CHAPTER 3 IS THE AGREEMENT OF THE PARTNERS AFFECTING

DISSOLUTION AND WINDING UP LIQUIDATION VALID?

 An agreement of the partners, like any other
Since it is the partnership, as a separate and distinct entity, contract, is binding among them and normally takes
that must refund the shares of the partners, the amount to precedence to the extent applicable over the Code’s
be refunded is necessarily limited to its total resources. In general provision.
other words, it can only pay out what it has in its coffers,
which consists of all its assets. However, before the partners Retirement
can be paid with their shares, the creditors of the partnership  The dissociation by a partner, inclusive of resignation
must first be compensated. After all the creditors have been or withdrawal, from the partnership that thereby
paid, whatever is left of the partnership assets becomes dissolves it.
available for the payment of the partners shares.
Take note:
Art. 1828. The dissolution of a partnership is the change in In the ordinary course of events, the legal personality
the relation of the partners caused by any partner ceasing to of the expiring partnership persists for the limited
be associated in the carrying on as distinguished from the purpose of winding up and closing of the affairs of
winding up of the business. (n) the partnership.
The new partnership simply took over the business
Dissolution enterprise owned by the preceding partnership, and
 The change in the relation of the parties caused by continued using the old name, without winding up
any partner ceasing to be associated in the carrying the business affairs of the old partnership.
on of the business Not only the retiring partners but also the new
 Upon the dissolution of the business, the partnership partnership itself which continued the business of
continues and its legal personality is retained until the old are liable for the debts of the preceding
the complete winding up of its business culminating partnership.
in its termination A withdrawing partner remains liable to a third party
creditor of the old partnership.
Take note:
The dissolution of the partnership did not mean that Art. 1829. On dissolution the partnership is not terminated,
the juridical entity was immediately terminated and but continues until the winding up of partnership affairs is
that the distribution of the assets to its partners completed. (n)
should perfunctorily follow.
On the contrary, the dissolution simply effected a Take note:
change in the relationship among the partners. The After dissolution, all the transactions of the
partnership, although dissolved, continues to exist partnership should only pertain to liquidation or
until its termination, at which time the winding up of winding up which will happen over a period of time.
its affairs should have been completed and the net When a partnership for a fixed term or particular
partnership assets are partitioned and distributed to undertaking is continued after the termination of
the partners. such term or particular undertaking without any
express agreement, the rights and duties of the
3 FINAL STAGES OF A PARTNERSHIP partners remain the same as they were at such
1. Dissolution termination, so far as is consistent with a partnership
o The point of time wherein the partners at will.
cease to carry on the business together
2. Winding Up Art. 1830. Dissolution is caused:
o The process of settling business affairs after
dissolution 1. Without violation of the agreement between the partners:
3. Termination (a) By the termination of the definite term or particular
o The point in time after all the partnership undertaking specified in the agreement;
affairs have been wound up (b) By the express will of any partner, who must act in
good faith, when no definite term or particular is specified;
*Some of the best evidence of the existence of the (c) By the express will of all the partners who have not
partnership, which was not yet terminated (though in the assigned their interests or suffered them to be charged for
winding up stage), were the unsold goods and uncollected their separate debts, either before or after the termination
receivables. Since the partnership has not been terminated, of any specified term or particular undertaking;
the partners remained as co-partners. (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;

