ARTICLE 1828
of partnership and with the same account books.
The DISSOLUTION OF A PARTNERSHIP is the change in the
relation of the partners caused by any partner ceasing to
be associated in the carrying on as distinguished from the
winding up of the business. (n)
EFFECTS OF CHANGE IN MEMBERSHIP OF A PARTNERSHIP
- Any change in the membership of a partnership, either
by the RETIREMENT OR DEATH of partner, or by the
ADMISSION OF NEW MEMBERS into the partnership,
produces, technically an immediate dissolution of the
existing partnership relation, and the formation of a new
one, ALTHOUGH common business usage speaks of the
admission of a partner to a firm and regards the firm as
subsisting so long as the course of its business is not
materially interrupted.
- INCOMING PARTNERS: All persons forming the new
partnership upon the admission of the new person EVEN
THOUGH THE SAME BUSINESS HAD THERETOFORE BEEN
CONDUCTED BY THE OTHERS THROUGH THE MEDIUM OF
PARTNERSHIP.
NOTE:
- A partnership is a contractual and fiduciary relation
dependent upon the personality of its members.
- 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
NOTE:
- the change in the relation of the partners will dissolve
the partnership but will not disturb the continuance by
the remaining partners or by the existing and new
partners of the business as before.
THREE SEPARATE STAGES
- When a partnership ends, it involves three separate
stages:
DISSOLUTION; WINDING UP; and TERMINATION.
DISSOLUTION- change in the relation of the partners
caused by any partner ceasing to be associated in the
carrying on of the business.
• Anytime a partners leaves the business, the partnership
is dissolved.
WINDING UP- the actual process of settling the business
or partnership affairs after dissolution [Involves the
collection and distribution of partnership assets, payment
of debts, and determination of the value of each
partner’s interest in the partnership.]
TERMINATION- that point in time when all partnership
affairs are completely wound up and finally settled. It
signifies the end of the partnership life. It takes place
after both dissolution and winding up have occurred.
ARTICLE 1829
On dissolution THE PARTNERSHIP IS NOT TERMINATED,
but continues until the winding up of partnership affairs is
completed. (n)
- Dissolution DOES NOT AUTOMATICALLY RESULT IN THE
TERMINATION of the legal personality of the partnership,
or the cessation of his business, nor the relations of the
partners among themselves who remain as co-partners
UNTIL THE PARTNERSHIP IS TERMINATED
After dissolution, a partnership is considered as
maintaining a LIMITED EXISTENCE for the purpose of
making good all outstanding engagements, of taking and
settling all accounts, and collecting all the property means
and assets of the partnership existing at the time of its
dissolution for the benefit of all interested.
- THE PRINCIPAL SIGNIFICANCE OF DISSOLUTION:
no new partnership business should be undertaken, but
affairs should be liquidated and distribution made to
those entitled to the partners’ interest.
- Dissolution refers to the CHANGE IN PARTNERSHIP
RELATION and not the actual cessation of the partnership
business. It is not necessarily followed by a winding up of
partnership affairs.
ARTICLE 1830
Dissolution is caused:
(1) Without violation of the agreement between the
partners:
(a) By the termination of the definite term or particular
undertaking specified in the agreement;
(b) By the express will of any partner, who must act in
good faith, when no definite term or particular
undertaking is specified;
(c) 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;
(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;
(2) 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;
(3) 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;
(4) When a specific thing, 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;
(5) By the deathof any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a
and 1701a)
CAUSES OF DISSOLUTION
- the events that cause dissolution of a partnership may
be divided into four categories:
1. act of the parties not in violation of their agreement
2. act of the parties in violation of their agreement
3. operation of law
4. court decree
NOTES:
- Articles 1830 and 1831 provide for the causes of
dissolution. Other causes are provided in Article 1840.
- In Article 1840, AUTOMATIC DISSOLUTION also takes
place when a new partner is admitted or when a partner
retires, withdraws, or is expelled from the partnership.
- There is NO AUTOMATIC DISSOLUTION under Article
1831 which enumerates the grounds for the judicial
dissolution of the partnership.
- It has been held that the statutory enumeration of the
causes of dissolution PRECLUDES DISSOLUTION FOR ANY
OTHER CAUSE.
- Once a partnership is dissolved, the same partners may
form a new partnership to continue the business under
the same terms.
EFFECT OF SALE OR ASSIGNMENT BY ONE PARTNER OF
HIS ENTIRE INTEREST IN THE PARTNERSHIP TO A THRID
PERSON
o The dissolution created in this case is only TECHNICAL,
and not actual only in the sense that his connection with
the partnership is terminated.
DISSOLUTION WITHOUT VIOLATION OF PARTNERSHIP
AGREEMENT
FOUR WAYS:
1. TERMINATION OF THE DEFINITE TERM OR PARTICULAR
UNDERTAKING
- After the expiration of the term or particular
undertaking, the partnership is automatically dissolved
without the partners extending the said term or
continuing the undertaking.
- If after said expiration the partners continue the
partnership without making a new agreement, the firm
becomes a PARTNERSHIP AT WILL.
2. BY EXPRESS WILL OF ANY PARTNER
- A partnership at will, regardless of whether the business
is profitable or unprofitable, may be dissolved at any time
by any partner without the consent of his co-partners
without breach of contract, PROVIDED, THE SAID
PARTNER ACTS IN GOOD FAITH.
NOTES:
- bad faith is no different from its normal concept of a
conscious and intentional design to do a wrongful act for
a dishonest purpose or moral obliquity.
- While the attendance of bad faith cannot prevent the
dissolution of a partnership, it can result in liability for
damages. The guilty partner would be liable for wrongful
dissolution as provided in Article 1837.
