V.

OBLIGATIONS OF THE PARTNERSHIP may have contracted in good faith in the interest of the partnership
business, and for risks in consequence of its management. (1688a)
A. Bound by Authorized Acts of Partners
Article 1803. When the manner of management has not been Partnership is:
agreed upon, the following rules shall be observed:  Responsible to every partner for:
o the AMOUNTS the partner may have disbursed on
(1) All the partners shall be considered agents and whatever any behalf of the partnership and
one of them may do alone shall bind the partnership, o for the corresponding INTEREST, from the time
without prejudice to the provisions of article 1801. expenses are made
(2) None of the partners may, without the consent of the others,  Answerable to each partner for:
make any important alteration in the immovable property of the o The OBLIGATIONS the partner may have
partnership, even if it may be useful to the partnership. But if the contracted in good faith in the interest of the
refusal of consent by the other partners is manifestly prejudicial to partnership and
the interest of the partnership, the court's intervention may be o For RISKS in consequence of its management
sought. (1695a)
D. Bound by Admission or Representation
Article 1818. Every partner is an agent of the partnership for the Article 1820. An admission or representation made by any partner
purpose of its business, and the act of every partner, including the concerning partnership affairs within the scope of his authority in
execution in the partnership name of any instrument, for apparently accordance with this Title is evidence against the partnership. (n)
carrying on in the usual way the business of the partnership of
which he is a member binds the partnership, unless the partner so This rule is adapted from Sec 11 of the UPA. American Jurisprudence
acting has in fact no authority to act for the partnership in the has held that:
particular matter, and the person with whom he is dealing has  In an action against partners or their partnership on a
knowledge of the fact that he has no such authority. partnership liability: a partner’s admission or declarations
during the existence of the partnership and while engaged in
An act of a partner which is not apparently for the carrying on of transacting it legitimate business, or relating to matters
business of the partnership in the usual way does not bind the within the scope of the partnership  ADMISSIBLE
partnership unless authorized by the other partners.
 For this to apply, it is necessary that the fact of existence
Except when authorized by the other partners or unless they have of partnership must be independently shown
abandoned the business, one or more but less than all the partners o But the admissibility of a partner’s admissions is
have no authority to: limited to matters within the scope of his authority
(1) Assign the partnership property in trust for creditors or on the E. Bound by Notice to Or Knowledge of a Partner
assignee's promise to pay the debts of the partnership; (2) Dispose 1. General Rule
of the good-will of the business; Article 1821. Notice to any partner of any matter relating to
(3) Do any other act which would make it impossible to carry on the partnership affairs, and the knowledge of the partner acting in the
ordinary business of a partnership; particular matter, acquired while a partner or then present to his
(4) Confess a judgment; mind, and the knowledge of any other partner who reasonably could
(5) Enter into a compromise concerning a partnership claim or and should have communicated it to the acting partner, operate as
liability; (6) Submit a partnership claim or liability to arbitration; notice to or knowledge of the partnership, except in the case of
(7) Renounce a claim of the partnership. fraud on the partnership, committed by or with the consent of that
No act of a partner in contravention of a restriction on authority shall partner. (n)
bind the partnership to persons having knowledge of the restriction.
(n) This article is identical with Sec 12 of the UPA.
The above articles provide the circumstances wherein the partner is The following operate as notice to or knowledge of the partnership
bound by the act of a partner. [Discussed in the previous chapter] 1. Notice to any partner of any matter relating to partnership
affairs; and
B. Bear risk of Certain Types of Contribution 2. Knowledge of the partner acting in the particular matter,
Article 1795. The risk of specific and determinate things, which are acquired while a partner or then present to his mind; and
not fungible, contributed to the partnership so that only their use 3. Knowledge of any other partner who reasonably could and
and fruits may be for the common benefit, shall be borne by the should have communicated it to the acting partner
partner who owns them.
2. Exception
If the things contribute are fungible, or cannot be kept without a. Knowledge Derived From Transactions Unconnected with
deteriorating, or if they were contributed to be sold, the risk shall be Partnership
borne by the partnership. In the absence of stipulation, the risk of  Rule on constructive notice doesn’t apply where knowledge
the things brought and appraised in the inventory, shall also be is derived from distinct transactions unconnected with
borne by the partnership, and in such case the claim shall be limited partnership affairs
to the value at which they were appraised. (1687)
HARRIS v FAULTFINDERS INC
Partnership bears the risk of loss of contributions which are:  Court found that the rule doesn’t apply when “the suit is not
 Fungible or brought by or directed against the partnership or the partners
 Cannot be kept without deteriorating or as members of the partnership” or if “it does not relate to
 If they were contributed to be sold partnership business”

