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)
Article 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business.
 Dissolution – point in time when the partners cease to carry on the business
together
 Termination – point in time when all the partnership affairs are wound up
 Winding Up – the process of settling partnership affairs after dissolution
Note: The Code’s definition of dissolution in Art. 1828 only contemplates a partner ceasing
to carry on business together with the others. It is not comprehensive enough to cover all
kinds of dissolution contemplated by the Code. For example, Art. 1840(1) suggests that the
admission of a new partner in a partnership has the effect of dissolution of the partnership of
the original members even if none of the old partners ceases to be associated with it.
2. Causes of Dissolution (Art. 1830)
Article 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking
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;
(c) 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;
(d) By the expulsion of any partner from the business bona fide in
accordance with such a power conferred by the agreement
between the partners;
(2) 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;
(3) 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;
(4) When a specific thing which a partner had promised to contribute to the
partnership, perishes before the delivery; in any case by the loss of the
thing, when the partner who contributed it having reserved the ownership
thereof, has only transferred to the partnership the use or enjoyment of the
same; but the partnership shall not be dissolved by the loss of the thing
 Other causes in Art. 1840
o Admission of a new partner into an existing partnership
o Retirement of any partner who assigns his rights in specific partnership
property
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.
Article 1831. On application by or for a partner the court shall decree a dissolution
whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to
be of unsound mind;

(2) A partner becomes in any other way incapable of performing his part of the
partnership contract;

(3) A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;
(4) A partner willfully or persistently commits a breach of the 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;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was
assigned or when the charging order was issued.
CLASSIFICATION OF CAUSES
(1) Voluntary
a. Extrajudicial
i. Without Violation of Agreement
1. Expiration of term or undertaking
2. In a partnership at will, by express will of any partner
3. Express will of all partners
4. Expulsion of a partner pursuant to agreement
ii. In Contravention of Agreement
b. Judicial
i. Insanity of a partner
ii. Incapacity of a partner
 iii. Misconduct or breach of agreement
iv. Operation at Loss
v. Other circumstances:
1. Dissensions
2. Fraud and misrepresentations in formation of partnership
(2) Involuntary
a. Supervening Illegality
b. Loss of specific thing contributed
c. Death of Partner
d. Insolvency
e. Civil Interdiction of a partner
VOLUNTARY - EXTRAJUDICIAL
1. Expiration of term or undertaking
 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
 The fixing of a term is a manifestation in advance of the parties’ desire to remain
under the relation only up to the expiration of that term, no more, no less,
Therefore, none of the partners may effect an earlier dissolution not otherwise
authorized in their agreement.
 If the partners continue without express agreement to associate together despite
the termination of the term or undertaking, a new partnership is created by
implied agreement – a partnership at will, no longer one with a term or particular
undertaking
2. In a partnership at will, by express will of any partner
 A partnership at will is designed to endure for no longer than the mutual consent
of the partners and may be dissolved by the express will of any partner when he
pleases and at a moment’s notice
 Requirements for notice:
o Must be communicated to the other partners and it is only then that the
partnership is dissolved
o Has no particular form but must signify intent to terminate partnership
 Dissolution must be made in good faith (and at a reasonable time)
o Not in good faith – dissolution is resorted to in order to appropriate to
himself the profits which his partner is entitled to receive
o Unreasonable time – when things are no longer entire that were of
consequence to partnership, and which should have deferred to the
dissolution
o (Note: Reasonableness of time is not expressly required by the Uniform
Partnership Act but the author believes it is concomitant to good faith)
3. Express will or mutual assent of all partners
 Partners may at any time, either before or after the termination of any specified
term or particular undertaking, by mutual assent, modify, alter or dissolve their
partnership relation
 Agreement may be express or implied, oral or written
 Partners may agree upon terms of dissolution differing from those originally
provided in the partnership agreement, and the same will prevail over the latter
 A perfected agreement to dissolve cannot be unilaterally rescinded by one of the
parties
 When the partnership is not a partnership at will, the decision to dissolve must be
unanimous among all the partners, or at least among those who have not assigned
their interests or suffered them to be charged for their separate debts
4. Expulsion of a partner pursuant to agreement
 General Rule: Partner/s do not have the power to expel another partner
 Exception: Power is conferred by agreement
 The agreement may specify the manner and conditions for its exercise and such
must be strictly observed
 Power must be exercised in good faith
5. In Contravention of Agreement
 There is no indissoluble partnership. Every partner has the option to dissolve the
partnership at any time even though the dissolution is in contravention of the
partnership agreement.
