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PARTNERSHIP MEMORY AID

Partnership Distinguished from Corporation


PARTNERSHIP
Creation
Created by a contract, by
mere agreement of the parties
Juridical personality
Has a juridical personality
separate and distinct from that
of each partner
Purpose
Realization of profits
Duration/ Term of No limitation
existence
Disposal
/ Partner may not dispose of his
Transferability
of individual interest unless
interest
agreed upon by all partners
Power to act with 3rd In absence of stipulation to
persons
contrary, a partner may bind
partnership (each partner is
agent of partnership)
Effect of death
Death of partner results in
dissolution of partnership
Dissolution
May be dissolved at any time
by the will of any or all of the
partners
No. of incorporators
Minimum of 2 persons
Commencement
of From
the
moment
of
juridical personality
execution of contract of
partnership

CORPORATION
Created by law
Has a juridical personality separate
and distinct from that of each partner
Depends on Art of Inc.
50 years , extendible to not more than
50 years in any one instance
Stockholder has a right to transfer
shares without prior consent of other
stockholders
Management is vested with the Board
of Directors

Death of stockholder does not


dissolve corporation
Can only be dissolved with the
consent of the state
Minimum of 5 incorporators
From date of issuance of certificate of
incorporation by the SEC

PARTNERSHIP
- is a CONTRACT whereby two or more persons bind themselves to CONTRIBUTE money,
property, or industry to a COMMON FUND with the intention of dividing the PROFITS among
themselves or in order to EXERCISE a PROFESSION
- a STATUS and a FIDUCIARY RELATION subsisting between persons carrying on a business
in common with a view on profit

CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP


[C, C, L, I, AS, NP]
1. CONSENSUAL - perfected by mere consent
2. CONTRIBUTION of money, property or industry to a COMMON FUND
3. Object must be LAWFUL
4. INTENTION of dividing the PROFIT among the PARTNERS
the object must be for profit and not merely for the common enjoyment otherwise only a coownership has been formed. HOWEVER, pecuniary profit need not be the only aim, it is enough
that it is the principal purpose
RULES ON CAPACITY TO BECOME A PARTNER
- a person capacitated to enter into contractual relations may become a partner
- an unemancipated minor cannot become a partner UNLESS his parent or guardian consents
- a partnership being a juridical person by itself can form another partnership
- a corporation cannot become a partner on grounds of public policy
- a partner shares not only in profits but also in the losses of the firm
CONSEQUENCES OF THE PARTNERSHIP BEING A JURIDICAL ENTITY
The partnership has a PERSONALITY SEPARATE and DISTINCT from that of each partner
As such the partnership can in general:
1. acquire and possess property of all kinds
2. incur obligations
3. bring civil and criminal actions
4. can be adjudged insolvent even if the individual members be each financially solvent
5. unless he is generally sued, a partner has no right to make a separate appearance in court, if the
partnership being sued is already represented
LIMITATIONS ON ALIEN PARTNERSHIP
1) if 60% capital is not owned by Filipinos
- the firm cannot acquire by purchase or otherwise AGRICULTURAL Philippine lands
2) foreign partnership may lease lands provided the period does not exceed 99 years
3) foreign partnership may be MORTGAGEES of land
- period of 5 years, renewable for another 5 years
- they cannot purchase it in a foreclosure sale
RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY ORGANIZED AS PARTNERSHIP
1. it possesses no legal personality
2. it cannot sue as such HOWEVER, the partners in their individual capacity can
3. one who enters into a contract with a partnership as such cannot when sued later on for
recovery of the debt, allege the lack of legal personality on the part of the firm, even if indeed it
had no personality (estoppel)

REQUISITES FOR EXISTENCE OF PARTNERSHIP [I, CF, JI]