- A violation of the partnership agreement by the
exclusion of a partner from participation in the
management of the business of the firm has been held to
give the excluded partner the right to declare the
partnership dissolved.
3. BY THE EXPRESS WILL OF THE PARTNERS
- Such dissolution may be accomplished either by an
express agreement or by words and acts implying an
intention to dissolve.
NOTES:
- No particular form of agreement is necessary to dissolve
a partnership by consent.
- The agreement to dissolve the partnership before the NOTES:
termination of the specified term or particular
- A partner guilty of wrongful dissolution is not given the
undertaking MUST BE UNANIMOUS. The majority alone
right to wind up partnership affairs.
cannot dissolve the partnership without breach of
contract. - a MINOR cannot be guilty of wrongful dissolution since
he has the legal right to avoid his contract.
4. BY EXPULSION OF ANY PARTNER
- No person can be compelled either to become a partner
- The expulsion must be made in good faith, and strictly in
or to remain one. [POWER OF DISSOLUTION ALWAYS
accordance with the power conferred by the agreement
EXISTS]. The doctrine of DELECTUS PERSONAE allows the
between the partners.
partners to have the power, although not necessarily the
NOTES: right, to dissolve the partnership.
- This power may be vested in one partner exclusively. WHEN BUSINESS BECOMES UNLAWFUL
- The partner expelled in bad faith can claim damages.
- DISSOLUTION MAY BE CAUSED INVOLUNTARILY when a
DISSOLUTION IN CONTRAVENTION OF PARTNERSHIP supervening event makes the business itself of the
AGREEMENT partnership unlawful.
- Any partner may cause the dissolution of the LOSS OF SPECIFIC THING
partnership at ANY TIME WITHOUT THE CONSENT OF HIS
NOTE: Article 1830 refers only to specific things.
CO-PARTNERS for any reason which he deems sufficient
When the thing to be contributed is not specific, Articles
by expressly withdrawing therefrom even though the
1786 (par. 1.) and 1788 shall govern.
partnership was entered into for a definite term or
particular undertaking. 1. LOSS BEFORE DELIVERY – the partnership is dissolved
because there is no contribution inasmuch as the thing to
LEGAL EFFECTS OF DISSOLUTION
be contributed cannot be substituted with another.
o The WITHDRAWING PARTNER is liable for damages for
2. LOSS AFTER DELIVERY - the partnership is not
unjustified dissolution but in no case can he be compelled
dissolved, but it assumes the loss of the thing having
to remain in the partnership.
acquired ownership thereof.
§ The legal effects of this dissolution are laid down in
§ The partners may contribute additional capital to save
Article 1837, par. 2, nos. 1,2, and 3.
the venture.
3. LOSS, WHERE ONLY USE OR ENJOYMENT
CONTRIBUTED – the loss of the same before or after
delivery dissolves the partnership because the partner
cannot fulfill his undertaking to make available the use of
the specific thing contributed.
§ Here, the partner bears the loss and he is considered in
default with respect to his contribution.
§ Upon dissolution, the partners may demand for an
accounting and liquidation.
DEATH OF ANY PARTNER
- The deceased partner ceases to be associated in the
carrying of the business; hence, the ipso facto dissolution
of the partnership by his death by operation of law.
- The surviving partners HAVE NO AUTHORITY TO
CONTINUE THE BUSINESS EXCEPT SO FAR AS IS
NECESSARY TO WIND UP EXCEPT AS PROVIDED IN
ARTICLE 1833.
STATUS OF PARTNERSHIP
- The subsequent legal status of a partnership dissolved
by the death of a partner is that of a PARTNERSHIP IN
LIQUIDATION
o The only rights inherited by the heirs are those resulting
from the said liquidation in favor of the deceased partner,
and nothing more.
NOTE:
- The LIQUIDATION OF ITS AFFAIRS is by law is by law
entrusted to the surviving partners, or to liquidators
appointed by them and not to the administrator or
executor of the deceased partner.
- A clause in the articles of co-partnership A clause in the
articles of co-partnership providing for the continuation
of the firm notwithstanding the death of one of the
partners is LEGAL.
In such a case, however, partners is LEGAL.
-there is a dissolution of the partnership without winding
up, and a continuance of the business of the dissolved
partnership by a new partnership, of which the surviving
partners and the heirs of the deceased or executors are
the members becoming liable as the old to the creditors
of the firm.
INSOLVENCY OF ANY PARTNER OR OF PARTNERSHIP
- The insolvency MUST BE ADJJUDGED BY A COURT.
1. BY THE INSOLVENCY OF A PARTNER, his credit is
impaired.
AN INSOLCENT PARTNER HAS NO AUTHORITY TO ACT
FOR THE PARTNERSHIP OR THE OTHER PSRTNERS TO ACT
FOR HIM.
2. THE INSOLVENCY OF THE PARTNERSHIP renders its
property
THE INSOLVENCY OF THE PARTNERSHIP renders its
property in the hands of the partners liable for the
satisfaction of partnership obligations resulting in their
inability to continue the business, which practically
amounts to a dissolution.
CIVIL INTERDICTION OF ANY PARTNER
- A person under civil interdiction (or civil death) cannot
validly give consent, as his capacity to act is limited
thereby.
- One who is without capacity to manage his own
property SHOULD NOT BE LLOWED to manage
partnership property.
NOTES:
- In the absence of an express agreement to that effect,
THERE EXISTS NO RIGHT OR POWER OF ANY MEMBER, OR
EVEN A MAJORITY OF THE MEMBERS, to expel all other
members of the firm at will. Nor can they at will forfeit
the share or interest of a member or members and
compel him or them to quit the firm, even paying what is
due him.
