DISSOLUTION AND WINDING-UP: Articles 1828 to 1842

Questions and Answers

Q1: Distinguish dissolution, winding up and termination.

A: Dissolution is the change in the relation of partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up of business. It is that
point in time when the partners cease to carry on the business together. On the other hand,
winding up is the actual process of settling the business or partnership affairs after
dissolution, involving the collection and distribution of partnership assets, payment of debts,
and determination of the value of each partner’s interest in the partnership. While
termination is the point in time when all partnership affairs are completely wound up and
finally settled. It signifies the end of the partnership life.

Q2: Daniel, Kathniel, and Kath formed a business partnership for the purpose of engaging in
neon advertising for a term of eleven (11) years. Daniel subsequently assigned to Andrea his
interest in the partnership. When Kathniel and Kath learned of the assignment, they decided
to dissolve the partnership before the expiration of its term as they had an unproductive
business relationship with Andrea in the past. On the other hand, unaware of the move of
Kathniel and Kath but sensing their negative reaction to his acquisition of Daniel's interest,
Andrea simultaneously petitioned for the dissolution of the partnership.
1. Is the dissolution done by Kathniel and Kath without the consent of Daniel or Andrea
valid? Explain.
2. Does Andrea have any right to petition for the dissolution of the partnership before
the expiration of its specified term?Explain.

A: 1. Under Art. 1830 (1) (c), the dissolution by Kathniel and Kath is valid and did not violate
the contract of partnership even though Daniel and Andrea did not consent thereto. The
consent of Daniel is not necessary because he had already assigned his interest to Andrea.
The consent of Andrea is not also necessary because the assignment to her of Daniel's
interest did not make her a partner, under Art. 1813.

2. No, Andrea has no right to petition for dissolution because she does not have the standing
of a partner.(Art.1813). Under Art. 1831, she may only apply for a petition for dissolution
after the termination of the specified term.

Q3: DJ was the managing partner of a firm for the carrying on of a rice-cleaning business.
Because the enterprise was unprofitable, same was discontinued and the rice machinery
was dismantled. When sued for an accounting he refused on the ground that under the terms
of the partnership contract, dissolution could be done only by a vote of 2/3 of the members,
and such vote had not yet taken place. Is his contention correct?

A: His contention is wrong, for when the enterprise was abandoned, and the machines sold,
undoubtedly the firm was dissolved by provision of the law; and therefore he has the duty to
liquidate and account to all and to each of his associates.
DISSOLUTION AND WINDING-UP: Articles 1828 to 1842
Questions and Answers

Q4: T purchased goods from a partnership. Thereafter, the partnership was dissolved. Notice
of the dissolution was advertised in the local newspaper. Without knowledge of the
dissolution, T thereafter extended credit to the supposed partnership at the request of one of
its members in connection with a transaction not necessary for the liquidation of the
business.
May T hold the partnership liable on the transaction?

A: No. Prior dealers must be given actual notice of the dissolution of a partnership in order
to prevent the continuance of partnership liability. T, however, is not a prior dealer. Hence,
he is considered to have received notice as a matter of law when the fact of dissolution was
advertised in the local newspaper.

Q5: A withdrew from the partnership “Isabela Sawmill” composed of A, B, and C. It does not
appear that the withdrawal of A from the partnership was published in the newspapers.
There was no liquidation of the partnership assets. On the contrary, it was expressly
stipulated in a memorandum agreement among A, B, and C that the remaining partners, B
and C, had constituted themselves as the partnership entity, the “Isabela Sawmill.” B and C
continued the business, using the properties of the partnership. To secure the obligations of
B and C to A, B and C executed a chattel mortgage over certain properties of the partnership
in favor of A who was issued a certificate of sale over the same as a result of the judicial
foreclosure of the mortgage. In the meantime, X, etc. extended credit to the partnership. Is A
liable to X, etc. for the properties of the partnership which were mortgaged to her and which
she purchased at public auction?

A: Yes. The judicial foreclosure of the chattel mortgage executed in favor of A did not relieve
her from liability to the creditors of the partnership. X, etc. and the public in general had a
right to expect that whatever credit they extended to B and C doing the business in the name
of the partnership could be enforced against the properties of the partnership. Although A
acted in good faith, X, etc. also acted in good faith in extending credit to the firm. Where one
of two innocent persons must suffer, the person who gave occasion for the damages to be
caused must bear the consequences.

Q6: Tomas, Rene and Jose entered into a partnership under the firm name “Manila
Lumber.” Subsequently, upon mutual agreement, Tomas withdrew from the partnership and
the partnership was dissolved. However, the remaining partners, Rene and Jose, did not
terminate the business of “Manila Lumber.” Instead of winding up the business of the
partnership and liquidating its assets, Rene and Jose continued the business in the name of
“Manila Lumber” apparently without objection from Tomas. The withdrawal of Tomas from
the partnership was not published in the newspapers. Could Tomas be held liable for any
obligation or indebtedness Rene and Jose might incur while doing business in the name of
“Manila Lumber” after his withdrawal from the partnership?