1. INTENTION to create a partnership
2. COMMON FUND obtained from contributions
3. JOINT INTERESTS in the PROFITS
WHAT DO NOT ESTABLISH A PARTNERSHIP
1. mere co-ownership or co-possession
2. even with profit sharing
3. mere sharing of GROSS returns
4. even with joint ownership of the properties involved
RULES TO DETERMINE THE EXISTENCE OF A PARTNERSHIP
1. Persons who are not partners to each other are not partners as to third persons
Exception: partnership by estoppel
2. Co-ownership of a property does not itself establish a partnership, even though the co-owners
share in the profits derived from the incident of joint ownership
3. Sharing of gross returns alone does not indicate a partnership whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns
are derived
the receipt of the share in the profits is a strong presumptive evidence of partnership
HOWEVER, no such inference will be drawn if such profits were received in payment
as a DEBT by installments or otherwise
as WAGES of an employee
as RENT to a landlord
as an ANNUITY to a widow or representative of a deceased partner
as INTEREST on a LOAN, though the amount of payment vary with the profits of the
business
as the CONSIDERATION for the sale of a GOOD WILL of a business or other property
or otherwise
creditors are not partners, for their only interest in the sharing of profits is the receipt or
payment of their credits
in a partnership, the partners are supposed to trust and have confidence in all the partners
PARTNERSHIP BY ESTOPPEL
If 2 persons not partners represent themselves as partners to strangers, a partnership by
estoppel results
When 2 persons, who are partners, in connivance with a friend who is not a partner inform a
stranger that said friend is their partner, a partnership by estoppel also result to the end that
the stranger should not be prejudiced
RULE: LAWFUL OBJECT or PURPOSE
a partnership must have lawful object or purpose, and must be established for the common
benefit or interest of the partners

it must be within the commence of man, possible and not contrary to law, morals, good
customs, public order or public policy
If a partnership has several purposes, one of which is unlawful, the partnership can still
validly exist so long as the illegal purpose can be separated from the legal purposes
when an unlawful partnership is dissolved by a judicial decree, the profits shall be
confiscated in favor of the STATE

FORMS OF PARTNERSHIP
A partnership may be constituted in any form exception: public instrument immovable property
is contributed real rights are contributed
* need for inventory of immovable
*for effectivity of the partnership contract insofar as innocent third persons are concerned the
same must be registered if real properties are involved
an AGREEMENT TO FORM a partnership does not itself create a partnership
when there are conditions to be fulfilled or when a certain period is to lapse, the partnership is
not created till after the fulfillment of the conditions or the arrival of the term and this is true
even if one of the parties has already advanced his agreed share of the capital
RULE: if CAPITAL is P3,000 or more REQUIRED:
1. PUBLIC INSTRUMENT
2. RECORDED S.E.C.
Failure to comply shall not effect the liability of the partnership and its members to third
persons
If real properties have been contributed, regardless of the value, a public instrument is needed for
the attainment of legal personality
Requirements where immovable / real property is contributed
Public instrument
Inventory signed and attached to the Public instrument
* applies regardless of the value of the real property
* applies even if only real rights over the real property are contributed
* applies if aside from real property, cash or personal property is contributed
Transfer of land to the partnership must be duly recorded in the ROD to make the transfer
effective insofar as third persons are concerned
RULE:
any immovable property or an interest therein maybe acquired in the partnership name
title so acquired can be conveyed only in the partnership name
RULES IF
A) articles are kept secret among the members
B) any one of the members may contract in his own name with third persons

Not a partnership not a legal person -it may be sued by third person under the common
name it uses
it cannot sue as such and cannot be ordinarily be a party to a civil action
in so far as innocent third parties are concerned
the parities can be considered as members of a partnership as between themselves or
insofar as third persons are prejudiced
only the rules of co-ownership must apply

Effect of certain transactions


contracts entered into by a partner in his own name may be sued upon still by him in his
individual capacity, not withstanding the absence of a partnership
when two or more individuals, having a common interests in a business bring a court action,
it should be presumed that they prosecute the same in their individual capacity as co-owners
and not in behalf of a partnership which does not exist in legal contemplation
Classification of partnerships
A) according to manner of creation
Orally constituted
Constituted in a private instrument
Constituted in a public instrument
Registered s.e.c.
B) according to object
Universal
Particular
C) according to liability
Limited partnership
General partnership
D) according to legality
Lawful or legal
Unlawful or illegal
E) according to duration
For a specific peiod or fixed period
Partnership at will
F) according to representation to others
Ordinary partnership
Partnership by etoppel
G) as to legality of existence
De jure partnership
De facto partnership
H) as to publicity
Secret partnership
Notorious / open partnership
I) as to purp0se

