Short answer. Yes. Article 1839 places the return of a partner's capital ahead of the payment of his share of the profits. In the ranking of what a dissolved partnership owes, amounts owing to partners in respect of capital sit one rung above amounts owing to them in respect of profits.
What the law says
(c) Those owing to partners in respect of capital, (d) Those owing to partners in respect of profits.
Civil Code, Article 1839 — Settling Accounts After Dissolution. Read the full provision →
Capital ranks above profit
In settling accounts after dissolution, Article 1839 pays claims in a fixed sequence, and the last two rungs answer this question directly: Those owing to partners in respect of capital come before Those owing to partners in respect of profits. Capital is what a partner put in; profit is the gain the venture generated on top of it. The law returns the investment first and distributes the earnings last. So a partner is entitled to see his contributed capital restored before a single peso of undistributed profit is paid out to anyone.
Everyone else is ahead of both
Neither capital nor profit is near the front of the queue. Outside creditors — those owing to creditors other than partners — are paid first, followed by amounts owing to partners for something other than capital and profits, such as a loan a partner made to the firm. Only after those two classes are satisfied does capital get its turn, and profit its turn after that. This is why, in a poorly performing partnership, the profit rung is often reached with nothing left to distribute: the gains were consumed answering debts and returning contributions.
Why the order matters when money is short
The sequence is decisive precisely when assets do not stretch to cover everything. If the remaining fund can only partly answer the capital claims, the profit claims receive nothing at all, because a lower rung is reached only once the rung above it is fully paid. A partner hoping to be paid his anticipated share of earnings should understand that his expectation of profit is the weakest claim in the whole structure. Where assets fall short even of the liabilities, partners must contribute the shortfall in the proportion in which they bear losses, the measure Article 1797 supplies.
The limits of the rule
This ordering is a default that yields to any agreement to the contrary, so partners may bargain for a different arrangement among themselves — though outside creditors are never bound by it. The ranking also settles only the order in which valid claims are paid; it does not decide how much capital a partner actually contributed or how large his profit share is, which turn on the partnership agreement and the accounting. And a separate scheme governs where a partner is insolvent, reordering how claims against his personal property are met.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Primelink Properties & Devt. Corp., et al. vs. Ma. Clarita T. Lazatin-Magat, et al, G.R. No. 167379, June 27, 2006 — read the decision on LawPhil →
- Luzviminda J. Villareal, et al. vs. Donaldo Efren C. Ramirez, et al, G.R. No. 144214, July 14, 2003 — read the decision on LawPhil →
Related provisions
- Civil Code, Article 1839 — Settling Accounts After Dissolution
- Civil Code, Article 1797 — Distribution of Profits and Losses