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2. In contravention of the agreement between the partners, 2. In contravention of the agreement between the partners,
where the circumstances do not permit a dissolution under where the circumstances do not permit a dissolution under
any other provision of this article, by the express will of any any other provision of this article, by the express will of any
partner at any time; 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 Under Article 1830,
it on in partnership;  Even if there is a specified term, one partner can
4. When a specific thing which a partner had promised to cause its dissolution by expressly withdrawing even
contribute to the partnership, perishes before the delivery; before the expiration of the period with or without
in any case by the loss of the thing, when the partner who justifiable cause
contributed it having reserved the ownership thereof, has  If the cause is not justified or no cause was given, the
only transferred to the partnership the use or enjoyment of withdrawing partner is liable for damages but in no
the same; but the partnership shall not be dissolved by the case can he be compelled to remain in the firm. With
loss of the thing when it occurs after the partnership has his withdrawal, the number of members is
acquired the ownership thereof; decreased, hence, the dissolution.
5. By the death of any partner;
6. By the insolvency of any partner or of the partnership; 4. When a specific thing which a partner had promised to
7. By the civil interdiction of any partner; contribute to the partnership, perishes before the delivery;
8. By decree of court under the following article. (1700a and in any case by the loss of the thing, when the partner who
1701a) contributed it having reserved the ownership thereof, has
only transferred to the partnership the use or enjoyment of
KINDS OF DISSOLUTION the same; but the partnership shall not be dissolved by the
1. Extrajudicial dissolution - #s 1 to 7 loss of the thing when it occurs after the partnership has
2. Judicial dissolution - #8 acquired the ownership thereof;

1. Without violation of the agreement between the partners: Take note:

If a partner contributed the use or employment only
(a) By the termination of the definite term or particular of a specific thing and it was lost before the delivery
undertaking specified in the agreement to the partnership, the partnership is dissolved.
If a partner contributed the use or employment only
Partnership with a fixed term
of a specific thing and it was lost after the delivery to
 The life or period of existence of the partnership has the partnership, the partnership is dissolved.
been agreed upon by the partners If a partner contributed the ownership of a specific
thing and it was lost before the delivery to the
Partnership for a particular undertaking
partnership, the partnership is dissolved.
 A partnership that will exist until the purpose is
If a partner contributed the ownership of a specific
accomplished
thing and it was lost after the delivery to the
partnership, the partnership is not dissolved.
(b) By the express will of any partner, who must act in
Principle: The owner bears the risk of loss
good faith, when no definite term or particular is specified
5. By the death of any partner;
Partnership at will
 A partnership that does not fix its term
-The Civil Code provides that an action to enforce an oral
 The birth and life is predicated on the mutual desire
contract prescribes in 6 years while the right to demand an
and consent of the partners
accounting for a partner’s interest as against the person
 The right to choose with whom a person wishes to
continuing the business accrues at the date of dissolution, in
associate himself is the very foundation and essence
the absence of any contrary agreement
of that partnership
-Article 1772 of the Civil Code requires that partnerships with
(d) By the expulsion of any partner from the business
a capital of P3,000 or more must register with the SEC,
bona fide in accordance with such a power conferred by the
however this is not mandatory.
agreement between the partners
-Article 1768 of the Civil Code explicitly provides that the
-Expulsion must be in good faith
partnership retains its juridical personality even if it fails to
register. Non-compliance will not invalidate the partnership

-The main purpose of registration is to give notice to third

parties.

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6. By the insolvency of any partner or of the partnership contract

Insolvency
 Liabilities are greater than the assets

7. By the civil interdiction of any

partner Civil interdiction

 Deprives the offender during the time of his sentence
of the right to manage his property and dispose of
such property by any act or any conveyance inter
vivos

Art. 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 wilfully 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. (n)

Who can sue for judicial dissolution?

1. A partner or any of #s 1 to 6
2. The purchaser of a partner’s interest in the
partnership under Art. 1813 or 1814 after the
termination of the specified term or particular
undertaking or if the partnership is a t will when the
interest was assigned or when the charging order
was issued

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

-The presumption is in favor of sanity

-Insanity must be duly proved in court
-Insanity will make a person incapacitated to enter into a

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5. The business of the partnership can only be carried on at 1833 & 1834)
a loss

-The intention and essence of every business partnership is

to divide the profits among themselves

6. Other circumstances render a dissolution equitable.

-If excellent relations exists among the partners at the start

of business and all the partners are more interested in
seeing the firm grow rather than get immediate returns, a
deferment of sharing in the profits is perfectly plausible.
-It would be incorrect to stated that if a partner does not
assert his rights anytime within the agreed period from the
start of the operations, such rights are irretrievably lost.
-The Court may decree a dissolution of the partnership.
-There shall be a liquidation and winding up of partnership
affairs, return of capital, and other incidents of dissolution
because the continuation of the partnership has become
inequitable.

