when it occurs after the partnership has acquired the ownership thereof;

D. DISSOLUTION, WINDING UP, (5)

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

AND TERMINATION (7)

(8)
By the civil interdiction of any partner;
By decree of court under the following article.

1. Dissolution, winding up, and termination (Art. 1828)  Other causes in Art. 1840
o Admission of a new partner into an existing partnership
Article 1828. The dissolution of a partnership is the change in the relation of the o Retirement of any partner who assigns his rights in specific partnership
partners caused by any partner ceasing to be associated in the carrying on as property
distinguished from the winding up of the business. o Assignment by all partners or their representatives of their rights in
partnership property to one or more third persons who promise to pay
the partnership debts.
 Dissolution – point in time when the partners cease to carry on the business
together
Article 1831. On application by or for a partner the court shall decree a dissolution
 Termination – point in time when all the partnership affairs are wound up
whenever:
 Winding Up – the process of settling partnership affairs after dissolution
(1) A partner has been declared insane in any judicial proceeding or is shown to
Note: The Code’s definition of dissolution in Art. 1828 only contemplates a partner ceasing be of unsound mind;

to carry on business together with the others. It is not comprehensive enough to cover all (2) A partner becomes in any other way incapable of performing his part of the
kinds of dissolution contemplated by the Code. For example, Art. 1840(1) suggests that the partnership contract;

admission of a new partner in a partnership has the effect of dissolution of the partnership of (3) A partner has been guilty of such conduct as tends to affect prejudicially the
the original members even if none of the old partners ceases to be associated with it. carrying on of the business;
(4) A partner willfully or persistently commits a breach of the partnership
2. Causes of Dissolution (Art. 1830) 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;
Article 1830. Dissolution is caused:
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking
On the application of the purchaser of a partner's interest under article 1813 or 1814:
specified in the agreement;
(b) By the express will of any partner, who must act in good faith,
when no definite term or particular is specified; (1) After the termination of the specified term or particular undertaking;
(c) By the express will of all the partners who have not assigned their (2) At any time if the partnership was a partnership at will when the interest was
interests or suffered them to be charged for their separate debts, assigned or when the charging order was issued.
either before or after the termination of any specified term or
particular undertaking;
(d) By the expulsion of any partner from the business bona fide in CLASSIFICATION OF CAUSES
accordance with such a power conferred by the agreement (1) Voluntary
between the partners; a. Extrajudicial
(2) In contravention of the agreement between the partners, where the i. Without Violation of Agreement
circumstances do not permit a dissolution under any other provision of this 1. Expiration of term or undertaking
article, by the express will of any partner at any time;
2. In a partnership at will, by express will of any partner
(3) By any event which makes it unlawful for the business of the partnership to
3. Express will of all partners
be carried on or for the members to carry it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the 4. Expulsion of a partner pursuant to agreement
partnership, perishes before the delivery; in any case by the loss of the ii. In Contravention of Agreement
thing, when the partner who contributed it having reserved the ownership b. Judicial
thereof, has only transferred to the partnership the use or enjoyment of the i. Insanity of a partner
same; but the partnership shall not be dissolved by the loss of the thing ii. Incapacity of a partner
 iii. Misconduct or breach of agreement  Partners may agree upon terms of dissolution differing from those originally
iv. Operation at Loss provided in the partnership agreement, and the same will prevail over the latter
v. Other circumstances:  A perfected agreement to dissolve cannot be unilaterally rescinded by one of the
1. Dissensions parties
2. Fraud and misrepresentations in formation of partnership  When the partnership is not a partnership at will, the decision to dissolve must be
(2) Involuntary unanimous among all the partners, or at least among those who have not assigned
a. Supervening Illegality their interests or suffered them to be charged for their separate debts
b. Loss of specific thing contributed
c. Death of Partner 4. Expulsion of a partner pursuant to agreement
d. Insolvency  General Rule: Partner/s do not have the power to expel another partner
e. Civil Interdiction of a partner  Exception: Power is conferred by agreement
 The agreement may specify the manner and conditions for its exercise and such
VOLUNTARY - EXTRAJUDICIAL must be strictly observed
1. Expiration of term or undertaking  Power must be exercised in good faith
 A partnership formed to continue for a definite term or to pursue a particular
undertaking is dissolved ipso facto on the expiration of the term or undertaking 5. In Contravention of Agreement
 The fixing of a term is a manifestation in advance of the parties’ desire to remain  There is no indissoluble partnership. Every partner has the option to dissolve the
under the relation only up to the expiration of that term, no more, no less, partnership at any time even though the dissolution is in contravention of the
Therefore, none of the partners may effect an earlier dissolution not otherwise partnership agreement.
authorized in their agreement.  However, effecting dissolution in this manner will render him liable for damages if
 If the partners continue without express agreement to associate together despite the cause of withdrawal is not justified or no cause was given. He also loses the
the termination of the term or undertaking, a new partnership is created by right to wind up.
implied agreement – a partnership at will, no longer one with a term or particular
undertaking VOLUNTARY - JUDICIAL
Who may apply for dissolution of partnership?
2. In a partnership at will, by express will of any partner  Application by or for a Partner
 A partnership at will is designed to endure for no longer than the mutual consent  Application of Assignee or Purchaser of a partner’s interest under Art. 1813 or 1814:
of the partners and may be dissolved by the express will of any partner when he o Filed after the termination of the specified term or particular
pleases and at a moment’s notice undertaking; or
 Requirements for notice: o Filed at any time, if the partnership was a partnership at will when the
o Must be communicated to the other partners and it is only then that the interest was assigned or the charging order was issued
partnership is dissolved
o Has no particular form but must signify intent to terminate partnership 1. Insanity
 Dissolution must be made in good faith (and at a reasonable time)  Insanity, by itself, does not dissolve the partnership. It merely provides a ground
o Not in good faith – dissolution is resorted to in order to appropriate to for other partners to apply for dissolution.
himself the profits which his partner is entitled to receive  Not every insanity, even if judicially established and declared, justifies a decree of
o Unreasonable time – when things are no longer entire that were of dissolution. Insanity must materially affect the capacity of the partner to discharge
consequence to partnership, and which should have deferred to the the duties imposed by his contractual relation
dissolution
o (Note: Reasonableness of time is not expressly required by the Uniform 2. Other Incapacity
Partnership Act but the author believes it is concomitant to good faith)  Same rules for insanity apply

