Dissolution and Winding Up
The _____________ 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.
.Answer: individual property See Article 1835
Four (4) ways by which a partnership may be dissolved without violation of the partnership agreement:
1) Termination of the definite term or particular undertaking; 2) By the express will of any partner; 3) By the express will of all the partners; 4) By expulsion of any partner. (See Article 1830)
Based on Article 1834, enumerate the 4 notice of dissolution to creditors.
1. As to persons who extended credit to partnership prior to dissolution 2. As to persons who had known of partnership's existence 3. Where acting partner has no authority to wind up partnership affairs 4.Where acting partner has become insolvent Source: Article 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:
ANSWER: (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. (see Article 1833)
The dissolution of the partnership may only be effected by decree of court (judicially).
ANSWER: FALSE. A partnership may be dissolved judicially or extrajudicially. (Article 1830)
The liability of a dormant partner as regard contracts entered during the dissolution shall be limited only to his share in the partnership equity.
ANSWER: False It is limited only in the partnership asset. (see Art. 1834)
The right of a partner or the one who represents him as the owner of his interest to an account to a statement of the partnership affairs.
ANSWER: Person liable to render an account (see ART. 1842)
[T/F] Dissolution is distinguished from the winding up of business.
ANSWER: True Source (see Article 1829)
Type of winding up manner that is done by the partners themselves without the intervention of the court a. Judicially b. Extraducially c. Legislatively d. Executively
ANSWER: b. Extrajudicially (see Article 1836)
All of the following can cause the dissolution of a partnership, except: a. Death of a partner b. Civil interdiction of any partner c. Bankruptcy of a creditor d. Insolvency of any partner or of the partnership
ANSWER: c. Bankruptcy of a creditor. (See Article 1830)
In accordance with Article 1816, the individual property of a deceased partner shall be ______ for all obligations incurred while he was a partner.
Answer : Liable
A partnership does not last forever. So when the partnership ends, what are the 3 stages involved?
Answer: 1. Dissolution 2. Winding Up 3. Termination (see Art. 1828)
According to article 1838, enumerate the 3 rights of an injured partner for the contract to be annulled.
Answer: 1. Right of Lien or Retention 2. Right of subjugation 3. Right of indemnification Source: Art. 1838
Enumerate the rights of each partner in case of dissolution without violation of a partnership agreement, unless otherwise agreed.Answer:1. To have the partnership property applied to discharge the liabilities lf the partnership2. To have the surplus, if any, applied to pay in cash the net amount owing to the respective partners.(See article 1837)
Answer: 1. To have the partnership property applied to discharge the liabilities 2. To have the surplus, if any, applied to pay in cash the net amount owing to the respective partners. See article 1837
Dissolution effected in contravention of partnership. (Article 1830)
Answer: 1.) Dissolution may be for any course or reason 2.) Power of Dissolution always exist Legal effects of dissolution
Enumerate the assets of the partnership in settling accounts between the partners after dissolution (Article 1839):
Answer: 1.) The partnership property 2.) The contributions of the partners necessary for the payments of all the liabilities specified
In due course of liquidation, payment of the amount of his interest may be exercised as against:
Answer: 1.The winding-up partner; 2. The surviving partner; or 3. The person or partnership continuing the business. (see Art. 1842)
What are the types of manner in winding up?
Answer: A. Judicially B. Extraducially Art. 1836
Unless otherwise agreed, the rights of each partner in case of dissolution without violation of partnership agreement 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 c. Both a and b d. None of the above
Answer: c. both a and b Source: Art. 1837
In dissolution caused by death of any partner, the ______ partners have no authority to continue the business except so far as is necessary to wind up. (Art. 1830) a. incoming b. managing c. surviving d. retiring
Answer: c. surviving. The partnership agreement, however, may provide that the death, withdrawal, or admission of a partner will not effect a dissolution.
The claims against an insolvent partner's separate property shall rank in what following order?
Answer: (1) Those owing to separate creditors (2) Those owing to partnership creditors (3) Those owing to partners by way of contribution
These are the four ways by which a partnership may be dissolved without violation of the partnership agreement. (Art. 1830)
Answer: - termination of the definite term or particular undertaking - by the express will of any partner - by the express will of all partners - by expulsion of any partner.
The Uniform Partnership Act defines what two (2) terms?
Answer: 1) knowledge of a fact 2) notice of a fact (Art 1833)
Enumerate the rules for settling accounts between the partners.
