In such a case the partnership business will be closed up by an impartial person under the direction and approval of the court.

378. When court will be asked to dissolve. The aid of a court will be invoked when one partner wishes to wind up the affairs of the business and the other wishes to continue. The grounds on which a court of equity may be asked to dissolve the partnership are (a) loss in business or inability to carry it on without loss, or (b) willful fraud, or (c) gross misconduct of one of the partners, also (d) gross carelessness and waste in the management of the business. The court may also be asked to dissolve the partnership in a friendly suit brought by the parties to avoid any liability for breach of the partnership articles.

379. Acts which amount to misconduct. What acts of misconduct will warrant a dissolution depend largely on each case, but the following have been held sufficient. (a) The keeping of fraudulent accounts; (b) misappropriation of firm's assets to the individual use of a partner; (c) the exclusion of a partner from participation in the management of the business; (d) a gross violation of good faith; (e) habitual intoxication, and, in general, (f) any misconduct which endangers the interests of the firm or tends to destroy the confidence of his co-partners in him.

380. Inability to act. So, also, the inability of a partner to act as per agreement is a sufficient cause for dissolution. Thus, Smith & Brown formed a partnership. Smith agreed to furnish $15,000.00 cash, to be paid into the business inside of a year. His inability to put that amount of money into the business is a cause for dissolution.

381. By operation of law. By a dissolution by operation of law is meant that the happening of certain things over which the partners have no control will of itself dissolve the partnership. The causes which will work a dissolution under this. head are:

1. Change of the mental condition of a partner. 2. Sale under execution.

3. Bankruptcy.

4. Death of a partner.

382. Change of mental condition. By this we mean that if a partner has been adjudged insane, and his property placed in charge of a conservator, this would of itself dissolve the partnership. Many authorities, however, hold that lunacy of & partner in itself will not cause a dissolution, but only ground upon which a court may decree one. If the articles of co-partnership provide that the partnership may be dissolved upon notice, such notice, if given to the lunatic, will be effectual. 383. Sale under execution. An execution is the carrying into effect or enforcing a judicial decree. If a judgment be obtained against a member of a firm, the sheriff may sell such member's interest in the partnership to satisfy the judgment. The purchaser does not become a member of the firm. The sale of itself operates as a dissolution of the partnership.

384. Bankruptcy of partner. In case of bankruptcy or insolvency of one of the partners, not bankruptcy of the partnership, the assignment by him of his individual interest works a dissolution. The assignee does not become a partner. His only authority is to close up the bankrupt partner's affairs.

385. Death of a partner. Unless there be a special provision to the contrary in the partnership agreement, the death of a partner dissolves the partnership. This is true because his executor or administrator cannot represent him in the partnership business.

386. Business may continue under new agreement. Because there is a dissolution of the partnership it does not necessarily follow that the business must be closed up, for the remaining partners may enter into a new agreement to carry on the business upon the old terms. But if there be no such agreement, and the articles of co-partnership do not otherwise provide for a continuation of the business, its affairs must be wound up. There are certain powers of partners that cease and certain other powers that remain after dissolution, which we shall next consider.

387. Powers that cease after dissolution. One direct consequence of the dissolution is the necessity imposed by it of taking prompt and effectual steps to wind up the partnership business.

Rule: Neither partner, therefore, can create new responsibilities, nor execute evidences of indebtedness, without the knowledge or consent of the others.

Thus, neither partner has power to bind the others by giving a note in the name of the late firm for a partnership debt, or by accepting a draft drawn on the firm, or by the renewal of a note. So, also, after dissolution, neither partner has power to bind his co-partners by his declarations or admissions subsequently made, i.e., a debt barred by Statute of Limitation would not be revived by an acknowledgment and promise to pay.

A, B, and C, as partners, owed a debt to D, which had been outlawed. After dissolution of the firm A promised D that the firm would pay the debt. This does not revive the debt; consequently the firm A, B & C are not liable for its payment. So, also, if after dissolution, B should give a note in the name of the firm to a creditor of the late firm, the note would be worthless, as the firm A, B & C would not be liable because of the above rule.

388. Powers that remain after dissolution. Rule: After the dissolution of a partnership each partner has power to do whatever is necessary to close up the firm's business.

