Our partnership agreement sets each partner's share of profits. Does the same ratio apply to losses if the agreement is silent on losses?

The agreement governs first

Article 1797 starts with the simplest possible rule: "the losses and profits shall be distributed in conformity with the agreement." If the partners wrote down how both profits and losses would be shared, that language controls, whatever the ratio happens to be. The law does not need to fill any gap when the partners have already spoken to the point directly, and courts will look first to what the partnership agreement actually says before reaching for any default rule.

A profit-sharing clause carries over to losses

The situation you describe — an agreement on profits but silence on losses — is answered directly by the article: "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." The law treats the agreed profit ratio as the partners' intended answer to losses as well, on the assumption that a partner who agreed to receive, say, forty percent of the profits also implicitly accepted forty percent of any losses. You do not need a separate clause on losses for this rule to apply.

When there is no agreement on either profits or losses

A different default applies only where the partners never agreed on shares at all. In that situation, Article 1797 provides that "the share of each partner in the profits and losses shall be in proportion to what he may have contributed." This capital-contribution rule is a fallback of last resort — it only comes into play when there is genuinely no stipulation to interpret, which is not your situation since your agreement does fix profit shares.

The industrial partner is treated differently

One important qualification applies regardless of how the profit-and-loss shares were set: the article states that the industrial partner shall not be liable for the losses. A partner who contributes only labor or services, rather than capital, is protected from bearing losses even while sharing in the profits according to what is just and equitable. If your partnership includes an industrial partner, that partner's exposure to losses is limited by this rule independently of whatever ratio governs the capitalist partners among themselves.

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 →

Related provisions

• Civil Code, Article 1797 — Distribution of Profits and Losses