ART. 1828 - 1842 Dissolution and Winding Up Summary PDF

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ART. 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. (n)Dissolution, winding up, and termination defined.Dissolution – change in the relation o...

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ART. 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. (n) Dissolution, winding up, and termination defined. Dissolution – change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business.

ART. 1830. Dissolution is caused: (1) Without violation of the agreement between the partners: (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 undertaking is specified;

- represent the demise of the partnership Winding up - Process of settling the business or partnership affairs after dissolution Termination – Point in time where all partnership affairs are completely wound up and finally settled - End of partnership life. ART. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. (n) Partnership not terminated by dissolution - Dissolution of partnership must not be understood to mean its extinguishment. - Principal significance of dissolution is, Thereafter, no new partnership business should be taken but affairs should be liquidated and distribute it to those who are entitled of the partner’s affair.

(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) By the expulsion of any partner from the business bona fi de in accordance with such a power conferred by the agreement between the partners; Art. 1830 215 (2) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; (3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership; (4) When a specific thing, a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the

partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof;

- Article 1831 enumerates the grounds for judicial dissolution of the partnership.

(5) By the death of any partner;

- Once partnership is dissolved, the same partner can create a new partnership with the same terms as of the old.

(6) By the insolvency of any partner or of the partnership;

Dissolution effected without violation of partnership agreement.

(7) By the civil interdiction of any partner; (8) by decree of court under the following article. (1700a and 1701a)

(1) Termination of the definite term or particular undertaking.

Causes of dissolution. - The events that cause dissolution of a partnership may be divided into four (4) categories: act of the parties not in violation of their agreement; act of the parties in violation of their agreement; operation of law; and court decree. Other causes are provided in Article 1840.  Dissolution may be caused without violation of the agreement between the partners (No. 1.) or in contravention of said agreement. (No. 2.)  May be voluntary when caused by the will of one or more or all of the partners (Nos. 1 and 2.) or involuntary when brought about independently of the will of the partners or by operation of law. (Nos. 3, 4, 5, 6, 7, and 8.)  Voluntary dissolution of partnership may be effected extrajudicially (Nos. 1 to 7.) or judicially, that is, by decree of court. (No. 8, in relation to Art. 1831.) - It will be observed that the causes provided in Article 1830 result in the automatic dissolution of the partnership

- Partnership may be constituted for a fixed term or it may have for its object a specific undertaking. -Expiration of the term or particular undertaking constitutes automatic dissolution if the partners don’t have any intention to extend the term. - If the partners continue the partnership it becomes partnership by will. (2) By the express will of any partner - Partnership at will may be dissolved any time even without the consent of the co-partner - The partner who wants to dissolve the partnership should be acting in good faith. - If there is bad faith in dissolution then it is wrongful. (3) By the express will of all the partners. - Agreement on dissolving partnership before expiration of a term or particular undertaking must be unanimous.

- Majority consent alone is cannot dissolve the partnership and those consent of the partner who assigned their equitable interest cannot effect dissolution only those remaining partners can. (4) By expulsion of any partner. - decreasing the number of partners. - must be in good faith and in accordance to the power onferred by the partnership agreement, between partners. - Power can be vested exclusively to one partner - Partner who expelled in bad faith can claim damages.

- allows partner to have the power not necessarily right to dissolved partnership even though the co-partner still wants to continue the partnership (3) Legal effects of dissolution. - Withdrawing partner is liable to any damages caused by unjustified dissolution. Business becomes unlawful. - Dissolution may be caused involuntarily when a supervening event makes the business itself of the partnership unlawful or makes it unlawful for the partners to carry it on together. - Partnership must have a lawful object or purpose.

Dissolution effected in contravention of partnership agreement. - Breach in agreement (1) Dissolution may be for any cause or reason. - Any partner can cause dissolution of the partnership any time even without the consent of the co-partner at his own pleasure even though the partnership is entered in a definite term. - ^ Constitutes contravention of the agreement or breach of the agreement. (2) Power of dissolution always exists. - Delectus personae

Loss of specific thing. (1) Loss before delivery. - If the contribution of a specific thing is lost before delivery partnership is dissolved - The specific thing lost cannot be substituted. (2) Loss after delivery. - If the specific thing is loss after delivery then partnership is not dissolved as long as the ownership was passed to the partnership. - Partners may contribute additional capital to save the venture.