Answer: 1. The assets of the partnership 2. Liabilities of the partnership 3. Application of assets 4. Contribution by the partners (See Article 1839)
Two grounds for rescission of partnership contract:
Answer: 1. fraud 2. misrepresentation to enter into the partnership (see Article 1838)
Enumerate the cases where the partnership is dissolve by the decree of court on the application by or for a partner to dissolve the partnership.
Answer: 1.) Insanity of a partner 2.) Incapacity of a partner 3.) Persistent breach of a partnership agreement by a partner 4.) Business can be carried on only at a loss 5.) Conduct that affect prejudicially the carrying on of the business by a partner. 6.) Other circumstances render a dissolution equitable. (Article 1831)
The winding-up of the dissolved partnership may be done either:
Answer: 1.) Judicially, under the control and direction of the proper court 2.) Extrajudicially, by the partners among themselves without intervention of the court (Article 1836)
It is the one who has extended credit on the faith of the partnership, through confidence in the solvency and probity of the firm.
Answer: A prior or former dealer
Enumerate order of payment of partnership liabilities
Answer: A. Those owing to the 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. See Art. 1839
The ____ of a partner subjects his interest in the partnership to the right of his creditors. A. Solutio Indebiti B. Solvency C. Insolvency D. Solution
Answer: C Source: Art. 1830
In which of the following cases are the creditors of the dissolved partnership are also the creditors of the person or partnership continuing the business? a. When any new partner is admitted into an existing partnership, or when any partner retires and assigns his rights if the business is continued without liquidation of the partnership affairs b. When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs. c. When any partner wrongfully causes a dissolution and the remaining partners continue the business d. All of the above.
Answer: D. All of the above Source: Art. 1840
[T/F] Partnership assets shall be applied first to the liabilities owing to partners other than for capital and profits.
Answer: False Partnership assets shall be applied first to those owing to creditors other than partners. Source: (Art. 1839)
[T/F] Article 1835 states that the dissolution of the partnership does not of itself discharge the existing revenue of any partner.
Answer: False Article 1835 states that the dissolution of the partnership does not of itself discharge the existing LIABILITY of any partner.
[T/F] A particular form of agreement is necessary to dissolve a partnership by consent. Such dissolution may be accomplished either by an express agreement or by words and acts implying an intention to dissolve.
Answer: False Source: Article 1830
[T/F] A dormant partner is both Active and Secret.
Answer: False Source: Article 1834
If contract of partnership is annulled, the injured partner is entitled to _____________. Fraud or misrepresentation here vitiates consent.
Answer: Restitution Source: Art. 1838
Dissolution of the partnership may be caused without violation of the agreement between the partners.
Answer: True. See Article 1830 It may also dissolved due to termination of the definite term or particular undertaking, by the express will of any or all of the partners and by expulsion of any partner.
[T/F]Unless otherwise stipulated, every partner is considered the agent of the partnership with authority to bind the partnership as well as the other partners with respect to the transaction of its business.
Answer: True. See under Article 1803.
Who are authorized to wind up the affairs of the partnership?
Answer: a.) The partners designated by the agreement; b.) All the partners who have not wrongfully dissolved the partnership (in the absence of agreement); c.) The legal representative of the last surviving partner, not insolvent Source: Art. 1836
________ is that point in time when all partnership affairs are completely wound up and finally settled. It signifies the end of the partnership life. a. Dissolution b. Winding up c. Termination d. Liquidation
Answer: c. Termination
Which article states that the dissolution of the partnership does not of itself discharge the existing liability of any partner? a. Art. 1835 b. Art. 1825 c. Art. 1834 d. Art. 1824
Answer: A
The following are rights of a partner who do not caused dissolution wrongfully except: 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 the court b. To be indemnified for damages caused by the partner guilty of wrongful decision c. To possess partnership property should they decide to continue the business d. To have the partnership property applied to discharge the liabilities of the partnership
Answer: 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 the court. This is a right of a partner who caused dissolution wrongfully (Art 1837)
The right to demand an accounting of the value of his interest accrues to any partner after dissolution in the absence of an agreement to the contrary.
Answer: Accrual of Right See Article. 1842
It enumerates the cases when a partner continues to bind the partnership even after dissolution and the cases when he cannot bind the partnership after dissolution.
Answer: Article 1834
This article deals with the rights of creditors when the partnership is dissolved by a change of membership and its business is continued by a former partner, either alone or with new partners, without liquidation of partnership affairs.
