Article 1825.

partnership, NO partnership
liability results BUT the
Partner by estoppel; partnership by
deceiver and all persons who
estoppel
may have aided him in the
1. Estoppel: misrepresentation are still
 Meaning: a bar or liable and liability would be
impediment (obstruction) JOINT or PRO RATA.
which precludes a person
Person bound by his representation
from asserting a fact or a
right or prevents one from A person who hold himself out as a partner
denying a fact. Such a in a business, or consents to his being so
hindrance is due to a person's held out, is liable on contracts made with
actions, conduct, statements, third persons who deal with the persons
admissions, failure to act or carrying on the business on the faith of the
judgment against the person representation. He is stopped to deny the
in an identical legal case. apparent agency.
 Effect: an admission is
Article 1826
rendered conclusive upon the
person making it and cannot Liability of incoming Partner for existing
be denied or disproved as obligations
against the person.
 he shall be liable for all the
2. Guidelines:
obligations of the partnership BUT
 if a third person is misled and
his liability will e6tendonly to his
acts because of such
share in the partnership property
misrepresentation, the
 his own individual property shall be
deceiver is a partner by
excluded
estoppel
 same liability of a limited partner
 if the partnership consented
to such misrepresentation Incoming partner liable for existing
partnership liability results obligations
 if the firm had not consented,
A newly admitted partner is liable for
no partnership liability results
obligations of the partnership at the time of
BUT the deceiver is
his admission. The obligation of the
considered still as a partner
incoming partner shall be satisfied only out
by estoppel with all the
of partnership property. This is not a harsh
obligations but not the rights
rule because the incoming partner “partakes
of a partner
of the benefit of the partnership property,
 when a person represents
and an established business. He has every
himself as a partner of a
means of obtaining full knowledge of
NON-EXISTENT
protecting himself, because he may insist on Article 1829
the liquidation or settlement of existing
RULE: On dissolution, the partnership is not
partnership debts. On the other hand, the
terminated BUT continues until the winding
creditors have no means of protecting
up of partnership affairs is completed.
themselves.
EFFECT: 1. A partnership dissolved does
Article 1827
not necessarily mean that a partner can
Preference of the partnership creditors in evade previous obligations entered into by
partnership property the partnership. 2. Dissolution saves the
former partners from new obligations to
 The creditors of the partnership shall
which they have not expressly or impliedly
be preferred to those of such partner
consented unless the same be essential for
as regards the partnership property.
winding up.
without prejudice to this right
Article 1830
 the private creditors of each partner
CAUSES OF DISSOLUTION
may ask the attachment and public
sale of the share of the latter in the 1. without violation of the agreement
partnership assets. between the partners
 If a partner sells his share to a third 2. in contravention of the agreement.
party, BUT the firm itself still Other specific causes are;
remains silent, partnership creditors 3. an event which makes the business
CANNOT assail the validity of the of the partnership unlawful;
sale. 4. loss of a specific thing which a
partner had promised to contribute to
Article 1828
the partnership;
The dissolution of a partnership is the 5. the death of a partner;
change in the relation of the partners caused 6. the insolvency of any partner or of
by any partner ceasing to be associated in the partnership itself;
the carrying on as distinguished from the 7. civil interdiction of any partner; and
winding up of the business. lastly
8. by judicial decree
DISSOLUTION- it is the point of time the
partners cease to carry on the business Partnership ceased upon expiration of
together. term; no more juridical personality

WINDING UP- the process of settling A partnership having ceased to exist since
business affairs after dissolution. 1959, the partnership has no more juridical
personality nor capacity to sue and be sued.