On the application of the purchaser of a partner’s interest

under Article 1813 or 1814:

-If after the period of partnership for a particular

undertaking and the partnership is not yet dissolved, the
court may decree a dissolution
-Generally understood to mean an organization formed for
some temporary purpose, a joint venture is likened to a
particular partnership or one which has for its object
determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation.
-Joint ventures are governed by the law on partnerships
which are based on mutual agency or delectus personae
-The transfer by a partner of his partnership interest does
not make the assignee of such interest a partner of the firm,
nor entitled the assignee to interfere in the management of
the partnership business or to receive anything except the
assignee’s profits.
-The assignee does not purport to transfer an interest in the
partnership, but only a future contingent right to a portion of
the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital.

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)

-As a rule, when a partnership is dissolved, any of the

partners cannot bind the partnership. (Exceptions: Articles

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Art. 1833. Where the dissolution is caused by the act, death The partnership is in no case bound by any act of a partner
or insolvency of a partner, each partner is liable to his co- after dissolution:
partners for his share of any liability created by any partner 1. Where the partnership is dissolved because it is unlawful
acting for the partnership as if the partnership had not been to carry on the business, unless the act is appropriate for
dissolved unless: winding up partnership affairs; or
1. The dissolution being by act of any partner, the partner 2. Where the partner has become insolvent; or
acting for the partnership had knowledge of the dissolution; 3. Where the partner has no authority to wind up
or partnership affairs; except by a transaction with one who:
2. The dissolution being by the death or insolvency of a (a) Had extended credit to the partnership prior to
partner, the partner acting for the partnership had dissolution and had no knowledge or notice of his want of
knowledge or notice of the death or insolvency. authority; or
(b) Had not extended credit to the partnership prior to
-Any transactions entered into by partners without their dissolution, and, having no knowledge or notice of his want
knowledge of the withdrawal of a partner is valid and binding of authority, the fact of his want of authority has not been
to the partnership advertised in the manner provided for advertising the fact of
-If a partner has knowledge about the withdrawal of a partner dissolution in the first paragraph, No. 2 (b).
and he transactions with a third person who has no
knowledge about the withdrawal, the transaction creates a Nothing in this article shall affect the liability under Article
liability which makes it still valid and binding to the 1825 of any person who, after dissolution, represents himself
partnership or consents to another representing him as a partner in a
 The third person must be in good faith partnership engaged in carrying business. (n)
 After the payment to the third person, the partner
can ask for reimbursement of his share I. Partnership is liable
-If the cause of dissolution is the death or insolvency of a
partner and a partner who has knowledge of the death of a 2. By any transaction which would bind the partnership if
partner entered into a contract with a third person who has dissolution had not taken place, provided the other party to
no knowledge about the death, the transaction creates a the transaction
liability which makes it still valid and binding to the
partnership (a) Had extended credit to the partnership prior to
 After the payment to the third person, the partner dissolution and had no knowledge or notice of the
can ask for reimbursement of his share dissolution; or