- Mere derelictions of a member, such as FAILURE to pay
his part or to faithfully perform his part of the services
agreed to, DO NOT FORFEIT HIS RIGHT, OR EVEN
AUTHORIZE A COURT TO FORFEIT HIS RIGHT, to the
common property or assets of the partnership.
• HOWEVER, there may be EXTREME AND GROSS FAULTS
WHICH WOULD WORK A FORFEITURE, especially where
there was an extreme emergency for him to perform his
duty, and to be prompt and faithful.
 - A power of expulsion of a partner may be expressly
given by agreement. Such power must be understood to
exist not for the benefit of any particular parties holding
control of firm membership, but for the benefit of the
whole partnership.
ARTICLE 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 WILLFULLY 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 lost
(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) .
GROUNDS FOR DISSOLUTION BY DECREE OF COURT
- Dissolution of a partnership may be decreed judicially
on application, either
(1) BY A PARTNER in the cases mentioned in paragraph 1,
Nos. 1-6; or
(2) BY THE PURCHASER OR ASSIGNEE OF A PARTNER’S
INTEREST under paragraph 2, Nos. 1 and 2.
ON APPLICATION BY A PARTNER
a. INSANITY. - The insanity must materially affect the
- The insanity must materially affect the capacity of the
partner to perform his contractual duties as a partner.
b. INCAPACITY. - However, it is not the mere fact of the
- However, it is not the mere fact of the existence of
insanity, infirmity, or other disability supervening that will
justify a court to decree a dissolution. THE INCAPACITY
CONTEMPLATED BY LAW IS INCAPACITY WHICH IS
LASTING, FROM WHICH THE PROSPECT OF RECOVERY IS
REMOTE.
§ If the disability be of a temporary nature, occasional
malady, if there be a fair prospect of recovery within a
reasonable time, there is no fit ground to decree a
dissolution.
c. MISCONSDUCT AND PERSISTENT BREACH OF
AGREEMENT
– [conduct prejudicial to the carrying on of the business
(e.g., inveterate drunkenness) and persistent breach of
the partnership agreement (e.g., keeping and rendering
false accounts, misuse or misappropriation of partnership
funds)]
§ Temporary grievances, discourtesies, disagreements, or
mistakes of judgments that involve no permanent
mischief or injury will not suffice as the basis for a judicial
decree of dissolution
o NOTES:o
- Where a partner is guilty of serious misconduct, the
only remedy ordinarily available to co-partners is to apply
to the court for dissolution.
d. BUSINESS CAN BE CARRIED ON ONLY AT A LOSSd.
-Where a
-Where a partnership had lost all its capital, or had
become insolvent, or that the enterprise for which it had
been organized had been concluded or utterly
abandoned, A PROVISION IN THE ARTICLES OF
PARTNERSHIP PROHIBITING THE DISSOLUTION OF THE
PARTNERSHIP
§ EXCEPT by the consent and agreement EXCEPT by the
consent and agreement of two-thirds of its partners, can
in no wise limit or restrict the right of a less number of
the partners to effect a dissolution of the partnership
through judicial intervention or otherwise.
§ A court is authorized to decree a dissolution
notwithstanding that the partnership has been making
profits where it appears at the time of the supplication
that the business can only be carried on at a loss.
e. OTHER CIRCUMSTANCESe. – Examples are:
– Examples are:
• abandonment of the business; abandonment of the
business; fraud in the management; in the management;
refusal without justifiable cause to render accounting of
partnership affairs, etc.
ON APPLICATION BY A PURCHASER OF A PARTNER’S
INTEREST
-EXAMPLE:
1. A, B, and C formed a partnership to continue for a
term of five (5) years. On the third year, C sold his entire
interest to D. Under Article 1813, such conveyance does
not dissolve the partnership, and D does not become a
partner, his only right being to receive the profits to
which C would otherwise be entitled. Hence, D cannot
ask for judicial dissolution of the partnership. However, if
after the fifth year, the partnership is continued, D is
entitled to ask for judicial dissolution. The partnership as
continued may or may not be a partnership at will.
2. Suppose now, after the fifth year, the Suppose now,
after the fifth year, the partnership was continued by the
partners without any express agreement, becoming a
partnership at will. (see Art. 1785.) If C’s interest was
purchased by D or a charging order was issued against C
in favor of D, his judgment creditor, as provided in Article
1814, when the partnership was already a partnership at
will, D, at any time, may ask for judicial dissolution.
Note that the RULE IN ARTICLE 1831 (PAR. 2[2].)
APPLIES ONLY IF IN CONTINUING THE BUSINESS, A
PARTNERSHIP AT WILL IS CREATED, OR THE PARTNERSHIP
IS A PARTNERSHIP AT WILL FROM THE BEGINNING.
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.
(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)
EFFECT OF DISSOLUTION ON AUTHORITY OF PARTNER
GENERAL RULE:
- Unless otherwise stipulated, Every partner is considered
the agent of the partnership with authority to bind the
partnership as well as the other partners with respect to
the transaction of its business.
QUALIFICATIONS TO THAT RULE:
- qualifications set forth in Articles 1833 and 1834 in
relation to Article 1832.
ARTICLE 1833
Where the dissolution is caused by the ACT, DEATH OR
INSOLVENCY OF A PARTNER, each partner is liable to his
co-partners for his share of any liability created by any
partner acting for the partnership as if the partnership
had not been dissolved UNLESS:
(1) The dissolution being by act of any partner, the
partner acting for the partnership had knowledge of the
dissolution; or
(2) The dissolution being by the death or insolvency of a
partner, the partner acting for the partnership had
knowledge or notice of the death or insolvency. of the
death or insolvency.
NOTE:
- The rule in No. 1 is designed to protect the remaining
partner or partners who might continue to act for the
partnership as a going concern, not having actual
knowledge of the dissolution.