3. Express will or mutual assent of all partners

 Partners may at any time, either before or after the termination of any specified 3. Misconduct or breach of agreement
term or particular undertaking, by mutual assent, modify, alter or dissolve their  To justify decree of dissolution, the misconduct or breach must be:
partnership relation a. Of a gross or serious nature, something which goes to the substance of
 Agreement may be express or implied, oral or written the contract; or
 b. Must be willful or so persistent in character as to show lack of good faith, before or after enjoyment of the thing
or be such as to be productive of serious and permanent injury to the delivery. contributed
partnership or to render it impracticable to carry on its business.
 Examples: 3. Death of a Partner
a. Failure or refusal to contribute capital or service  Death of one of the partners dissolves the partnership by operation of law.
b. Wrongful expulsion of a partner  Some court decisions offer an exception to this: an agreement in the articles or a
c. Failure or refusal to divide profits provision in a partner’s will regarding the continuation of the partnership after
d. Willful and persistent breach of partnership agreement death.
e. Commission of fraud in connection with partnership business  BUT according to Bautista, these decisions confuse dissolution with winding up
and termination. Under the Uniform Partnership Act, the death of any of the
4. Operation at loss partners dissolves the partnership without exception, regardless of any agreement
 Purpose of partnership is to realize profits. If it operates at loss, it loses its reason to the contrary. The only meaning of such agreement is to suspend the
for existing. consequences of dissolution, i.e. winding up and termination.
 The Code does not designate the measure or speed of loss. A justified dissolution
on this ground is still on a case-to-case basis. 4. Insolvency
 The fact that a partner has received substantial profit in the previous years does  A court must decree insolvency.
not bar him to a decree of dissolution.  It is from the moment of decree that property and effects of the partnership are
taken away from the partners or the insolvent partner and become vested in the
5. Other Circumstances: Dissensions; Fraud and misrepresentations in formation of assignee or trustee who shall manage and dispose of the same for the benefit of
partnership creditors. The partners thus become incapacitated to continue the partnership
 Dissensions and disagreements must be of such nature that all confidence and business.
cooperation between the partners have been destroyed.  Reason: if he cannot even manage his own property, there is no reason why he
 Taken individually, quarrels that are petty, trifling, or temporary will not warrant should be allowed to manage that of the partnership.
judicial dissolution; but they may furnish sufficient ground when frequently
recurrent. 5. Civil Interdiction of a Partner
 Civil interdiction deprives a partner, among other things, of the right to manage
INVOLUNTARY (BY OPERATION OF LAW) his property and of the right to dispose of such property by any act or conveyance
inter vivos.
1. Supervening Illegality  Reason: if he cannot even manage his own property, why should he be allowed to
 A partnership is automatically dissolved if after its formation it becomes unlawful manage the property of another, or of which he is only a co-owner.
for its business to be carried on or for its members to carry it on in partnership

