The plaintiff, Mr. Wang, and the defendant, Mr. Zhang, met through a mutual friend and collaborated to establish a sand washing factory at the end of 2022. In March 2023, the sand washing factory incurred losses, totaling 130,000 yuan after settlement. Both parties agreed to bear 50% of the losses each. On March 17, 2024, the defendant wrote an IOU to the plaintiff, stating: "Due to losses incurred from our partnership in the sand machine business in 2022, Mr. Wang has borne the losses of 65,000 yuan on my behalf. I promise to repay the debt within one year. If overdue, I will voluntarily pay interest at four times the bank rate until the date of full repayment of principal and interest.".

After the agreed repayment deadline expired, the defendant Zhang refused to repay, claiming that the two had not signed a formal partnership agreement, that they were not in a partnership contractual relationship, and that the losses had nothing to do with him.

After trial, the court held that Article 469 of the Civil Code of the People's Republic of China stipulates that parties may enter into a contract in written, oral, or other forms. Article 967 stipulates that a partnership contract is an agreement between two or more partners to share profits and risks for the purpose of a common undertaking. In this case, although the plaintiff and the defendant did not sign a written partnership contract, it was confirmed through WeChat chat records and phone call recordings submitted by the plaintiff during the trial that both parties frequently negotiated on the daily management, operation, and sales of sand from the sand washing plant during their cooperation. The two had in fact established a partnership relationship, and the absence of a written partnership agreement did not affect the formation and validity of the contract.

Regarding the issue of the proportion of losses borne by the plaintiff and the defendant, Article 972 of the Civil Code of the People's Republic of China stipulates that the distribution of profits and the sharing of losses in a partnership shall be handled in accordance with the provisions of the partnership contract; if the partnership contract is silent or unclear, the partners shall decide through consultation; if consultation fails, the partners shall distribute and share the losses according to the proportion of their actual capital contributions; if the proportion of capital contributions cannot be determined, the partners shall distribute and share the losses equally. In this case, the plaintiff and the defendant established a de facto partnership. During the cooperation period, the defendant encountered difficulties in capital turnover, and the plaintiff bore most of the capital investment. After the sand washing plant operated at a loss, both parties have settled the losses, that is, the plaintiff and the defendant have determined the proportion of losses borne through consultation. The defendant shall bear the responsibility according to the proportion agreed upon by both parties.

The court ultimately ruled that the defendant, surnamed Zhang, shall pay the plaintiff 65,000 yuan in full and corresponding interest. After the verdict was announced, neither party filed an appeal, and the judgment has now taken effect.

The distribution of profits and the sharing of losses are core matters within the internal relationship of a partnership. The so-called losses of the partnership refer to the portion where the partnership property is less than the total amount of partnership debts and capital contributions. Article 972 of the Civil Code of the People's Republic of China strictly implements the principle of freedom of contract, clarifying the order of application of the rules of priority of agreement and supplementary statutory provisions, which is consistent with Article 33 of the Partnership Enterprise Law. Matters related to profit distribution and loss sharing are left to the partners to agree upon themselves; if the partnership contract is silent or unclear, the partners shall first negotiate and make a joint decision; if negotiation fails, the partners shall distribute and share according to the proportion of their actual capital contributions; if the proportion of capital contributions cannot be determined, the partners shall distribute and share equally.

Sharing profits and bearing losses together are the essential characteristics and basic requirements of partnership contracts. Partners each have the right to participate in profit distribution and also bear the obligation to bear losses. Partners cannot stipulate in the partnership contract that all profits or losses should be attributed to a single partner or a few partners. The right of partners to participate in profit distribution cannot be excluded, nor can the obligation of partners to bear losses be waived. In this case, due to poor management, there was no issue of profit distribution, and only negotiations were conducted regarding the sharing of losses. This reflects the true intention of both parties, and the defendant Zhang should fulfill his obligations as agreed.

This article is republished from the WeChat official account "Shandong Higher People's Court", for which we would like to express our gratitude!