Commercial / trading
Professional / non-trading

GENERAL PARTNERSHIP
one where all the partners are general partners
they are LIABLE even with respect to their individual properties, after the assets of the
partnership has been exhausted
LIMITED PATNERSHIP
one where at least one partner is a general partner and the others are limited partners
one whose liability is limited only up to the extent of his contribution
A partnership where all the partners are limited partners cannot exist as a limited partnership
- If it continuous as such, it will be considered as a general partnership and all the
partners
will be general partners
Kinds of universal partnership
Partnership of all present property
Partnership of all profits
Universal partnership of all present property
Contribution of All the properties actually belonging to the partners an fthe profits
acquired with said property
Becomes common property
Except all future property
Fruits of future property included if stipulated upon
Universal partnership of profits
comprises all that the partners may acquire by the industry or work of the partners
become common property regardless of within said profits were obtained through the
usufruct contributed
except prizes and gifts
Articles of universal partnership, entered without specification of its nature, only constitute a
universal partnership of PROFITS
Particular partnership
A particular partnership has for its object:
1.
Determinate things their use or fruits
2.
Specific undertaking
3.
Exercise of a profession or vocation

Obligations of the partners


a partnership begins from the moment of the execution of the contract
even if contributions have not yet been made the firm already exists, for partnership is a
consensual contract
Duration of partnership
1. Unlimited
* may be agreed upon
Expressly definite period
Impliedly upon achievement of its purpose
2. Partnership at will
A partnership wherein its continued existence really depends upon the will of the partners or
even on the will of any of them
2 kinds:
1. When there is no term, express or implied
2. When it is continued by the habitual managers although the period has ended or the purpose
has been accomplished
Important duties of every partner [c, d-f, w]
1. Duty to contribute what had been promised
2. Duty to deliver the fruits of what should have been delivered
3. Duty to warrant
Rules on the duty to contribute
the contribution must be made at the time the partnership is entered into UNLESS a
different period is stipulated
no demand is needed to put the partner in default
the partner must exercise due diligence in preserving the property to be contributed before
he actually contributes the same
a partner who promises to contribute to the partnership becomes a promissory debtor of the
partnership
DUTY TO DELIVER THE FRUITS
If property has been promised, the fruits thereof should also be given
the fruits referred to are those arising from the time they should have been delivered,
without a need of any demand
If the partner is in BAD FAITH, he is liable not only for the fruits actually produced,
But also for those that could have been produced
If money has been promised, interest and damages from the time he should have complied with
his obligation should be given
No demand is needed to put the partner in default
It is delivery, actual or constructive that transfers ownership

WHEN CONTRIBUTION CONSISTS OF GOODS


Appraisal of value is needed to determine how much was contributed
How appraisal is made
1. As prescribed in the contract
2. if there is no agrrement, by experts chosen by the partners, and at current prices
RULE on risk of loss
after goods have been contributed, the partnership bears the risk of subsequent changes in the
value
a partner who has undertaken to contribute a sum of money and fails to do so becomes a
debtor for the interest and damages from the time he should have complied with his
obligation
CAPITALIST PARTNER
One who furnishes capital
* Not exempted from losses
* He can engage in other business provided there is no competition between the partnership
and his business
*share in the profits according to agreements
Industrial partner
one who furnishes industry or labor
* he is exempted from losses as between the partner but liable to strangers without prejudice to
reimbursement from the capitalist partner
*he cannot engage in any other business without the express consent of the other partners,
otherwise he can be excluded from the firm
Capitalist industrialist partner
One who contributes both capital and industry
GENERAL PARTNER
One who is liable beyond the extent of his contribution
LIMITED PARTNER
One who is liable only to the extent of his contribution
An industrial partner can only be a general partner, never a limited partner
MANAGING PARTNER