2. Loss of Specific Thing Contributed

Scenario Effect Reason
Specific and Partnership is ipso facto Impossibility of partner to
determinate thing is dissolved comply with his undertaking and
lost before delivery for partnership to pursue an
essential part of its object:
utilization of the thing
Specific and No dissolution (provided the Partner contributing it has
determinate thing is use or enjoyment of the thing already fulfilled his undertaking
lost after delivery is not the sole object of the
partnership)
Partner reserved Partnership is ipso facto It becomes impossible for the
ownership and only dissolved contributing partner to fulfill his
transferred the use or undertaking, continuing in
enjoyment of the character, to make available to
thing. Thing is lost the partnership the use or
3. Effect of dissolution for the partnership had knowledge or notice of the death or insolvency.
a. On right of contribution from co-partners
ART. 1832. Except so far as may be necessary to wind up partnership affairs or to Right of partner to contribution from co-partners.
complete transactions begun but not then finished, dissolution terminates all authority  Art. 1833 speaks of dissolution caused by the ACT, INSOLVENCY, OR
of any partner to act for the partnership. DEATH of a partner.
(1) With respect to the partners:  Where a partner enters into a new contract with a third person after
(a) When the dissolution is not by the act, insolvency or death of a partner; dissolution, the new contract generally will bind the partners (Art. 1834, par.
or 1.) as if the partnership had not been dissolved.
(b) When the dissolution is by such act, insolvency or death of a partner, in
cases where Article 1833 so requires;
Authority of partners inter se to act for the partnership.
(2) With respect to persons not partners, as declared in article 1834. (n)
 The authority of a partner as it affects his co-partners is not deemed
Effect of dissolution on authority of partner. terminated except if the cause of the dissolution is:
 GR: Dissolution terminates the actual authority of a partner to undertake new o (1) the act of a partner and the acting partner had knowledge of
business for the partnership. such dissolution;
o EXC: (as to exercise of authority for partnership) Partner’s power of  designed to protect the remaining partner or partners who
representation is confined only to acts incident to winding up or might continue to act for the partnership as a going
completing transactions begun but not then finished. concern, not having actual knowledge of the dissolution.
 Qualifications to the rule - GR is subject to the qualifications set forth in Arts. o (2) the death or insolvency of a partner and the acting partner had
1833 and 1834 knowledge or notice of the death or insolvency.
o As to partners  discards the fiction that everybody is presumed to have
 Dissolution is NOT by the ACT, INSOLVENCY, or DEATH knowledge of death or insolvency.
of a partner
Knowledge or notice of cause of dissolution.
 the authority of any partner to bind the
 Dissolution by death or insolvency.
partnership by a new contract is immediately
o Art. 1833 - the authority of a partner to act for the partnership may
terminated (Art. 1832.)
still continue notwithstanding its dissolution.
 Dissolution is by ACT, INSOLVENCY, or DEATH,
o In the case of death, it is unjust to hold that a partner acting for the
 the termination of authority depends upon
partnership bona fide in ignorance of the death of his co-partners
whether or not the partner had knowledge or
must assume the entire liability, even though all other partners are
notice of the dissolution (Article 1833)
ignorant of the death of the partner, and even though such
o With respect to third persons (Art. 1834.)
deceased partner was entirely inactive and may have resided at
o the partnership is generally bound by the new contract although the
any distance from the actual place of business.
authority of the acting partner as it affects his co-partners is already
o Also applies also to the bankruptcy of a partner
deemed terminated under Articles 1832 and 1833.
 Dissolution by court decree or resulting from unlawfulness.
o In such a case, the innocent partners can always recover from the
o No substantial problem exists where dissolution
acting partner.
 Is brought about by COURT DECREE
b. On authority of partner  since this brings actual notice of the dissolution
ART. 1833. Where the dissolution is caused by the act, death or insolvency of a to all of the partner
partner, each partner is liable to his co-partners for his share of any liability created by  results from UNLAWFULNESS
any partner acting for the partnership as if the partnership had not been dissolved  since the general rules governing actions arising
