mga partners it will create a new
partnership. But remember nung pinagpatuloy
nila, walang liquidation, yung liability ng old
partnership ay lilipat sa bagong partnership.
Remember, if nagkaroon ng incoming
partners, yung kanilang liability will satisfied
out of the partnership property only or out of
the contributions to the partnership only.
Rights of Creditors of Dissolved Partnership which
is Continued
The law makes the creditors of the dissolved
partnership, also creditors of the persons or
partnership continuing the business.
*But it is very important that there is no
liquidation, kapag naliquidate na yan,
obviously nabayaran na yung mga utang ng
old partnership wala ng lilipat sa new
partnership because it has been liquidated.
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.
Rights of Retiring or Of Legal Representative of
Deceased Partner When Business is Continued
Without Liquidation
Dahil nga nagkaroon ng retirement, again
there is a change in membership which causes
dissolution. Because there is death meron ulit
change in membership which cause
disoolution but again in 1841 the business is
continued without liquidation.
A. To have the value of the interest of the
retiring partner or deceased partner in the
partnership ascertained as of the date of
dissolution. (i.e., date of retirement or
death)
*Ascertained muna yung value of interest
ng retiring partner or deceased partner as
of the date of dissolution. Meaning date of
death or retirement iyon.
B. To receive thereafter, as an ordinary
creditor, an amount equal to the value of
his share in the dissolved partnership with
interest, or, at his option, in lieu of interest,
the profits attributable to the use of his
right.
*Remember na dapat niyang tanggapin
yung value ng share niya or a portion of
the profits. Magiging creditor ng
partnership yung retired partner or yung
legal representative ng deceased partner.
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.
 Accrual of a Partner’s Right to Account of His
Interest

The right to demand an accounting of the

value of his interest (Article 1812) accrues to
any partner or his legal representative after
dissolution in the absence of an agreement to
the contrary.
*This is a right available to a partner, yung
pagdemand ng accounting na value ng
kaniyang interest. Remember the value of the
interest or interest in the partnership is defined
in 1812, remember yung property rights. Ito
yung pangalawa. So right yung partner or his
legal representative to an accounting to the
value of his interest after dissolution. Anyway,
if we will relate it to 1809 this is the general
rule, right to a formal account only after
dissolution of the partnership.