145. Dissolution. The contractual relationship of partners is established by mutual consent. It is but a natural consequence that the parties to this agreement should be able to mutually agree to a termination of the relationship. A dissolution may be brought about: (1) By the original agreement; (2) by

subsequent agreement; (3) by operation of law; (4) by decree of law.

1. By Original Agreement. Frequently the parties at the time of formulating the articles of partnership provide both the time and manner of dissolving the partnership agreement. If no attempt is made to wind up the affairs of the firm at the appointed time, it is a partnership at will. Any partner thereafter at any time may work a dissolution.

When stipulations are entered into by partners providing for the continuation of the partnership in case of death or the sale of an interest by a partner, the result is to provide a way to bridge the interval between the old firm and the new one.

2. By Subsequent Agreement. By mutual agreement the partnership may be dissolved at any time irrespective of the provisions of the articles. If a partner attempts to work a dissolution before the agreed time he may be enjoined from doing so.

3. By Operation of Law. Events may happen making the continuance of the partnership inexpedient or even impossible, and as a consequence a dissolution is effected; e. g., by death, bankruptcy of partner, marriage of a woman partner, or insanity of a partner.

(a) Death. In this event the united action of the partners is at an end. The remaining partners should not be compelled to continue. The share of the deceased partner passes to his representatives, who have no rights as partners. The old partnership must terminate irrespective of any agreement previously made.

(b) Bankruptcy of Partner. The bankruptcy of a partner is generally sufficient to work a dissolution of the partnership. The share of the partner may be decreed to pass to the creditors of the failing partner. If a partner disposes of his interest, a dissolution is effected. He may, under a proper showing, be enjoined from disposing of his interest.

(c) Insanity of Partner. While insanity of a partner is not sufficient in itself to bring about a dissolution, it may furnish ample grounds to justify the granting of a decree of dissolution.

4. By Decree of Court. Under decree of court not only may a dissolution be ordered, but the partnership agreement be declared to be void and of no force from the beginning. Such a decree will not be entered if the partnership is for no definite time or the agreed time has expired.

5. Grounds for Decree. Equity will in many cases decree a dissolution of the partnership: (1) Where it is evident that the venture can never be a success, or where there is little probability of success because of erroneous foundation. (2) Where fraud was used in bringing about the partnership. (3) When one of the partners has become mentally incapacitated, as from insanity. (4) Where the misconduct of a partner is of such a notorious character that further prosecution of the partnership is inexpedient or impossible. The misconduct, however, must not be of the one praying for relief.

6. Notice. Through business relationship the general public is aware of the existence of the partnership, and if a dissolution is effected they are to be apprised of this fact. The dissolution is to terminate the liabilities of partners. Any notice that reaches the public is sufficient. However, it is customary to send written notice to all with whom dealings have been had and to publish a general notice in the newspapers of the locality. He who deals with the partnership does so at his peril.

The effect of notice to third parties is to effectually defeat the making of new contracts for the firm by any partner. The absence of notice leaves the power in a partner of entering into new contracts with third parties, and binds the withdrawing partners as well as those who remain.

146. Effect of Dissolution. The first effect is to terminate the partnership agreement, annulling certain powers, allowing some to remain in force, and to create new powers.

1. Powers That Cease. The powers that are for the purpose of conducting the partnership business terminate; no new contracts are to be made. The life of the business is at an end.

2. Powers That Remain. These are principally settlement rights, to collect debts due the firm, to sell firm assets, and to pay firm indebtedness and make the final distribution of assets to partners according to the articles of agreement.

3.

Powers Created. When a dissolution of a partnership occurs through operation of law, the partners become interested as tenants in common.

147. Special Agreements. The partners are at liberty to make any legal agreements as to the distribution of the partnership effects, or agreements as to the remaining partners carrying on the business, and these will be enforced as far as the partners themselves are concerned.

They cannot change their own liability to third persons by such agreements. The third person loses no rights by such agree

ments.

148. Lien. Each partner has a lien on the partnership property to the extent of demanding that the proceeds of its sale shall be used in paying the indebtedness of the firm and that the property shall be distributed in accordance with the provisions of the partnership agreement. In the absence of such an agreement the law presumes an equal distribution.

149. Final Accounting. Following a dissolution, an accounting becomes necessary. In case of the solvency of the firm the process is simple: to reduce assets to cash, pay outside liabilities, divide and distribute profits, and withdraw investments. In accounting for profits all must be included even though made by an especial effort of a partner. If a partner buys goods for the firm at very lowest figures and receives a donation from the seller, he must account for it to the firm. Equity exacts this duty from all agents.

The adjusting of partners' advances and contributions as between themselves must not interfere with the settling of outside claims. An eminent jurist says: "In adjusting the accounts of partners, losses ought to be paid first out of assets, excluding capital, next out of capital, and lastly by having recourse to the

partners individually; and the assets of the partnership should be applied as follows:

"1. In paying the debts and liabilities of the firm to nonpartners.

"2. In paying to each partner ratably what is due from the firm to him for advances, as distinguished from capital.

"3. In paying to each partner ratably what is due from the firm to him in respect of capital.

"4. The ultimate residue, if any, will then be divided as profit between the partners in equal shares, unless the contrary be shown."

The dissolution of a partnership is subject to the will of the partners.
The death of a partner works a dissolution of a partnership.

The bankruptcy or insanity of a partner generally works a dissolution of a partnership.

A court of equity may decree the dissolution of a partnership.

To prevent the accruing of liability, a retiring partner must notify third parties.

On dissolution operating powers terminate and winding up powers remain.

Partners may make special agreements affecting the business, but this will not affect relations to third parties.

Partners are given the right of lien to protect their interests.
Dissolution of partnership calls for an accounting.

151. QUESTIONS

In what ways may a dissolution be effected? Explain each. Name the grounds for a decree of dissolution. Explain notice in its relation to third parties and partner.

On dissolution what powers cease? What ones remain? What is the standing in relationship to third parties that special agreements have between partners? Explain partners' right of lien.

Enumerate steps, on dissolution of partnership, of disposition of property. Refer to the statutes of your state for information relating to restricting or limiting the liability of partners; limited partnership; and restriction as to name of partnership.