PAT REVIEWER

For March 16 to March 21: Chapter 3 Dissolution and Winding-up to Chapter 4 on limited partnership

 DISSOLUTION is a change of relation B. In contravention of the agreement between partners,

causing by partners ceasing to be associated in where the circumstances do not permit the disslolution
carrying on the business under provision of this article; by the express will or any
 WINDING UP is actual process of settling the partner at any time;
partnership business or affairs after dissolution -a partner can seek for dissolution with or without
which involves collection and distribution of justifiable cause but liable for damages;
assets, payment of debts, determination of the
value of each partner’s interest in the C.By any event that makes it unlawful for the business
partnership, defending claims against the firm partnership to be carried on
 TERMINATION exist when all partnership
affairs are wound up completely which D. In case of loss of a thing
signifies the end of partnership life -In which a partner had promise to contribute to the
parternship, perishes before delivery;
Effect of Dissolution - partnership is not yet terminated -When the partner contribute only usufruct of the
it continues until the winding up is terminated property

Effect on Partners – as to previous obligations does not Reason: because the partner failed to give his
relieve the partners for existing obligations contribution, if loss after delivery the firm bears the loss

As to new obligations, spares the partners to obligations This refers only to specific things
which they did not assent
The failure to provide may be waived by the partners
Dissolution does not automatically terminate the legal
personality of partnership and instant cessation of E. Death of a partner
business
-Automatically dissolves the partnership as here is
After dissolution, the business remains only for the reduction of numbers
purpose of winding up of affairs, no new partnership
should be undertaken but affairs should be liquidated F. Civil Interdiction
and distribution made to those entitled to partners’
interest. -deprives the partner to manage his property and dispose
the same
TYPES OF DISSOLUTION
G. Insolvency of the partner
EXTRAJUDICIAL
-must be adjudged by the court
 Without violation of agreement of parties -insolvency makes the partner incapable of paying his
-Expiration of term or particular undertaking liabilities in case partnership assets have been exhausted
-if contract continues after the period it turns
out to be partnership by will of parties H. By decree of court order
 By Express will of any partner, who must in
good faith when no definite term or particular -decree must be final order by the court
undertaking is specified
-a partner who withdraws where such conduct JUDICIAL DISSOLUTION
is not allowed, cannot hinder his withdrawal
but is liable for damages -dissolution decreed by court based on the following
-Unanimous agreement may be done by grounds:
partners to terminate the partnership even
before the period; majority vote cannot suffice. -partner commits misconduct or breach of agreement by
 By express will of partners who have not
assigned their interests or suffered them to be A. partner willfully or persistently commits a breach of
charged for their separate debts either before or the partnership agreement or otherwise conducts himself
after the termination of any specified term or in a matter relating to the partnership business that is not
particular undertaking reasonably practicable to carry on business with him
-Consent of partners who have assigned their
interest or suffered them to be charged for their Guilty of conduct to affect prejudicially the carrying of
separate debts is not required to effect business
dissolution without breach of partnership
agreement; not given right to voice in the B.A partner has been insane or of unconscious mind –
dissolution must declared insane in a judicial proceeding
A. By the expulsion of any partner from the
business bona fide in accordance with such a C.A partner becomes incapable of performing his part in
power conferred by the agreement between the partnership
partners
-must be in good faith otherwise the expelled Incapacity- affects the carrying of business by the
partner can claim for damages partner is a ground
D. Business partnership can only be carried out at a loss Dissolution

Reason: purpose of partnership for profit -to be indeminified

-to have partnership property applied to liabilities
E. Other circumstances that render the dissolution -possess the property should they continue with the
equitable business
-to receive in cash his share of surplus
Example: abandonment -to continue the business in the same name

EFFECTS OF DISSOLUTION RIGHTS OF THE PARTNER WHO HAS

WRONGFULLY CAUSED DISSOLUTION
As to authority of partner to act for the partnership
When business is not continued by other partners:
Gen rule: terminates the authority of all partners
-to have partnership property applied to liabilities
a. Acts necessary to wind up affairs -to receive his cash his share of surplus less damages
b. Actions to complete transactions begun but not caused by his wrongful dissolution
finished
Business continued:
Qualifications to general rule:
-to have the value of his interest in the partnership at the
With respect to partners: time of dissolution, surplus less damages
-to be released from future liabilities
A. Dissolution is not by Act, Insolvency or Death
GOODWILL
B. Dissolution not by Act, Insolvency or Death –
authority of partners to act for partnership is not Advantage it has for the establishment or from the
deemed terminated. Each partner is liable to his patronage of customers above its value and capital
co-partners -In bad faith partners do not enjoy this value
Exception to B:
PARTNER’S LIEN
-the cause of dissolution is act of partner and acting
partner has knowledge of the dissolution; Right of every partner claiming through them in respect
-the cause of the death is death or insolvency of partner to of their interests as partners. To have the partnership
and acting had knowledge of a parther. property applied to discharge existing liabilities

With respect to third persons: RIGHT OF THE INNOCENT PARTNERS TO

CONTINUE
Partnership is generally bound although authority of
partner is terminated but the innocent partners can Innocent partners may continue but for a new
recover to guilty partner partnership