IF there is no stipulation  THEN the risk of things brought and b. Fraud by a Partner Against the Partnership
appraised in the inventory is also borne by the partnership  Rule doesn’t apply in the case of a fraud on the partnership,
 In such a case, the claim shall be limited to the value at committed by or with the consent of that partner who had
which they were appraised knowledge
o “An independent fraudulent act of a partner, for his
C. Repay Disbursement of Partners own business and personal interest and adverse
Article 1796. The partnership shall be responsible to every partner to the partnership”
for the amounts he may have disbursed on behalf of the partnership  Exception arises where the knowledge otherwise imputable
and for the corresponding interest, from the time the expense are to the partnership would necessarily prevent consummation
made; it shall also answer to each partner for the obligations he of the fraud, or where third persons, who seek to claim the
 benefit of having knowledge imputed to the partnership by one partner to the partnership and copartners, in the
the partner’s conduct, act in collusion with the partner to absence of contrary proof
cheat or defraud the partnership
 Effect: Partnership is still bound by such knowledge with 2. Crime
respect to a third party who has no knowledge of such fraud Partnership has a separate juridical personality from the partners
which may be held responsible for the commission of a criminal act
SUSSEL CO v FIRST FEDERAL  to the same extent as the partner or partners committing the
 Argument: act
o Exception where the conduct and dealings of the
agent are such as to raise a clear presumption Bautista: Partnership is responsible even when the partner, in making
that he will not communicate to the principal the the fraudulent representation on behalf of the partnership, has for his
facts in controversy object only his personal benefit.
o Such is also the case where the third persons, or
their representatives, who claim the benefit of the G. Misapplication of Funds
imputation of the agent’s knowledge to the Article 1823. The partnership is bound to make good the loss:
principal, collude with the agent to cheat or (1) Where one partner acting within the scope of his apparent
defraud the principal authority receives money or property of a third person and
 Court: Didn’t reject the argument but merely ruled that it misapplies it; and
couldn’t apply the exception (2) Where the partnership in the course of its business receives
 ITC: The facts in evidence didn’t support the application of money or property of a third person and the money or property so
the exception received is misapplied by any partner while it is in the custody of the
o There was no finding that the partner was acting partnership. (n)
fraudulently and neither was the third person
aware of any fraud Partnership is bound to make good the loss:
1. Where one partner acting within the scope of his apparent
F. Liability for Loss or Injury authority receives money or property of a third person and
Article 1822. Where, by any wrongful act or omission of any misapplies it; and
partner acting in the ordinary course of the business of the 2. Where the partnership in the course of its business receives
partnership or with the authority of his co-partners, loss or injury is money or property of a third person and the money or
caused to any person, not being a partner in the partnership, or any property so received is misapplied by any partner while it is
penalty is incurred, the partnership is liable therefor to the same in the custody of the partnership
extent as the partner so acting or omitting to act. (n)
US Jurisprudence: Liability of the partnership, imposed without
IF by any wrongful act or omission of any partner acting in the ordinary regard to fault when a partner’s breach of trust causes a
course of the business of the partnership or with the authority of his co- partnership client to suffer monetary loss, is not strict liability but
partners, loss or injury is caused to a third party  THEN partnership arises under respondeat superior
is liable to the same extent as the partner so acting or omitting to act  Partnership – in the position of an insurer guaranteeing that
the innocent client will not bear loss because of the wrongful
 Rule makes the partnership solidarily liable with the partner act
who has caused the loss or injury o Must reimburse client and then may recover loss
 Partner who commits the wrong must be acting with the from guilty partner
authorization of the partners, not that the violation itself be
authorized But for partnership to be liable!  partner who misappropriated must
have been authorized to receive the funds
1. Tort
 Bautista: Based on the principle of mutual agency, the
partnership or every member thereof is liable for torts
committed by one of the members acting within the scope of
firm business, though they do not participate in, ratify, or
have knowledge of such torts
o Test of liability: whether the wrong was committed
in behalf of the partnership and within the
reasonable scope of its business
o If so committed  partners are all liable as joint
tortfeasors
 “Tort” doesn’t appear in the Philippine Civil Code but there
are tort-like provisions and the SC has in several instances
equated quasi-delicts with torts

Article 2176. Whoever by act or omission causes damage to

another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and
is governed by the provisions of this Chapter. (1902a)

Following rules (based on US case law)

1. To determine whether the partnership is liable for a partner’s
intentional tort, the test is not the illegality or malicious and
willful character of the wrong but whether it falls within the
scope of the partner’s authority
2. If the partner committing the act acted outside the purview
of the partnership business in committing the acts,
whether from wantonness or other motive, he alone is
responsible
3. Once the plaintiff proves the existence of a partnership at the
time of his injury, an inference arise that the partnership
continues to exist for purposes of imputing the negligence of
VI. ENDING THE PARTNERSHIP The Civil Code defines dissolution as the change in the relation of the
partners. ITC, the partners took in an additional partner. They also
A. Dissolution changed the partnership from a partnership at will to a partnership with
a specific term. These are major changes.
1. Meaning and Effect That the subsequent renewals of timber licenses were in favor of the
Article 1828. The dissolution of a partnership is the change in the 1st partnership is of no moment since the 2nd partnership had the same
relation of the partners caused by any partner ceasing to be associated name.
in the carrying on as distinguished from the winding up of the business. By saying that the 1st articles of partnership were amended, then under
(n) the definition in the Civil Code, there was in fact a dissolution.
Perhaps what the Court meant to say was that there was no
DISSOLUTION termination or liquidation.
- act that changes the legal relationship of the partnership
- the partnership is not terminated but continues until the winding
up of partnership affairs is completed 2. Causes
- merely designates the point in time when the partners cease to Article 1830. Dissolution is caused:
carry the business together
- may culminate in termination (1) Without violation of the agreement between the partners:
- preparatory step to termination in which an accounting and a (a) By the termination of the definite term or particular undertaking
wind-up of the business are necessary steps specified in the agreement;
(b) By the express will of any partner, who must act in good faith,
Dissolution Winding up or Termination when no definite term or particular is specified;
liquidation (c) By the express will of all the partners who have not assigned their
Point in time when Process of settling Point in time when all interests or suffered them to be charged for their separate debts, either
the partners cease to partnership affairs the partnership before or after the termination of any specified term or particular
carry on the business after dissolution affairs are wound up undertaking;
together (d) By the expulsion of any partner from the business bona fide in
accordance with such a power conferred by the agreement between
TESTATE ESTATE OF MOTA V. SERRA the partners;
HELD: The Court ruled against the argument that any person, who has
contracted a valid obligation with a partnership, is exempt from (2) In contravention of the agreement between the partners, where the
complying with his obligation by the mere fact of the dissolution of the circumstances do not permit a dissolution under any other provision of
partnership. Also, the dissolution does not relieve any of its members this article, by the express will of any partner at any time;
from liability for existing obligations, although it does save them from
new obligations to which they have not expressly or impliedly (3) By any event which makes it unlawful for the business of the
assented, and any of them may be discharged from old obligations by partnership to be carried on or for the members to carry it on in
novation or other form of release. A partnership continues, even after partnership;
dissolution, for the purpose of winding up its affairs.
(4) When a specific thing which a partner had promised to contribute to
SY V. CA the partnership, perishes before the delivery; in any case by the loss of
HELD: The SEC retained jurisdiction over a partnership during the thing, when the partner who contributed it having reserved the
dissolution. The dissolution did not mean that the juridical entity was ownership thereof, has only transferred to the partnership the use or
immediately terminated. It simply effected a change in the relationship enjoyment of the same; but the partnership shall not be dissolved by
among the partners. The partnership, although dissolved, continues to the loss of the thing when it occurs after the partnership has acquired
exist until termination, at which time the winding up of its affairs should the ownership thereof;
have been completed and the net partnership assets are partitioned
and distributed to the partners. (5) By the death of any partner;

ROJAS V. MAGLANA (6) By the insolvency of any partner or of the partnership;