- The rule in No. 2 discards the fiction that everybody is
presumed to have knowledge of death or insolvency.
- Article 1833 APPLIES ONLY IF THE CONTRACT OF THE
PARTNER BINDS THE PARTNERSHIP. If the partnership is
not bound, only the acting partner is personally liable.
WHEN A PARTNER HAS KNOWLEDGE OR NOTICE OF A
FACT
- UNIFORM PARTNERSHIP ACT: -
1. A person has knowledge of a fact not only when he has
actual knowledge thereof, but also when he has
knowledge of such other facts as in circumstances show
bad faith.
2. “A person has notice of a fact when the person who
claims the benefit of the notice:
a. States the fact to such person, or
b. Delivers through the mail or by other means of
communication, a written statement of the fact to such
person or to a proper person at his place of business or
residence.
ARTICLE 1834
AFTER DISSOLUTION, a partner can bind the partnership,
EXCEPT as provided in the third paragraph of this article:
(1) By an act appropriate for winding up partnership
affairs or completing transactions unfinished at
dissolution;
(2) By any transaction which would bind the partnership if
dissolution had not taken place, provided the other party
to the transaction:
(a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of the dis-
solution; or
(b) Though he had not so extended credit, had
nevertheless known of the partnership prior to
dissolution, and having no knowledge or notice of
dissolution, the fact of dissolution had not been
advertised in a newspaper of general circulation in the
place (or in each place if more than one) at which the
partnership was regularly carried on.
The liability of a partner under the first paragraph, No. 2,
shall be satisfied out of partnership assets alone when
such partner had been prior to dissolution:
(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.
The partnership is in no case bound by any act of a
partner after dissolution:
(1) Where the partnership is dissolved because it is
unlawful to carry on the business, unless the act is
appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner had no authority to wind up
partnership affairs, except by a transaction with one who
—
(a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of his want of
authority; or
(b) Had not extended credit to the partnership prior to
dissolution, and, having no knowledge or notice of his
want of authority, the fact of his want of authority has
not been advertised in the manner provided for
advertising the fact of dissolution in the first paragraph,
No. 2(b).
NOTHING IN THIS ARTICLE SHALL AFFECT THE LIABILITY
UNDER SHALL AFFECT THE LIABILITY UNDER
ARTICLE 1825 of any person who after dissolution
represents himself or consents to another representing
him as a partner in a partnership engaged in carrying on
business. (n)
- Upon the dissolution of the partnership, as between
themselves, the power of one partner to act and bind the
others is effectively terminated. (Arts. 1832, 1833.) But
the authority of a partner may apparently continue as
regards third persons on the assumption that the
partnership is still existing.
- The measure of the right of third persons who continue
to deal with a dissolved partnership depends upon the
question of whether they knew or should have known of
the fact of dissolution.
o If they did, the validity of their transactions is
governed by the question whether those transactions
were necessary to liquidate the partnership affairs.
NOTICE OF DISSOLUTION TO CREDITORS
- Persons who extended credit to the partnership prior to
Persons who extended credit to the partnership prior to
its dissolution MUST HAVE KNOWLEDGE OR NOTICE OF
its dissolution THE DISSOLUTION to relieve the
partnership from liability.
NOTE:
- As to persons who had not so extended credit prior to
its dissolution, but who had known of its existence, the
fact that the dissolution had been published in the
newspaper would be sufficient EVEN IF THEY DID NOT
ACTUALLY READ THE ADVERTISEMENT.
NOTES:
- Notice of dissolution is UNNECESSARY, EXCEPT in case
no.
3, where that partner has NO AUTHORITY TO WIND UP
PARTNERSHIP AFFAIRS.
- As to insolvency, the law makes a distinction between
the right of a partner who has no knowledge or notice of
the other partner’s insolvency to bind the partnership
and the right of a third person to claim that his contract
with the partnership is valid, notwithstanding its
dissolution through insolvency of the partner with whom
the contract was made.
§ The former is recognized under Article 1833 (2) while;
the latter is denied under Article 1834 (par. 3, No. 2).
CHARACTER OF NOTICE REQUIRED
- It varies in accordance with the class of persons
required to be notified.
1. AS TO PRIOR DEALERS - Notice must be ACTUAL.
NOTE:
- it was held that a prior dealer entitled as such to actual
notice, may not be said as a matter of law to have
received notice by reason merely of the fact that the
retirement was mentioned in a newspaper to which the
prior dealer subscribed, or although the fact of
dissolution was mentioned editorially in the local
newspaper.
- PRIOR / FORMER DEALER- - is one
- is one who has extended credit on the faith of the
partnership, through confidence in the solvency and
probity of the firm.
2. AS TO ALL OTHERS - Notice is accomplished by AS TO
ALL OTHERS - Notice is accomplished by an advertisement
in a local newspaper. Actual notification is not necessary.
NOTE:
- The requirement of newspaper notice appears to exist
only where the third party knew of the partnership prior
to dissolution. IF HE DID NOT, he is entitled to no notice
whatsoever.
- A DORMANT PARTNER being both INACTIVE and
SECRET. His connection with the partnership not having
known, it cannot in any degree have contributed towards
establishing its reputation or credit. Third persons, not
having dealt with the partnership in reliance upon the
membership of the dormant partner, are accordingly NOT
ENTITLED TO NOTICE OF HIS WITHDRAWAL
• He will be personally liable for partnerships debt arising
at the time of his retirement.
PARTNERSHIP BY ESTOPPEL
NOTE:
- A PARTNERSHIP did once exist and liability is based upon
its continuance as a matter of law as far as third persons
are concerned.
- A PARTNERSHIP BY ESTOPPEL involves a “holding out”
by parties as partners, when in fact, they are not
partners.