TERMINATION- the point in time after all
the partnership affairs have been wound up. Effect of Withdrawal before expiration of
the term
Under Article 1830, even if there is a  Other circumstances render a
specified term, one partners cause its dissolution equitable.
dissolution by expressly withdrawing eve n
On the application of the purchaser of a
before the expiration of the period, with or
partner's interest under Article 1813 or
without justifiable cause. Of course, if the
1814:
cause is not justified or no cause was given,
the withdrawing partner is liable for  After the termination of the specified
damages but in no case can he be compelled term or particular undertaking.
to remain in the firm. With his withdrawal,  At any time if the partnership was a
the number of members is decreased, hence, partnership at will when the interest
the dissolution. And in whatever way we was assigned or when the charging
view the situation, the conclusion is order was issued.
inevitable that the partners were to be  Dissolution of a partnership may be
guided in the liquidation of the partnership decreed by the court on application
by the provisions of its duly registered either (1) by a partner or, in case he
articles of partnership. has assigned his interest, (2) by his
assignee.
Article 1831
Article 1832.
On application by or for a partner the court
shall decree a dissolution whenever: Except so far as may be necessary to wind
up partnership affairs or to complete
 A partner has been declared insane in
transactions begun but not then finished,
any judicial proceeding or is shown
dissolution terminates all authority of any
to be of unsound mind.
partner to act for the partnership:
 A partner becomes in any other way
incapable of performing his part of  With respect to the partners
the partnership contract.  When the dissolution is not by the
 A partner has been guilty of such act, insolvency or death of a partner.
conduct as tends to affect  When the dissolution is by such act,
prejudicially the carrying on of the insolvency or death of a partner, in
business. cases where article 1833 so requires.
 A partner willfully or persistently  With respect to persons not partners,
commits a breach of the partnership as declared in article 1834.
agreement, or otherwise so conducts
RULE: If the cause of dissolution is not by
himself in matters relating to the
act, death, or insolvency of a partner, the
partnership business that it is not
authority ceases immediately.
reasonably practicable to carry on
the business in partnership with him. EXCEPTION: For the purposes of
 The business of the partnership can winding-up partnership affairs.
only be carried on at a loss.
Article 1833
Where the dissolution is caused by the act,  Had extended credit to the
death or insolvency of a partner, each partnership prior to dissolution and
partner is liable to his co-partners for his had no knowledge or notice of the
share of any liability created by any partner dissolution.
acting for the partnership as if the
Though he had not so extended credit, had
partnership had not been dissolved unless:
nevertheless known of the partnership prior
1. The dissolution being by act of any to dissolution, and, having no knowledge or
partner, the partner acting for the notice of dissolution, the fact of dissolution
partnership had knowledge of the had not been advertised in a newspaper of
dissolution. general circulation in the place (or in each
2. The dissolution being by the death or place if more than one) at which the
insolvency of a partner, the partner partnership business was regularly carried
acting for the partnership had on.
knowledge or notice of the death or
The liability of a partner under the first
insolvency.
paragraph, No. 2, shall be satisfied out of
General Rule : If the cause of dissolution is partnership assets alone when such partner
the death, act, or insolvency of a partner, had been prior to dissolution:
authority of a partner to bind ceases upon
Unknown as a partner to the person with
the knowledge of the dissolution.
whom the contract is made.
If dissolution is caused by act of one of
So far unknown and inactive in partnership
parties, co-partners are also liable to
affairs that the business reputation of the
contribute towards a liability as if no
partnership could not be said to have been in
dissolution has happened, provided that
any degree due to his connection with it.
there is no notice or the partner does not
have knowledge of the dissolution. The partnership is in no case bound by
any act of a partner after dissolution:
Article 1834.
1. Where the partnership is dissolved
After dissolution, a partner can bind the
because it is unlawful to carry on the
partnership, except as provided in the third
business, unless the act is appropriate
paragraph of this article:
for winding up partnership affairs.
