Dissolution and Winding Up

Article 1828. The dissolution of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from the winding up of the business

Effects of Change in membership of a partnership

1. Dissolution of existing partnership and formation of a new one.

2. Transformation of all partners into incoming partners.
3. Continuance of remaining partners of partnership as before.

Stages Of Partnership

Dissolution – Is the change in the relation of the partners caused by any partner ceasing to be associated
in the carrying on the business.

Winding Up – 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
partnership assets, payment of debts, and determination of the value of each partner’s interest in the
partnership.

Termination – all partnership affairs are completely wound up and finally settles. End of partnership life;

Effects of Dissolution

1. Partnership not terminated.

2. Partnership continues for a limited purpose.
3. Transaction of a new business prohibited.

Causes of Dissolution

1. Extrajudicial Dissolution
2. Automatic Dissolution
3. Judicial Dissolution

Dissolution Effected Without Violation of Partnership Agreement

1. Termination of the definite term or undertaking.

2. By the express will of any partner.
3. By the express will of all partners.
4. By expulsion of any partner.

Dissolution Effected in Contravention of Partnership Agreement

1. Dissolution may be for any cause or reason (***delectus personae)

2. Legal effects of dissolution.
3. Power of dissolution always exists
Involuntary Dissolution

1. Business becomes unlawful.

2. Loss of specific thing.
3. Death of any partner.
4. Insolvency of any partner or of partnership.
5. Civil interdiction

Judicial Determination as to Dissolution

Grounds:

1. On application by a partner.
a. Insanity
b. Incapacity
c. Misconduct and persistent breach of partnership agreement
d. Business can be carried on only at a loss
e. Other circumstances.
2. On application by a purchaser of a partner’s interest

Effects of Dissolution on authority of partner

General Rule: Every partner is considered the agent of the partnership with authority to bind the
partnership with authority to bind the partnership as well as the other partners with respect to the
transaction of its business

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

Qualification to the rule:

a. In so far as the partners themselves are concerned, the authority of any partner to bind the
partnership is immediately terminated.
b. With respect to third persons, the partnership is generally bound by the new contract. The
innocent partner can recover from the acting partner.

Article 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is
liable to his co-partners for his share of any liability created by any partner acting for the partnership as
if the partnership had not been dissolved unless:

1. The dissolution being by act of any partner, the partner acting for the partnership had
knowledge of the dissolution; or
2. The dissolution being by the death or insolvency of a partner, the partner acting for the
partnership had knowledge or notice of the death or insolvency.

When a partnership has a knowledge of fact within the meaning of Uniform Partnership Act not only
when he as actual knowledge thereof, but also when he has knowledge of such other facts as in the
circumstances show bad faith

A person has notice of a fact when the person who claims the benefit of the notice:
 a. States the fact to such person, or
b. Delivers through the mail or by other means of communication, a written statement of the
fact to such person or to a proper person at his place of business of residence.

Effect of Dissolution on partners’ existing liability

The dissolution of a partnership does not of itself discharge the existing liability of a partner.

The individual property of the deceased partner shall be liable for all obligations of the partnership
incurred while he was a partner.

Winding Up

Manners of Winding Up

1. Judicially
2. Extrajudicially

Persons authorized to wind up

1. The partners designated by the agreement.

2. In the absence of such agreement, all the partners who have not wrongfully dissolved the
partnership; or
3. The legal representative of the last surviving partner.
4. The court in its discretion may also appoint a receiver.

Rules in settling accounts between partners after dissolution

1. Assets of the partnership

a. Partnership property
b. Contributions of the partners necessary for the payment of all liabilities
2. Order of application of the assets
a. Partnership creditors
b. Those owing to partners other than for capital and profits
c. Those owing for the return of the capital contributed by the partners
d. Distribution as assets to the partners

Liquidation Necessary for the determination of the partner’s share

1. Share of the profits

2. Share in the partnership

When Liquidation is not required

No liquidation is necessary when there is already settlement or an agreement as to what shall he

receive.