unless: out of illegal transactions would control in such
cases.
(1) The dissolution being by act of any partner, the partner acting for the partnership
had knowledge of the dissolution; or
When a partner has knowledge or notice of a fact.
(2) The dissolution being by the death or insolvency of a partner, the partner acting  Uniform Partnership Act
 o “A person has knowledge of a fact within the meaning of this Act authority has not been advertised in the manner provided for advertising the
not only when he has actual knowledge thereof, but also when he fact of dissolution in the first paragraph, No. 2(b).
has knowledge of such other facts as in the circumstances
show bad faith.” 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
o “A person has notice of a fact within the meaning of this Act when
partner in a partnership engaged in carrying on business. (n)
the person who claims the benefit of the notice:
 (a) States the fact to such person, or Power of partner to bind dissolved partnership to third persons.
 (b) Delivers through the mail or by other means of  Cases when a partner continues to bind the partnership even after
communication, a written statement of the fact to such dissolution (Art. 1834 par. 1, Nos. 1 and 2.)
person or to a proper person at his place of business or  Cases when he cannot bind the partnership after dissolution. ( Art. 1834 par.
residence.” (Sec. 3, U.P.A.) 3, Nos. 1, 2, and 3.)
 Where there is no notice to third persons of dissolution.
o Authority of a partner to bind partnership may apparently continue
i. to act for the partnership as regards third persons on the assumption that the partnership is
ii. to bind the dissolved partnership still existing.
o Since a partnership once established is, in the absence of anything
ART. 1834. After dissolution, a partner can bind the partnership, except as provided
to indicate its termination, presumed to exist, the law, for the
in the third paragraph of this article:
protection of innocent third persons, imposes upon partners the
(1) By an act appropriate for winding up partnership affairs or completing transactions duty of giving notice of the dissolution of the partnership.
unfinished at dissolution;  Where there is actual or constructive knowledge by third persons of
dissolution.
(2) By any transaction which would bind the partnership if dissolution had not taken o The measure of the right of third persons who continue to deal with
place, provided the other party to the transaction:
a dissolved partnership depends upon the question of whether they
(a) Had extended credit to the partnership prior to dissolution and had no
knowledge or notice of the dissolution; or knew or should have known of the fact of dissolution.
(b) Though he had not so extended credit, had nevertheless known of the o If they did, the validity of their transactions is governed by the
partnership prior to dissolution, and having no knowledge or notice of question whether those transactions were necessary to liquidate
dissolution, the fact of dissolution had not been advertised in a newspaper of the partnership affairs.
general circulation in the place (or in each place if more than one) at which
the partnership was regularly carried on. Notice of dissolution to creditors.
 As to persons who extended credit to partnership prior to dissolution.
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of o Customers of the partnership or persons who extended credit to the
partnership assets alone when such partner had been prior to dissolution:
partnership prior to its dissolution must have knowledge or notice of
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business reputation of the dissolution to relieve the partnership from liability.
the partnership could not be said to have been in any degree due to his connection  As to persons who had known of partnership’s existence.
with it. o Persons who had not so extended credit prior to its dissolution, but
who had known of its existence
The partnership is in no case bound by any act of a partner after dissolution: (1) o Publication in the newspaper would be sufficient notice even if they
Where the partnership is dissolved because it is unlawful to carry on the business,
did not actually read the advertisement.
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  Where acting partner has no authority to wind up partnership affairs.
knowledge or notice of his want of authority; or o Under the 3rd paragraph, notice of dissolution is unnecessary
(b) Had not extended credit to the partnership prior to dissolution, and, EXCEPT in case No. 3, where the partner has no authority to wind