(3) Loss where only use or enjoyment contributed. - If only the use or enjoyment of the thing is contributed, the partner having reserved the ownership thereof, the loss of the same before or after delivery dissolves the partnership. - Partner bears the loss and, therefore, he is considered in default with respect to his contribution. - Upon dissolution, the partners may demand for an accounting and liquidation.

Insolvency of any partner or of partnership. - Insolvency of a partner subjects his interest in the partnership to the right of his creditors. - Impossible for him to satisfy with his property partnership obligations to its creditors in the event that partnership assets have been exhausted. - Insolvent partner has no authority to act for neither the partnership nor the other partners to act for him.

- The mere failure by a partner to contribute his share of capital pursuant to an agreement to form a partnership does not prevent the existence of a firm

- Insolvency of the partnership renders its property in the hands of the partners liable for the satisfaction of partnership obligations resulting in their inability to continue the business, which practically amounts to dissolution.

- Failure may be waived by the other parties to the agreement.

Civil interdiction of any partner.

Death of any partner.

- A person under civil interdiction (or civil death) cannot validly give consent as his capacity to act is limited thereby.

- Partner who died ceases to be associated with the partnership. - surviving partner does not have the authority to continue business except so far as is necessary to wind up.

- Civil interdiction deprives the offender during the time of his sentence of the right to manage his property and dispose of such property by any act or any conveyance.

- However, partnership agreement can stipulate that any death, withdrawal or admission of a partner will cause dissolution.

ART. 1831. On application by or for a partner, the court shall decree dissolution whenever:

- Estate of the deceased is not liable for obligation contracted by the partnership after dissolution beyond the excess of his capital permitted to remain in the business which is continued.

(1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;

(2) A partner becomes in any other way incapable of performing his part of the partnership contract;

b. Incapacity – Incapacity must affect the ability of the partner to perform his duties as a partner.

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;

c. Misconduct and persistent breach of partnership agreement – Prejudicial in carrying on the business and persistent breach of partnership agreement.

(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him; (5) The business of the partnership can only be carried on at a loss;

d. Business can be carried on only at a loss – Becomes apparent that the business is unprofitable with no reasonable prospect of success. e. Other circumstances – Abandonment of business, fraud, refusal to render accounting affairs without justifiable reason.

(6) Other circumstances render dissolution equitable. (2) Application by a purchaser of a partner’s interest On the application of the purchaser of a partner’s interest under Article 1813 or 1814: (1) After the termination of the specified term or particular undertaking; (2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. (n) Grounds for dissolution by decree of court. (1) Application by a partner a. Insanity – should be previously declared in insane in judicial proceeding. If not declared must prove the insanity.

- Purchaser of a partner’s interest may apply for judicial dissolution of the partnership as long as it’s after the termination of the specific undertaking or it is a partnership by will from the beginning. ART. 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership. (1) With respect to the partners: (a) When the dissolution is not by the act, insolvency or death of a partner; or (b) When the dissolution is by such act, insolvency or death of a partner, in cases where Article 1833 so requires;

(2) With respect to persons not partners, as declared in article 1834. (n)

(b) With respect to third persons

Effect of dissolution on authority of partner.

- Partnership is still bound by the contract even though the authority of the acting partner is already terminated.

(1) General rule.

- Innocent partners can claim damages to the acting partner.

- 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. - Upon dissolution, the partnership ceases to be a going concern and the partner’s power of representation is confined only to acts incident to winding up. - The event of dissolution, therefore, terminates the actual authority of a partner to undertake new business for the partnership. (2) Qualifications to the rule of Article 1832. (a) In so far as the partners themselves are concerned - AUTHORITY of any partner to bind the partnership by a new contract is immediately terminated when the dissolution is not by the act, insolvency, or death of a partner. - Dissolution is by such act, insolvency, or death, the termination of authority DEPENDS upon whether or not the partner had KNOWLEDGE OR NOTICE of the dissolution as provided in Article 1833.