Art. 1834. After dissolution, a partner can bind the -The third person must be in good faith
partnership, except as provided in the third paragraph of -The partnership is liable to the contract of sale
this article:
(b) Though he had not so extended credit, had
1. By any act appropriate for winding up partnership affairs nevertheless known of the partnership prior to dissolution,
or completing transactions unfinished at dissolution; and, having no knowledge or notice of dissolution, the fact
2. By any transaction which would bind the partnership if of dissolution had not been advertised in a newspaper of
dissolution had not taken place, provided the other party to general circulation in the place (or in each place if more than
the transaction: one) at which the partnership business was regularly carried
(a) Had extended credit to the partnership prior to on.
dissolution and had no knowledge or notice of the
dissolution; or
(b) Though he had not so extended credit, had -If the fact of dissolution had been advertised in a newspaper
nevertheless known of the partnership prior to dissolution, of general circulation, then the partnership is not liable.
and, having no knowledge or notice of dissolution, the fact
of dissolution had not been advertised in a newspaper of II. Partnership is not liable
general circulation in the place (or in each place if more than
one) at which the partnership business was regularly carried 3. Where the partner has no authority to wind up
on. partnership affairs; except by a transaction with one who:

The liability of a partner under the first paragraph, No. 2, -As a general rule, any transaction entered into by a the
shall be satisfied out of partnership assets alone when such remaining partners after he dissolution is not binding to the
partner had been prior to dissolution: partnership; hence, the partnership is not liable
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.
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Art. 1835. The dissolution of the partnership does not of dissolution is caused by expulsion of a partner, bona fide
itself discharge the existing liability of any partner. under the partnership agreement and if the expelled partner
is discharged from all partnership liabilities, either by
A partner is discharged from any existing liability upon payment or agreement under the second paragraph of
dissolution of the partnership by an agreement to that effect Article 1835, he shall receive in cash only the net amount
between himself, the partnership creditor and the person or due him from the partnership.
partnership continuing the business; and such agreement
may be inferred from the course of dealing between the When dissolution is caused in contravention of the
creditor having knowledge of the dissolution and the person partnership agreement the rights of the partners shall be as
or partnership continuing the business. follows:
1. Each partner who has not caused dissolution wrongfully
The individual property of a deceased partner shall be liable shall have:
for all obligations of the partnership incurred while he was a (a) All the rights specified in the first paragraph of this
partner, but subject to the prior payment of his separate article, and
debts. (n) (b) The right, as against each partner who has caused
the dissolution wrongfully, to damages breach of the
-General rule: The dissolution of the partnership does not of agreement.
itself discharge the existing liability of any partner
2. The partners who have not caused the dissolution
In order for the liability of a partner to be discharged the wrongfully, if they all desire to continue the business in the
following must agree: same name either by themselves or jointly with others, may
1. The partner do so, during the agreed term for the partnership and for
2. The other partners that purpose may possess the partnership property,
3. The creditors provided they secure the payment by bond approved by the
court, or pay any partner who has caused the dissolution
Art. 1836. Unless otherwise agreed, the partners who have wrongfully, the value of his interest in the partnership at the
not wrongfully dissolved the partnership or the legal dissolution, less any damages recoverable under the second
representative of the last surviving partner, not insolvent, paragraph, No. 1
has the right to wind up the partnership affairs, provided, (b) of this article, and in like manner indemnify him against
however, that any partner, his legal representative or his all present or future partnership liabilities.
assignee, upon cause shown, may obtain winding up by the
court. (n) 3. A partner who has caused the dissolution wrongfully shall
have:
KINDS OF WINDING-UP OR LIQUIDATION (a) If the business is not continued under the provisions
1. Extrajudicial of the second paragraph, No. 2, all the rights of a partner
 Liquidation is done without the intervention under the first paragraph, subject to liability for damages in
of the court the second paragraph, No. 1 (b), of this article.
 Who will wind-up? (b) If the business is continued under the second
o The liquidating partner or partners as paragraph, No. 2, of this article, the right as against his co-
agreed upon by all of the partners partners and all claiming through them in respect of their
o The partners who have not interests in the partnership, to have the value of his interest
wrongfully dissolved the partnership in the partnership, less any damage caused to his co-
o The legal representative of the last partners by the dissolution, ascertained and paid to him in
surviving partner who is not insolvent cash, or the payment secured by a bond approved by the
2. Judicial court, and to be released from all existing liabilities of the
 Liquidation is done under the control and partnership; but in ascertaining the value of the partner’s
direction of the court, upon proper cause that interest the value of the good-will of the business shall not
is shown to the court be considered. (n)
 Who will wind-up?
o The person appointed by the court I. Without contravention or violation of the partnership
agreement
Art. 1837. When dissolution is caused in any way, except in 1. To have the partnership property applied to discharge
contravention of the partnership agreement, each partner, the liabilities of the partnership; and
as against his co-partners and all persons claiming through 2. To have the surplus, if any, applied to pay in cash the
them in respect of their interests in the partnership, unless net amount owing to the respective partners.
otherwise agreed, may have the partnership property
applied to discharge its liabilities, and the surplus applied to -During liquidation, the non-cash assets of the partnership
pay in cash the net amount owing to the respective must be converted into cash to pay the creditors
partners. But if -If there is remaining cash, it will be distributed to the
partner- creditor of the partnership
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Take note: Art. 1838. Where a partnership contract is rescinded on the
If dissolution is caused by expulsion of a partner, ground of the fraud or misrepresentation of one of the
bona fide (good faith) under the partnership parties thereto, the party entitled to rescind is, without
agreement, and if the expelled partner is discharged prejudice to any other right, entitled:
from all partnership liabilities, either by payment or 1. To a lien on, or right of retention of, the surplus of the
agreement between him, the other partners, and the partnership property after satisfying the partnership liabilities
partnership creditors, he shall receive in cash only to third persons for any sum of money paid by him for the
the net amount due him from the partnership. purchase of an interest in the partnership and for any
capital or advances contributed by him;
II. Contravention or violation of the partnership agreement 2. To stand, after all liabilities to third persons have been
1. Rights of partner who has not caused dissolution satisfied, in the place of the creditors of the partnership for
wrongfully any payments made by him in respect of the partnership
a. To have the partnership property applied to liabilities; and
discharge the liabilities of the partnership 3. To be indemnified by the person guilty of the fraud or
b. To have the surplus, if any, applied to pay in making the representation against all debts and liabilities of
cash the net amount owing to the respective the partnership. (n)
partners
c. To be indemnified for damages caused by the 3 RIGHTS OF A PARTNER WHO IS ENTITLED TO RESCIND
partner who caused the dissolution 1. Right of lien or right of retention
wrongfully 2. Right of subrogation
d. To continue the business in the same name 3. Right of indemnification
wither by themselves or jointly with others
during the agreed term of the partnership Art. 1839. In settling accounts between the partners after
and for that purpose may possess the dissolution, the following rules shall be observed, subject to
partnership property any agreement to the contrary:

2. Rights of partner who wrongfully cause the dissolution 1. The assets of the partnership are:
a. If the business is not continued by the other (a) The partnership property,
partners (b) The contributions of the partners necessary for the
 To have the partnership property payment of all the liabilities specified in No. 2.
applied to discharge the liabilities of
the partnership 2. The liabilities of the partnership shall rank in order of
 To receive in cash his share of the payment, as follows:
surplus less damages caused by his (a) Those owing to creditors other than partners,
wrongful dissolution (b) Those owing to partners other than for capital and
b. If the business is continued by the other profits,
partners (c) Those owing to partners in respect of capital,
 To have the value of his interest in the (d) Those owing to partners in respect of profits.
partnership, less any damage caused to
his co-partners by the dissolution, 3. The assets shall be applied in the order of their
ascertained and paid to him in cash, or declaration in No. 1 of this article to the satisfaction of the
the payment secured by a bond liabilities.
approved by the court 4. The partners shall contribute, as provided by article 1797,
 To be released from all existing the amount necessary to satisfy the liabilities.
liabilities of the partnership 5. An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
Take note: contributions specified in the preceding number.
In ascertaining the value of the partner’s interest 6. Any partner or his legal representative shall have the right
who wrongfully caused the dissolution of the to enforce the contributions specified in No. 4, to the extent
partnership, the value of the goodwill of the business of the amount which he has paid in excess of his share of the
shall not be considered liability.
All authority of any partner to act for the partnership 7. The individual property of a deceased partner shall be
is terminated except so far as may be necessary to liable for the contributions specified in No. 4.
wind up the partnership affairs or to complete 8. When partnership property and the individual properties
transactions begun but not yet finished. of the partners are in possession of a court for distribution,
Until the partnership accounts are determined, it partnership creditors shall have priority on partnership
cannot be ascertained how much any of the parties property and separate creditors on individual property, saving
is entitled to, if at all. the rights of lien or secured creditors.

