Law on Partnership - Dissolution and Winding Up

Rights where dissolution is not in contravention of agreement:

1. To have partnership property applied to discharge the liabilities of the partnership 2. To have the surplus, if any, applied to pay in cash the net amount owing to the respective partners.

Rights of retiring partner or legal representatives of deceased partner:

1. To have the value of his interest ascertain as of the date of dissolution 2. To receive thereafter, as an ordinary creditor, an amount equal to the value of his share in the dissolved partnership with interest, OR in lieu of interest, profits attributable to the use of his right.

Liability under no. 2 of Art. 1834 should only be satisfied by partnership property alone if such partner:

1. Unknown as a partner to the person with whom the contract is made 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.

Partnership is in no case bound by any act of partner after dissolution:

1. When partnership is dissolved because it is unlawful to carry on the business 2. Where the partner has become insolvent 3. Where partner had no authority to wind up partnership affairs (except as to no. 2 of Art. 1834)

Right of partner or one who represents him as the owner of his interest (1) to statement of partnership affairs, (2) in due course of liquidation, to a payment of the amount of interest, may be exercised against:

1. Winding up partner 2. The surviving partner 3. The person or partners continuing the partnership business

Causes of dissolution

1. Without violation of the agreement 2. In contravention of the agreement 3. Business becomes unlawful 4. Loss of the specific or determinate thing 5. Death of a partner 6. Insolvency of a partner 7. Civil interdiction 8. Decree of a court

False

Any partner may cause dissolution at any time without the consent of his co-partners if he has a reason sufficient.

True

Any partner or his legal representative shall have the right to enforce the contributions for the amount he has paid partnership liabilities in excess of his share of the liability.

True

Any partner, his legal representative or his assignee, upon cause show, may obtain winding up by the court (According to Article 1836)

Advertisement in a local newspaper

As to all others, notice by an _____________________ is sufficient.

True

As to persons who had known of partnership's existence, the dissolution published in the newspaper would be sufficient even if they did not actually read the advertisements.

True

Individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner. Personal creditors are still preferred.

True

Individual property of the deceased partner shall be liable for his share of the contribution to satisfy the partnership liability while he was a partner.

True

Judicial Dissolution may be sought by a partner.

False

Judicial dissolution is required when the reason of a dissolution is valid but is subject to dispute or differences in opinion.

True

Loss after the delivery and the title is passed to the partnership does not dissolve the partnership.

False

Loss of the specific thing after delivery even if the title belongs to the partner and only the use or enjoyment is contributed does not dissolve the partnership.

True

Loss of the specific thing before delivery causes dissolution because there is no contribution inasmuch as the thing to be contributed cannot be substituted with another.

True

Loss of the specific thing before delivery constitutes failure of a partner to fulfill his part of the obligation.

True

If any of the partners does not pay his share of the loss, the remaining partners have to pay but they can sue the non-paying partner for indemnification.

True

If one is induced by fraud or misrepresentation to become a partner, the contract is voidable or annulable.

True

If remaining partners continue partnership without consent of the estate of the deceased partner, they does so without any risk to the estate.

True

If the dissolution is proper or rightful, no partner is liable for any loss sustained as a result of the dissolution.

True

New partner's share in the partnership liability incurred prior to his admission shall be satisfied by partnership property alone, unless stipulation to the contrary.

True

No liquidation is necessary, as regards to partners, when there is already a settlement or an agreement as to what the partners shall receive.

True

No similar protection is granted to third party who innocently makes a contract with an insolvent partner because it is incumbent upon him to know the status of the insolvent partner.

Knowledge of a fact

Not only when partner has actual knowledge thereof, but also when he has knowledge of such other facts and circumstances.

Prior dealer

One who has extended credit on the faith of the partnership, through confidence in the solvency and probity of the firm.

True

Partners shall contribute the amount necessary to satisfy the partnership liabilities.

True

Partners who did not have knowledge or notice as laid out in Art. 1833, have the right to bind the partnership and his co-partners as if there had been no dissolution.

True

Surviving partners have no authority to continue the business in except so far as is necessary to wind up the partnership. If an agreement exists, the estate of the deceased person is not liable for obligations contracted after dissolution.

Immediately

The authority of any partner to bind the partnership by a new contract is _________ terminated when dissolution is not by the act, insolvency or death of a partner.

False

The estate can no longer give consent to continuing partnership as it would not be allowed to answer for debts and losses arising after death of the deceased partner.

True

The estate shall answer for debts and losses only to the extent of the decedent's share in the partnership's asset.

True

The event of dissolution terminates the actual authority of a partner to undertake new business for the partnership.

True

The insolvency of a partner subject his interest in the partnership to the right if his creditors, and makes it impossible for him to satisfy partnership obligations to its creditors in the even that partnership assets have been exhausted.