 However, effecting dissolution in this manner will render him liable for damages if
the cause of withdrawal is not justified or no cause was given. He also loses the
right to wind up.
VOLUNTARY - JUDICIAL
Who may apply for dissolution of partnership?
 Application by or for a Partner
 Application of Assignee or Purchaser of a partner’s interest under Art. 1813 or 1814:
o Filed after the termination of the specified term or particular
undertaking; or
o Filed at any time, if the partnership was a partnership at will when the
interest was assigned or the charging order was issued
1. Insanity
 Insanity, by itself, does not dissolve the partnership. It merely provides a ground
for other partners to apply for dissolution.
 Not every insanity, even if judicially established and declared, justifies a decree of
dissolution. Insanity must materially affect the capacity of the partner to discharge
the duties imposed by his contractual relation
2. Other Incapacity
 Same rules for insanity apply
3. Misconduct or breach of agreement
 To justify decree of dissolution, the misconduct or breach must be:
a. Of a gross or serious nature, something which goes to the substance of
the contract; or
 b. Must be willful or so persistent in character as to show lack of good faith,
or be such as to be productive of serious and permanent injury to the
partnership or to render it impracticable to carry on its business.
 Examples:
a. Failure or refusal to contribute capital or service
b. Wrongful expulsion of a partner
c. Failure or refusal to divide profits
d. Willful and persistent breach of partnership agreement
e. Commission of fraud in connection with partnership business
4. Operation at loss
 Purpose of partnership is to realize profits. If it operates at loss, it loses its reason
for existing.
 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.
 The fact that a partner has received substantial profit in the previous years does
not bar him to a decree of dissolution.
5. Other Circumstances: Dissensions; Fraud and misrepresentations in formation of
partnership
 Dissensions and disagreements must be of such nature that all confidence and
cooperation between the partners have been destroyed.
 Taken individually, quarrels that are petty, trifling, or temporary will not warrant
judicial dissolution; but they may furnish sufficient ground when frequently
recurrent.
INVOLUNTARY (BY OPERATION OF LAW)
1. Supervening Illegality
 A partnership is automatically dissolved if after its formation it becomes unlawful
for its business to be carried on or for its members to carry it on in partnership
before or after enjoyment of the thing
delivery. contributed
3. Death of a Partner
 Death of one of the partners dissolves the partnership by operation of law.
 Some court decisions offer an exception to this: an agreement in the articles or a
provision in a partner’s will regarding the continuation of the partnership after
death.
 BUT according to Bautista, these decisions confuse dissolution with winding up
and termination. Under the Uniform Partnership Act, the death of any of the
partners dissolves the partnership without exception, regardless of any agreement
to the contrary. The only meaning of such agreement is to suspend the
consequences of dissolution, i.e. winding up and termination.
4. Insolvency
 A court must decree insolvency.
 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
assignee or trustee who shall manage and dispose of the same for the benefit of
creditors. The partners thus become incapacitated to continue the partnership
business.
 Reason: if he cannot even manage his own property, there is no reason why he
should be allowed to manage that of the partnership.
5. Civil Interdiction of a Partner
 Civil interdiction deprives a partner, among other things, of the right to manage
his property and of the right to dispose of such property by any act or conveyance
inter vivos.
 Reason: if he cannot even manage his own property, why should he be allowed to
manage the property of another, or of which he is only a co-owner.