having no knowledge or notice of his want of authority, the fact of his want of up partnership affairs.
 o Third persons dealing with the partner without such authority are  If he did not, he is entitled to no notice whatsoever.
protected under the same circumstances mentioned in paragraph 1, o It is not clear whether notice to others other than prior dealers, who
No. (2)(a) and (b). had knowledge of the partnership prior to dissolution, was sufficient
 Where acting partner has become insolvent. if given in ways other than by newspaper notification.
o As to insolvency, law makes a distinction between  Apparently, the law has made newspaper notification an
 the right of a partner who has no knowledge or notice of exclusive method for giving notice.
the other partner’s insolvency to bind the partnership
 recognized under Article 1833(2)
 the innocent partner is protected in his continued
Dormant partner need not give notice.
right to make binding partnership agreements,  2nd paragraph: the liability of a partner unknown as such to the person with
 the right of a third person to claim that his contract with the whom the contract is made - satisfied out of partnership assets alone.
partnership is valid, notwithstanding its dissolution through
 This is a qualification of the rule that partners are liable pro rata with all their
insolvency of the partner with whom the contract was
property after the assets of the partnership have been exhausted for
made.
partnership obligations. (Art. 1816.)
 denied under Article 1834 (par. 3, No. 2.),
 A dormant partner is both inactive and secret.
 no similar protection is extended to a third party o His connection with the partnership not having known, it cannot in
who innocently makes a contract with an any degree have contributed towards establishing its reputation or
insolvent partner because it is incumbent upon credit.
him to know the status of the insolvent partner. o Third persons, not having dealt with the partnership in reliance
 Where dissolution caused by death of a partner. upon the membership of the dormant partner, are accordingly not
o As to death, no such distinction is made, largely because the entitled to notice of his withdrawal.
deceased partner no longer exists. o The principle of estoppel cannot operate to continue his liability or
o Death is not considered to be notice per se whether as to the his authority after dissolution since prior thereto, he was never
surviving partner or as to third persons known or held out as a partner.
o He will, of course, be personally liable for partnership debts arising
Character of notice
at the time of his retirement.
Character of notice required to relieve a retiring partner or the representatives of a
deceased partner from subsequent liability on partnership obligations
 As to prior dealers. Partnership by estoppel after dissolution.
 Article 1834 (last par.) touches upon the subject of partnership by estoppel
o ACTUAL NOTICE
(Art. 1825.), since a partnership is held to exist as to third persons though it
o Mere mailing of a letter to a former dealer is insufficient where the
does not exist as a going concern so far as the partners themselves are
notice was never received.
concerned.
o There is no duty on the part of a prior dealer to inquire into the
 It will be seen that Article 1769(1) is not entirely accurate in stating that
question of retirement
o A prior or former dealer is one who has extended credit on the “Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons,” since this overlooks the
faith of the partnership, through confidence in the solvency and
circumstances under which by virtue of Article 1834, third persons may claim
probity of the firm. Mere dealing with a firm on a cash basis does
the validity of contracts made with dissolved partnerships in disregard of the
not constitute one a prior dealer. One who purchases goods from
fact of dissolution.
the supposed partnership is not a prior dealer.
 As to all others.
o Notice is accomplished by an advertisement in a local newspaper. c. On Partner’s existing liability
o Actual notification is not necessary. ART. 1835. The dissolution of the partnership does not of itself discharge the existing
o However, that the requirement of newspaper notice appears to exist liability of any partner.
only where the third party knew of the partnership PRIOR to
dissolution. A partner is discharged from any existing liability upon the dissolution of the
partnership by an agreement to that effect between himself, the partnership creditor
and the person or partnership continuing the business; and such agreement may be
inferred from the course of dealing between the creditor having knowledge of the
dissolution and the person or partnership continuing the business.