ARTICLE 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. (n)
EFFECT OF DISSOLUTION ON PARTNER’S EXISTING
LIABILITY
- A PARTNER MAY BE RELIEVED from all existing liabilities
upon dissolution ONLY BY AN AGREEMENT TO THAT
EFFECT between himself, the partnership creditor, and
the other partners.
§ The CONSENT, however, of the creditor and the other
partners to the novation may be implied from their
conduct.
LIABILITY OF ESTATE OF DECEASED PARTNER
- the individual property of a deceased partner shall be
liable for all obligations of the partnership incurred while
he was a partner.
NOTE:
- individual creditors of the deceased partner are to be
preferred over partnership creditors with respect to the
separate property of said deceased partner.
ARTICLE 1836
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. (n)
MANNER OF WINDING UP
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.
NOTE:
- NATURE OF ACTION FOR LIQUIDATION: PERSONAL;
hence, it may be brought in the place of residence of
either the plaintiff or the defendant.
PERSONS AUTHORIZED TO WIND UP
(a) The PARTNERSdesignated by the agreement;
(b) In the absence of such agreement,
- ALL THE PARTNERS WHO HAVE NOT WRONGFULLY
DISSOLVED THE PARTNERSHIP; or
(c) THE LEGAL REPRESENTATIVE(executor or
administrator) OF THE LAST SURVIVING PARTNER (when
all the partners are already dead), not insolvent.
NOTES:
- THE COURT may, in its discretion, after considering all
the facts and circumstances of the particular case,
appoint a receiver to wind up the partnership affairs
where such step is shown to be to the best interests of all
persons concerned. -
INSOLVENT PARTNER does not have the right to wind up
partnership affairs.
- When a member of a partnership dies, the DUTY OF
LIQUIDATING ITS AFFAIRS DEVOLVES UPON THE
SURVIVING MEMBER OR MEMBERS OF THE FIRM, not
upon the legal representative of the deceased partner
(EXCEPT when such partner was the last surviving
partner).
- even in the absence of agreement, the surviving
partner or liquidating partner is entitled to REASONABLE
COMPENSATION in exceptional situations as where the
services rendered are extraordinary or substantial in
nature.
POWERS OF LIQUIDATING PARTNER
1. MAKE NEW CONTRACTS
- a liquidating partner is sole agent of the partnership,
but merely for that one specific purpose.
THUS, without express authorization, HE CANNOT MAKE
NEW CONTRACTS OR CREATE NEW LIABILITIES, nor CAN
HE EXTEND THE TIME FOR THE PAYMENT OF EXISTING
OBLIGATIONS TO THE FIRM, or MAKE
ACKNOWLEDGMENTS OF THE VALIDITY OF CLAIMS
AGAINST THE FIRM.
2. RAISE MONEY TO PAY PARTNERSHIP DEBTS
- he may bind the partnership by borrowing money to
meet its accruing liabilities, and may sell its real estate to
raise money to pay its debts.
3. INCUR OBLIGATIONS TO COMPELTE EXISTING
CONTRACTS OR PRESERVE PARTNERSHIP ASSETS
4. INCUR EXPENSES NECESSARY IN THE CONDUCT OF
LITIGATION
- Where a liquidating partner is confronted with the
necessity of litigation, he has power to employ an
attorney, with resultant obligations, to prosecute and
defend the action or to incur other expenses necessary in
the conduct of such litigation.
ARTICLE 1837
WHEN DISSOLUTION IS CAUSED IN ANY WAY, except in
contravention of the partnership agreement, EACH
PARTNER, AS AGAINST HIS CO-PARTNERS AND ALL
PERSONS CLAIMING THROUGH THEM IN RESPECT OF
THEIR INTERESTS IN THE PARTNERSHIP, unless otherwise
agreed, MAY HAVE THE PARTNERSHIP PROPERTY APPLIED
TO DISCHARGE ITS LIABILITIES, AND THE SURPLUS
APPLIED TO PAY IN CASH THE NET AMOUNT OWING TO
THE RESPECTIVE PARTNERS. But if dissolution is caused by
expulsion of a partner, bona fide under the partnership
agreement and if the expelled partner is discharged from
all partnership liabilities, EITHER BY PAYMENT OR
AGREEMENT UNDER THE SECOND PARAGRAPH OF
ARTICLE 1835, HE SHALL RECEIVE IN CASH ONLY THE NET
AMOUNT DUE HIM FROM THE PARTNERSHIP.
When DISSOLUTION IS CAUSED IN CONTRAVENTION OF
THE PARTNERSHIP AGREEMENT, the rights of the
partners shall be as follows:
(1) Each partner who has not caused dissolution
wrongfully shall have:
(a) All the rights specified in the first paragraph of this
article, and
(b) The right, as against each partner who has caused the
dissolution wrongfully, to damages for breach of the
agreement.
(2) The partners who have not caused the dissolution
wrongfully, if they all desire to continue the business in
the same name either by themselves or jointly with
others, may do so, during the agreed term for the
partnership and for that purpose may possess the
partnership property, provided they secure the payment
by bond approved by the court, or pay to any partner
who has caused the dissolution wrongfully, the value of
his interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No.
1(b) of this article,
and in like manner indemnify him against all present or
future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully
shall have:
(a) If the business is not continued under the provisions
of the second paragraph, No. 2, all the rights of a partner
under the first paragraph, subject to liability for damages
in the second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second
paragraph, No. 2, of this article, the right as against his
co-partners and all claiming through them in respect of
their interests in the partnership, to have the value of his
interest in the partnership, less any damage caused to his
co-partners by the dissolution, ascertained and paid to
him in cash, or the payment secured by a bond approved
by the court and to be released from all existing liabilities
of the partnership; butin ascertaining the value of the
partner’s interest, the value of the good will of the
business shall not be considered. (n)
PARTNER’S LIEN
- it constitutes the right of every partner, on a
dissolution, against the other partners and persons
claiming through them in respect of their interests as
partners, to have the partnership property applied to
discharge partnership liabilities and the surplus assets, if
any, distributed in cash to the respective partners, after
deducting what may be due to the firm from them as
partners.