FACTS: Maglana and Rojas established a partnership called
Eastcoast Dev’t Enterprises (EDE), with an indefinite term (1st (7) By the civil interdiction of any partner;
partnership). Eventually, they took in an industrial partner,
Pahamotang, and executed another partnership agreement but (8) By decree of court under the following article. (1700a and 1701a)
retained the name EDE (2nd partnership). They also changed the
purpose of the partnership and fixed the term of the partnership at 30 GR: partnership is dissolved through the instances enumerated in Art.
years. Later on, Maglana and Rojas purchased Pagamotang’s interest 1830.
in the partnership. After Pahamotang’s withdrawal, Maglana and Rojas EX: When the partners agree otherwise.
continued the partnership without a new agreement. Rojas entered into
a contract with CMS Estate and abandoned the partnership. Maglana CAGNOLATTI V. GUINN
notified Rojas that he dissolved the partnership. Rojas filed an action HELD: Circumstances otherwise working adissolution of a partnership
aganst Maglana for the recovery of properties, accounting, may not have that effect where a partnership agreement expressly
receivership, and damages. provides that the partnership will continue and that dissolution and
ISSUE: What is the nature of the partnership and the legal winding up are not required on the occurrence of certain events.
relationship of Maglana and Rojas after Pahamotang retired from ITC, the partnership agreement specifically provided that the
the 2nd partnership? withdrawal of a partner would not effect a dissolution, but such partner
HELD: It was not the intention of the partners to dissolve the 1st would be paid the value of his equity.
partnership, upon the constitution of the 2nd one. There were no
changes between the 1st partnership and the 2nd except for the taking
in of an industrial partner, and fixing the term to 30 years. They The causes of dissolution may generally be divided into 4
adopted the same name, same purposes, and same amounts of categories:
contributions. The subsequent renewals of timber licenses were in
favor of the 1st partnership. The 1st Articles of Partnership was also a. Dissolution without violating partnership agreement
retained with only a few amendments in the form of the Supplementary
Articles of Co-Partnership, which were not even registered. No rights i. Termination of definite term or particular
and obligations accrued in the name of the 2nd partnership except in undertaking specified in the agreement
favor of Pahamotang.  a partnership created for a specific undertaking is one
created for a specific project, which impliedly has a point of
Casis’ opinion on the Rojas v. Maglana case: completion
ORTEGA V. CA ROJAS v. MAGLANA
FACTS: The partnership agreement provided that the partnership shall FACTS: The partnership was for a specified term, but the partner
continue so long as mutually satisfactory and upon the death or legal nonetheless caused its dissolution by expressly withdrawing even
incapacity of one of the partners, shall be continued by the surviving before the expiration of the period.
partners. The purpose for which the partnership is formed, is to act as HELD: A partner may cause the dissolution even before the expiration
legal adviser and representative of any individual, firm and corporation of the period, with or without justifiable cause. If there is no justifiable
engaged in commercial, industrial or other lawful businesses and cause, the withdrawing partner is liable for damages but in no case can
occupations; to counsel and advise such persons and entities with he be compelled to remain in the firm. There is dissolution because the
respect to their legal and other affairs; and to appear for and represent number of members is decreased.
their principals and client in all courts of justice and government
departments and offices. c. Dissolution by operation of law
HELD: The partnership is considered to have been established without  An event which makes it unlawful for the business of the
a specified term. Also, the purpose of the partnership is not the specific partnership to be carried on or for the members to carry it on
undertaking referred to in the law. Otherwise, all partnerships, which in partnership
necessarily must have a purpose, would all be considered as  When a specific thing which a partner had promised to
partnerships for a definite undertaking. contribute to the partnership, perishes before the delivery; in
any case by the loss of the thing, when the partner who
ii. Termination of partnership at will of any partner contributed it having reserved the ownership thereof, has
acting in good faith only transferred to the partnership the use or enjoyment of
 A partnership that does not fix its term is a partnership at will the same; but the partnership shall not be dissolved by the
which may be dissolved by a partner at any time loss of the thing when it occurs after the partnership has
 The absence of good faith will not prevent dissolution, but acquired the ownership thereof
will make the dissolving partner liable for damages  By the death of any partner
 There is no prescribed mode for a partner to terminate at a o Partnership may survive despite the death of a
partnership at will. No particular form or notice is required partner. The partnership may be dissolved as to
o In Ortega v. CA, the Court allowed a partner’s him, but it continues to exist as to the remaining
withdrawal from the partnership via letter to the partners
other partners o Casis: even under this scenario, there is a
o All that is required is an actual notice of an dissolution of the first partnership and the
intention to treat the business relationship as establishment of a new partnership with respect to
dissolved the remaining partners
o Notice may be implied from circumstances  By the insolvency of any partner or of the partnership
inconsistent with the continuation of the o Because of the inability of the insolvent partner to
partnership perform his obligations to the partnership and
 The fact that the dissolution was voluntary must be proved share in the liability to creditors (effectively a
by evidence that the parties mutually agreed to dissolve it withdrawal by partner)
and that they performed acts in accordance with their mutual  By the civil interdiction of any partner (also effectively a
agreement for dissolution withdrawal by a partner
 Conveyance by a partner of his whole interest does not of  IN THESE INSTANCES, the effective date of dissolution is
itself dissolve the partnership (Art. 1813) the date of occurrence of the event causing it.
o There is dissolution only if there is other conduct
constituting a withdrawal of the partner whose d. Dissolution by judicial decree
interest is assigned Article 1831. On application by or for a partner the court shall decree a
o There is also dissolution if an assignment of dissolution whenever:
partnership interests effectively reduces the (1) A partner has been declared insane in any judicial proceeding or is
membership to a single partner shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing his
iii.Termination by all partners who have retained their part of the partnership contract;
interest in the partnership (3) A partner has been guilty of such conduct as tends to affect
 The partners who agree to dissolve are those who: prejudicially the carrying on of the business;
o Have not assigned their interests OR (4) A partner wilfully or persistently commits a breach of the
o Have not suffered their interests to be charged for partnership agreement, or otherwise so conducts himself in matters
their separate debts, either before or after the relating to the partnership business that it is not reasonably practicable
termination of the specified term or particular to carry on the business in partnership with him;
undertaking (5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
iv. Expulsion of a Partner
 In accordance with a power to expel another partner, as On the application of the purchaser of a partner's interest under article
conferred by the partnership agreement 1813 or 1814:
 If the partnership agreement does not provide for a power to (1) After the termination of the specified term or particular undertaking;
expel, the partnership will be dissolved not because of the (2) At any time if the partnership was a partnership at will when the
expulsion but as an express act of one of the partners. interest was assigned or when the charging order was issued. (n)