Answer: Article 1840
It is the process of settling the business or partnership affairs after the dissolution. A. Dissolution B. Winding Up C. Termination D. Resolution
Answer: B ( Article 1828)
Which article enumerates the cases when a partner continues to the bind the partnership even after dissolution? A. Article 1830 B. Article 1834 C. Article 1832 D. Article 1836
Answer: B. Article 1834
Which of the following will not cause the automatic dissolution of a limited partnership? a. Death of a general partner b. Death of a limited partner c. Insolvency of a general partner d. Insanity of a general partner
Answer: B. Death of a Limited Partner
Statement 1: Dissolution is that point in time when all partnership affairs are completely wound up and finally settled. It signifies the end of the partnership's life. Statement 2: Winding up is the process of settling the business or partnership affairs after dissolution. a. Only statement 1 is true. b. Only statement 2 is true. c. Both statements are false. d. Both statements are true.
Answer: B. Only statement 2 is true.
If a partner is insolvent, his individual property shall be distributed to: a. government b. separate/partnership creditors, and partners by the way of contribution c. only to those partners he owes by the way of contribution, only within the partnership. d. creditors only
Answer: B. Separate/partnership creditors, and partners by the way of contribution. There are proper procedure to how the property of the insolvent partner will be distributed. The separate creditors should be the first, then the partnership creditors, and lastly, to the partners by the way of contribution. See Article 1839.
The following are the effects of dissolution except? a. Transaction of new business prohibited b. Partnership not terminated c. Partnership terminated d. Partnership continues for a limited purpose
Answer: C See Article 1829 under Effects of dissolution.
On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. A. Article 1830 B. Article 1828 C. Article 1829 D. Article 1831
Answer: C. Article 1829
Dissolution of a partnership may be ordered judicially on application either a. by a partner b. by the purchaser or assignee of a partner's interest. c. both a and b d. none of the above
Answer: C. a and b See Article 1831
Under the law, _____ ______ deprives the offender during the time of his sentence of the right to manage his property and dispose such property by any act or any conveyance inter vivos.
Answer: Civil Interdiction Source Article 1830
The insolvency of the partner or of the partnership must by adjudged by a _________.
Answer: Court See Article 1830 under Insolvency of any partner or of partnership.
Which are indicated the Assets of the Partnership: a. Contributions of the partners necessary for the payment of all expenses in accordance with Article 1799. b. Partnership property (including goodwill) c. Contributions of the partners necessary for the payment of all liabilities in accordance with Article 1797. d. Only B and C e. All of the above
Answer: D (see Art. 1839)
In what order shall the individual property of an insolvent partner be distributed. 1. To those owing to partners by way of contribution 2. To those owing his separate creditors 3. To those owing to partners by way of contribution. a. 1, 2 ,3 b. 3, 2, 1 c. 3, 1, 2 d. 2, 3, 1
Answer: D See article 1839, (6) distribution of property of insolvent partner
Who are authorized to wind up the affairs of the partnership? A) The partners designated by the agreement. B) In the absence of such agreement, all the partners who have not wrongfully dissolved the partnership. C) The legal representative of the last surviving partner (when all the partners are already dead), not insolvent. D) All of the above.
Answer: D) All of the above (Article 1836)
If a partner's authority is not terminated among the partners and the partnership is bound by the transaction. a. The third person can go after the assets of the partnership. b. If the assets of the partnership are not sufficient, the third person can go after the separate assets of each partner. c. Other partners cannot go after the acting partner for recovery because after all the authority of the latter was not terminated among all the partners. d. Other partners can go after the acting partner to recover the amount they paid out of their separate assets and to demand the return of the amount paid out of the partnership assets.
Answer: D. Other partners cannot go after the acting partner for recovery because after all the authority of the latter was not terminated among all the partners. (Here the partnership and the partners are liable as if there had been no dissolution of the firm. See Summary of rules on liability of the partners and the partnership for acts of a partner after dissolution)
The following are causes of dissolution except: A. death of any partner B. civil interdiction of any partner C. insolvency of any partner of the partnership D. none of the above
Answer: D. None of the above All the given situations can cause the dissolution of the partnership. (see Article 1830)
Which of the following is the cause of dissolution without violation of the agreement between the partners according to article 1830? 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 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. All of the above
Answer: D. all of the above
The change in the relation of the partnership results in the ____________ of the partnership.
Answer: Dissolution
It represents the demise of a partnership
Answer: Dissolution (see Art. 1828)
On __________ the partnership is not terminated, but continues until the winding up of partnership affairs is completed.
Answer: Dissolution (see Article 1829)
Winding up of a dissolved partnership may be done _______________ by the partners themselves.
Answer: Extrajudicially (See Art. 1836)
[T/F] The dissolution of partnership discharge the existing liability of any partner.