 NOTE: the extent of this right depends on
whether the dissolution is CAUSED WITHOUT VIOLATION
of the partnership agreement, or IN VIOLATION of
partnership agreement.
WHEN THE PARTNERSHIP IS DISSOLVED IN VIOLATION OF
THE PARTNERSHIP AGREEMENT: - THE RIGHTS OF A
PARTNER VARY DEPENDING UPON WHETHER HE IS THE
INNOCENT OR THE GUILTY PARTNER.
(1) RIGHTS OF PARTNER WHO HAS NOT CAUSED THE
DISSOLUTION WRONGFULLY:
(a) To have partnership property applied for the payment
of its liabilities and to receive in cash his share of the
surplus;
(b) To be indemnified for damages caused by the partner
guilty of wrongful dissolution;
(c) To continue the business in the same name during the
agreed term of the partnership, by themselves or jointly
with others; and
(d) To possess partnership property should they decide
to continue the business.
(2) RIGHTS OF PARTNER WHO HAS WRONGFULLY
CAUSED THE DISSOLUTION:
(a) If the business is not continued by the other partners,
to have the partnership property applied to discharge its
liabilities and to receive in cash his share of the surplus
less damages caused by his wrongful dissolution.
(b) If the business is continued:
1) To have the value of his interest in the partnership at
the time of the dissolution, less any damage caused by
the dissolution to his co-partners, ascertained and paid in
cash or secured by bond approved by the court;
2) To be released from all existing and future liabilities
of the partnership.
NOTE:
- in ascertaining the value of their interest, the value of
the GOODWILL OF THE BUSINESS IS NOTCONSIDERED,
obviously as a penalty for their bad faith.
GOODWILL OF A BUSINESS
- the advantage which it has from its establishment or
from the patronage of its customers, over and above the
mere value of its property and capital.
- the advantages which may be derived from the partners
holding themselves out as carrying on the business
identified with the name of a particular firm.
NOTES:
- Inasmuch as the word “ASSETS” includes all assets
applicable to the payment of the partnership debts, the
goodwill of the partnership, if of money value, is usually
considered part of the property and assets of the firm, in
the absence of a contract, express or implied, to the
contrary.
- The goodwill of a business is a proper subject of sale.
HOWEVER, a saleable goodwill can exist only in a
commercial partnership. It cannot arise in a professional
partnership, such as partnership of attorneys or
physicians.
ARTICLE 1838
WHERE A PARTNERSHIP CONTRACT IS RESCINDED on the
ground of the fraud or misrepresentation of one of the
parties thereto, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partner- ship
liabilities to third persons for any sum of money paid by
him for the purchase of an interest in the partnership and
for any capital or advances contributed by him;
(2) To stand on, after all liabilities to third 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; and
(3) To be indemnified by the person guilty of the fraud of
making the representation against all debts and liabilities
of the partnership. (n)
NOTES:
- If one is induced by fraud or misrepresentation to
become a partner, the contract is VOIDABLE OR
ANNULLABLE
- If the contract is annulled, the injured partner is
entitled to RESTITUTION.
RIGHTS OF THE INJURED PARTNER WHERE CONTRACT
RESCINDED lien or secured creditors.
-[on the ground of fraud or misrepresentation]
-(Article 1838 (1)(2)(3)) insolvent, the claims against his
separate property shall rank in
ARTICLE 1839
In settling accounts between the partners after
dissolution, the (b) Those owing to partnership creditors;
following rules shall be observed, subject to any
agreement to the contrary: (c) Those owing to partners
by way of contributions. (n)
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the A
DISTRIBUTION TO THE PARTNERS. It is within the
payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of
payment, as follows: CONTRIBUTIONS WHICH MAY BE
distribution includes
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and
profits, a right to have debts owing to the partnership
from his
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their
declaration in - PARTNER’S LIEN LAW - Each partner is
entitled to No. 1 of this article to the satisfaction of the
liabilities. a share in the surplus property of the
partnership, if any,
(4) The partners shall contribute, as provided by article
1797, the amount necessary to satisfy the liabilities.
RULES IN SETTLING ACCOUNTS BETWEEN PARTNERS
AFTER
(5) An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the
right to payment of all liabilities in accordance with
Article 1797. enforce the contributions specified in No. 4,
to the extent of the amount which he has paid in excess
of his share of the liability.
(7) The individual property of a deceased partner shall be
liable capital and profits such as loans given by the
partners or advances for the contributions specified in
No. 4.
(8) When partnership property and the individual
properties of the partners are in possession of a court for
distribution, distributed as profits to the partners in the
proportion in which
partnership creditors shall have priority on partnership
property and separate creditors on individual property,
saving the rights of
lien or secured creditors.
(9) Where a partner has become insolvent or his estate is
-(Article 1838 (1)(2)(3)) insolvent, the claims against his
separate property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contributions. (n)
(1) The assets of the partnership are:
NOTES:
- The law DOES NOT REQUIRE A PARTNERSHIP TO
CONVERT ALL ITS ASSETS INTO CASH BEFORE MAKING
ASSETS INTO CASH BEFORE MAKING A DISTRIBUTION TO
THE PARTNERS. It is within the power of the court to
order a distribution of its assets in payment of all the
liabilities specified in No. 2. cash, property, or a
combination of both.
