Published — July 22, 2022
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
After reading “Dissolution of Partnership”, read also “What is the Diplomatic Power of the President?“
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A change in the relation of partners by any partner ceasing to be associated in carrying on the business is dissolution.
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Dissolution does not automatically result in the termination of the legal personality of the partnership, nor the relations of the partners who among themselves remain as co-partners until the partnership is terminated.
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In dissolution, the partnership is not terminated but continues until the winding up of the business.
A change in the relation of partners by any partner ceasing to be associated in carrying on the business is dissolution. (Article 1828, New Civil Code of the Philippines)
Dissolution is different from winding up and from termination. Winding up is settling the partnership business or affairs after dissolution. Termination is the point in time when all partnership affairs are wound up or completed. (Article 1828, New Civil Code)
What are the causes of dissolution?
The law says:
Dissolution is caused:
- Without violation of the agreement between the partners:
- By the termination of the definite term or particular undertaking specified in the agreement;
- By the express will of any partner, who must act in good faith, when no definite term or particular is specified;
- By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking;
- By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners;
- 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;
- 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;
- 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 when it occurs after the partnership has acquired the ownership thereof;
- By the death of any partner;
- By the insolvency of any partner or of the partnership;
- By the civil interdiction of any partner;
- By decree of court under the following article. (Article 1830, New Civil Code)
What are the effects of dissolution?
A partnership is not terminated after dissolution and it continues for a limited purpose. Transaction, however, of new business is prohibited.
Jurisprudence says:
The dissolution of a firm does not relieve any of its members from liability for existing obligations, although it does save them from new obligations to which they have not expressly or impliedly assented, and any of them may be discharged from old obligations by novation of other form of release. It is often said that a partnership continues, even after dissolution, for the purpose of winding up its affairs. (Testate Estate of Lazaro Mota vs. Salvador Serra, G.R. No. L-22825, February 14, 1925)
The dissolution of a partnership must not be understood in the absolute and strict sense so that at the termination of the object for which it was created the partnership is extinguished, pending the winding up of some incidents and obligations of the partnership, but in such case, the partnership will be reputed as existing until the juridical relations arising out of the contract are dissolved. (Testate Estate of Lazaro Mota vs. Salvador Serra, G.R. No. L-22825, February 14, 1925)
Moreover, dissolution does not automatically result in the termination of the legal personality of the partnership, nor the relations of the partners who among themselves remain as co-partners until the partnership is terminated.
Jurisprudence says:
It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of the business. However, on dissolution, the partnership is not terminated but continues until the winding up of the business. (Manuel G. Singsong vs. Isabela Sawmill, G.R. No. L-27343 February 28, 1979)
When does dissolution terminate all authority of any partner to act for the partnership?
The law says:
Article 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:
- With respect to the partners,
- When the dissolution is not by the act, insolvency or death of a partner; or
- When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so requires;
- With respect to persons not partners, as declared in article 1834.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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