This means he has the power to collect claims due the firm and to settle and pay its debts, unless there has been some agreement or order of court to the contrary. A partner may also, after dissolution, sell any part or all of the firm's property, but the payment for the property must be in money.

389. Notice of dissolution. Notice of dissolution must be given to all the creditors of the firm, and to any who have sold to them on credit. This notice is usually given by letter. In addition to this a notice of the dissolution must be published in a newspaper for the benefit of those who might be induced to extend credit to the firm on the strength of the partnership relation. If the dissolution has been decreed by a court, or results from the operation of law, no notice is necessary, because this is a fact of which the public is bound to take notice. When a dormant partner withdraws, notice need not be given since he was not known to be a partner.

Rule: If notice be not given, a retiring partner will continue to be liable for new obligations.

QUESTIONS

1. How may a partnership be dissolved?

2. Who may dissolve a partnership?

3. Is a partner liable in damages for the wrongful dissolution of the partnership?

4. Where one partner assigns his interest in the partnership does that make his assignee a member of the firm?

5. On what grounds will a court decree the dissolution of a partnership? 6. What acts of misconduct will warrant a dissolution?

7. How may a partnership be dissolved by operation of law?

8. What is the effect of a sale under execution?

9. What becomes of the partnership business in case the firm is dissolved?

10. What are the powers of the individual partners after the dissolution? 11. What notice of the dissolution of a partnership should be given? 12. What is the effect of the failure to give notice on the liability of a retiring partner?

CASES

(GIVE REASONS FOR YOUR ANSWERS)

1. B, H and S were partners engaged in the manufacture of brick. After continuing the business for several years H went away, and wrote to B authorizing B and S to settle the affairs of the partnership as they pleased. B and S then formed a new partnership. Did the withdrawal of H operate as a dissolution of the firm?

2. H and K entered into a partnership to engage in the jewelry business for one year. At the end of six months K became dissatisfied and locked up the goods and would not allow H to come into the store. K published a notice in a local paper that the partnership had been dissolved. H, a few days later, bought a bill of goods from a wholesale house with whom the firm had never done any business and gave in payment the note of the firm. Is K liable on the note?

3. A, B and C were partners. The articles provided that in the case of the death of one of the partners the other two should have the privilege of purchasing the deceased partner's interest for $5,000.00. A died leaving a widow as his only heir. She refused to sell her interest for $5,000.00. Can B and C force her to accept $5,000.00?

4. C and L were partners and L had the management of the partnership affairs. C learned that L was making false entries in the books, and was keeping back money that belonged to the firm. Does this entitle C to dissolve the partnership?

5. A and B were partners in the grocery business and both gave their full time to the affairs of the business. A began drinking and in the course

of time became a detriment to the business by coming to the store in an intoxicated condition. Would this justify B in asking for a dissolution of the partnership?

6. A, B and C were partners in the clothing business. A died. B and C continued the business the same as before. They bought goods, made improvements in the store and hired and discharged salesmen. The heirs of A objected and insisted that the affairs of the firm should be wound up. Were they right in this contention?

REVIEW QUESTIONS

1. Define partnership.

2. What may be invested?

3. How is a partnership created?

4. What is meant by a partnership by implication?

5. What is the true test of such a partnership?

6. Name the different kinds of partners.

7. What is an ostensible partner?

8. Define nominal partners.

9. What is the liability of a nominal partner?

10. What is meant by a dormant partner?

11. Are they liable for partnership obligations?

12. How are limited partnerships created?

13. What are the provisions of the statute regulating this particular class of partnerships?

14. What is the result if the statute creating them be not strictly complied with?

15. Who may be partners?

16. How may a partner escape or limit his personal liability to creditors of the firm?

17. What is the duty and liability of partners to each other?

18. What is the authority of each partner to bind his co-partners?

19. How may a partner bind the firm on negotiable paper?

20. What is the limitation on the power of a partner to borrow money for the firm?

21. To what extent do the declarations and admissions of a partner bind his co-partners?

22. What effect do restrictions of a partner's powers by the partnership agreement have as to third persons?

23. When will the firm be liable for the fraud of a partner?

24. Is there any limitation on the power of a partner to sell all or part of the firm's property?

25. What is the two-fold liability of a partner for the firm's debts? 26. How is a partnership dissolved?