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
a. On right of contribution from co-partners
ART. 1832. Except so far as may be necessary to wind up partnership affairs or to
complete transactions begun but not then finished, dissolution terminates all authority
of any partner to act for the partnership.
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency or death of a partner;
or
(b) When the dissolution is by such act, insolvency or death of a partner, in
cases where Article 1833 so requires;
(2) With respect to persons not partners, as declared in article 1834. (n)
Effect of dissolution on authority of partner.
 GR: Dissolution terminates the actual authority of a partner to undertake new
business for the partnership.
o EXC: (as to exercise of authority for partnership) Partner’s power of
representation is confined only to acts incident to winding up or
completing transactions begun but not then finished.
 Qualifications to the rule - GR is subject to the qualifications set forth in Arts.
1833 and 1834
o As to partners
 Dissolution is NOT by the ACT, INSOLVENCY, or DEATH
of a partner
 the authority of any partner to bind the
partnership by a new contract is immediately
terminated (Art. 1832.)
 Dissolution is by ACT, INSOLVENCY, or DEATH,
 the termination of authority depends upon
whether or not the partner had knowledge or
notice of the dissolution (Article 1833)
o With respect to third persons (Art. 1834.)
o the partnership is generally bound by the new contract although the
authority of the acting partner as it affects his co-partners is already
deemed terminated under Articles 1832 and 1833.
o In such a case, the innocent partners can always recover from the
acting partner.
b. On authority of partner
ART. 1833. Where the dissolution is caused by the act, death or insolvency of a
partner, each partner is liable to his co-partners for his share of any liability created by
any partner acting for the partnership as if the partnership had not been dissolved
unless:
(1) The dissolution being by act of any partner, the partner acting for the partnership
had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a partner, the partner acting
for the partnership had knowledge or notice of the death or insolvency.
Right of partner to contribution from co-partners.
 Art. 1833 speaks of dissolution caused by the ACT, INSOLVENCY, OR
DEATH of a partner.
 Where a partner enters into a new contract with a third person after
dissolution, the new contract generally will bind the partners (Art. 1834, par.
1.) as if the partnership had not been dissolved.
Authority of partners inter se to act for the partnership.
 The authority of a partner as it affects his co-partners is not deemed
terminated except if the cause of the dissolution is:
o (1) the act of a partner and the acting partner had knowledge of
such dissolution;
 designed to protect the remaining partner or partners who
might continue to act for the partnership as a going
concern, not having actual knowledge of the dissolution.
o (2) the death or insolvency of a partner and the acting partner had
knowledge or notice of the death or insolvency.
 discards the fiction that everybody is presumed to have
knowledge of death or insolvency.
Knowledge or notice of cause of dissolution.
 Dissolution by death or insolvency.
o Art. 1833 - the authority of a partner to act for the partnership may
still continue notwithstanding its dissolution.
o In the case of death, it is unjust to hold that a partner acting for the
partnership bona fide in ignorance of the death of his co-partners
must assume the entire liability, even though all other partners are
ignorant of the death of the partner, and even though such
deceased partner was entirely inactive and may have resided at
any distance from the actual place of business.
o Also applies also to the bankruptcy of a partner
 Dissolution by court decree or resulting from unlawfulness.
o No substantial problem exists where dissolution
 Is brought about by COURT DECREE
 since this brings actual notice of the dissolution
to all of the partner
 results from UNLAWFULNESS
 since the general rules governing actions arising
out of illegal transactions would control in such
cases.
When a partner has knowledge or notice of a fact.
 Uniform Partnership Act
 o “A person has knowledge of a fact within the meaning of this Act
not only when he has actual knowledge thereof, but also when he
has knowledge of such other facts as in the circumstances
show bad faith.”
o “A person has notice of a fact within the meaning of this Act when
the person who claims the benefit of the notice:
 (a) States the fact to such person, or
 (b) Delivers through the mail or by other means of
communication, a written statement of the fact to such
person or to a proper person at his place of business or
residence.” (Sec. 3, U.P.A.)
i. to act for the partnership
ii. to bind the dissolved partnership
ART. 1834. After dissolution, a partner can bind the partnership, except as provided
in the third paragraph of this article:
(1) By an act appropriate for winding up partnership affairs or completing transactions
unfinished at dissolution;
(2) 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 no
knowledge or notice of the dissolution; or
(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 than one) at which
the partnership was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of
partnership assets alone when such partner had been prior to dissolution:
(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 partnership could not be said to have been in any degree due to his connection
with it.
