Where are we?

O Defined dissolution
O Causes of dissolution
O Effects of dissolution
O on authority of a partner to act for the
partnership
O When partners acts may still bind the

partnership

O Liability of partners
O to partners
O to third persons

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.

What is the
effect of
dissolution on
the existing
liability of a
partner?

The dissolution
of the
partnership
DOES NOT of
itself discharge
the existing
liability of any
partner.

Why?
Creditors will be
prejudiced.

How then is a partner

discharged
from liability?

By an agreement to that effect

between:
1. Himself (the partner);
2. The partnership creditor; and
3. The person or
partnershipcontinuing the business.

How may the parties agree?

O Expressly
O Impliedly

Such an 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.

What is the effect if there is

no such agreement?
In the absence of such agreement, the liability
of a retiring partner as regards partnership
obligations incurred before the dissolution shall
continue as that of a principal debtor.
It has been been held that a partner who has
withdrawn from the partnership is released from
liability only when: (a) there was a liquidation
and (b) his withdrawal has been duly published. 3
3

Singsong v. Isabela Sawmill, 88 SCRA 623

What about in case of death, is

the deceased partner still liable?
Yes, in the absence of such an
agreement, 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 debt.

Example:
If A, B and C are partners
and A retires, all three
continue to be personally
liable for partnership debts
existing at the time of As
retirement.

Example:
Similarly, if A dies, his individual estate is
available to partnership creditors, subject,
however, to the claims of As personal
creditors. Even an agreement among A, B
and C whereby B and C promised to
assume the partnership debts does not
release A, unless the creditors assent to
such substitution of debtors, either by
express agreement (novation) or by
agreement inferable from the course of
dealing.4
4

supra note 2 at p. 264

Effect of Death on
Pending Action
An action for accounting against a
managing
partner
should
be
discontinued if he dies during the
pendency of the action. The suit must
be conducted in the settlement
proceedings of the deceaseds estate,
particularly if this is the desire of his
administrator.5

Po Yeng Cheo v. Lim Ka Yam, 44 Phil 172

So we have
established
liability,
whats next?

Art. 1836
Winding Up

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.

Winding up, defined

Winding up is the process of settling
the business affairs of the partnership
after its dissolution. Thus:
Settling of obligations
Collection of demandable claims
Defending claims against the firm
And other similar acts constitute
part of the winding up process.

Manner of winding up
The winding up of the dissolved
partnership may be done either:
1) Judicially under the control and
direction of the proper court upon
cause shown by any partner, his
legal representative or his
assignee; or
2) Extrajudicially by the partners
themselves without intervention of
the court.

Who can initiate

winding up?
Extrajudicial
The following are authorized to wind up the
affairs of the partnership:
The partners designated by the agreement;
2. In the absence of such agreement, the partners who
have not wrongfully dissolved the partnership; or
3. The legal representative (executor or administrator)
of the last surviving partner (when all the partners
are dead), provided the last survivor was not
insolvent.
1.

Judicial
Upon cause shown, the following
may initiate the winding up:
1. Partner
2. Legal representative or
3. His assignee.

The person to wind up must

be appointed by the
court. And said appointee
should not be the legal
representative of a deceased
partner but should be
instead a surviving partner.

Duty to liquidate
The duty to liquidate the affairs of the
partnership devolves not upon the legal
representative of the deceased partner, but
upon the surviving member or members of
the firm.6 The executor or administrator of
the estate of a deceased partner, regardless
of ability has no right to interfere with the
business of the firm in the absence of any
agreement to that effect.
6

Lota v. Tolentino, 90 Phil 829

Powers of liquidating
partner
1. He is the sole agent of the partnership

for the purpose of winding up the firms

affairs.
2. He may raise money to pay partnership
debts.
3. He may incur obligations to complete
existing contracts or preserve
partnership assets.
4. He may incur expenses necessary in
the conduct of litigation.

To sum it up
For the purpose of winding up the
affairs of a dissolved partnership, the
liquidating partner has full authority to
do everything that may be necessary

BUT
His power is limited to the
performance of acts which are
indispensable to that end.

Thank you.
Art. 1835 1836
Partnership, Agency and Trust
Shayne Amor S. Bance

How can there be a partner

continuing the business if the
partnership is dissolved?
Dissolution is the change in the relation
of the partners caused by any partner
ceasing to be associated in the carrying
on of the business of the partnership.
Thus, retirement or death of a
partner will technically produce
immediate dissolution.1

Art. 1840[1]; Yu v. NLRC, 223 SCRA 75

De Leon provides. . .
A partnership is a contractual and
fiduciary relation dependent upon the
personality of its members, and the
withdrawal or admission of a member
changes so radically the contractual rights
and duties inter se as to produce essentially
a new relation, even though the parties
contemplate no actual dissolution of the firm
and continue to carry on business under the
original articles of partnership and with the
same account books.2
2

De Leon, Comments and Cases on Partnership, Agency and Trust (2005), p. 228

Why must the surviving partner

be not insolvent?
The insolvency of a partner subjects his
interest in the partnership to the right of his
creditors and makes it impossible for him to
satisfy with his property partnership
obligations to its creditors in the event that
partnership assets have been exhausted.
Thus, by his insolvency, its credit is
impaired. An insolvent partner has no
authority to act for the partnership nor
the other partners to act for him. 5
5

supra note 2, p. 252