Answer: False According to article 1835 the dissolution of partnership does not of itself discharge the existing liability of any partner. The partner may be relieve from all existing liabilities upon dissolution only by an agreement to that effect between himself, the partnership creditor, and the other partners.
[T/F] Under Article 1840, the right to demand accrues at the date of dissolution in the absence of any contrary agreement. Prescription runs upon the dissolution of the partnership when the final accounting is done.
Answer: False (Under Article 1842, the right to demand accrues at the date of dissolution in the absence of any contrary agreement. Prescription runs only upon the dissolution of the partnership when the final accounting is done.)
[T/F] If the innocent partners decided to buy the guilty partner's interest, they may continue the partnership business in the same firm name. The guilty partner is entitled to his share of the appraised value of the business alone.
Answer: False The guilty partner is entitled to his share of the appraised value of the business less the damages recoverable by the innocent partner. Source: 1837
[T/F] Termination is the process of settling the business or partnership affairs after dissolution.
Answer: False (Winding up)
[T/F] The winding up of the dissolved partnership may be done either: juridically and Extrajuridically.
Answer: False it is judicially and extra judicially (Article 1836)
[T/F] In relation to Article 1833, the following are the exception with regards to the instances where the authority of a partner (as it affects his co-partners) is not deemed terminated. I. The dissolution is not by the act, insolvency, or death of a partner II. A partner becomes in any other way capable of performing his part on the partnership contract III. The cause of dissolution is the partner and the acting partner had knowledge of such dissolution IV. The cause of dissolution is the death or insolvency of a partner and the acting partner had knowledge of the death or insolvency
Answer: False. Only III and IV belongs to the exceptions. See Article 1833 under Authority of partners,as among themselves, to act for the partnership
The legal representative of a deceased partner has a right to interfere with the partnership business, so long as the surviving partner proceeds in good faith to settle its affairs.
Answer: False. The legal representative does not have the right to interfere. (Article 1836)
[T/F] Dissolution is that point in time when all partnership affairs are completely wound up and finally settled.
Answer: False. Termination Source: Article 1828
[T/F]The agreement to dissolve the partnership before the termination of the specified term or particular undertaking must be voted by the majority. (Art. 1830)
Answer: False. The decision must be unanimous. The majority alone cannot dissolve the partnership without breach of contract.
It is the manner of winding up of the dissolved partnership under the control and direction of the proper court upon cause shown by any partner, his legal representative, or his assignee.
Answer: Judicially (see Art. 1836.)
A partnership must have a _______ or _______.
Answer: Lawful object and purpose
He has the power to incur obligations necessary to the completion of existing contracts.
Answer: Liquidating Partner (see Article 1836)
If the loss occurred after the delivery of the thing promised it is called?
Answer: Loss after delivery
The process of winding up, where the business of the dissolved partnership is not continued consists of what?
Answer: Reducing property to cash and distributing the proceeds. See Article 1839
What is NOT an exercise against payment of his interest a. winding up partner b. surviving partner c. silent partner d. partnership continuing the business.
Answer: Silent Partner
The goodwill of a business may be defined to be the advantage which it has from its establishment or from the patronage of its customers, over and above the mere value of its property and capital.
Answer: TRUE
_____________ is that point in time when all partnership affairs are completely wound up and finally settled.
Answer: Termination
[T/F] Any change in membership dissolves a partnership and creates a new partnership.
Answer: True
[T/F]Article 1834 enumerates the cases when a partner continues to bind the partnership after dissolution.
Answer: True
[T/F] Where a partner enters into a new contract with a third person after dissolution, the new contract generally will bind the partners.
Answer: True refer to article 1834
[T/F] When a partner dies, he is personally discharged in the partnership liability.
Answer: True (Article 1835) Only the individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner. The partner is already discharged in the said liability upon his death for he doesn't have anymore capacity to fulfill his obligations
[T/F] If the loss occurred after the delivery of the thing promised, then the partnership is not dissolved.
Answer: True (Source: Article 1830)
[T/F] If a partner is insolvent, his individual property shall be distributed as follows: a) First, to those owing to his separate creditors b) Then, to those owing to partnership creditors c) Lastly, to those owing to partners by way of contribution
Answer: True (refer to Article 1839)
[T/F] As a general rule, when the partnership is dissolved, a partner or his legal representative is entitled to the payment of what may be due after a liquidation. But no liquidation is necessary when there is already a settlement or an agreement as to what he shall receive.
Answer: True (see Article 1842)
[T/F] The assets of the partnership are partnership property (including goodwill), and contributions of the partners necessary for the payment of all liabilities in accordance with Article 1797.
