Short answer. In proportion to what each partner contributed. That is the Civil Code's default where nothing was stipulated. The important twist is the industrial partner, who contributes work rather than capital: he is not liable for the losses at all, and takes whatever share of profits is just and equitable.
What the law says
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed
Civil Code, Article 1797 — Distribution of Profits and Losses. Read the full provision →
What the law says
If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.
Civil Code, Article 1797 — Distribution of Profits and Losses. Read the full provision →
The Code fills the gap you left
Article 1797 works through the possibilities in order. The agreement governs if there is one. If the partners fixed only their shares in the profits, the share of each in the losses shall be in the same proportion — so agreeing on the upside silently settles the downside. And where nothing at all was said, in the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed. A partnership formed on a handshake is therefore not a partnership without rules. It is one running on the Code's rules rather than on anything the partners chose.
The industrial partner is treated differently
The article's most important provision is easy to miss. The partner who contributed services rather than capital shall not be liable for the losses. The logic is that he has already lost what he put in — his labour — and there is no capital of his in the venture to be eaten away. On the profit side he receives such share as may be just and equitable under the circumstances, which is a standard rather than a fraction. If he also contributed capital, he receives a share in the profits in proportion to that capital as well, on top of the share attributable to his services.
'What he may have contributed' has to be provable
The default is proportional, which means the whole answer depends on the size of each contribution — and where nothing was written down, that figure is exactly what partners end up arguing about. Cash is usually traceable through bank records. Property, equipment, a vehicle, the use of premises, or goodwill are far harder, because their value has to be fixed as at the time they went in, not as at today. If your partnership has no written agreement, reconstructing and agreeing the contribution figures now, while everyone is still on speaking terms, is worth more than any clause you could draft later.
What to do about it
Write the agreement. The Code's defaults are sensible but they are generic, and they will not reflect anything particular about your arrangement — unequal effort, a partner who is also a lender, a manager's remuneration, or how someone leaves. Until it exists, keep clean records of contributions, drawings and distributions, and put in writing anything the partners actually decided so it does not depend on memory. A lawyer drafting from real figures and a real history can produce something usable quickly; drafting from four different recollections is what makes it expensive.
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.
- In the Matter of Urgent Petition for the Release of Prisoners on Humanitarian Grounds, G.R. No. 252117, July 28, 2020 — read the decision on LawPhil →
- Federico Jarantilla, Jr. vs. Antonieta Jarantilla, et al, G.R. No. 154486, December 1, 2010 — read the decision on LawPhil →
- Marsman Drysdale Land, Inc., vs. Philippine Geoanalytics, Inc. and Gotesco Properties, Inc, G.R. No. 183374, June 29, 2010 — read the decision on LawPhil →
- Antonia Torres, et al. vs. Court of Appeals, et al, G.R. No. 134559, December 9, 1999 — read the decision on LawPhil →