A: YES. Tomas can be held liable under the doctrine of estoppel. But as regards the parties
among themselves, only Rene and Jose are liable. Tomas cannot be held liable since there
was no proper notification or publication. In the event that Tomas is made to pay the liability
to third person, he has the right to seek reimbursement from Rene and Jose.
DISSOLUTION AND WINDING-UP: Articles 1828 to 1842
Questions and Answers

Q7: What are the powers of a liquidating partner?

A: The following are the powers of a liquidating partner:

1. Make new contracts;
2. Raise money to pay partnership debts;
3. Incur obligations to complete existing contracts or preserve partnership assets;
and
4. Incur expenses necessary in the conduct

Q8: Who can initiate winding up of partnership?

A:
1. The partner who is expressly authorized by agreement to initiate winding up;
2. If there is no such agreement, all the partners may institute the winding up;
3. The legal representative of the last surviving partner who must not be insolvent;
and
4. Assignee.

Q9: Raquel, Rosalie, and Renalyn are partners. Raquel contributed Php 150,000.00, Rosalie
Php 100,000.00, and Renalyn, Php 50,000. On dissolution, the assets of the partnership
amounted to Php 500,000.00. The partnership owes Kae the amount of Php 700,000.00,
Trina, Php 50,000.00, and Raquel, Php 20,000.00. How can the accounts of the partnership
be settled?

A: The accounts of the partnership shall be settled as follows:

a. Kae and Trina, who are partnership creditors, shall be paid first the total sum of
P120,000.00, leaving a balance of P380,000.00;
b. Then, Raquel, who is also a creditor, will be paid her credit of P20,000.00, leaving a
balance of P360,000.00;
c. Afterwards, the contributions of the partners to the partnership capital shall be
returned to them in the total sum of P300,000.00, thereby leaving a balance of
P60,000.00; and
d. The balance of P60,000.00 constitutes the profit which shall be divided among
partners depending on their agreement or in proportion to their capital
contributions. In case their profit be divided in proportion to their capital
contributions, Raquel is entitled to 3/6 or P30,000.00, Rosalie, 2/6 or P20,000.00
and Renalyn, 1/6 or P10,000.00.

Q10: When a partner has become insolvent or his estate is insolvent, how can the claims
against his separate property be ranked?

A: The law provides that when a partner has become insolvent or his estate is insolvent, the
claims against his separate property shall be ranked in the following order:
a. Those owing to separate creditors;
b. Those owing to partnership creditors; and
c. Those owing to partners by way of contribution.
DISSOLUTION AND WINDING-UP: Articles 1828 to 1842
Questions and Answers

Q11: Is liquidation necessary before recovery of share?

A: A partner who has retired must first ask for liquidation of the partnership before he can
recover his proportionate share of the partnership assets. The reason is that the creditors of
the partnership must be paid first as they enjoy priority of payment.

Q12: Emnace and Tabanao decided to dissolve their partnership in 1986. Emnace failed to
submit the statement of assets and liabilities of the partnership, and to render an accounting
of the partnership's finances. Tabanao’s heirs filed against Emnace an action for accounting,
etc. Emnace counters, contending that prescription has set in. Decide.

A: Prescription has not yet set in. Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is done. Contrary to Emnace’s
protestations, prescription had not even begun to run in the absence of a final accounting.
The right to demand an accounting accrues at the date of dissolution in the absence of any
agreement to the contrary. When a final accounting is made, it is only then that prescription
begins to run. (Emnace v. CA, G.R. No. 126334, November 23, 2001)

Q13: Kath, Dannielle and Andy are partners in ABC Co., which is indebted to Xie in the
amount of P50,000.00. Later on, ABC Co., Kath withdrew from the partnership causing its
dissolution. The business was continued by Dannielle and Andy without any settlement of
account between Dannielle and Andy, on one hand, and Kath, on the other.

a. What are the rights of Kath?

b. Who has priority for payment, creditor Xie or ex-partner Kath?

A:
a. C or his legal representative has the right to have the value of her interest in the
partnership ascertained and paid to her.
b. Assuming that the interest of C has been ascertained to be P30,000, creditor Xie
has priority over the claim of C, her legal representative, or her separate creditor.

Q14: Partnership X was dissolved. A promised to sign the last and final statement of
accounts as soon as he receives his shares as shown in said statement. A accepted such share
without any reservation but he refused to sign the statement. Is A entitled to liquidation?

A: No. Liquidation is not necessary when there is already a settlement or agreement as to

what he shall receive.
Here, the statement was deemed approved when A received his share without any
reservation. The signing became a mere formality to be complied by A exclusively and his
refusal to sign, after receiving his shares, amounted to a waiver of that formality. This
approval precludes any right on the part of A to a further liquidation unless he can show that
there was fraud, deceit, error or mistake on his approval.

MEMBERS:
Flordeliza Belleza
Kathrina Buen
DISSOLUTION AND WINDING-UP: Articles 1828 to 1842
Questions and Answers

Maria Precious Nina Fabia-Hipolito

Jonathan Laroza