One who manages actively the firms affairs


SILENT PARTNER
One who does not participate in the management, though he shares in the PROFITS or LOSSES
LIQUIDATING PARTNER
One who winds up or liquidates the affairs of the firm after it has been dissolved
OSTENSIBLE PARTNER
One whose connection with the firm is public and open
SECRET PARTNER
One whose connection with the firm is concealed or kept secret
DORMANT PARTNER
One who is both a secret (hidden) and silent (not managing) partner
NOMINAL PARTNER
One who is not really a partner BUT who may become liable as such insofar as third persons are
concerned
RULE:
Partners shall contribute equal shares to the capital of the partnership
* it is permissible to contribute UNEQUAL SHARES IF there is a stipulation to this effect
* in the absence of proof, the shares are presumed to be equal
Conditions before a capitalist partner is obliged to sell his shares / interest to the other partners
if there is imminent loss of the business of the partnership
he refuses to contribute an additional share to the capital
there is no agreement to the contrary
RULE if MANAGING PARTNER COLLECTS A CREDIT
Requisites:
1. Existence of at least 2 debts partnership and partner
2. Both sums are demandable
3. The collecting partner is the managing partner
4. The sum thus collected shall be applied to the two credits in proportion to their amounts
Where a partner receives his share in the partnership credit
Conditions:
a partner has received his share in the partnership credit in whole or in part
the other partners have not collected their part of the credit
the debtor subsequently becomes insolvent

RULE: the partner shall be obliged to bring to the partnership capital what he received even
though he may have given receipt for his share only
* does not apply when debt was collected after dissolution of the partnership

RULE:
Every partner is responsible to the partnership for damages suffered by it through his fault
He cannot compensate them with the profits and benefits, which he may have earned for the
partnership by his industry
The courts may equitably lessen his responsibility
RISK OF LOSS
if specific and determinate things not fungible whose usufruct is enjoyed by a firm, the
partner who owns it bears the loss for ownership was never transferred to the firm
fungible or deteriorable, firm bears the loss for it is evident ownership was transferred
things contributed to be sold, firm bears the loss for evidently the firm was intended to be the
owner
contributed under appraisal, firm bears the loss because this has the effect of an implied sale
Responsibility of the firm
1. to refund amounts disbursed on behalf of the firm plus legal interest from the time expenses
where made
2. to answer to each partner for obligations he may have entered into in good faith in the
interest of the partnership, as well as the risks in consequence of its management
3. refund must be made even in case of failure of the enterprise entered into, provided the
partner is not at fault
4. amount disbursed does not refer to the original capital
Distribution of Profits
1. according to agreement
2. if none, according to amount of contribution
Distribution of Losses
1. according to agreement as to losses
2. if none, according to agreement as to profits
3. if none, according to amount of contribution
RULE on Industrial Partners Liabilities

- may be held liable by third persons BUT he may recover what he has paid from the other
capitalist partners

RULE on designation by third person of shares in profits and losses


third person is not a partner, he is merely appointed to distribute shares
the designation of shares by third persons may be impugned, if it is manifestly inequitable
the designation of shares by third persons cannot be impugned even if manifestly inequitable
if:
- the aggrieved partner has already begun to execute the decision
- the aggrieved partner has not impugned the distribution within 3 months he had
knowledge
Appointment of Managing Partner other than in the Articles of Partnership
1. power to act may be revoked at any time with or without just cause
2. removal should be done by the controlling interest
Extent of power
1. as long as he remains manager, he can perform all acts of administration
2. but if others oppose and he persists, he can be removed
When there are 2 or more managers
Conditions:
1. 2 or more partners are managers
2. there is no specification of respective duties
3. there is no stipulation requiring unanimity
Specific rules:
1. each may separately execute all acts of administration
2. unlimited power to administer
IF any of the managers oppose
- majority rule
- in case of a tie
- persons owning controlling interest prevail provided they are also managers
* right to oppose is not given to non-managers
* opposition should be done before the acts produce legal effects insofar as third persons are
concerned

Rule on duty of third persons


Third persons are not required to inquire as to whether or not a partner with whom he transacts
has the consent of all the managers
When the manner of management has not been agreed upon:
all the partners are considered agents
whatever any one of them may do alone shall not bind the partnership
if the acts of one are opposed by the rest, the majority shall prevail
when a partner acts in his own name, he does not bind the partnership
authority to bind the firm does not apply if somebody else has been given authority to
manage in the articles of organization or through some other means
Rules on partnership books
kept at the principal place of business of the partnership
at any reasonable hour, every partner shall have access to and may inspect and copy any of
them
Duty of partners to give information
good faith not only requires that a partner should not make any false concealment, but he
should abstain from all concealment
Duty to account every partner must account to the partnership
any benefit acquired
any profits received
any use of partnership property
Right to demand a formal account