Answer: True See Article 1839
[T/F] After dissolution, a partnership is still bound by the act of a partner authorized to act for the partnership with respect to the completion of transactions begun before dissolution.
Answer: True (Article 1834)
[T/F] If the specific thing to be contributed by a partner is lost before delivery, the partnership is dissolved because there is no contribution inasmuch as the thing to be contributed cannot be substituted with another.
Answer: True (see Article 1830)
[T/F]A minor cannot be guilty of wrongful dissolution since he has the legal right to avoid his contract.
Answer: True (Art. 1830)
[T/F] The event of of dissolution terminates the actual actual authority of a partner to undertake new business for the partnership.
Answer: True (Article 1832.)
[T/F] Partner designated in the agreement may wind up Partnership Affairs. In absence of agreement, the part that did no wrongfully dissolved the partnership.
Answer: True (See Art. 1836)
[T/F] Winding up is the process of settling the business or partnership affairs after dissolution
Answer: True Source: Article 1828
Failure to register with the SEC, the partnership will be considered a general partnership since the requirements are intended to protect the public.
Answer: True. See Art. 1844
This is the process of settling the business or partnership affairs after dissolution.
Answer: Winding Up (see article 1828)
It is the process of settling the business or partnership affairs after dissolution.
Answer: Winding up
_________ 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) a. Dissolution b. Winding up c. Termination d. Liquidation
Answer: a
Character of notice must be actual. There is no duty on the part of a prior dealer to inquire into the question of retirement, even though the prior dealer have the means of obtaining knowledge of such retirement but failed to make use of it. a) as to all others b) as to prior dealers c) as to prior former dealer d) as to prior informant
Answer: b) as to prior dealers (Art.1834)
The nature of action for the liquidation of a partnership is a ____ one a. Professional b. Personal c. Partnership d. Pre-emptive
Answer: b. personal (Art. 1836)
Which of the following will not cause the automatic dissolution of a general partnership? a. Death of a capitalist partner b. Insolvency of a capitalist partner c. Insanity of an industrial partner d. Civil interdiction of an industrial partner
Answer: c. Insanity of an industrial partner Under Article 1831, a decree of dissolution shall be released by the court only if the partner has been previously declared insane in a judicial proceeding or is proved to be of unsound mind. Thus, insanity, itself, does not automatically dissolve a partnership.
The right to demand an accounting of the value of his interest. a. Judically b. Extrajudically c.Person liable to render an account d. Accrual of right
Answer: d. Accrual of right
All the following that involves no permanent mischief or injury will not suffice as the basis for a judicial decree of dissolution except: a. Disagreements b. Temporary grievances c. Mistakes of judgments d. None of the above.
Answer: d. None of the above. (see Article 1831)
According to Article 1839, the liabilities of the partnership shall rank in order of payment, as follows EXCEPT; 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 liabilities
Answer: d. Those owing to partners in respect of liabilities See under Article 1839, it should be in respect of profits and NOT liabilities.
Since the purpose of a partnership is the carrying of a business for profit, it may be dissolved by _______________ when it becomes apparent that the business is unprofitable with no reasonable prospects of success or it can be carried on only at loss.
Answer: decree of court (Article 1831)
As a general rule, when a partnership is _______, a partner or his legal representative is entitled to the payment of what may be due after a liquidation.
Answer: dissolved Source: Article 1842
The deceased partner ceases to be associated in the carrying of the business; hence, the ____ dissolution of the partnership by his death by operation of law.
Answer: ipso facto (Source: Article 1830)
A person has __________ within the meaning of the Uniform Partnership Act not only when he has actual knowledge thereof, but also when he has knowledge of such other facts as in the circumstances show bad faith.
Answer: knowledge of a fact See Article 1833
A person has ______________ within the meaning of this Act when the person who claims the benefit of the notice states the fact to such person.
Answer: notice of a fact
When countries where the respective partners are citizens declared a state of ___ between each other, the contract of partnership is necessarily to be dissolved.
Answer: war(Art. 1828)
What are the rights of injured party 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? (Article 1838)
Answers: 1.) Right of a lien on, or retention of, the surplus of partnership property after satisfying partnership liabilities for any sum of money paid or contributed by him; 2.) Right to subrogation in place of partnership creditors after payment of partnership liabilities; and 3.) Right of indemnification by the guilty partner against all debts and liabilities of the partnership.
What are the effects of change in membership of a partnership?
Answers: 1. Dissolution of existing partnership and formation of a new one. 2. Transformation of all partners into incoming partners. 3. Continuance by remaining partners of partnership as before. See Article 1828 under Effects of change in membership of a partnership.