LAW ON PARTNERSHIP

&
DISSOLUTION

ARTICLE

1828

Dissolution, Winding up
and Termination

DISSOLUTION

WINDING UP

TERMINATION

It is that point in
time when the
partners cease to
carry on the
business together.

It is the process of
settling the
business or
partnership affairs
after dissolution.

It is that point in
time when all
partnership affairs
are completely
wound up and
finally settled.

ARTICLE

1829

Partnership Not Terminated

by Dissolution

Affairs should be liquidated and distribution made to

those entitled to the partners interest.
The dissolution of a partnership must not be
understood to mean its extinguishment.
Dissolution refers to the change in partnership relation
and not the actual cessation of the partnership
business.

ARTICLE

1830

Causes of Dissolution

Without violation of the agreement between the partners:

By the termination of the definite term or particular undertaking specified in
the agreement;
By the express will of any partner, who must act in good faith, when no
definite term or particular is specified;

By the express will of all the partners who have not assigned their interests or
suffered them to be charged for their separate debts, either before or after
the termination of any specified term or particular undertaking;
By the expulsion of any partner from the business bona fide in accordance
with such a power conferred by the agreement between the partners;

ARTICLE

1830

Causes of Dissolution

In contravention of the agreement between the partners, where the

circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time
Dissolution may be for any cause or
reason and power of dissolution always
exist.
The withdrawing partner is liable for
damages for unjustified dissolution.

ARTICLE

1830

Causes of Dissolution

By any event which makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership

A partnership must have a lawful

object or purpose.

ARTICLE

1830

Causes of Dissolution

Loss of Specific Thing

Loss before Delivery

Loss after Delivery

If the specific thing to

be contributed by a
partner is lost before
delivery, the
partnership is
dissolved.

If the loss occurred

after the delivery of
the thing promised,
then partnership is
not dissolved.

Loss where only use or

enjoyment is contributed
The loss of this thing
before or after the
delivery dissolves the
partnership.

ARTICLE

1830

Causes of Dissolution

By the Death of any Partner

ARTICLE

1830

Causes of Dissolution

By the Insolvency of any Partner or of the Partnership

The insolvency of a partner subjects his interest in the

partnership to the right of is creditors and makes it
impossible for him to satisfy partnership obligations to its
creditors.

ARTICLE

1830

Causes of Dissolution

By civil interdiction of any partner

A convicted person suffering from the
accessory penalty of civil interdiction cannot
validly give consent as his capacity is limited
thereby

By decree of court under the following Article

(1700a and 1701a)

ARTICLE

1831

Grounds for Dissolution

On application by a partner
INSANITY

OTHER
CIRCUMSTANCES

BUSINESS CAN BE
CARRIED ONLY AT
LOSS

INCAPACITY

MISCONDUCT AND
PERSISTENT BREACH
OF PARTNERSHIP
AGREEMENT

ARTICLE

1831

Grounds for Dissolution

On application by a purchaser of a partners interest

ARTICLE

1832

EFFECT OF DISSOLUTION ON
AUTHORITY OF PARTNER

GENERAL RULE
QUALIFICATION TO THE RULE
In so far as the partners themselves are concerned.
With respect to third persons.

ARTICLE

1833

AUTHORITY OF PARTNERS, AS AMONG

THEMSELVES, TO ACT FOR THE PARTNERSHIP

The cause of the dissolution is the act of a partner

and the acting partner had knowledge of such
dissolution.

The cause of the dissolution is the death or insolvency

of a partner and the acting partner had knowledge
or notice of the death or insolvency.

ARTICLE

1834

Power of partner to bind dissolved

partnership to third persons

By an act appropriate for winding up

partnership affairs of completing transactions
unfinished at dissolution;

ARTICLE

1834

Power of partner to bind dissolved

partnership to third persons
By any transaction which would bind the
partnership if dissolution had not taken place,
provided the other party to the transaction:

(a) Had extended credit to the partnership prior to

dissolution and had knowledge or notice of the dissolution
(b) Though he had not so extended credit, had
nevertheless known of the partnership prior to dissolution,
and, having no knowledge or notice of dissolution, the fact of
dissolution had not been advertised in a newspaper of
general circulation in the place (or in each place if more that
one) at which the partnership was regularly carried on.

ARTICLE

1834

Notice of dissolution to
partners

As to persons who extended credit to partnership

to dissolution
As to persons who had known of partnerships
existence

Where acting partner has no authority to wind up

partnership affairs
Where acting partner has become insolvent

ARTICLE

1835

Effect of dissolution on
partners existing liability

The dissolution of a partnership does not of itself

discharge the existing liability of a partner.

A partner may be relieved from all existing liabilities

upon dissolution only by an agreement to that effect
between himself, the partnership creditor and the
other partners.