any partner shall have the right to a formal account as to partnership affairs

if wrongfully excluded from partnership BUSINESS

if wrongfully excluded from partnership PROPERTY by his co-partners

if the right exists under the terms of agreement

if the other partner receives other benefits, profits or uses partnership property

whenever other circumstances render it just and reasonable

the right to demand an accounting exists as long as the partnership exists

prescription begins to run only upon the dissolution of the partnership when the final
accounting is done
PROPERTY RIGHTS OF PARTNERS
1. rights in specific partnership properties
2. interests in the partnership
3. right to participate in the management
rule:

a partner is co-owner with his partners of specific partnership property


rights of a partner in specific partnership property
he has equal rights with his partners to possess the property but only for partnership purposes
he may possess such property for other purposes provided the other partners expressly or
impliedly gives their consent
he cannot assign his right to the property except if all the other partners assign their rights in
the same property
his right to the property is not subject to attachment or execution, except on a claim against
partnership
his right to the property is not subject to legal support
if there is partnership debt, the specific property can be attached

Partners Interest in the Partnership


A partners interest in the partnership is his share of the profits and surplus
It can be:
1. assigned
2. attached
3. be subject to legal support
Effects of conveyance by partner of his interest in the partnership
mere conveyance does not dissolve the partnership
the assignee does not necessarily become a partner
the assignor is still the partner, with a right to demand accounting and settlement
the assignee cannot interfere in the management or administration of the firm
the assignee cannot also demand
- information
- accounting
- inspection of partnership books
while a partners interest in the firm may be charged or levied upon, his interest in a
specific firm property cannot be attached.
Rights of the assignee
to get whatever profits the assignor-partner would have obtained
to avail himself of the usual remedies in case of fraud in the management
to ask for annulment of the contract of assignment if:
a) he was induced to enter into it through any of the vices of consent
b) he himself was incapacitated to give consent
to demand an accounting but only if the partnership is dissolved

or

Preferential rights of partnership creditors


partnership creditors are entitled to priority over partnership assets, including the partners
interest in the profits

separate or individual creditors have preference in separate or individual properties


when the charging order is applied for and granted, the court may appoint a receiver of the
partners share in the profits
the receiver appointed is entitled to any relief necessary to conserve the partnership assets for
partnership purposes
interest charged may be redeemed at any time before foreclosure

Firm Name
every partnership shall operate under a firm name
the firm name may or may not include the name of one or more of the partners
strangers who include their names in the firm are liable as partners because of estoppel, but
do not have the rights of partners
if a limited partner includes his name in the firm name, he has obligations but not the rights
of a general partner
Rule on liability for contractual obligations
all partners, including industrial ones, shall be liable pro-rata with all their property and after
all the partnership assets have been exhausted
not applicable for torts or crimes
while an industrial partner is exempted by law from losses as between the partners, he is not
exempted from liability insofar as third persons are concerned
he may recover what he has paid from the capitalist partners
under the law the liability of the partners is subsidiary and joint not principal and solidary
Rule on liability of a partner who has withdrawn
A partner who withdraws is not liable for liabilities contracted after he has withdrawn
If his interest has not yet been paid him
- his right to the same is that of a mere creditor
A stipulation exempting liability to third persons is void
Any partner may enter into a separate obligation to perform a partnership contract
Every partner is an agent of the partnership for the purpose of its business
Gen Rule:
1. The act of every partner for apparently carrying on in the usual way the business of the
partnership of which he is member binds the partnership
Except:
if he has no authority
and
the person with whom he was dealing with has knowledge of the fact that he has no such
authority

2. An act of a partner which is not apparently for the carrying on of business of the partnership in
the usual way does not bind the partnership unless authorized by the other partners
3. A partnership is a contarct of mutual agency, each partner acting as a principal on his own
behalf and as an agent for his co-partners or the firm
Requisites on when can a partner bind the partnership
1. expressly or impliedly authorized
2. when he acts in behalf and in the name of the partnership