b. Dissolution violating partnership agreement  Examples of being “in any other way incapable of performing
 a partner may dissolve the partnership, whether the articles his part of the partnership contract”:
of partnership provide for a definite term or for the o Convicted of a crime
accomplishment of a particular purpose, or whether its o Change in personal or professional status
articles contain an express or implied agreement on its o Illness which is lasting (rather than temporary) and
duration which materially affects ability to discharge duties
o No one can be forced to continue a partnership imposed by partnership contract
against his will o Effects of alcohol and drug addiction
 Every partner has the power to dissolve but he does not o Casis: But for insolvency or civil interdiction, no
necessarily have the right to do so need for a court of decree because these are
o If a partner exercises the power to dissolve without causes of dissolution by operation of law
the corresponding right, he must suffer the  Examples of “wilfully or persistently commits a breach of the
penalties provided in the agreement 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”: (2) By any transaction which would bind the partnership if dissolution
o Failure or refusal to comply with the terms of the had not taken place, provided the other party to the transaction:
partnership agreement as to contributing capital or (a) Had extended credit to the partnership prior to dissolution and had
services required for the successful prosecution of no knowledge or notice of the dissolution; or
the business (b) Though he had not so extended credit, had nevertheless known of
o Refusal of a partner to render accounting or to the partnership prior to dissolution, and, having no knowledge or notice
permit the other partners’ inspecton of partnership of dissolution, the fact of dissolution had not been advertised in a
books newspaper of general circulation in the place (or in each place if more
o Wrongful withholding or disposition of funds than one) at which the partnership business was regularly carried on.
o Competition with the partnership
 Examples of other circumstances which render a dissolution
equitable: The liability of a partner under the first paragraph, No. 2, shall be
o Fraud or misrepresentation of one of the parties satisfied out of partnership assets alone when such partner had been
(Art. 1838) prior to dissolution:
o Dissensions and disagreement among the
partners  must be serious and permanent (1) Unknown as a partner to the person with whom the contract is
character as to prevent profitable continuance of made; and
the partnership business
(2) So far unknown and inactive in partnership affairs that the business
3. Consequences of Dissolution reputation of the partnership could not be said to have been in any
degree due to his connection with it.
a. Continuation Until Winding Up
Article 1829. On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is completed. (n) The partnership is in no case bound by any act of a partner after
 the dissolution operates to terminate the partnership only dissolution:
with respect to future transactions
 partnership continues only until the winding up is completed (1) Where the partnership is dissolved because it is unlawful to carry
unless the partners agree to continue the partnership on the business, unless the act is appropriate for winding up
business after dissolution partnership affairs; or
 it is possible that the dissolution will not cause liquidation if:
o there is an agreement among the partners (2) Where the partner has become insolvent; or
o a partner is expelled pursuant to the terms of the
partnership agreement (3) Where the partner has no authority to wind up partnership affairs;
except by a transaction with one who –
b. Termination of Partner’s Authority to Act for Partnership (a) Had extended credit to the partnership prior to dissolution and had
Article 1832. Except so far as may be necessary to wind up no knowledge or notice of his want of authority; or
partnership affairs or to complete transactions begun but not then (b) Had not extended credit to the partnership prior to dissolution, and,
finished, dissolution terminates all authority of any partner to act for the having no knowledge or notice of his want of authority, the fact of his
partnership: want of authority has not been advertised in the manner provided for
advertising the fact of dissolution in the first paragraph, No. 2 (b).
(1) With respect to the partners,
(a) When the dissolution is not by the act, insolvency or death of a Nothing in this article shall affect the liability under article 1825 of any
partner; or person who after dissolution represents himself or consents to another
(b) When the dissolution is by such act, insolvency or death of a representing him as a partner in a partnership engaged in carrying on
partner, in cases where article 1833 so requires; business. (n)

