Chapter 3 PART 2 - Partnership and Corporation De Leon 2019 Edition PDF

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Chapter 3 Dissolution and Winding Up (Art. 1837-1842)Article 1837. When dissolution is caused in any way, except in contravention of thepartnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless other...

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MARY ROSE E. SALVO

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Chapter 3 Dissolution and Winding Up (Art. 1837-1842)

Article 1837.

When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of article 1835, he shall receive in cash only the net amount due him from the partnership. When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows: (1) Each partner who has not caused dissolution wrongfully shall have: (a) All the rights specified in the first paragraph of this article, and (b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement. (2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities. (3) A partner who has caused the dissolution wrongfully shall have: (a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), of this article. (b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his copartners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered. Right of partner to application of partnership property on dissolution It depends on whether the dissolution is caused: (go to Art. 1830) 1. Without violation of the partnership agreement 2. In violation of the partnership agreement

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Rights where dissolution not in contravention of agreement. Unless otherwise agreed, the rights of each partner in case of dissolution without violation of partnership agreement, are as follows: 1. To have the partnership property applied to discharge the liabilities of the partnership  Babayaran muna yung mga creditors ng partnership 2. To have the surplus, if any, applied to pay in cash the net amount owing to the respective partner.  Hatian na  When the dissolution is caused by expulsion of a partner bona fide, such expelled partner may be discharged from all partnership liabilities either by payment or by an agreement between him, he shall have the right only to receive in cash the next amount due him from all partnership  If the dissolution is proper or rightful, no partner is liable for damages  Need na kasama yung sa dissolution yung creditors sa usapan kung paano papaalisin yung partner na yun. Rights where dissolution in contravention of agreement It is vary depending upon whether he is the innocent or guilty partner: 1. Rights of partner who has not caused by the dissolution wrongfully: a) To have partnership property applied for the payment of its liabilities and to receive in cash his share of the surplus b) To be indemnified for damages caused by the partner guilty c) To continue the business in the same name d) To possess partnership property should they decide to continue the business. 2. Rights of partner who wrongfully caused the dissolution: a) If the business is not continued, shares of surplus less damages b) If the business is continued: 1) To have the value of his interest in the partnership at the time of the dissolution 2) To be released from all existing and future liabilities of the partnership.

Article 1838.

Where a partnership contract is rescinded (to cancel) 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, entitled:

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(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him; (2) To stand (to replace), after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and  Pag yung partnership may utang, tapos partner yung nagbayad, mapupunta sa partner yung identity ng 3rd person as a creditor (subrogation) (3) To be indemnified (to compensate) by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. (n)  Ikaw yung mali, kaya magbayad ka Right of partner to rescind contract of partnership  If one is induced by fraud or misrepresentation to become a partner, the contract is voidable.  The injured partner is entitled to restitution (to restore something lost)  Until the partnership contract is annulled by a proper action in court, the partnership relations exist  The defrauded partner is liable for all obligations to third persons Rights of injured partner where partnership contract rescinded This article speaks of the rights of the injured partner where the partnership contract is rescinded (annulled). They are as follows: 1. Right to a lien on, or retention of, the surplus of partnership property 2. Right to subrogation in place of partnership creditors after payment of partnership liabilities 3. Right to indemnification by the guilty partners against all debts and liabilities of the partnership.

Article 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary: (1) The assets of the partnership are: (a) The partnership property, (b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2. (2) The liabilities of the partnership shall rank in order of payment, as follows: (a) Those owing to creditors other than partners, (b) Those owing to partners other than for capital and profits,

