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WINDING UP
ART. 1828-1831
Loss before the delivery to the partnership of a specific property which a partner
has promised to contribute to the partnership
Causes of Automatic Dissolution
Death of a partner
Insolvency of any partner or of the partnership
Civil interdiction of a partner
Dissolution by decree of court
Ex. A, B, C, D & E are partners. A is the managing partner. The term of the
partnership expired on Dec. 31, 2016. Here, the authority of A to act for the
partnership is deemed terminated among the partners even if A was not aware of
the firms dissolution.
When authority of a partner to enter into
new transactions is terminated among the
partners
If the cause of dissolution is the act of a partner and the partner who entered into
the new transaction had knowledge of the dissolution
If the cause of the dissolution is the insolvency or death of a partner and the
partner who entered into the new transaction had notice or knowledge of such
insolvency or death.
Ex. A, B, C, D & E are partners. A is the managing partner. E withdraws from the
firm thereby causing the dissolution of the partnership. A knows of the
dissolution of the partnership by reason of Es withdrawal. Here, the authority of
A to act for the partnership is deemed terminated among the partners.
When authority of a partner to enter into
new transaction is not terminated among the
partners
If the cause of the dissolution is the act of a partner and the acting partner had no
knowledge of the dissolution
Where although the partner has no authority to wind up partnership affairs, the
other party to the transaction is:
i. One who had extended credit to the partnership before dissolution (i.e. previous
creditor) and he had no notice or knowledge of the partners lack of authority
ii. one who had not so extended credit before dissolution (i.e. new creditor) and having no
notice or knowledge of the partners lack of authority, such fact has not been advertised
in a newspaper of general circulation in the place at which the business is conducted.
When the act of a partner after
dissolution does not bind the partnership
Where the partnership is dissolved because it is unlawful to carry on the business,
unless the act is appropriate for winding up partnership affairs.
Where the acting partner is insolvent.
Where the partner had no authority to wind up partnership affairs, except with
innocent third persons.
Where a partners authority is already terminated among the partners and the
third person had actual or constructive knowledge, as the case may be, of the
dissolution of the firm.
RULES on liability of partners and the
partnership for acts of a partner after
dissolution.
IF a partners authority is terminated among the partners but the partnership
is bound by the transaction.
The third person can go after the assets of the partnership
If the assets of the partnership are not sufficient, the third person can go after the
separate assets of each partner.
Thereafter, the other partners can go after the acting partner to recover the
amount they paid out of their separate assets and to demand the return of the
amount paid out of the partnership assets. This is because in so far as the partners
are concerned, the authority of the acting partner was already terminated.
RULES on liability of partners and the
partnership for acts of a partner after
dissolution.
If partners authority is not terminated among the partners and the
partnership is bound by the transaction
The third person can go after the assets of the partnership
If the assets of the partnership are not sufficient, the third person can go after the
separate assets of each partner.
Thereafter, the other partners cannot go after the acting partner for recovery
because after all the authority of the latter was not terminated among all the
partners.
RULES on liability of partners and the
partnership for acts of a partner after
dissolution.
If a partners authority is terminated among the partners and the partnership
is not bound by the transaction.
The partnership assets cannot be held to answer for the liability to the third
person.
The acting partner alone is liable to the third person with whom he contracted and
he cannot call on the other partners to share in the payment.
RULES on liability of partners and the
partnership for acts of a partner after
dissolution.
If a partners authority is not terminated among the partners, but the
partnership is not bound by the transaction.
This may occur when a partnership is dissolved by reason of the death of a partner
and the acting partner has no knowledge of such death. Such acting partner enters
into a new transaction with a previous creditor who had notice or knowledge of the
dissolution of the partnership by reason of the such death.
Effect of dissolution on partners
existing liability (Art. 1835)
A partner may be relieved from all existing liabilities upon dissolution only by
an agreement to that effect between
The partner himself,
the partnership creditor, and
the other partners.
Manner of winding up (Art. 1836)