The individual property of a deceased partner shall be liable for all obligations of the
partnership incurred while he was a partner, but subject to the prior payment of his
separate debts. (n)

Effect of dissolution on partner’s existing liability.

 The dissolution does not of itself discharge existing liability
 For partner to be relieved of liabilities
o There must be an agreement between
 himself,
 the partnership creditor,
 and the other partners.
o The consent, however, of the creditor and the other partners to the
novation may be implied from their conduct.

Liability of estate of deceased partner.

 In accordance with Article 1816, the individual property of a deceased
partner shall be liable for all obligations of the partnership incurred while he
was a partner.
 Note that the individual creditors of the deceased partner are to be preferred
over partnership creditors with respect to the separate property of said
deceased partner. (Art. 1839[8].)
4. Manner of Winding Up (Art. 1836) o Believed that even in the absence of agreement, the surviving partner or
liquidating partner is entitled to reasonable compensation in
exceptional situations
ART. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the  where the services rendered are extraordinary or substantial in
partnership or the legal representative of the last surviving partner, not insolvent, has the nature.
right to wind up the partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding up by the court. (n) Powers of liquidating partner.
For the purpose of winding up the affairs of a dissolved partnership, the surviving partner has
full authority to do everything necessary, but his power is limited to the performance of
acts which are indispensable to that end.
Manner of winding up.
(1) Judicially—under the control and direction of court upon cause shown by any
(1) Make new contracts.
partner/legal representative/ assignee;
o For ONLY the purpose of winding up the partnership, a liquidating
(2) extrajudicially
partner is sole agent of the partnership.
 SO: without express authorization, he cannot make new contracts
Nature of action for liquidation.
or create new liabilities
- personal ; may be brought in the place of residence of plaintiff or defendant.
 (nor extend the time for payment of existing obligations or
make acknowledgments of the validity of claims against the
Persons authorized to wind up. firm.)
(a) partners designated by agreement;
(b) In the absence of such agreement, all the partners who have not wrongfully dissolved (2) Raise money to pay partnership debts.
the partnership; or o has the same general power to bind the firm as he had before
(c) The legal representative (executor or administrator) of last surviving, not insolvent.  may bind partnership by borrowing and may sell its real estate to
raise money to money to meet its liabilities/pay debts.
 An insolvent partner has no right to wind up partnership affairs.
 Note: The court may, in its discretion appoint a receiver to wind up the partnership (3) Incur obligations to complete existing contracts or preserve partnership assets.
affairs where such step is shown to be to the best interests of all persons o can incur debts or other obligations necessary for the reasonable
concerned. preservation of partnership assets or in procuring a favourable market for
their disposal.
Survivor’s right and duty to liquidate.
(4) Incur expenses necessary in the conduct of litigation.
o If litigation necessary in order to perform his duty in winding up the
When a member of a partnership dies, the duty of liquidating its affairs devolves affairs  power to employ an attorney.
upon the surviving member or members of the firm, not upon the legal o with resultant obligations, to prosecute and defend the action or to incur
representative of the deceased partner (except when such partner was the last other expenses necessary .
surviving partner
--Lota vs. Tolentino a. RIGHT OF PARTNER TO APPLICATION OF PROPERTY ON DISSOLUTION (Art. 1837)

o legal representative has no right to interfere with the partnership ART. 1837. When dissolution is caused in any way, except in contravention of the
business, if surviving partner proceeds in good faith to settle its affairs, partnership agreement, each partner, as against his co-partners and all persons claiming
no matter how well qualified he may be. through them in respect of their interests in the partnership, unless otherwise agreed,
- In the absence of a controlling agreement, executor /administrator of a deceased may have the partnership property applied to discharge its liabilities, and the surplus
partner cannot insist on continuing the business 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
- While the Uniform Partnership Act provides that a surviving partner is entitled to agreement and if the expelled partner is discharged from all partnership liabilities, either
reasonable compensation for his services in winding up partnership affairs Our by payment or agreement under the second paragraph of article 1835, he shall receive in
law is silent on this point. 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: (2) To have the surplus, if any, applied to pay in cash the net amount owing to the
respective partners.
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and Expelled partner may be discharged from all partnership liabilities
(b) The right, as against each partner who has caused the dissolution - When dissolution is caused by his bona fide expulsion (so no violation of
wrongfully, to damages for breach of the agreement. agreement)
- Discharged either by:
(2) The partners who have not caused the dissolution wrongfully, if they all desire to o payment
continue the business in the same name either by themselves or jointly with o by an agreement between him, partnership creditors, and other
others, may do so, during the agreed term for the partnership and for that purpose partners. (Art. 1835.)
may possess the partnership property, provided they secure the payment by bond - He shall have the right only to receive in cash the net amount due him
approved by the court, or pay to any partner who has caused the dissolution - If the dissolution is proper or rightful, no partner is liable for any loss sustained as a
wrongfully, the value of his interest in the partnership at the dissolution, less any result of the dissolution.
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.
Rights where dissolution in contravention of agreement.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second Depends whether he is the innocent or the guilty partner.
paragraph, No. 2, all the rights of a partner under the first paragraph, (1) Rights of INNOCENT PARTY (not caused the wrongful dissolution)
subject to liability for damages in the second paragraph, No. 1(b), of this (a) To apply partnership property to payment of liabilities and to receive in cash his
article. share of surplus;
(b) If the business is continued under the second paragraph, No. 2, of this (b) To be indemnified for damages caused by guilty partner
article, the right as against his co-partners and all claiming through them (c) To continue business in the same name during the agreed term of the partnership,
in respect of their interests in the partnership, to have the value of his by themselves or jointly with others; and
interest in the partnership, less any damage caused to his co-partners by (d) To possess partnership property if they decide to continue the business.
then 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 (2) Rights of GUILTY PARTNER:
considered. (n) (a) If the business is not continued by other partners:
Main objectives : i. To apply partnership property to discharge its liabilities and to receive in cash
1. provide for payment of the partner who leaves the firm, his share of the surplus (less damages caused by his wrongful dissolution.)
2. indemnify him against existing or possible future liability
(b) If the business is continued:
The right constitutes what is known as the “partner’s lien.” i. To have the value of his interest in the partnership at the time of the
o Extent: whether the dissolution is caused with or without violation of the dissolution, less any damage caused by the dissolution to his co-partners,
partnership agreement. ascertained and paid in cash or secured by bond approved by the court; and
o innocent partners have more rights than the guilty partners ii. To be released from all existing and future liabilities of the partnership.