(2) With respect to persons not partners, as declared in article 1834. Thus, a partner in a dissolved partnership can still bind the partnership
(n) to third persons depending on the:
 Nature of the transaction – dissolved partnership still bound
GENERAL RULE: dissolution terminates all authority of any partner to by the act of a partner if the transaction is
act for the partnership o Appropriate for winding up partnership affairs or
 general agency of one partner for his copartners ceases o Commenced prior to dissolution and remains
 absolute revocation of all implied authority of the partners to unfinished
bind one another  Identity of the third party - dissolved partnership still bound
EXCEPTION: it does not terminate the authority necessary to wind up by the act of a partner if the 3rd party:
partnership affairs or to complete transactions begun but not then o extended credit to the partnership and had no
finished knowledge or notice of the dissolution or
o did not extend credit but knew of the partnership
Article 1833. Where the dissolution is caused by the act, death or prior to dissolution and had no knowledge or
insolvency of a partner, each partner is liable to his co-partners for his notice of the dissolution, the happening of which
share of any liability created by any partner acting for the partnership was not published in a newspaper of general
as if the partnership had not been dissolved unless: circulation
(1) The dissolution being by act of any partner, the partner acting for  to protect innocent third parties when partners dissolve a
the partnership had knowledge of the dissolution; or partnership or when dissolution is effected by the withdrawal
(2) The dissolution being by the death or insolvency of a partner, the of a partner, partners have a duty to give them notice of the
partner acting for the partnership had knowledge or notice of the death dissolution, failing which the partners risk being bound to
or insolvency. third persons
 A partner who was unaware of a dissolution caused by the
LEMAY BANK & TRUST CO V LAWRENCE
act, death or insolvency of his copartner, has the right to act
FACTS: HEIMOS and LAWRENCE were engaged in a business
and therefore the right to contribution
partnership known as H&G EQUIPMENT CO. HEIMOS and his wife
executed a continuing guaranty whereby they guaranteed payment of
Article 1834. After dissolution, a partner can bind the partnership,
any existing or future debts owed by H&G to LEMAY BANK.
except as provided in the third paragraph of this article:
 At some point in 1975, HEIMOS and LAWRENCE dissolved their
partnership by mutual agreement.
(1) By any act appropriate for winding up partnership affairs or
completing transactions unfinished at dissolution;
 FRANK ZIEGLER, VP of the Bank supervised all of H&G’s credit c. Discharge of Liabilities
transactions with the Bank. He testified that HEIMOS and The dissolution of the partnership does not of itself discharge the
LAWRENCE had indicated to him in 1975 that they were “having existing liability of any partner
problems”. He further testified that he had no knowledge of H&G’s  A partner is discharged from any existing liability upon
dissolution until 1979, when this action was filed. dissolution of the partnership by an agreement to that effect
 HEIMOS testified that that in 1975 he told ZIEGLER he “wanted between himself, the partnership creditor and the person or
to split” and to “get out of” his business with Lawrence. Some time partnership continuing the business.
in 1975 or 1976 he told ZIEGLER that he and LAWRENCE o Such agreement may be inferred from the course of
thought they “could take over the business” dealing between the creditor having knowledge of the
 In 1977, $18,000 remained due on H&G’s demand line of credit, dissolution and the person or partnership continuing the
and an additional $3,800 was owing on the installment loans. business
 ZIEGLER: at the time HEIMOS and LAWRENCE indicated to him o A partner who leaves the partnership by withdrawal,
they could no longer make the make monthly payments. The retirement, or otherwise, remains liable to the creditors of
Bank consolidated the loans into the demand line of credit for a the partnership for all existing debts of the firm to the
total of $21,800. same extent as if he had remained a partner
 H&G executed a demand note renewing its debt under the  UNLESS the creditors of the partnership assent to the
consolidated line of credit. 3 more renewals were executed, the partner’s departure and agree to look solely to the
last one on Dec 1979. Although the signatures of both other partners from payment
LAWRENCE and HEIMOS appear on each of the notes, o Creditors of a partnership existing at the time of the
ZEIGLER testified that only LAWRENCE signed them in his withdrawal or retirement of a partner may by their own
presence at the bank. After signing, LAWRENCE would take the voluntary agreement look to the remaining active partner
note with him for the stated purpose of securing HEIMOS’ for payment of their debts, but they are not required to do so,
signature. Each note was returned to ZEIGLER bearing what nor may an outgoing partner absolve himself form liability for
appeared to be HEIMOS’ signature. firm debts contracted while he is a member of the firm, in the
 HEIMOS: He never signed any of the renewal notes and at some absence of an agreement on the part of the creditor, even
point in 1976 or 1977 ZEIGLER called him to ask when he was though notice of his withdrawal is given to the creditor
going to sign a note, whereupon he told him that he had not o
signed any notes and was unaware of such notes.
o Introduced into evidence the written report of a The individual property of a deceased partner shall be liable for all
handwriting expert who opined that his signature had obligations of the partnership incurred while he was a partner, but
been forged on the renewal notes. subject to the prior payment of his separate debts
 When the last renewal note became due, the Bank demanded
that the HEIMOSes pay. They failed to pay and Bank brought this d. Election to Continue the Business
action to enforce the continuing guaranty against them.
 The court concluded that the Bank had effectively released i. Dissolution Not Due to Wrongful Causes
defendants from their obligation under the continuing guaranty.
ISSUE: WON the bank had notice of a partnership’s dissolution? GENERAL RULE: A partnership dissolution that is not wrongful
RULING: The appropriate standard for determining whether notice of causes a wind up of a partnership business rather than a continuation
dissolution has been given to a partnership creditor is whether such EXCEPTION: When the outgoing partner consents to a continuation of
notice has been “brought home” to the creditor. the business
 Such notice must be given directly, or delivered through some
LANGE V BARTLETT
channels that the law recognizes as legitimate means of
FACTS: LANGE and BARTLETT formed a partnership called “Pool
communication.
Boys” engaged in the business of installing swimming pools
 IN CASE AT BAR, notice of dissolution was not “brought home”
 LANGE told BARTLETT that he no longer wanted to participate in
to the Bank before 1979. ZIEGLER denied receiving such notice,
the partnership and thus retired as a partner
and HEIMOS, in his communications with ZIELGER, never gave
any direct notice of dissolution  BARTLETT offered LANGE $3,000 as his share. LANGE refused
o Defendants suggest that ZIEGLER should have inferred and sued BARTLETT to recover his share of the partnership
from the circumstances or discovered through his own RULING: At the point of dissolution, the retiring partner makes an
investigation that the partnership had been dissolved election
o The law, however, places no such duty upon a (1) He can force the business to wind up and take his part of the
partnership creditor; rather, it is the duty of the proceeds, sharing in profits and losses after dissolution; or
partners to “bring home” the notice of dissolution o The partner receives the value of his interest at the date of
to the creditors. liquidation or final settlement
o ITC, HEIMOS and LAWRENCE failed to do this. o He shares in both profits and losses until termination
(2) He can permit the business to continue and claim as creditor
The sufficiency of notice to third parties “to relieve a partner form the value of his interest at dissolution
liability for his former’s partner’s acts, depends in large part on o He can receive either legal interest or profits from the date of