When partnership is not bound to partnership after RIGHTS OF A PARTNER WHERE

dissolution PARTNERSHIP CONTRACT IS RESCINDED ON
THE GROUND OF FRAUD OR
-partnership is unlawful to carry MISREPRESENTATION
-where the acting partner in the transaction is insolvent;
-partner is unauthorized to wind up; -Right of subrogation
-Right of indemnification
DISSOLUTION ORDINARILY DOES NOT -Right of retention
DISCHARGE THE EXISTING LIABILITIES
MANNER OF WINDING UP
General Rule: dissolution does not discharge the liability
Extrajudical – without intervention of court
Exception: if there is agreement to that effect between Judicial – under control and direction of court
himself, partnership creditor and the person or
partnership continuting the business PERSONS AUTHORIZED TO WIND UP

DEATH OF A PARTER -Partners designated by the agreement

- in the absence of agreement, all partners who have
The individual property of a deceased partner shall be wrongfully dissolved the partnership
liable to all obligations incurred while he was a partner -legal representative of the last surviving partners

RIGHTS OF THE PARTNER AFTER RULES IN SETTLING THE ACCOUNTS

DISSOLUTION BETWEEN PARTNERS AFTER DISSOLUTION

A. When dissolution is not in contravention of the Determine the assets of the partnership which are as
partnership agreement follows
-Have partnership property applied to discharge -partership property
liabilities; -contributions of the partners necessary for the payment
of all liabilities
-Receive in cash his share of surplus
Payment of liabilities in winding up in the following
B. When dissolution is contravention of agreement order
 -In good faith partners who have not caused the

-Failure to amend does not mean dissolution exercise if rights as a limited partner, provided that in
ascertaining mistakes promptly renounces his interest in
CONSENT OR RATIFICATION OF LIMITED the profits of business.
PARTNER IS NECESSARY
Conditions for exemption:
General Rule: General partner shall have the rights and
powers be subject to all restrictions and liabilities of a 1. He renounces in the business
partner without limited partner
2. Surname does not appear in the firm name
Exception: General partners has no authority unless
consented and ratified of all limited partners: 3. Does not participate in the management
business
-do act in contravention of the certificate
-do act which would render impossible to carry business
Compensation is subject to the condition that partnership
-confess judgment
-possess partnership property or assign rights assets will still be in excess of partnership liabilities after
-admit a person as a general partner such payment. Third party creditors have priority over
-admit a person as a limited partner limited partner’s rights
-continue the business partnership on death, retirement,
insanity, civil interdiction, insolvency of a general Liabilities of limited partners may be waived provided
partner consented by all partners

Above are acts of strict dominion and are beyond the SUBSTITUTED LIMITED PARTNER
scope of the general partner
-person admitted to all rights of a limited partner who
RIGHTS OF A LIMITED PARTNER has died or assigned his interest in the partnership
-To have partnership books kept at the principal place of General rule: he has all the rights and powers and is
business of partnership
subject to all restrictions and liabilities of his assignor
-to inspect and have access of books
-to demand full information
REQUISITES TO BECOME A SUBSTITUE
-demand formal account
-ask dissolution and wind up by court decree
-Consent of all partners
-to receive share of profits
-to receive cash return of contribution -amended certificate and registered

Exception: CAUSES OF DISSOLUTION

When partners stipulated other than cash RIDIC

ALLOWABLE TRANSACTIONS
Exception:
-Transacting other business with the partnership -if the business is continued by remaining general
-receiving pro rate share of partnership assets partners
-granting loans to partnership -All limited partners ceased to be such
-Expiration of the term or period of existence of the
PROHIBITED partnership
-misconduct of a general partner or fraud
-Receiving or holding collateral security any partnership
-limited partner demanded return of his contribution but
property;
-receiving any for release of liabilities if assets are less same was unjustifiably denied
than liabilities
-violation is presumption to defraud partnership Above is not exclusive
creditors, not absolute if assets sufficient
RIGHTS OF CREDITORS OF LIMITED
PREFERRED LIMITED PARTNERS PARTNERS TO CHARGE THE INTEREST OF
INDEBTED LIMITED PARTNER
-preference is made by agreement of all as to return of
contributions, compensation by way of income, any
other matter -Creditor of a limited partner may file petition to charge
the interest of indebted limited partner with the payment
LIABILITIES of unsatisfied amount.
-A receiver may be appointed by court
General Rule: not liable as a general partner
-court may issue orders and directives
Exception: when he exercise actions as a general partner
SETTLING OF ACCOUNTS AFTER
STATUS OF PERSON ERRONEOUSLY DISSOLUTION
BELIEVING HIMSELF TO BE A LIMITED
PARTNER -those owing to creditors in order
-those owing to limited partners with respect to their
-Not personally liable as general partner by reason of share of profits and other compensation.

-those owing to limited partners in respect to capital

contributions
-those owing to general partners other than for capital
and profits;
-those owing to general partners in respect of profits
-those owing to general partners in respect to capital

CANCELLATION OF CERTIFICATE

-When the partnership is dissolved

-when all limited partners ceases to be such

AMENDMENT OF CERTIFICATE
REQUIREMENTS:

-Must be in writing
-must be signed and sworn to by all members including
the new members
-cancellation must be recorded
-must be signed by all members

Cancellations are due to among others change of name,

substitution, additional partner, admitted limited partner,
general partner dies, retires…

STATUS OF A LIMITED PARTNER

-Mere contributor