The partnership is in no case bound by any act of a partner after dissolution: (1)
Where the partnership is dissolved because it is unlawful to carry on the business,
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
knowledge or notice of his want of authority; or
(b) Had not extended credit to the partnership prior to dissolution, and,
having no knowledge or notice of his want of authority, the fact of his want of
authority has not been advertised in the manner provided for advertising the
fact of dissolution in the first paragraph, No. 2(b).
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
partner in a partnership engaged in carrying on business. (n)
Power of partner to bind dissolved partnership to third persons.
 Cases when a partner continues to bind the partnership even after
dissolution (Art. 1834 par. 1, Nos. 1 and 2.)
 Cases when he cannot bind the partnership after dissolution. ( Art. 1834 par.
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
as regards third persons on the assumption that the partnership is
still existing.
o Since a partnership once established is, in the absence of anything
to indicate its termination, presumed to exist, the law, for the
protection of innocent third persons, imposes upon partners the
duty of giving notice of the dissolution of the partnership.
 Where there is actual or constructive knowledge by third persons of
dissolution.
o The measure of the right of third persons who continue to deal with
a dissolved partnership depends upon the question of whether they
knew or should have known of the fact of dissolution.
o If they did, the validity of their transactions is governed by the
question whether those transactions were necessary to liquidate
the partnership affairs.
Notice of dissolution to creditors.
 As to persons who extended credit to partnership prior to dissolution.
o Customers of the partnership or persons who extended credit to the
partnership prior to its dissolution must have knowledge or notice of
the dissolution to relieve the partnership from liability.
 As to persons who had known of partnership’s existence.
o Persons who had not so extended credit prior to its dissolution, but
who had known of its existence
o Publication in the newspaper would be sufficient notice even if they
did not actually read the advertisement.
 Where acting partner has no authority to wind up partnership affairs.
o Under the 3rd paragraph, notice of dissolution is unnecessary
EXCEPT in case No. 3, where the partner has no authority to wind
up partnership affairs.
 o Third persons dealing with the partner without such authority are
protected under the same circumstances mentioned in paragraph 1,
No. (2)(a) and (b).
 Where acting partner has become insolvent.
o As to insolvency, law makes a distinction between
 the right of a partner who has no knowledge or notice of
the other partner’s insolvency to bind the partnership
 recognized under Article 1833(2)
 the innocent partner is protected in his continued
right to make binding partnership agreements,
 the right of a third person to claim that his contract with the
partnership is valid, notwithstanding its dissolution through
insolvency of the partner with whom the contract was
made.
 denied under Article 1834 (par. 3, No. 2.),
 no similar protection is extended to a third party
who innocently makes a contract with an
insolvent partner because it is incumbent upon
him to know the status of the insolvent partner.
 Where dissolution caused by death of a partner.
o As to death, no such distinction is made, largely because the
deceased partner no longer exists.
o Death is not considered to be notice per se whether as to the
surviving partner or as to third persons
Character of notice
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.
o ACTUAL NOTICE
o Mere mailing of a letter to a former dealer is insufficient where the
notice was never received.
o There is no duty on the part of a prior dealer to inquire into the
question of retirement
o A prior or former dealer is one who has extended credit on the
faith of the partnership, through confidence in the solvency and
probity of the firm. Mere dealing with a firm on a cash basis does
not constitute one a prior dealer. One who purchases goods from
the supposed partnership is not a prior dealer.
 As to all others.
o Notice is accomplished by an advertisement in a local newspaper.
o Actual notification is not necessary.
o However, that the requirement of newspaper notice appears to exist
only where the third party knew of the partnership PRIOR to
dissolution.