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(c) Those owing to partners in respect of capital, (d) Those owing to partners in respect of profits. (3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities. (4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities. (5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number. (6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of the amount which he has paid in excess of his share of the liability. (7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4. (8) When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors. (9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the following order: (a) Those owing to separate creditors; (b) Those owing to partnership creditors; (c) Those owing to partners by way of contribution. Liquidation and distribution of assets of dissolved partnership  The process of winding up, where the business of the dissolved partnership is not continued.  The property must be liquidated and distributed to those entitled thereto.  Partners have the implied authority to sell partnership property and to collect obligations due to the partnership. Rules in settling accounts between partners after dissolution 1. Assets of the partnership – they are: a) Partnership property (including goodwill) b) Contributions of the partners necessary for the payment of all liabilities in accordance with Article 1797 (it mean insufficient na and ginamit nila yung personal property nila to cover) 2. Order of application of the assets (partnership assets) a) First, those owing to partnership creditors

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b) Second, those owing to partners other than capital (loans sa partner, may utang yung partnership sa partner) c) Third, those owing for the return of the capital contributed by the partners d) Finally, the share of the profits, if any, due to each partner

3. Right of a partner where assets insufficient  If the assets enumerated in No. 1 are insufficient , they need to contribute like any other loss.  Any partner or his legal representative can enforce the contributions  If any of the partner does not pay, the other partners have to pay for his part , but they can compensate if that partner have the ability to pay, or sue the partner if he refuses to pay. 4. Liability of deceased partner’s individual property  His personal property shall be liable for his share of the contributions necessary to satisfy the liabilities of the partnership incurred while he was a partner. 5. Priority to payment of partnership creditors/partner’s creditors  For partnership property, priority si partnership creditor  For personal property, priority si personal creditors. 6. Distribution of property of insolvent partner  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.

Article 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business: (1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs; (2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others; (3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property; (4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership;

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(5) When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs; (6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs. The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary. When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property. Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. (n) Dissolution of a partnership by change in membership The change in the relation of the partners results in the dissolution of the partnership. It may take place when:    

New partner is admitted A partner retires, dies or withdraws, or is expelled Other partners assign their right to the sole remaining partner All the partners assign their rights in partnership property to third person.

Rights of creditors of dissolved partnership which is continued  Both classes of creditors, new or old, are treated alike, being given equal rights in partnership property.  The purpose of the law is to maintain the preferential rights of the old creditors to the partnership as against the separate creditors of the partners. Liability of persons continuing business of dissolved partnership 1. Under the second paragraph, the liability of the new or incoming partners shall be satisfied out of partnership property only unless there is a stipulation to the contrary.  Kung ano lang yung obligation nung naadmit sya, dun lang sya liable, and di pwedeng habulin ng old creditors and personal property ni new partner unless may agreement na sinabing pwedeng habulin yung personal property niya.

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2. Paragraph 1 no. 4, applies only when the third person promises to pay debts of the partnership; otherwise, creditors of the dissolved partnership have no claim on the partnership continuing the business or its property unless the assignment can be set aside as a fraud on creditors under paragraph 4.

Article 1841. When any partner retires or dies, and the business is continued under any of the conditions set forth in the preceding article, or in article 1837, second paragraph, No. 2, without any settlement of accounts as between him or his estate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such person or partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership; provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of the retired or deceased partner, shall have priority on any claim arising under this article, as provided article 1840, third paragraph. Rights of retiring or of legal representative of deceased partner when business is continued (without settlement of accounts) Shall have the right: 1. To have the value of the interest of the retiring partner or decreased partner in the partnership ascertained 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, at his point, in lieu of interest, the profits attributable to the use of his right.  If the surviving partners continue the partnership business without the consent of the deceased partner’s estate, if the estates consents to the continuation, in effect, becomes a new partner, and would be answerable for all debts and losses arising after the death of the deceased partner.

Article 1842. The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary. Partner’s right to account of his interest 1. Accrual of right  The right to demand an accounting of the value of his interest accrues to any partner or his legal representative after dissolution in the absence of an agreement to the contrary. 2. Person liable to render an account

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 Kanino idedemand yung value ng interest a) The winding up partner b) The surviving partner c) The person or partnership continuing the business When liquidation not required  When 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 any agreement as to what he shall receive....