Instances of implied authorization


1. when the other partners do not object, although they have knowledge of the act
2. when the act is for apparently carrying on in the usual way the business of the partnership.
This is binding on the firm even if the partner was not really authorized provided that the third
party is in good faith
Rules on conveyance of real property
1. where title to real property is in the partnership name
- any partner may convey title to such property by a conveyance executed in the partnership
name
- partnership may recover such property
except:
if the firm is engaged in the buying and selling of land (usual business)
if property was conveyed to a holder for value and who had no knowledge of the
partners lack of authority
2. where title is in the name of the partnership and partner sold in his own name
if done in usual business
buyer does not become owner but acquires equitable interest
if not done in usual business
buyer does not become owner and is not even entitled to equitable interest
3. where title is in the name of one or more but not all the partners
partners in whose name the title is named may convey but the partnership may recover such
property if done not in its usual business except if he had transferred it to a holder for
value
4. when property held in trust by partner
a sale only conveys equitable interest
5. when title is in the name of all partners

conveyance executed by all partners possess all rights of such property

Rule on admission or representation made by a partner


an admission by a partner is an admission against the partnersip,under the following
conditions:
1. the admissions must concern partnership affairs
2. must be within the scope of his authority

Restrictions on the rule:


admissions made before dissolution are binding only when the partner has authority to act on
the particular matter
admissions made after dissolution are binding only if the admissions were necessary to wind
up the business
an admission made by a former partner made after he has retired from the partnership is not
evidence against the firm
Effect of notice to a partner
notice to a partner is notice to the partnership
notice to a partner, given while already a partner is a notice to the partnership provided it
relates to partnership affairs
Effect of knowledge although no notice was given:
Knowledge of the partner is also knowledge of the firm provided that:
the knowledge was acquired by a partner who is acting in the particular matter involved;
and
the partner having knowledge, had reason to believe that the fact related to a matter
which had some possibility of being the subject of the partnership business and he was so
situated that he could communicate it to the partner acting on that particular matter
service of pleadings on the partner in a law firm is also service on the whole firm and the
other partners
Loss or injury
Rule on wrongful act or omission of a partner (solidary liability)
The partnership is solidarily liable with the partner if the wrongful act or omission
the partner is acting in the ordinary course of business of the partnership or
with authority of his co-partners
innocent partners have right to recover from the guilty partner

When the firm and other partners not liable:


If the wrongful act or omission was not done
within scope of partnership business
with authority of the other co-partners
if the act or omission is not wrongful
if the act or omission, although wrongful did not make the partner concern liable
if the wrongful act or omission was committed after the firm had been dissolved and the
same was not in connection with the process of winding up.
Partner by estoppel
A person who represents himself or consents to another / others representing him to anyone as a
partner either in an existing partnership or in one that is fictitious or apparent
Partnership by estoppel
When all the members of the existing partnership consent to such representation of a partner by
estoppel
Rules on estoppel:
1. if a third person is misled and acts because of such misrepresentation
the deceiver is a partner by estoppel
2. if the partnership consented to such misrepresentation
partnership liability results
3. if the firm had not consented
no partnership liability results but the deceiver is considered still as a partner by
estoppel with all the obligations but not the rights of a partner
4. when a person represents himself as a partner of a non-existent partnership
no partnership liability results but the deceiver and all persons who may have aided him in
the misrepresentation are still liable
liability would be joint or pro-rata
5. when although there is misrepresentation, if the third party is not deceived, the doctrine of
estoppel does not apply
Burden of proof
The creditor or whoever alleges the existence of a partner or partnership by estoppel has the
burden of proving the existence of the misrepresentation and innocent reliance on it
Entry of a new partner into an existing partnership
Rule:
55. he shall be liable for all the obligations of the partnership but his liability will extend only to
his share in the partnership property
- his own individual property shall be excluded
- same liability of a limited partner
Preference of partnership creditors
Rule:

The creditors of the partnership shall be preferred to those of such partner as regards the
partnership property
The private creditors of each partner may ask the attachment and public sale of the share of
the latter in the partnership assets
if a partner sells his share to a third party, but the firm itself still remains solvent, partnership
creditors cannot assail the validity of the sale by alleging that it is made in fraud of them,
since they have not really been prejudiced