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9. Where a partner has become insolvent or his estate is Preference of claims against the separate property of an
insolvent, the claims against his separate property shall rank insolvent partner (rank in order of claims)
in the following order: 1. Those owing to separate creditors
(a) Those owing to separate creditors; 2. Those owing to partnership creditors
(b) Those owing to partnership creditors; 3. Those owing to partners by way of contribution
(c) Those owing to partners by way of contribution. (n)
Art. 1840. In the following cases creditors of the dissolved
ASSETS OF THE PARTNERSHIP partnership are also creditors of the person or partnership
1. Partnership property continuing the business:
2. Contributions of the partners necessary for the 1. When any new partner is admitted into an existing
payment of all liabilities partnership, or when any partner retires and assigns (or the
representative of the deceased partner assigns) his rights in
LIABILITIES OF THE PARTNERSHIP (rank in order of payment) partnership property to two or more of the partners, or to
1. Those owing to partnership creditors other than one or more of the partners and one or more third persons,
partners if the business is continued without liquidation of the
2. Those owing to partners partnership affairs;
3. Those owing to partners in respect of capital 2. When all but one partner retire and assign (or the
 An industrial partner is not entitled to representative of a deceased partner assigns) their rights in
participate in the capital partnership property to the remaining partner, who
4. Those owing to partners in respect of profits continues the business without liquidation of partnership
 An industrial partner is entitled to affairs, either alone or with others;
participate in the profits 3. When any partner retires or dies and the business of the
dissolved partnership is continued as set forth in Nos. 1 and
Take note: 2 of this article, with the consent of the retired partners or
Generally, in the pursuit of a partnership business, its the representative of the deceased partner, but without any
capital is either increased by profits earned or assignment of his right in partnership property;
decreased by losses sustained. It does not remain 4. When all the partners or their representatives assign
static and unaffected by the changing fortunes of the their rights in partnership property to one or more third
business persons who promise to pay the debts and who continue the
The law does not relieve parties from the effects of business of the dissolved partnership;
unwise, foolish or disastrous contracts they have 5. When any partner wrongfully causes a dissolution and
entered into with all the required formalities and the remaining partners continue the business under the
with full awareness of what they were doing provisions of article 1837, second paragraph, No. 2, either
alone or with others, and without liquidation of the
REQUIRED NEW CONTRIBUTION partnership affairs;
 If the partnership assets were exhausted, the 6. When a partner is expelled and the remaining partners
partners shall contribute the amount necessary to continue the business either alone or with others without
satisfy the liabilities. liquidation of the partnership affairs.
 Who can enforce?
1. An assignee for the benefit of creditors or any The liability of a third person becoming a partner in the
person appointed by the court shall have the partnership continuing the business, under this article, to the
right to enforce the contributions creditors of the dissolved partnership shall be satisfied out of
2. Any partner or his legal representative shall the partnership property only, unless there is a stipulation to
have the right to implement the said enforced the contrary.
contributions, to the extent of the amount
which he has paid in excess of his share of the When the business of a partnership after dissolution is
liability continued under any conditions set forth in this article the
creditors of the dissolved partnership, as against the
Individual property of a deceased partner separate creditors of the retiring or deceased partner or the
 Shall be liable for his share of the partnership liability representative of the deceased partner, have a prior right to
incurred while he was a partner any claim of the retired partner or the representative of the
 His separate creditors have preference over these deceased partner against the person or partnership
individual properties continuing the business, on account of the retired or
deceased partner’s interest in the dissolved partnership or on
Preference with respect to properties in possession of the account of any consideration promised for such interest or
court for his right in partnership property.
 Partnership creditors shall have priority on
partnership property and separate creditors on
individual property