False

The liability of a dormant partner shall be satisfied by the partnership assets and his contribution from personal property in case partnership property are already exhausted.

True

The power of dissolution always exist.

True

The principal significance of dissolution is no new partnership business should be undertaken but affairs should be liquidated and distribution made to those entitled to the partners' interest.

Winding Up

The process of settling the business or the partnership affairs after dissolution.

True

The process of winding up when partnership is not continued, consists in reducing the dissolved partnership's property to cash and distributing the proceeds. The property must be liquidated and distributed to those entitled thereto.

True

The right to demand an accounting value of his interest accrues to any partner or his legal representative after dissolution in the absence of an agreement to the contrary.

True

The surviving partners and not the legal representatives of the deceased partner (except when he is also the last surviving partner) are charged with the winding up of the partnership business.

False

Third persons need not to promise to pay the debts, and the debts automatically becomes their liability should they continue the partnership business.

True

Under Art. 1840, preferential rights of partnership creditors to partnership property are emphasized, either they be old or new.

True

Under Article 1832, dissolution terminates the authority of a partner to act for the partnership except as may be necessary to wind up partnership or complete transactions that have been begun but not finished.

Notice of a fact

When a partner who claims benefit of the notice 1. States the fact to such person 2. Delivers through mail or by other means of communication, a written statement to such person or to a proper person at his place of business or residence.

Restitution

When contract of partnership is annulled, the injured partner is entitled to _____________. Fraud or misrepresentation here vitiates consent.

False

When dissolution is caused by an expulsion of a partner bona fide, such expelled partner may be discharged of partnership liability even by payment or agreement between him, the partnership creditors, and the partners. (Art. 1837)

Partnership creditors; separate creditors

When partnership properties and individual properties are in possession of a court for distribution, the ____________ has preferred rights to the partnership properties, and the ___________ have priority to the individual properties, (Saving the rights of lien or secured creditors)

Liquidating Partners

__________ have the authority to sell partnership property and to collect obligations due to the partnership.

Doctrine of delectus personae

____________ allows a partner to have the power, although not necessarily the legal right to dissolve a partnership, even though his partners wishes to continue the business.

False

(Article 1829) On dissolution the partnership is terminated and is not continued until the winding up is completed.

Dissolution can be caused

1. Without violation to the partnership agreement 2. In contravention to the partnership agreement

False

A partner may be compelled to remain in the partnership.

agreement

A partner may be relieved from all existing liabilities upon dissolution only by an _____________ to that effect between himself, the partnership creditors and the other partners.

True

A partner who dissolves the partnership in contravention of the agreement is liable for damages for unjustified dissolution.

True

A partnership once established is, in the absence of anything to indicate its termination, presumed to exist.

Rights when dissolution is in contravention to partnership agreement (Partner has caused the wrongful dissolution):

A. Partnership is NOT continued by other partners: 1. To have partnership property applied to discharged partnership liabilities 2. To have the surplus, if any, applied to pay in cash the net amount owing to the respective partners, less damages caused by his wrongful dissolution B. Partnership is continued: 1. Have the value of his interest in the partnership at the time of dissolution ascertained and paid in cash or secured by bond approved by court 2. To be indemnified or freed from all existing and future liabilities.

True

An agreement to the contrary may provide that the death, withdrawal or admission of a partner will not effect a dissolution.

True

An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contribution with regards to contribution to satisfy partnership creditors.

True

Art. 1835 states that dissolution of a partnership does not itself discharge the existing liability of a partner.

True

Art. 1840 states that the creditors of the dissolved partnership are also creditors of the partnership continuing the business.

Actual

As to prior dealers, notice must be _________.

False

Change in the relation of partners does not cause dissolution but liquidation.

False

Deceased partner's estate is liable for subsequent debts or losses incurred by the surviving partners who continued the partnership business with the consent of the estate.

Civil Interdiction

Deprives the offender during the time of his sentence the right to manage his property and dispose of such property by any act or conveyance inter vivos to take effect during his lifetime.

Extra-Judicial Dissolution

Dissolution as laid out in article 1830. Also called as automatic dissolution.

True

Dissolution is distinguished from the winding up of business.

True

Dissolution is the point in time when the partners cease to carry on business together; the demise of the partnership.

True

Dissolution may caused involuntarily when a supervening event makes the business itself of the partnership unlawful.

False

Even when partnership contract is on the process of annulment, the partnership relation is already terminated. The defrauded creditor is not liable to third persons anymore.

True

Failure to deliver the specific thing may be waved by the other partners.