whether the person to whom notice is given had former dealings dissolution, in addition to the value of his or her interest in
with the firm”. the partnership
 Parties who engaged in actual dealings with the firm are entitled
to direct notice of the dissolution  The determination of WON the retiring partner consented to or
acquiesced in the continuation of the business is a question of
 Parties who have known of the existence of the firm but have not
fact
dealt with it or have dealt with it on some non-credit basis are
entitled merely to constructive or general notice  Election need not be made until there has bene a final accounting
of the partnership
 Where direct notice is required, it must be given through some
o Right of election is one which he should be permitted to
channel that the law recognizes as a legitimate means of
exercise “after an accounting shall have been taken of the
communication
earnings subsequent to dissolution”
STANDARD FOR SUFFICIENCY OF NOTICE: Reasonableness
ii. Dissolution Due to Wrongful Causes
under the circumstances
Art 1837. When dissolution is caused in any way, except in
 No notice is required when the partnership is dissolved:
contravention of the partnership agreement, each partner, as against
o On the ground that it is unlawful to carry on the business of
his co-partners and all persons claiming through them in respect of
the firm; or
their interests in the partnership, unless otherwise agreed, may have
o On the ground of insolvency; or
the partnership property applied to discharge its liabilities, and the
o On the withdrawal of a dormant partner
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 (4) When all the partners or their representatives assign their
fide under the partnership agreement and if the expelled partner is rights in partnership property to one or more third person who
discharged from all partnership liabilities, either by payment or promise to pay the debts and who continue the business of the
agreement under the second paragraph of Article 1835, he shall dissolved partnership
receive in cash only the net amount due him from the partnership.  RULE: One who did not promise to pay the debts of the
prior partnership cannot be held liable for its obligations in
When dissolution is caused in contravention of the partnership the absence of conduct on his part or on the part of the new
agreement the rights of the partners shall be as follows: partnership giving rise to an express or implied agreement
(1) Each partner who has not caused dissolution wrongfully shall to assume the debts of the prior partnership
have: o Without a promise to pay, the creditors have no claim
(a) All the rights specified in the first paragraph of this article, on the partnership continuing the business or its
and property, unless the assignment can be set aside as
(b) The right, as against each partner who has caused the fraud on creditors
dissolution wrongfully, to damages breach of the agreement. (5) When any partner wrongfully causes a dissolution and the
(2) The partners who have not caused the dissolution wrongfully, if remaining partners continue the business (Art 1837 2nd par no 2),
they all desire to continue the business in the same name either either alone or with others, and without liquidation of the
by themselves or jointly with others, may do so, during the agreed partnership affairs
term for the partnership and for that purpose may possess the (6) When a partner is expelled and the remaining partners continue
partnership property, provided they secure the payment by bond the business either alone or with others without liquidation of the
approved by the court, or pay any partner who has caused the partnership affairs
dissolution wrongfully, the value of his interest in the partnership
at the dissolution, less any damages recoverable under the RULE: Liability of a third person becoming a partner in the
second paragraph, No. 1 (b) of this article, and in like manner partnership continuing the business to the creditors of the dissolved
indemnify him against all present or future partnership liabilities. partnership shall be satisfied out of the partnership property only,
(3) A partner who has caused the dissolution wrongfully shall have: unless there is a stipulation to the contrary.
(a) If the business is not continued under the provisions of the
second paragraph, No. 2, all the rights of a partner under the PURPOSE: To eliminate the difficulty which arises when a new partner
first paragraph, subject to liability for damages in the second is admitted without liquidation of firm debts
paragraph, No. 1 (b), of this article.
(b) If the business is continued under the second paragraph, YU V NLRC
No. 2, of this article, the right as against his co-partners and FACTS: YU was formerly the Assistant General Manager of Jade
all claiming through them in respect of their interests in the Mountain. The partnership was originally organized with LEA and
partnership, to have the value of his interest in the RHODORA BENDAL as general partners and CHIU SHIAN JENG,
partnership, less any damage caused to his co-partners by CHEN HO-FU and YU CHANG as limited partners
the dissolution, ascertained and paid to him in cash, or the  The general partners sold and transferred their interests to the
payment secured by a bond approved by the court, and to partnership to CO and to ZAPANTA. CHANG (limited) also sold
be released from all existing liabilities of the partnership; but and transferred his interest to CO.
in ascertaining the value of the partner's interest the value of  The partnership then constituted solely by CO and ZAPANTA
the good-will of the business shall not be considered. continued to use the old firm name, though they moved the firm’s
main office from Makati to Mandaluyong. The actual operations
Art 1837 – DISSOLUTION: caused in contravention of the partnership continued as before and all employees continued working in the
agreement business except YU.
 Partners who have not caused the dissolution wrongfully, if they  YU filed a complaint for illegal dismissal and recovery of unpaid
all desire to continue the business in the same name either by salaries. CO and ZAPANTA claimed that YU was never hired by
themselves or jointly with others, may do so during the agreed the new partnership.
term for the partnership and for that purpose may possess RULING: The sale of 82% of the total partnership interest in the
the partnership property original partnership to CO and ZAPANTA coupled with the retirement
 They must secure the payment by bond approved by the or withdrawal of the partners who originally owned such interest was
court, or pay any partner who has caused the dissolution enough to constitute a new partnership
wrongfully, the value of his interest in the partnership at the  BUT, the occurrence of events which precipitate the legal
dissolution, less any damages recoverable for breach of the consequence of the dissolution of a partnership does not
agreement and indemnify him against all present or future automatically result in the termination of the legal personality of
partnership liabilities the old partnership
 ITC, the business of the old partnership was simply continued by
To avert a dissolution on notice by another partner of his intention to the new partners without the old partnership undergoing the
wrongfully terminate the partnership, the innocent partner must comply procedure relating to dissolution and winding up of its business
with the requirements affairs
 Not only the retiring partners but also the new parntership itself
e. Liability of Person/Partnership Continuing the Business which continued the business of the old, dissolved one are liable
If a person or a partnership continues the business of the dissolved for the debts of the preceding partnership (Art 1840)
partnership, creditors of the dissolved partnership are also creditors of
the person or partnership continuing the business: SIR CASIS: It was necessary to determine which case under Art 1840
(1) When any new partner is admitted into an existing partnership applies in the case
or when a partner retires and assigns (or the representative of  Purpose of enumerating the scenarios when the creditors of the
the deceased partner assigns) his rights in the partnership dissolved partnership become the creditors of the person(s) or
property to 2 or more of the partners, or to one or more of the partnership continuing the business of the dissolved partnership is
partners and one or more third persons, and if the business is precisely to limit the application of the rule to such situations
continued without liquidation of the partnership affairs  OTHERWISE, the code could have simply stated that the