 If he did not, he is entitled to no notice whatsoever.
o It is not clear whether notice to others other than prior dealers, who
had knowledge of the partnership prior to dissolution, was sufficient
if given in ways other than by newspaper notification.
 Apparently, the law has made newspaper notification an
exclusive method for giving notice.
Dormant partner need not give notice.
 2nd paragraph: the liability of a partner unknown as such to the person with
whom the contract is made - satisfied out of partnership assets alone.
 This is a qualification of the rule that partners are liable pro rata with all their
property after the assets of the partnership have been exhausted for
partnership obligations. (Art. 1816.)
 A dormant partner is both inactive and secret.
o His connection with the partnership not having known, it cannot in
any degree have contributed towards establishing its reputation or
credit.
o Third persons, not having dealt with the partnership in reliance
upon the membership of the dormant partner, are accordingly not
entitled to notice of his withdrawal.
o The principle of estoppel cannot operate to continue his liability or
his authority after dissolution since prior thereto, he was never
known or held out as a partner.
o He will, of course, be personally liable for partnership debts arising
at the time of his retirement.
Partnership by estoppel after dissolution.
 Article 1834 (last par.) touches upon the subject of partnership by estoppel
(Art. 1825.), since a partnership is held to exist as to third persons though it
does not exist as a going concern so far as the partners themselves are
concerned.
 It will be seen that Article 1769(1) is not entirely accurate in stating that
“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
circumstances under which by virtue of Article 1834, third persons may claim
the validity of contracts made with dissolved partnerships in disregard of the
fact of dissolution.
c. On Partner’s existing liability
ART. 1835. The dissolution of the partnership does not of itself discharge the existing
liability of any partner.
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)
ART. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not insolvent, has the
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)
Manner of winding up.
(1) Judicially—under the control and direction of court upon cause shown by any
partner/legal representative/ assignee;
(2) extrajudicially
Nature of action for liquidation.
- personal ; may be brought in the place of residence of plaintiff or defendant.
Persons authorized to wind up.
(a) partners designated by agreement;
(b) In the absence of such agreement, all the partners who have not wrongfully dissolved
the partnership; or
(c) The legal representative (executor or administrator) of last surviving, not insolvent.
 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
affairs where such step is shown to be to the best interests of all persons
concerned.
Survivor’s right and duty to liquidate.
When a member of a partnership dies, the duty of liquidating its affairs devolves
upon the surviving member or members of the firm, not upon the legal
representative of the deceased partner (except when such partner was the last
surviving partner
--Lota vs. Tolentino
o legal representative has no right to interfere with the partnership
business, if surviving partner proceeds in good faith to settle its affairs,
no matter how well qualified he may be.
- In the absence of a controlling agreement, executor /administrator of a deceased
partner cannot insist on continuing the business
- While the Uniform Partnership Act provides that a surviving partner is entitled to
reasonable compensation for his services in winding up partnership affairs Our
law is silent on this point.
o Believed that even in the absence of agreement, the surviving partner or
liquidating partner is entitled to reasonable compensation in
exceptional situations
 where the services rendered are extraordinary or substantial in
nature.
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.
(1) Make new contracts.
o For ONLY the purpose of winding up the partnership, a liquidating
partner is sole agent of the partnership.
 SO: without express authorization, he cannot make new contracts
or create new liabilities
 (nor extend the time for payment of existing obligations or
make acknowledgments of the validity of claims against the
firm.)
(2) Raise money to pay partnership debts.
o has the same general power to bind the firm as he had before
 may bind partnership by borrowing and may sell its real estate to
raise money to money to meet its liabilities/pay debts.
(3) Incur obligations to complete existing contracts or preserve partnership assets.
o can incur debts or other obligations necessary for the reasonable
preservation of partnership assets or in procuring a favourable market for
their disposal.