Authority of a partner is terminated when:

1. Dissolution is not caused by the death, insolvency or act of a partner. 2. Dissolution is caused by the death, insolvency or act of a partner, and there is notice or knowledge thereof on the partner. 3. As to third persons as laid out in Art. 1834

Grounds for Judicial Dissolution

1. Insanity of a partner 2. Incapacity 3. Misconduct or persistent breach of partnership agreement 4. Partnership can only be carried on at a loss 5. Other equitable circumstances

Manner of winding up:

1. Judicially 2. Extrajudicially

Dissolution by the act, insolvency or death of a partner terminates authority of the partner when:

1. Dissolution by the act of any partner, the acting partner has knowledge of the dissolution. 2. Dissolution by the death or insolvency of a partner, the acting partner has knowledge or notice of the death or insolvency.

Partner's right to account of his interest:

1. Accrual right 2. Person liable to render on account

Dissolution occurs when (in regard to change in relation of partners)

1. Admission of new partner 2. Retirement 3. Death 4. Withdrawal 5. Expulsion 6. Assigning of rights to remaining partner 7. Assigning of all the rights to third persons

On application of the purchaser's interest, judicial dissolution is decreed:

1. After the termination of the specific term or particular undertaking 2. At any time if it was a partnership at will, when the interest was assigned or the charging order was issued.

Character of Notice

1. As to prior dealers - Notice must be actual. 2. As to all others - Notice by an advertisement in a local newspaper is sufficient.

Partnership can be bound to third persons after dissolution:

1. By an act appropriate for the winding up of partnership affairs or completing transactions unfinished 2. Transactions as if no dissolution had taken place: (a) Third person who had extended credit prior to the dissolution and had no knowledge of such dissolution. (b) Although he had not extended credit, had known of the partnership prior to dissolution and having no knowledge or notice of the dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place at which the partnership was regularly carried on. (Or in each place if more than one.)

Cases where dissolved partnership's creditors are also creditors of the continuing partnership

1. New partner is admitted; Partner retires and assigns his rights in partnership properties (partnership is continued without liquidation) 2. All but one partner retires and assign their rights in the partnership property to the remaining partner -- who continues partnership either alone or with others 3. Any partner dies or retires and partnership is continued, with consent of retired partner or representative of deceased partner, without assignment of his right in the partnership property 4. All partners or their legal representatives assign their rights in partnership property to one or more third person who promises to pay the debts and who continue the business of the dissolved partnership 5. Wrongful dissolution and the partners who aren't guilty continues the partnership without liquidation 6. Expulsion of a partner and remaining partners continue by themselves or others.

Authorized to wind up partnership:

1. Partners designated by the agreement 2. Partners who have not wrongfully dissolved the partnership. 3. Legal representative of the last surviving partner not insolvent.

Assets of the partnership:

1. Partnership property (including goodwill) 2. Contributions of the partners necessary for the payment of all liabilities.

Rights of injured partner where partnership contract is rescinded:

1. Right to a lien or retention of the surplus of partnership property after satisfying the partnership liabilities for sum of money paid or contributed by him. 2. Right to subrogation in place of partnership creditors after payment of partnership liabilities 3. Right to indemnification by the guilty partner against all debts and liabilities of the partnership.

Dissolution effected without violation of partnership agreement

1. Termination of the definite term or particular undertaking 2. By the express will of any partner (in good faith) 3. Express will of all the partners 4. Expulsion of any partner

Liabilities of the partnership:

1. Those owing to creditors other than partners 2. Those owing to partners other than for capital and profits 3. Those owing to partners in respect of capital 4. Those owing to partners in respect of profits

Insolvent partner's ranking of claim on his estate:

1. Those owing to separated creditors 2. Those owing to partnership creditors 3. Those owing to partnership by way of contribution

Rights when partnership is dissolved in contravention of the partnership agreement (Partner has not caused the wrongful dissolution of the partnership):

1. To apply partnership property to discharge partnership liabilities 2. To have the surplus, if any, applied to pay in cash, the net amount owing the respective partners. 3. To continue the partnership business, in the same name during the agreed term, by themselves or jointly with others 4. To posses partnership property should they decide the partnership business

False

Goodwill is considered in determining the value of the interest of the partner guilty of wrongful dissolution.

True

Consent of the creditor and other partners to the novation may be implied from their conduct.

True

Customers of partnership who had extended credit to the partnership prior to dissolution must have knowledge or notice of the dissolution to relieve the partnership from liability.

True

Dissolution refers to the change in relation and not the cessation of the partnership business.

Dissolution

_________ is the change in the relationship of the partners caused by any partner ceasing to be associated in the partnership.

Termination

Point in time when all the partnership affairs are completely wound up and finally settled. It signifies the end of the partnership life.

True

Right of a partner to rescind are without prejudice to any other rights under other provisions of the law.

Extrajudicial

Winding up by the partners themselves without intervention of the court.

Judicial

Winding up under the control and direction of the proper court upon cause shown by any partner, his legal representative or his assignee.