(2) When all but 1 partner retire and assign (or the representative creditors of the dissolved partnership become the creditors of the
of a deceased partner assigns) their rights in partnership property person(s) or partnership continuing the business of the dissolved
to the remaining partner who continues the business without partnership
liquidation of partnership affairs, either alone or with others  ITC, it is most reflective of Art 1840(4) which is when all the
(3) When any partner retires or dies and the business of the partners assign their rights to one or more third persons
dissolved partnership is continued with the consent of the o BUT, Art 1840(4) requires the assignee “promise to pay
retired partners or the representative of the deceased debts” of the dissolved partnership
partner, but without any assignment of his right in the partnership o If there is no such promise, the new partnership should not
property be liable for the obligations of the dissolved partnership
4. Rights of Partners upon Dissolution c. Right to Lien or Retention, Stand in Place of Creditor, to be
Indemnified
a. Right to Wind-Up Art. 1838. Where a partnership contract is rescinded on the ground
Art. 1836. Unless otherwise agreed, the partners who have not of the fraud or misrepresentation of one of the parties thereto,
wrongfully dissolved the partnership or the legal representative of the the party entitled to rescind is, without prejudice to any other right,
last surviving partner, not insolvent, has the right to wind up the entitled:
partnership affairs, provided, however, that any partner, his legal (1) To a lien on, or right of retention of, the surplus of the
representative or his assignee, upon cause shown, may obtain winding partnership property after satisfying the partnership
up by the court. liabilities to third persons for any sum of money paid by
 Art 1836 authorizes the partners who have not wrongfully him for the purchase of an interest in the partnership and
dissolved the partnership or the legal representative of the last for any capital or advances contributed by him;
surviving partner, not insolvent to wind up the partnership (2) To stand, after all liabilities to third persons have been
affairs, subject to any agreement made by the partners satisfied, in the place of the creditors of the partnership
 Also allows any partner or his legal representative or his for any payments made by him in respect of the
assignee, upon cause shown, to obtain winding up by the court partnership liabilities; and
 Winding up may be: extrajudicial or judicial (3) To be indemnified by the person guilty of the fraud or
making the representation against all debts and liabilities
b. Right to Damages for/Continue Business on Wrongful of the partnership.
Dissolution
 “without prejudice to any other right” = “not permit the
i. Right of the Innocent Partner defrauded partner to plead fraud as a bar to liability to third
party creditors”
Art. 1837, 2nd par. When dissolution is caused in contravention of  VAN ANDEL V. SMITH: Even though the partnership
the partnership agreement the rights of the partners shall be as contract was procured by the fraud of one of the partners,
follows: nevertheless the partnership entity is created and until it is
dissolved the defrauded partner is LIABLE for debts of the
(1) Each partner who has not caused dissolution wrongfully shall partnership TO THIRD PERSONS incurred during the life of
have: the partnership.
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the d. Right of Retiring/Deceased Partner
dissolution wrongfully, to damages breach of the agreement. Art. 1841. When any partner retires or dies, and the business is
continued under any of the conditions set forth in the preceding
(2) The partners who have not caused the dissolution wrongfully, if article, or in Article 1837, second paragraph, No. 2, without any
they all desire to continue the business in the same name either by settlement of accounts as between him or his estate and the
themselves or jointly with others, may do so, during the agreed term person or partnership continuing the business, unless otherwise
for the partnership and for that purpose may possess the agreed, he or his legal representative as against such person or
partnership property, provided they secure the payment by bond partnership may have the value of his interest at the date of
approved by the court, or pay any partner who has caused the dissolution ascertained, and shall receive as an ordinary creditor an
dissolution wrongfully, the value of his interest in the partnership at amount equal to the value of his interest in the dissolved
the dissolution, less any damages recoverable under the second partnership with interest, or, at his option or at the option of his legal
paragraph, No. 1 (b) of this article, and in like manner indemnify him representative, in lieu of interest, the profits attributable to the use
against all present or future partnership liabilities. of his right in the property of the dissolved partnership; provided
that the creditors of the dissolved partnership as against the
Requirements for the remaining partners to continue business separate creditors, or the representative of the retired or deceased
after wrongful dissolution: partner, shall have priority on any claim arising under this article, as
a) All remaining partners desire to continue the business in the provided Article 1840, third paragraph.
same name either by themselves or jointly with others
b) Secure the payment by bond approved by the court, or pay  He or his legal representative:
any partner who has caused the dissolution wrongfully, the o May have the value of his interest at the date of
value of his interest in the partnership at the dissolution, less dissolution ascertained, and
any damages recoverable o Shall receive as an ordinary creditor
c) Indemnify partner who has caused the dissolution wrongfully  An amount equal to the value of his
against all present and future partnership liabilities interest in the dissolved partnership with
interest, or
ii. Right of the Guilty Partner  In lieu of interest, the profits attributable
Art. 1837, 2nd par (cont.). to the use of his right in the property of
(3) A partner who has caused the dissolution wrongfully shall have: the dissolved partnership
 Creditors of the dissolved partnership shall have priority on
(a) If the business is not continued under the provisions of the any claim as against the separate creditors, or the
second paragraph, No. 2, all the rights of a partner under the first representative of the retired or deceased partner (1841).
paragraph, subject to liability for damages in the second paragraph,
No. 1 (b), of this article. e. Right to Account
Art. 1842. The right to an account of his interest shall accrue to
(b) If the business is continued under the second paragraph, No. 2, any partner, or his legal representative as against the winding up
of this article, the right as against his co-partners and all claiming partners or the surviving partners or the person or partnership
through them in respect of their interests in the partnership, to have continuing the business, at the date of dissolution, in the absence of
the value of his interest in the partnership, less any damage caused any agreement to the contrary.
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 B. Winding-Up and Liquidation
to be released from all existing liabilities of the partnership; but in
ascertaining the value of the partner's interest the value of the 1. Meaning of Winding-Up
good-will of the business shall not be considered.
WINDING UP = the administration of assets for the purpose of
 The guilty partner does NOT forfeit his partnership interest, terminating the business and discharging the obligations of a
but is entitled to receive it LESS the damages caused by his partnership to its member, and its creditors, or the process of settling
breach. partnership affairs after dissolution.
  It involves liquidation (liquidation is part of winding-up; they partnership property and separate creditors on individual
are not equivalent concepts so the terms can’t be used property, saving the rights of lien or secured creditors.
interchangeably) (9) Where a partner has become insolvent or his estate is
 Thus, a partnership is wound-up by means of an insolvent, the claims against his separate property shall
accounting generally followed by a liquidation of rank in the following order:
partnership assets. (a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