- Property which may be made available for distribution
includes CONTRIBUTIONS WHICH MAY BE COLLECTED
FROM THE PARTNERS so far as may be necessary for the
payment of partnership obligations to (a) Those owing to
creditors other than partners, creditors and to partners.
- EQUITABLE LIEN or “QUASI-LIEN” – A partner has a
right to have debts owing to the partnership from his co-
partners deducted from their respective shares.
- It exists only when the affairs of (c) Those owing to
partners in respect of capital, the partnership are
rounded up and the shares of the are partners are
computed after dissolution.
- PARTNER’S LIEN LAW
- Each partner is entitled to a share in the surplus
property of the partnership, if any, in proportion to his
interest in the partnership.
RULES IN SETTLING ACCOUNTS BETWEEN PARTNERS
AFTER DISSOLUTION
(5) An assignee for the benefit of creditors or any person
ASSETS OF THE PARTNERSHIP
a. PARTNERSHIP PROPERTY (including goodwill)
b. CONTRIBUTIONS of the partners necessary for the
payment of all liabilities in accordance with Article 1797.
ORDER OF APPLICATION OF ASSETS
(a) First, THOSE OWING TO PARTNERSHIP CREDITORS;
(b) Second, THOSE OWING TO PARTNERS other than for
capital and profits such as loans given by the partners or
advances for business expenses; for the contributions
specified in No. 4.
(c) Third, THOSE OWING FOR THE RETURN OF THE
CAPITAL CONTRIBUTED BY THE PARTNERS; and
(d) Finally, if any partnership assets remain, they are
distributed as profits to the partners in the proportion in
which profits are to be shared. partnership creditors shall DISTRIBUTION OF PROPERTY OF INSOLVENT PARTNER.
have priority on partnership property (a) First, to those owing to separate creditors;
(b) Then, to those owing to partnership creditors; and
NOTES:
. (c) Lastly, to those owing to partners by way of
- LOANS AND ADVANCES made by partners to the
contribution.
partnership are not capital, nor undivided profits UNLESS
otherwise agreed upon. ARTICLE 1840
In the following cases, creditors of the dissolved
- CAPITAL CONTRIBUTIONS are returnable only on
partnership are also creditors of the person or
dissolution, but
partnership continuing the business:
- LOANS ARE PAYABLE AT MATURITY and
- ACCUMULATED PROFITS MAY BE withdrawn at any time (1) When any new partner is admitted into an existing
by consent of a majority. partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
- The individual property of a deceased partner shall be
rights in partnership property to two or more of the
liable for his share of the contributions necessary to
partners, or to one or more of the partners and one or
satisfy the liabilities of the partnership incurred while he
more third persons, if the business is continued without
was a partner.
liquidation of the partnership affairs;
- When partnership property and the individual proper-
(2) When all but one partner retire and assign (or the
ties of the partners are in possession of the court for
representative of a deceased partner assigns) their rights
distribution, partnership creditors shall first be paid from
in rights in partnership property to one or more third
partnership property and separate creditors from the
persons who promise to pay the debts and who continue
individual properties of the partners.
the business of the dissolved partnership;
- GENERAL RULE: “PARTNERSHIP ASSETS to partnership
(5) When any partner wrongfully causes a dissolution and
creditors, INDIVIDUAL ASSETS to individual creditors;
the remaining partners continue the business under the
anything left from either goes to the other.”
provisions of article 1837, second paragraph, No. 2, either
alone or with others, and without liquidation of the
DOCTRINE OF THE MARSHALLING OF ASSETS partnership affairs;
- the ranking of assets in a certain order toward the
(6) When a partner is expelled and the remaining
payment of outstanding debts.
partners continue the business either alone or with
others without liquidation of the partnership affairs. The
liability of a third person becoming a partner in the
partnership continuing the business, under this article, to
the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless
there is a stipulation to the contrary.
When the business of a partnership after dissolution is
continued under any conditions set forth in this article
the creditors of the dissolved partnership, as against the
separate creditors of the retiring partner or deceased
partner or the representative of the deceased partner,
have a prior right to any claim of the retired partner or
the representative of the deceased partner against the
person or partnership continuing the business, on
account of the retired or deceased partner’s interest in
the dissolved partnership or on account of any
consideration promised for such interest or for his right in
partnership property. Nothing in this article shall be held
to modify any right of creditors to set aside any
assignment on the ground of fraud.
The use by the person or partnership continuing the
business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for
any debts contracted by such person or partnership. (n)
DISSOLUTION OF A PARTNERSHIP BY CHANGE IN
MEMBERSHIP
CAUSES:
- when a NEW PARTNER IS ADMITTED
- when a PARTNER RETIRES; DIES; WITHDRAWS;
- when a PARTNER IS EXPELLED FROM THE PARTNERSHIP
- when the OTHER PARTNERS ASSIGN THEIR RIGHTS TO
THE SOLE REMAINING PARTNER
- when ALL THE PARTNERS ASSIGN THEIR RIGHTS IN
PARTNERSHIP PROPERTY TO THIRD PERSONS
NOTES:
- any change in membership DISSOLVES A PARTNERSHIP
and CREATES A NEW ONE.
- A partnership dissolved by any of these happenings
need not undergo the procedure relating to dissolution
and winding of its business affairs.
RIGHTS OF CREDITORS OF DISSOLVED PARTNERSHIP
WHICH IS CONTINUED
- [ARTICLE 1840] CONTINUATION OF DISSOLVED
PARTNERSHIP BUSINESS BY ANOTHER COMPANY
- WHEN CORPORATION DEEMED A MERE CONTINUATION
OF PRIOR PARTNERSHIP, such corporation is presumed to
have assumed partnership debts and is prima facie liable
therefor.