(4) Incur expenses necessary in the conduct of litigation.
o If litigation necessary in order to perform his duty in winding up the
affairs  power to employ an attorney.
o with resultant obligations, to prosecute and defend the action or to incur
other expenses necessary .
a. RIGHT OF PARTNER TO APPLICATION OF PROPERTY ON DISSOLUTION (Art. 1837)
ART. 1837. When dissolution is caused in any way, except in contravention of the
partnership agreement, each partner, as against his co-partners and all persons claiming
through them in respect of their interests in the partnership, unless otherwise agreed,
may have the partnership property applied to discharge its liabilities, and the surplus
applied to pay in cash the net amount owing to the respective partners. But if
dissolution is caused by expulsion of a partner, bona fide under the partnership
agreement and if the expelled partner is discharged from all partnership liabilities, either
by payment or agreement under the second paragraph of article 1835, he shall receive in
cash only the net amount due him from the partnership.
When dissolution is caused in contravention of the partnership agreement, the rights of
the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution
wrongfully, to damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with
others, may do so, during the agreed term for the partnership and for that purpose
may possess the partnership property, provided they secure the payment by bond
approved by the court, or pay to any partner who has caused the dissolution
wrongfully, the value of his interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No. 1(b) of this article, and in
like manner indemnify him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second
paragraph, No. 2, all the rights of a partner under the first paragraph,
subject to liability for damages in the second paragraph, No. 1(b), of this
article.
(b) If the business is continued under the second paragraph, No. 2, of this
article, the right as against his co-partners and all claiming through them
in respect of their interests in the partnership, to have the value of his
interest in the partnership, less any damage caused to his co-partners by
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
considered. (n)
Main objectives :
1. provide for payment of the partner who leaves the firm,
2. indemnify him against existing or possible future liability
The right constitutes what is known as the “partner’s lien.”
o Extent: whether the dissolution is caused with or without violation of the
partnership agreement.
o innocent partners have more rights than the guilty partners
Rights where dissolution NOT in contravention of agreement.
Unless otherwise agreed, the rights of each partner are:
(1) To have partnership property applied to discharge liabilities of the partnership; and
(2) To have the surplus, if any, applied to pay in cash the net amount owing to the
respective partners.
Expelled partner may be discharged from all partnership liabilities
- When dissolution is caused by his bona fide expulsion (so no violation of
agreement)
- Discharged either by:
o payment
o by an agreement between him, partnership creditors, and other
partners. (Art. 1835.)
- He shall have the right only to receive in cash the net amount due him
- If the dissolution is proper or rightful, no partner is liable for any loss sustained as a
result of the dissolution.
Rights where dissolution in contravention of agreement.
Depends whether he is the innocent or the guilty partner.
(1) Rights of INNOCENT PARTY (not caused the wrongful dissolution)
(a) To apply partnership property to payment of liabilities and to receive in cash his
share of surplus;
(b) To be indemnified for damages caused by guilty partner
(c) To continue business in the same name during the agreed term of the partnership,
by themselves or jointly with others; and
(d) To possess partnership property if they decide to continue the business.
(2) Rights of GUILTY PARTNER:
(a) If the business is not continued by other partners:
i. To apply partnership property to discharge its liabilities and to receive in cash
his share of the surplus (less damages caused by his wrongful dissolution.)
(b) If the business is continued:
i. To have the value of his interest in the partnership at the time of the
dissolution, less any damage caused by the dissolution to his co-partners,
ascertained and paid in cash or secured by bond approved by the court; and
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)
 Innocent partners:
o can decide to buy the guilty partner’s interest
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
- rests in the probability that its old customers will continue their custom and will
commend the partnership to others, making the latter new customers.
- May include advantages which may be derived from the partners holding
themselves out as carrying on the business identified with the name of a particular
firm.
 rescinded (should be “annulled”)
 If induced by fraud or misrepresentation to become a partner, the contract is
voidable or annullable. (consent vitiated)
 If the contract is annulled, the injured partner is entitled to restitution.
o BUT until annulled by a proper action in court, the partnership relations
exist and the defrauded partner is liable to 3rd persons.

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

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