2. The Right to Wind-Up (c) Those owing to partners by way of contribution. (n)
Art. 1836. Unless otherwise agreed, the partners who have not
wrongfully dissolved the partnership or the legal representative of  ORTEGA v. CA: The liquidation of the assets of the
the last surviving partner, not insolvent, has the right to wind up partnership following its dissolution is governed by various
the partnership affairs, provided, however, that any partner, his provisions of the Civil Code; however, an agreement of the
legal representative or his assignee, upon cause shown, may obtain partners, like any other contract, is binding among them and
winding up by the court. normally takes precedence to the extent applicable over the
Code’s general provisions.
 Who has right to wind-up? ALL partners
o NO partner is excluded a. Order of Payment
o NO further authority required from them for the 1. those owing creditors other than partners
right to be exercised 2. those owing to partners other than for capital and profits
o But they are NOT necessarily forced to wind-up 3. those owing to partners in respect of capital
partnership affairs o The capital contributed by partner is a DEBT of the
 When? If partnership is dissolved by MUTUAL CONSENT or partnership which must be paid AFTER the
by EXPIRATION OF TERM outside creditors BUT BEFORE there is any
 What happens during winding-up? Possession and division of the profits.
control of assets are lodged with the partners 4. those owing to partners in respect of profits
o Thus, EACH partner has the obligation of
administering the partnership assets VILLAREAL v. RAMIREZ
o Partners having majority interest do NOT have the FACTS: Villareal (V), Carmelito (C), and Jesus formed a partnership
absolute right to control partnership assets with a P750k capital for the operation of a restaurant business.
Ramirez subsequently joined as partner with a P250k capital
3. The Liquidating Partner contribution, paid by his parents (P). Afterwards, Jesus withdrew from
 Partners with right to wind-up, by agreement, may appoint the partnership and was refunded his capital contribution. Soon after,
one or more of them as liquidating partners. without Ramirez’ knowledge, V and C closed down the restaurant
 If liquidating partner dies = authority reverts back to partners because of alleged increase in rental. The restaurant furniture and
who had authority to wind-up equipment were stored in Ramirez’ house. P wrote to V and C saying
 Authority to act as liquidating partner NEED NOT be that they were no longer interested in continuing the partnership and
expressly conferred (may be implied or presumed from acts that they accept C’s offer to return their capital contribution. They
of the partner, with the knowledge of his co-partners). further added in another letter that they request for the return of their
1/3 share in the equity of the partnership. After their requests were
4. Period for Winding-Up unheeded, they filed a collection of a sum of money against V and C.
HELD: P has no right to demand from V and C their equity share.
 Period is NOT IMPORTANT
Because capital was contributed to the partnership, not to V and C, it is
 NO specific deadline for completion
the partnership that must refund the equity of the retiring partners.
 BUT, a partner aggrieved may apply for judicial relief if he
 The amount of refund equivalent to Ramirez’ 1/3 share in the
believes there has been unreasonable delay.
partnership cannot be determined UNTIL all the partnership
assets have been liquidated (i.e. sold and converted to cash)
5. Rules on Setting Accounts
and all partnership creditors paid.
Art. 1839. In settling accounts between the partners after
 IN THIS CASE, considering the depreciation of the furniture,
dissolution, the following rules shall be observed, subject to any
the amortization of the goodwill, the capitalization paid to
agreement to the contrary:
Jose, etc. it will show that the partnership was actually
sustaining substantial losses, decreasing the capital of the
(1) The assets of the partnership are:
partnership.
(a) The partnership property,
 THUS, the Court set aside the appellate court’s decision,
(b) The contributions of the partners necessary for the payment of
without prejudice to proper proceedings, for the accounting,
all the liabilities specified in No. 2.
liquidation and distribution of the remaining partnership
(2) The liabilities of the partnership shall rank in order of
assets, if any.
payment, as follows:
(a) Those owing to creditors other than partners,
MAHAN v. MAHAN
(b) Those owing to partners other than for capital and profits,
FACTS: In 1969, Helen Mahan, widow of Terrell Mahan, sued Gordon
(c) Those owing to partners in respect of capital,
Mahan who had an agriculture partnership with Terrell. The
(d) Those owing to partners in respect of profits.
partnership’s profits were divided on an equal basis. One time, the
(3) The assets shall be applied in the order of their
partnership traded one of the partnership properties for a $23k-worth
declaration in No. 1 of this article to the satisfaction of the
home for Terrell and Helen, so the bookkeeper reduced the capital
liabilities.
account of Terrell to $23k. The partnership became inactive at about
(4) The partners shall contribute, as provided by article 1797,
that time. In dividing the share, Gordon contended that Helen’s share
the amount necessary to satisfy the liabilities.
was reduced to 1/8 because Terrell’s capital account was reduced by
(5) An assignee for the benefit of creditors or any person
$23k. On the other hand, Helen contended that after payment of the
appointed by the court shall have the right to enforce the
partnership debts, she should share with Gordon on a 50-50 basis.
contributions specified in the preceding number.
HELD: By reducing his capital account, the partner did not
(6) Any partner or his legal representative shall have the right
proportionately reduce his share of the surplus which remained after
to enforce the contributions specified in No. 4, to the
recoupment of capital and the partner was entitled to ½ of the value of
extent of the amount which he has paid in excess of his
the remaining partnership profits.
share of the liability.
(7) The individual property of a deceased partner shall be
b. Payment Sources
liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties  Partnership will first apply partnership property to pay for
of the partners are in possession of a court for partnership liabilities.
distribution, partnership creditors shall have priority on
  If not enough, partners will contribute the amount
necessary to satisfy liabilities (even including individual
property of deceased partner)
 If a partner has become insolvent, the claims against his
separate property shall rank in the ff. order:
o Those owing separate creditors
o Those owing to partnership creditors
o Those owing to partners by way of contribution
 Effect of rule: to prevent the partnership or partners from
representing it from sharing in the separate estate until the
separate creditors are paid

6. Right of Creditors
Art. 1827. The creditors of the partnership shall be preferred to
those of each partner as regards the partnership property. Without
prejudice to this right, the private creditors of each partner may ask
the attachment and public sale of the share of the latter in the
partnership assets. (n)

Art. 1839. In settling accounts between the partners after

dissolution, the following rules shall be observed, subject to any
agreement to the contrary:
xxx
(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.

Doctrine of marshalling of assets = partnership creditors are in the

first instance satisfied from the partnership estate, and separate and
private creditors of the individual partners from the separate and
private estates of the partners with whom they have made private and
individual contracts.
 Private and individual property of partners is NOT applied in
the extinguishment of partnership debts UNTIL the separate
and individual creditors of the respective partners are PAID.
 Neither class of creditors is allowed to trespass on the fund
belonging to the other until the claims of that other are
satisfied.

7. Right of Expelled Partner

Art. 1837, 1st par (last sent.). 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.

 Expelled partner becomes a CREDITOR of the other

partners on the date of his expulsion to the extent of the
current value of the partnership interest.
 As an ordinary creditor, he is entitled to be paid his interest
BEFORE the balance is divided between the remaining
partners.

i.