Dissolution and winding up


The change in the relation of the partners caused by any partner causing to be associated in the
carrying on of the business
It is the point of time the partners cease to carry on the business together
Winding up
The process settling business affairs after dissolution
Termination
The point in time after all the partnership affairs have been wound up
Rule on dissolution
1. On dissolution the partnership is not terminated but continues until the winding up of
partnership affairs is completed.
2. Just because a partnership is dissolved this does not necessarily mean that a partner can evade
previous obligations entered into by the partnership
3. Dissolution saves the former partners from new obligations to which they have not expressly
or impliedly consented unless the same be essential for winding up
4. After dissolution, a partner can still bind the partnership
by any act appropriate for winding up partnership affairs
by completing transactions unfinished at dissolution
by any transaction which could bind the partnership if dissolution had not taken place
provided the other party is:
- previous creditor and had no knowledge or notice of the dissolution or
- not a previous creditor, had no knowledge or notice and dissolution was not
published
- if there was publication of the dissolution it is presumed he already knows,
regardless of actual knowledge on non knowledge
Causes of dissolution
without violation of the agreement between the partners
termination of the definite term or particular undertaking
express will or any party in good faith (partnership by will)
express will of all of the partners except those who have (interests) assigned or whose
interests have been (separate debts) charged

expulsion in good faith of a member


in contravention of the agreement between the partners
by the express will of any partner at any time
unlawfulness of the business
loss thing promised
specific thing perishes before delivery
usufruct is lost except if ownership had been transferred to the partnership
death of any partner
insolvency of any partner or of the partnership
civil interdiction of any partner
decree of court

If the cause is not justified or no cause was given, the withdrawing partner is liable for damages
but in no case can he be compelled to remain in the firm
The insolvency need not be judicially declared, it is enough that the assets be less than the
liabilities
Dissolution by judicial decree when allowed:
partner declared insane in any judicial proceeding or is shown to be of unsound mind
partner becomes incapable of performing his part of the partnership contract
partner has been guilty of such conduct as tends to affect prejudicially the business
partners persistent breach of agreement
the business of the partnership can only be denied on at a loss
other circumstances which render dissolution equitable
Effects of dissolution
1. When the firm is dissolved, a partner can no longer bind the partnership
2. A dissolved partnership still has the personality for the winding up of its affairs
the firm is still allowed to collect previously acquired credits
the firm is still bound to pay of its debts
Where the dissolution is caused by the act, insolvency or death 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
Exception: - individual liabilities
1. If dissolution by act
The partner acting for the partnership had knowledge of the dissolution
or
2. If dissolution by death or insolvency
The partner acting for the partnership had knowledge or notice of the death or
insolvency
only the partner acting assumes liability

When is the partnership not bound


1. new business with third parties who are in bad faith
2. firm dissolved because unlawful except for acts of winding up
3. partner who acted became insolvent
4. partner not authorized to wind up except if customer in good faith
* if after dissolution, if a stranger will represent himself as a partner although he is not one he
will be a partner by estoppel
Rule:
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 prior payments of his separate
debts
if there be a novation of the old partnership debts and such novation is done after one of the
partners has retired and without the consent of such partner
said partner cannot be held liable by creditors who made the novation with knowledge of the
firms dissolution
Extrajudicial and judicial winding-up
Extrajudicial:
by the partners who have not wrongfully dissolved the partnership
by the legal representative of the last surviving partners
Judicial:
under the control and direction of the court, upon proper cause that is shown to the court
Order of payment in winding-up of partnership liabilities
1. those owing to creditors other than partners
2. those owing to partners other than for capital or profits reimbursements
3. those owing to partners in respect to capital
4. those owing to partners in respect to profits
Iif the partnership assets are insufficient, the other partners must contribute more money or
property
Preference with respect to the assets
Regarding partnership property
- partnership creditors have preference
Regarding individual properties of partners
- individual creditors are preferred
Rule if partner is insolvent
Distribution of individual property:
Order of preference:

1. individual or separate creditors


2. partnership creditors
3. those owing to other partners by way of contribution
When creditors of the dissolved partnership are also creditors of the partnership continuing
business:
new partner is admitted without liquidation
a partner retires and assigns his rights if the business is continued without liquidation of the
partnership affairs
all but one partner retire without liquidation
when all partner assign their right to a person who will assume their debt
after wrongful dissolution, remaining partners continue the business without liquidation
when partner expelled and remaining partners continue the business without liquidation

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