 By any act appropriate for winding 2. Where the partner has become
up partnership affairs or completing insolvent.
transactions unfinished at 3. Where the partner has no authority to
dissolution. wind up partnership affairs; except
 By any transaction which would bind by a transaction with one who —
the partnership if dissolution had not
taken place, provided the other party
to the transaction:
 a. Had extended credit to the A partner is discharged from any existing
partnership prior to liability upon dissolution of the partnership
dissolution and had no by an agreement to that effect between
knowledge or notice of his himself, the partnership creditor and the
want of authority. person or partnership continuing the
business; and such agreement may be
inferred from the course of dealing between
b. Had not extended credit to the creditor having knowledge of the
the partnership prior to dissolution and the person or partnership
dissolution, and, having no continuing the business.
knowledge or notice of his
want of authority, the fact of
his want of authority has not The individual property of a deceased
been advertised in the manner partner shall be liable for all obligations of
provided for advertising the the partnership incurred while he was a
fact of dissolution in the first partner, but subject to the prior payment of
paragraph, No. 2 (b). his separate debts.

General rule: Dissolution terminates the General Rule: Dissolution of a partnership

authority of the partners to bind partnership. does not itself discharge the existing liability
of any partner.
Exceptions: Any act appropriate for
winding-up partnership affairs or completing Exception: A partner can be discharged from
transactions unfinished at dissolution any existing liability upon dissolution of the
partnership provided that there is an
If third persons that transacted had no actual
agreement between the partnership creditor
knowledge of the dissolution. *Persons
and the person or partners continuing the
extending credit prior to dissolution are
business.
entitled to notice of dissolution. If they had
no notice or knowledge of dissolution, they Individual properties of the deceased partner
may hold the retired partner for obligations shall be liable to all obligations of the
made by continuing partners after partnership made while he was a partner.
dissolution.
Article 1836
Article 1835
Unless otherwise agreed, the partners who
The dissolution of the partnership does not have not wrongfully dissolved the
of itself discharge the existing liability of partnership or the legal representative of the
any partner. 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 When dissolution is caused in
court. contravention of the partnership
agreement the rights of the partners shall
Facts:
be as follows:
 In absence of agreement, the part
 Each partner who has not caused
that did no wrongfully dissolved the
dissolution wrongfully shall have:
partnership.
 All the rights specified in the first
 If all partners died, the legal
paragraph of this article.
representative of the last surviving
 The right, as against each partner
partner provided that the partner is
who has caused the dissolution
not insolvent.
wrongfully, to damages breach of the
 Winding up of a dissolved
agreement.
partnership may be done
 The partners who have not caused
 Extrajudicially by the partners
the dissolution wrongfully, if they all
themselves. Judicially under the
desire to continue the business in the
control of a competent court.
same name either by themselves or
Managing partner or winding-up partner has jointly with others, may do so,
the right to sell firm property even after the during the agreed term for the
life of the partnership has expired. partnership and for that purpose may
possess the partnership property,
Article 1837
provided they secure the payment by
When dissolution is caused in any way, bond approved by the court, or pay
except in contravention of the partnership any partner who has caused the
agreement, each partner, as against his co- dissolution wrongfully, the value of
partners and all persons claiming through his interest in the partnership at the
them in respect of their interests in the dissolution, less any damages
partnership, unless otherwise agreed, may recoverable under the second
have the partnership property applied to paragraph, No. 1 (b) of this article,
discharge its liabilities, and the surplus and in like manner indemnify him
applied to pay in cash the net amount owing against all present or future
to the respective partners. But if dissolution partnership liabilities.
is caused by expulsion of a partner, bona
A partner who has caused the dissolution
fide under the partnership agreement and if
wrongfully shall have:
the expelled partner is discharged from all
partnership liabilities, either by payment or  If the business is not continued under
agreement under the second paragraph of the provisions of the second
article 1835, he shall receive in cash only paragraph, No. 2, all the rights of a
the net amount due him from the partner under the first paragraph,
partnership. subject to liability for damages in the
 second paragraph, No. 1 (b), of this If the partnership was dissolved in
article. contravention of the agreement:
 If the business is continued under the
 The remaining partners have the
second paragraph, No. 2, of this
right to sell partnership property to
article, the right as against his co-
pay the partnership’s liabilities and
partners and all claiming through
the surplus is distributed to the
them in respect of their interests in
remaining partners as well.
