Short answer. Yes. When the partnership's own property cannot pay its debts on dissolution, Article 1839 treats the partners' required contributions as part of the assets, and provides that the partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities. Each shares the shortfall in the loss-sharing proportion, except an industrial partner.
What the law says
The contributions of the partners necessary for the payment of all the liabilities
Civil Code, Article 1839 — Settling Accounts After Dissolution. Read the full provision →
What the law says
The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.
Civil Code, Article 1839 — Settling Accounts After Dissolution. Read the full provision →
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, but the industrial partner shall not be liable for the losses.
Civil Code, Article 1797 — Distribution of Profits and Losses. Read the full provision →
What the law says
The liabilities of the partnership shall rank in order of payment, as follows: (a) Those owing to creditors other than partners
Civil Code, Article 1839 — Settling Accounts After Dissolution. Read the full provision →
What the law says
An assignee for the benefit of creditors or any person appointed by the court
Civil Code, Article 1839 — Settling Accounts After Dissolution. Read the full provision →
Yes — partners must make up the shortfall
Article 1839 answers this squarely. When it lists the assets available on dissolution, it includes not only the partnership property but also The contributions of the partners necessary for the payment of all the liabilities. And it spells out the duty: The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities. So if selling everything the firm owns still leaves creditors unpaid, the partners cannot simply walk away — they must reach into their own pockets to make up the difference. The shortfall becomes a personal obligation of the partners, not a loss the creditors are made to absorb.
How much each partner pays
The size of each partner's share of the shortfall is governed by Article 1797, which Article 1839 expressly borrows. Under it, 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, but the industrial partner shall not be liable for the losses. So partners divide the deficiency the same way they divide losses — by their agreement, or, failing one, in proportion to their capital. A partner who contributed only his industry, not capital, is shielded from the losses. Any loss-sharing agreement the partners made controls; the proportional rule applies only when they set none.
Creditors get paid first
Article 1839 also fixes the order in which the money goes out, so the contributions are not swallowed by the partners themselves before outsiders are paid. It provides that The liabilities of the partnership shall rank in order of payment, as follows: (a) Those owing to creditors other than partners, and only afterwards those owing to partners — first for advances, then capital, then profits. Outside creditors sit at the top of the queue. This is why the partners must contribute: the ranking exists precisely to satisfy those outside debts in full before any partner recovers what the firm owed him.
Enforcing the contributions
The obligation to contribute is enforceable, not merely theoretical. The article lets An assignee for the benefit of creditors or any person appointed by the court enforce the contributions, and a partner who has paid more than his share may recover the excess from the others. It even reaches a deceased partner: his individual property remains liable for these contributions. So a partner cannot escape the shortfall by inaction, or by the death of a co-partner — the law provides several hands able to compel the payment the liabilities require.
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