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Nothing in this article shall be held to modify any right of RIGHTS OF A PARTNER WHO RETIRES OR DIES AND THE
creditors to set aside any assignment on the ground of BUSINESS IS CONTINUED WITHOUT ANY SETTLEMENT OF
fraud. ACCOUNTS
1. To have the value of his interest at the date of
The use by the person or partnership continuing the business dissolution ascertained
of the partnership name, or the name of a deceased partner 2. To receive as an ordinary creditor an amount equal
as part thereof, shall not of itself make the individual to the value of his interest in the dissolved
property of the deceased partner liable for any debts partnership with interest, or, at his option or at the
contracted by such person or partnership. (n) option of his legal representative, in lieu of interest,
the profits attributable to the use of his right in the
Rationale: property of the dissolved partnership
-The article primarily deals with the exemption from liability
in cases of a dissolved partnership, of the individual property Art. 1842. The right to an account of his interest shall accrue
of the deceased partner for debts contracted by the person or to any partner, or his legal representative as against the
partnership which continues the business using the partnership winding up partners or the surviving partners or the person
name or the name of the deceased partner as part thereof. or partnership continuing the business, at the date of
What the law contemplates therein is a hold-over situation dissolution, in the absence of any agreement to the contrary.
preparatory to formal reorganization. (n)

-Article 1840 treats more of a commercial partnership with a WHO HAS THE RIGHT TO AN ACCOUNT OF HIS INTEREST?
goodwill to protect rather than a professional partnership, with  Shall accrue to any partner or his legal representative
no saleable goodwill but whose reputation depends on the
personal qualifications of its individual members. WHO HAS AN OBLIGATION TO RENDER AN ACCOUNT?
1. The winding up partners or
-As a general rule, upon the dissolution of a commercial 2. Surviving partners or
partnership the succeeding partners or parties have the right 3. The person or partnership continuing the business
to carry on the business under the old name, in the absence
of a stipulation forbidding it, since the name of a commercial WHEN TO RENDER AN ACCOUNT?
partnership is a partnership asset inseparable from the  At the date of dissolution, except of any stipulation
goodwill of the firm. to the contrary

-On the other hand, a professional partnership the reputation Take note:
of which depends on the individual skill of the members, such For as long as the partnership exists, any of the
as partnership of attorneys or physicians, has no goodwill to partners may demand an accounting of the
be distributed as a firm asset on its dissolution, however partnership’s business.
intrinsically valuable such skill and reputation may be, Prescription of the said right starts to run only upon
especially where there is no provision in the partnership the dissolution of the partnership when the final
agreement relating to good will as an asset accounting is done.
In the absence of a final accounting, prescription will
Art. 1841. When any partner retires or dies, and the business not begin
is continued under any of the conditions set forth in the There shall be liquidation and winding up of
preceding article, or in Article 1837, second paragraph, No. partnership affairs, return of capital, and other
2, without any settlement of accounts as between him or his incidents of dissolution because the continuation of
estate and the person or partnership continuing the the partnership has become inequitable.
business, unless otherwise agreed, he or his legal
representative as against such person or partnership may
have the value of his interest at the date of dissolution
ascertained, and shall receive as an ordinary creditor an
amount equal to the value of his interest in the dissolved
partnership with interest, or, at his option or at the option of
his legal representative, in lieu of interest, the profits
attributable to the use of his right in the property of the
dissolved partnership; provided that the creditors of the
dissolved partnership as against the separate creditors, or
the representative of the retired or deceased partner, shall
have priority on any claim arising under this article, as
provided Article 1840, third paragraph. (n)

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