ARTICLE

1835

Liability of estate of deceased

partner

The individual property of a deceased partner shall be

liable for all obligations of the partnership incurred while
he was a partner with preference to his individual
creditors.

ARTICLE

1836

MANNER OF WINDING UP

ARTICLE

1836

PERSONS AUTHORIZED TO WIND UP

ARTICLE

1837

Right of partner to application of

partnership property on dissolution

Dissolution without contravention of the

partnership agreement.
Dissolution in contravention of the
partnership agreement.
A. Rights of partner who has not caused
the dissolution wrongfully.
B. Rights of partner who has caused the
dissolution wrongfully.

Right of Partner to Rescind

1838 Contract of Partnership

ARTICLE

Inducement of an individual to become a partner by

means of fraud or misrepresentation makes the
partnership contract voidable and annullable.
INJURED PARTNER IS ENTITLED TO RESTITTUTION

Continuous existence of partnership.

DEFRAUDED PARTNER LIABLE FOR ALL OBLIGATIONS
TO THIRD PERSONS.

ARTICLE

1838

Right of Injured Partner where

Partnership Contract Rescinded

Right of a lien on, or retention of, the surplus of partnership

property after satisfying partnership liabilities for any sum of
money paid or contributed by him.

Right to stand in the place of the creditors of the partnership

after payment of partnership liabilities
Right of indemnification by the guilty partner against all
debts and liabilities of the partnership.

ARTICLE

1839

Rules in Settling Accounts between

Partners after Dissolution

ASSETS OF THE PARTNERSHIP

Partnership Property

Contributions of Partners

ARTICLE

1839

Rules in Settling Accounts between

Partners after Dissolution

ORDER OF APPLICATION OF THE ASSETS

Partnership Creditors

Loans to Partners
Return of capital contributions
Share in profits

ARTICLE

Rules in Settling Accounts between

Partners after Dissolution

1839
Right of a partner where assets insufficient
Capital Loss of a Partner
Enforce contributions of the Partners

All partners contributed

Only few partners contribute

Sue non-paying partners for indemnification.

ARTICLE

1839

Rules in Settling Accounts between

Partners after Dissolution

Liability of deceased partners individual property

Only liabilities of the partnership incurred while the deceased partner
is a partner will be attached to individual property as his share.

Liabilities covered by
individual property of
a deceased partner

ARTICLE

1839

Rules in Settling Accounts between

Partners after Dissolution

PRIORITY TO PAYMENT OF PARTNERSHIP CREDITORS / PARTNERS CREDITORS

PARTNERSHIP PROPERTY

INDIVIDUAL PROPERTY

PARTNERSHIP CREDITORS

INDIVIDUAL CREDITORS

ARTICLE

1839

Rules in Settling Accounts between

Partners after Dissolution

DISTRIBUTION OF PROPERTY OF INSOLVENT PARTNER

SEPARATE
CREDITORS
PARTNERSHIP
CREDITORS
CONTRIBUTION
TO PARTNERS

Dissolution of Partnership
1840 by Change in Membership
ARTICLE

ADMISSION OF NEW PARTNER

RETIREMENT, DEATH, WITHDRAWAL OR EXPULSION OF A
PARTNER
PARTNERS ASSIGNMENT OF RIGHTS TO SOLE REMAINING
PARTNER
ALL PARTNERS ASSIGNMENT OF RIGHTS TO THIRD PERSONS

ARTICLE

1840

DISSOLVED
PARTNERSHIP
CREDITORS

Rights of Creditors of Dissolved

Partnership which is Continued

NEW
PARTNERSHIP
CREDITORS

CONTINUING PARTNERSHIP
CREDITORS

ARTICLE

1840

Liability of Persons Continuing

Business of Dissolved Partnerships
The liability of the new or incoming
partners shall be satisfied out of
partnership property only unless there is
stipulation to the contrary.
Obligations to the debts of the dissolved
partnership of one or more third persons
who continue the partnership shall apply
only when the continuing partners
promise to pay such.

ARTICLE

1841

Rights of Retiring or of Legal Representative

of Deceased Partner when Business is Deceased

To have the value of the interest of the retiring partner

or deceased partner in the partnership ascertained as
of the date of dissolution.

To receive thereafter, as an ordinary creditor, an

amount equal to the value of his share in the dissolved
partnership with interest, or, at his option, in lieu of
interest , the profits attributable to the use of his right.

Partners Right to Account

1842
of His Interest

ARTICLE

Accrual Right
The right to demand an accounting of the
value of his interest accrues to any
partners or his legal representative after
dissolution in the absence of an
agreement to the contrary.

Partners Right to Account

1842
of His Interest

ARTICLE

Person liable to render an account

The right of a partner or the one who
represents him as owner of his interest
to an account to a payment of the
amount of his interest, may be exercised
as against:
1. The winding up partner
2. The surviving partner
3. The person or partnership
continuing the business.