- In some cases, when one company buys out another
and continues the business of the latter company, the
buyer may be said to assume the obligations of the
company bought out when said obligations are not of
considerable amount or value especially when incurred in
the ordinary course, and when the business of the latter
is continued.
- HOWEVER, when said obligation is of extraordinary
value, and the company was bought out not to continue
its business but to stop its operation in order to eliminate
competition, it cannot be said that the vendee assumed
all the obligations of the rival company.
EXEMPTION FROM LIABILITY OF INDIVIDUAL PROPERTY
OF DECEASED PARTNER
- As a GENERAL RULE, upon the dissolution of a
commercial part- nership, the succeeding partners or
parties have the right to car- ry on the business under the
old name, in the absence of stipula- tion forbidding it,
since the name of a commercial partnership is a
partnership asset inseparable from the goodwill of the
firm.
- A professional partnership the reputation of which
depends on the individual skill of the members HAS NO
GOODWILL to be distributed as a firm asset on its
dissolution, however intrinsically valuable such skill and
reputation may be, especially where there is no provision
in the partnership agreement relating to goodwill as an
asset.
ARTICLE 1841
WHEN ANY PARTNER RETIRES OR DIES, and the business
is continued under any of the conditions set forth in the
preceding article, or in article 1837, second paragraph,
No. 2, without any settlement of accounts as between
him or his estate and the person or partnership
continuing the 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 by article 1840, third paragraph. (n)
- When the dissolution is caused by the retirement or
death of a partner and the business is continued without
settlement of accounts, the retiring partner or the legal
representative of the deceased partner shall have the
right:
(1) To have the value of the interest of the retiring
partner or deceased partner in the partnership
ascertained as of the date of dissolution (i.e., date of
retirement or death); and
(2) To receive thereafter, as an ordinary creditor, an
amount equal to the value of his share in the dissolved
partnership with interest, or, at his option, in lieu of
interest, the profits attributable to the use of his right.
NOTES:
- If the surviving partners (in case the dissolution is
caused by the death of a partner) continue the business
without the consent of the deceased partner’s estate,
they do so without any risk to the estate;
- if the estate consents, it, in effect, becomes a new
partner and would be answerable for all debts and losses
after the death but only to the extent of the decedent’s
share in the partnership assets.
ARTICLE 1842
The right to an account of his interest shall accrue to any
partner, or his legal representative as against the winding
up partners or the surviving partners or the person or
partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the
contrary. (n)
ACCRUAL AND PRESCRIPTION OF A PARTNER’S RIGHT TO
ACCOUNT OF HIS INTEREST.
(1) The right to demand an accounting of the value of his
interest accrues to any partner or his legal representative
after dissolution in the absence of an agreement to the
contrary.
(2) Prescription begins to run only upon the dissolution
of the partnership when the final accounting is done.
PERSON LIABLE TO RENDER AN ACCOUNT
(1) The winding up partner;
(2) The surviving partner; or
(3) The person or partnership continuing the business.
NOTES:
- WHEN IN LIQUIDATING A PARTNERSHIP THE PROFITS
FOR A GIVEN PERIOD OF TIME CANNOT BE EXACTLY
DETERMINED FOR LACK OF EVIDENCE, BUT THE PROFITS
FOR CERTAIN PERIODS PRIOR AND SUBSEQUENT
THERETO ARE KNOWN, the profits corresponding to the
said given time may be determined by finding the
average of those profits already known and multiplying it
by the length of time included between said periods.
- A partner’s share cannot be returned without first
dissolving and liquidating the partnership, for the firm’s
outside creditors have preference over the assets of the
enterprise and the firm’s property cannot be diminished
to their prejudice.
WHEN LIQUIDATION NOT REQUIRED
- GENERAL RULE: - when a partnership is dissolved, A
PARTNER OR HIS LEGAL REPRESENTATIVE IS ENTITLED TO
THE PAYMENT OF WHAT MAY BE DUE AFTER A
LIQUIDATION. But no liquidation is necessary when there
is already a settlement or an agreement as to what he
shall receive.
IV. LIMITED PARTNERSHIP
(Arts. 1843-1867)
SOURCES OF CIVIL CODE PROVISIONS
“Chapter 4 (Arts. 1843 to 1867.) on limited partners was
adopted, also with appropriate amendments, from the (2) One or more general partners control the business
Uniform Limited Partnership Act. The provisions on and are personally liable to creditors (Arts. 1848, 1850.);
limited partnerships in the Code of Commerce (Arts. 145
(3) One or more limited partners contribute to the capital
to 150.) were considered too meager and inadequate to
and share in the profits but do not participate in the
govern this juridical institution.”
management of the business and are not personally liable
ARTICLE 1843 for partnership obligations beyond the amount of their
capital contributions (Arts. 1845, 1848, 1856.);
A limited partnership is one FORMED BY TWO OR MORE
PERSONS under the provisions of the following article, (4) The limited partners may ask for the return of their
having as members ONE OR MORE GENERAL PARTNERS capital
and ONE OR MORE LIMITED PARTNERS. The limited
partners as such shall not be bound by the obligations of
the partnership.

CONCEPT OF LIMITED PARTNERSHIP

- The term is sometimes used to designate joint ventures
and partnerships limited only on the nature and scope of
the business to be carried on.

- A limited partnership is composed of two classes of

partners: it confines it to the form of business association
composed of one or more general partners and one or
more special partners, the latter not being personally
liable for the partnership debts.

- The liability to third persons of one or more of its

members referred to as limited (or special) partners is
limited to a fixed amount, their capital contributions or
the amount they have invested in the partnership.

CHARACTERISTICS OF LIMITED PARTNERSHIP

(1) FORMED by compliance with the statutory

requirements (Art. 1844.);