Short answer. The partnership can claim the money back with damages, and the partner cannot answer by pointing to profits he brought in. The Civil Code says so explicitly. The only softening it allows is a court's discretion to lessen the responsibility where his other efforts produced unusual profits.
What the law says
Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry.
Civil Code, Article 1794 — Partner's Liability for Damage. Read the full provision →
What the law says
The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use.
Civil Code, Article 1788 — Failure to Contribute Money. Read the full provision →
The defence he will reach for is the one the article forecloses
Almost every partner in this position says the same thing: look at what I brought in. Article 1794 answers it in terms. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. The two ledgers do not net out. His contribution to the firm's earnings is what he was there to do; the withdrawal is a separate wrong, and it has to be answered separately. That is the single most useful sentence to have in front of you when the conversation starts.
The claim belongs to the partnership
Note who the responsibility runs to. The article makes the partner liable to the partnership, not to the individual partners who feel wronged. The loss was suffered by the firm, and the recovery goes back into the firm before anyone's share is worked out. That framing matters for how the matter is pursued and in whose name, and it is worth getting right at the start rather than discovering it after a demand has gone out on the wrong footing.
Money taken from the coffers has its own rule
Where what happened is a straightforward taking of cash, the Code is more specific still. A partner who fails to contribute money he promised becomes a debtor for interest and damages, and the same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. The date of conversion, not the date of discovery or of demand, is when the clock starts. So the dates on the withdrawals are worth establishing precisely — they affect what is owed on top of the principal.
The court's discretion, and what to do now
Article 1794 ends by allowing courts to lessen the responsibility equitably where the partner's extraordinary efforts in other activities of the partnership produced unusual profits. That is a narrow equitable allowance, not a set-off, and it says nothing about how much. Meanwhile, secure the records before they move: bank statements, the books, the cheque and transfer history, and any approvals he claims he had. Do not lock him out or seize assets on your own initiative — a partner's rights in the firm survive the accusation, and self-help tends to convert a strong claim into a two-sided dispute.
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 →
Related provisions
- Civil Code, Article 1794 — Partner's Liability for Damage
- Civil Code, Article 1788 — Failure to Contribute Money