the partnership, to have the value of
 As against the guilty partner for the
his interest in the partnership, less
dissolution of the partnership, the
any damage caused to his co-partners
remaining partners have the right to
by the dissolution, ascertained and
recover damages for breach.
paid to him in cash, or the payment
 The remaining partners may also
secured by a bond approved by the
continue the business up to end of
court, and to be released from all
the stipulated term of the partnership.
existing liabilities of the partnership;
but in ascertaining the value of the Article 1838
partner's interest the value of the
Where a partnership contract is rescinded on
good-will of the business shall not be
the ground of the fraud or misrepresentation
considered.
of one of the parties thereto, the party
Rights of partners upon dissolution entitled to rescind is, without prejudice to
any other right, entitled:
 Dissolution is caused without
violation of the agreement.  To a lien on, or right of retention of,
 In contravention of the agreement. the surplus of the partnership
 If partnership is dissolved without property after satisfying the
violation of the agreement partnership liabilities to third persons
 All partners may have the property for any sum of money paid by him
sold for payment of partnership for the purchase of an interest in the
liabilities. partnership and for any capital or
 If there is surplus, after paying the advances contributed by him.
liabilities of the firm, it shall be  To stand, after all liabilities to third
given in cash to the partners. persons have been satisfied, in the
place of the creditors of the
partnership for any payments made
by him in respect of the partnership
liabilities.
 To be indemnified by the person
guilty of the fraud or making the
representation against all debts and
liabilities of the partnership.
Right of partner to rescind contract of  Those owing to partners other than
partnership for capital and profits.
 Those owing to partners in respect of
If one is induced by fraud or
capital.
misrepresentation to become a partner, the
 Those owing to partners in respect of
contract is voidable. If the contract is
profits.
annulled, the injured party is entitled to
restitution. Here, the fraud or The assets shall be applied in the order of
misrepresentation vitiates consent. However, their declaration in No. 1 of this article to
until the partnership contract is annulled by the satisfaction of the liabilities.
a proper action in court, the partnership
The partners shall contribute, as provided by
relations exist and the defrauded partner is
article 1797, the amount necessary to satisfy
liable for all obligations to third persons.
the liabilities.
Right of injured partner where
An assignee for the benefit of creditors or
partnership contract rescinded
any person appointed by the court shall have
1. Right of retention of partnership the right to enforce the contributions
property. specified in the preceding number.
2. Right to be subrogated in place of
Where a partner has become insolvent or his
creditors of partnership.
estate is insolvent, the claims against his
3. Right to be indemnified by the guilty
separate property shall rank in the following
partner against all liabilities of the
order:
partnership.
 Those owing to separate creditors.
 Those owing to partnership creditors.
Art. 1839. In settling accounts between the
 Those owing to partners by way of
partners after dissolution, the following rules
contribution.
shall be observed, subject to any agreement
to the contrary: Rules for settling accounts between the
partners
The assets of the partnership are:
1. The assets of the partnership
 The partnership property. 2. Liabilities of the partnership
 The contributions of the partners 3. Application of assets
necessary for the payment of all the 4. Contribution by the partners
liabilities specified in No. 2.
Assets of the partnership
 The liabilities of the partnership shall
rank in order of payment, as follows:  Partnership property
 Those owing to creditors other than
partners.
  The contributions of the partners the partners and one or more third
necessary for the payment of all persons, if the business is continued
liabilities without liquidation of the partnership
affairs.
 When all but one partner retire and
Order of application of the assets assign (or the representative of a
deceased partner assigns) their rights
 Those owing to partnership creditors
in partnership property to the
 Those owing to partners other than
remaining partner, who continues the
for capital and profits such as loans
business without liquidation of
given by the partners or advances for
partnership affairs, either alone or
business expenses
with others.
