Short answer. When the partnership agreement fixes the capitalist partners' profit shares but is silent on the industrial partner's share, the Civil Code requires that the industrial partner receive a just and equitable share under the circumstances. The partners should agree on this; if they cannot, a court may determine what is fair.
What the law says
the industrial partner shall receive such share as may be just and equitable under the circumstances
Civil Code, Article 1797 — Distribution of Profits and Losses. Read the full provision →
What the law says when the agreement is silent
Article 1797 of the Civil Code provides that the industrial partner shall receive such share as may be just and equitable under the circumstances. This standard applies when the partnership agreement has not fixed the industrial partner's share. It is deliberately flexible — the law recognizes that the value of services contributed cannot be reduced to a formula the way capital contributions can. What is just and equitable depends on the nature and importance of the services, how central the industrial partner's work is to the business, and what the partnership is actually earning.
The agreement controls first — the default fills gaps
Article 1797 begins by saying losses and profits shall be distributed in conformity with the agreement. The just-and-equitable standard only kicks in when the agreement is silent. If your partnership agreement fixes the capitalist partners' shares but says nothing about the industrial partner, the agreement is incomplete — not void. The law fills the gap with the equitable standard. This also means the partners can always correct the gap by amending the agreement to set a specific share, and doing so will control going forward.
If the industrial partner also contributed capital
The Civil Code addresses this specifically: if the industrial partner contributed both services and capital, that partner receives two components of profit. The first is the equitable share for services, determined as above. The second is a proportional share in profits based on the capital contributed, calculated the same way as any capitalist partner's share. These are separate entitlements and are computed independently. The industrial partner does not get only one or the other — both apply when both types of contribution were made.
What 'just and equitable' means in practice
Because the standard is flexible, disputes over an industrial partner's profit share can be genuinely difficult to resolve without an agreement. Relevant factors include what the industrial partner actually did, how essential those services were to generating the profit, whether the services could have been hired out at a market rate and at what cost, and the overall size of the profit being distributed. Partners are better off agreeing on a specific share in the partnership agreement rather than leaving this to a later negotiation or, if that fails, to a court.
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 →