____________________________

 Guilty partners:
o liable for damages
o Value of the goodwill of the business is not considered in determining
value of their interest ( as a penalty for their bad faith)
Rights where dissolution NOT in contravention of agreement.
 Innocent partners:
Unless otherwise agreed, the rights of each partner are: o can decide to buy the guilty partner’s interest
(1) To have partnership property applied to discharge liabilities of the partnership; and o + may continue business w/ same firm name.
 him for the purchase of an interest in the partnership and for any capital or advances
 Guilty one is entitled to his share of the appraised value of the business (less the contributed by him;
damages) (2) To stand on, after all liabilities to third persons have been satisfied, in the place of
o If decide otherwise  may wind up the business. the creditors of the partnership for any payments made by him in respect of the
partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud of making the representation
Goodwill of a business. against all debts and liabilities of the partnership. (n)

- Advantage which it has from its establishment or from the patronage of its
customers, over and above the mere value of its property and capital  rescinded (should be “annulled”)
- rests in the probability that its old customers will continue their custom and will  If induced by fraud or misrepresentation to become a partner, the contract is
commend the partnership to others, making the latter new customers. voidable or annullable. (consent vitiated)
- May include advantages which may be derived from the partners holding  If the contract is annulled, the injured partner is entitled to restitution.
themselves out as carrying on the business identified with the name of a particular o BUT until annulled by a proper action in court, the partnership relations
firm. exist and the defrauded partner is liable to 3rd persons.

(1) As part of partnership assets. Rights of injured partner where partnership contract rescinded (without prejudice to any
a. “assets” in the law of partnership = includes all assets applicable to the other rights )
payment of the partnership debts. (not limited to assets at law) (1) Right of a lien on, or retention of, the surplus of partnership property for any sum of
b. If of money value, Goodwill is usually considered property & assets. money paid or contributed
in the absence of a contract the contrary. (express/implied) - Surplus after satisfying partnership liabilities
(2) Right to subrogation
- in place of partnership creditors
(2) Firm name as part of goodwill. - after payment of partnership liabilities;
o Element of the partnership enterprise; a substantial asset and passes (3) Right of indemnification by the guilty partner
with a sale of the partnership property and goodwill. (vs name of an - against all debts and liabilities of the partnership.
individual)

o representative of deceased partner is entitled to have an accounting of

the value of the goodwill
o partner may insist that upon dissolution, the goodwill should be sold as
part of the partnership assets.

(3) Existence of saleable goodwill.

o exist only in a commercial partnership.
o Goodwill cannot be subject to sale in a professional partnership as their
reputation depends on the individual skill or personal
ability/qualifications of its members.
 Ex :partnership of attorneys or physicians.

b. RIGHT OF PARTNER TO RESCIND CONTRACT OF PARTNERSHIP (Art. 1838)

ART. 1838. Where a partnership contract is rescinded 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:
(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