ART. 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. Right of partner to contribution from co-partners. - Dissolution cause by the act, insolvency, death of the partner. - Partner who enters in a new contract after dissolution binds partners and each of them are liable to the third person. Authority of partners, AS AMONG THEMSELVES, to act for the partnership. - Authority is terminated even the cause is Insolvency or death (1) Cause of dissolution is of partner and acting partner knows the dissolution. (to protect innocent partners)

(2) Cause of the dissolution is death or insolvency of a partner but the acting partner has the notice of such death and insolvency. (to avoid or eliminate the fiction that everybody is presumed to have knowledge about the death or insolvency.

ART. 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article: (1) By an act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution;

When a partner has knowledge or notice of a fact. (1) When a partner has knowledge of a fact, he had the actual knowledge and other facts yet acted in bad faith . (2) A person has notice of a fact a. states the fact b. through mail / any means of communication, Written statement of the fact / proper person at his place of business or residence. Ex. A, B and C are partner and C communicated it to B(acting partner) that he will resign. Any acts that made by A who does not know of the dissolution is binding to all of them

(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction: (a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or (b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership was regularly carried on.

But if B who has the knowledge but still entered in the contract doesn’t binds the other partners but is personally liable.

The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution:

If A only knew the resignation from B then it is only a notice not knowledge and still binds all partners.

(1) Unknown as a partner to the person with whom the contract is made; and

If the other partner is Insolvent or died then the knowledge or notice on the part of B will justify non-liability on the part of other partners.

(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. The partnership is in no case bound by any act of a partner after dissolution: (1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or (2) Where the partner has become insolvent; or (3) Where the partner had no authority to wind up partnership affairs, except by a transaction with one who — (a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or (b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2(b). Nothing in this article shall affect the liability under article 1825 of any person who after dissolution represents himself or consents to

another representing him as a partner in a partnership engaged in carrying on business. (n)

Power of partner to bind dissolved partnership to third persons. - 1834 enumerates where partners can still bind partnership even after dissolution (Par. 1 Nos. 1-2) and cases cant bind partnership after dissolution (Par. 3 Nos. 1,2 and 3) - Upon the dissolution of the partnership, as between themselves, the power of one partner to act and bind the others is effectively terminated. - Authority of a partner apparently continues as to third person who doesn’t know of the dissolution because dissolution is not made public. Notice of dissolution to creditors. (1) As to persons who extended credit to partnership prior to dissolution. -partnership or persons who extended credit to the partnership prior to its dissolution must have knowledge or notice of the dissolution to relieve the partnership from liability. (2) As to persons who had known of partnership’s existence. - Persons who had not so extended credit prior to its dissolution, but who had known of its existence, the fact that the dissolution had been published in the newspaper would be sufficient.

- Mere mailing of a letter to a former dealer is insufficient to relieve the retiring partner from subsequent liability, where the notice was never received. (3) Where acting partner has no authority to wind up partnership affairs. - Notice of dissolution is unnecessary except in case No. 3, where the partner has no authority to wind up partnership affairs. - Third persons dealing with the partner without such authority are protected under the same circumstances mentioned in paragraph 1, No. (2)(a) and (b). (4) Where acting partner has become insolvent. - Law makes a distinction between the right of a partner who has no knowledge or notice of the other partner’s insolvency to bind the partnership and the right of a third person to claim that his contract with the partnership is valid - Innocent partner is protected in his continued right to make binding partnership agreements, but no similar protection is extended to a third party who innocently makes a contract with an insolvent partner. Character of notice required. - Notice is required to relieve retiring partner or representative of the deceased partner of any subsequent liability on partnership. (1) As to prior dealers. - must be actual

*prior or former dealer is one who has extended credit on the faith of the partnership, through confidence in the solvency and probity of the fi rm. (2) As to all others. - Notice is accomplished by an advertisement in a local newspaper. Actual notification is not necessary. D...