 Those owing for the return of the
 When any partner retires or dies and
capital contributed by the partners
the business of the dissolved
 The share of the profits, if any, due
partnership is continued as set forth
to each partner
in Nos. 1 and 2 of this article, with
Order of application of partner who the consent of the retired partners or
become insolvent or his estate his the representative of the deceased
insolvent, the claims against his separate partner, but without any assignment
property of his right in partnership property.
 When all the partners or their
 Those owing to separate creditors
representatives assign their rights in
 Those owing to partnership creditors
partnership property to one or more
 Those owing to partners by way of
third persons who promise to pay the
contribution
debts and who continue the business
of the dissolved partnership.
 When any partner wrongfully causes
Article 1840
a dissolution and the remaining
In the following cases creditors of the partners continue the business under
dissolved partnership are also creditors of the provisions of article 1837, second
the person or partnership continuing the paragraph, No. 2, either alone or
business: with others, and without liquidation
of the partnership affairs.
 When any new partner is admitted
 When a partner is expelled and the
into an existing partnership, or when
remaining partners continue the
any partner retires and assigns (or the
business either alone or with others
representative of the deceased
without liquidation of the partnership
partner assigns) his rights in
affairs.
partnership property to two or more
of the partners, or to one or more of
The liability of a third person becoming a without any settlement of accounts as
partner in the partnership continuing the between him or his estate and the person or
business, under this article, to the creditors partnership continuing the business, unless
of the dissolved partnership shall be satisfied otherwise agreed, he or his legal
out of the partnership property only, unless representative as against such person or
there is a stipulation to the contrary. partnership may have the value of his
interest at the date of dissolution
Nothing in this article shall be held to
ascertained, and shall receive as an ordinary
modify any right of creditors to set aside any
creditor an amount equal to the value of his
assignment on the ground of fraud.
interest in the dissolved partnership with
The use by the person or partnership interest, or, at his option or at the option of
continuing the business of the partnership his legal representative, in lieu of interest,
name, or the name of a deceased partner as the profits attributable to the use of his right
part thereof, shall not of itself make the in the property of the dissolved partnership;
individual property of the deceased partner Provided, That the creditors of the dissolved
liable for any debts contracted by such partnership as against the separate creditors,
person or partnership. or the representative of the retired or
deceased partner, shall have priority on any
Dissolution of a partnership by change of
claim arising under this article, as provided
members
article 1840, third paragraph.
Causes
To have the value of the interest of the
 New partner is admitted retiring partner or deceased partner in the
 Partner retires partnership determined as of the date of
 Partner dies dissolution.

 Partner withdraws
To receive thereafter, as an ordinary
 Partner is expelled from partnership creditor, an amount equal to the value of his
 Other partners assign their rights share in the dissolved partnership with
to sole remaining partner interest, or, at his option, in place of interest,
 All the partners assign their rights in the profits attributable to the use of his right.
 partnership property to third persons.
General Rule: When partner retires from the
Any change in membership dissolves a partnership, he is entitled to the payment of
what may be due to him after liquidation.
partnership and creates a new one
Exception : No liquidation needed when
Article 1841
there is settlement as to what retiring partner
When any partner retires or dies, and the shall receive.
business is continued under any of the
Article 1842
conditions set forth in the preceding article,
or in article 1837, second paragraph, No. 2, Partner’s right to account of his interest
 1. Accrual of right- right to demand an
accounting of the value of his
interest accrues to any partner or his
legal representative after dissolution.
2. 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 statement
of partnership affairs, may be
exercised as against:
a. Winding up partner
b. Surviving partner
c. Person or partnership
continuing the business.

When liquidation not required

No liquidation necessary when there is

already a settlement or an agreement as to
what he shall receive.