OBLIGATION OF THE PARTNERS WITH REGARD TO THIRD PERSONS

LITTON vs. HILL & CERON

G.R. NO. 45624, APRIL 25, 1939, 67 PHIL 509-518

DOCTRINE/S:
(1) A third person may and has a right to presume that the partner with whom he contracts has,
in the ordinary and natural course of business, the consent of his copartner; for otherwise he
would not enter into the contract. The third person would naturally not presume that the partner
with whom he enters into the transaction is violating the articles of partnership but, on the
contrary, is acting in accordance therewith.

(2) The kind of business in which the partnership Hill & Ceron is to engage being thus
determined, none of the two partners, pursuant to Article 130 of the Code of Commerce, may
legally engage in the business of brokerage in general as stock brokers, security brokers and
other activities pertaining to the business of the partnership. Ceron, therefore, could not have
entered into the contract of sale of shares with Litton as a private individual, but as a managing
partner of Hill & Ceron.

(3) There is a general presumption that each individual partner is an authorized agent for the
firm and that he has authority to bind the firm in carrying on the partnership transactions. (Mills
vs. Riggle, 112 Pac., 617.) Further, the presumption is sufficient to permit third persons to hold
the firm liable on transactions entered into by one of members of the firm acting apparently in its
behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U. S. [Law. ed.], 391.)

NATURE: Petition to review on certiorari the decision of the CA in a case originating from the
CFI Manila.

FACTS:

Herein plaintiff sold and delivered to Carlos Ceron, who is one of the managing partners of Hill &
Ceron, a certain number of mining claims, and by virtue of said transaction, the defendant
Carlos Ceron delivered to the plaintiff a document to wit;

"Received from Mr. George Litton share certificates Nos. 4428, 4429 and 6699 for 5,000,
5,000 and 7,000 shares respectively — total 17,000 shares of Big Wedge Mining
Company, which we have sold at P0.11 (eleven centavos) per share or P1,870.00 less
1/2 per cent brokerage.

Thereafter, Ceron paid to the plaintiff the sum of P1,150 leaving an unpaid balance of P720, and
unable to collect this sum either from Hill & Ceron or from its surety Visayan Surety & Insurance
Corporation, Litton filed a complaint in the CFI Manila against the said defendants for the
recovery of the said balance. CA ordered Carlos Ceron personally to pay the amount claimed
and absolved the partnership Hill & Ceron, Robert Hill and the Visayan Surety & Insurance
Corporation. On appeal to the Court of Appeals, the latter affirmed the decision of the court on
May 29, 1937, having reached the conclusion that Ceron did not intend to represent and did not
act for the firm Hill & Ceron in the transaction involved in this litigation.

ISSUE/S: Whether or not the CA erred in its ruling that that Ceron individually entered
into the transaction with the plaintiff -YES

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RULING:

The Court dissents on the ruling of the Court of Appeals as to the question of fact just, that
Ceron individually entered into the transaction with the plaintiff, but in view, however, of certain
undisputed facts and of certain regulations and provisions of the Code of Commerce, we reach
the conclusion that the transaction made by Ceron with the plaintiff should be understood in law
as effected by Hill & Ceron and binding upon it.

It is an admitted fact by Robert Hill when he testified at the trial that he and Ceron, during the
partnership, had the same power to buy and sell; that in said partnership Hill as well as Ceron
made the transaction as partners in equal parts; that on the date of the transaction, February
14, 1934, the partnership between Hill and Ceron was in existence. After this date, or on
February 19th, Hill & Ceron sold shares of the Big Wedge; and when the transaction was
entered into with Litton, it was neither published in the newspapers nor stated in the commercial
registry that the partnership Hill & Ceron had been dissolved. Hill testified that a few days before
February 14th he had a conversation with the plaintiff in the course of which he advised the
latter not to deliver shares for sale or on commission to Ceron because the partnership was
about to be dissolved; but what importance can be attached to said advice if the partnership
was not in fact dissolved on February 14th.

Pursuant to Art. 226 of the Code of Commerce, the dissolution of a commercial association shall
not cause any prejudice to third parties until it has been recorded in the commercial registry.
The Supreme Court of Spain held that the dissolution of a partnership by the will of the partners
which is not registered in the commercial registry, does not prejudice third persons.

Furthermore, the order of the Bureau of Commerce of December 7, 1933, prohibits brokers from
buying and selling shares on their own account. Said order reads:

The stock and/or bond broker is, therefore, merely an agent or an intermediary, and as such,
shall not be allowed. . . .

(c) To buy or to sell shares of stock or bonds on his own account for purposes of speculation
and/or for manipulating the market, irrespective of whether the purchase or sale is made from or
to a private individual, broker or brokerage firm.

As to the decision the Court of Appeals states to wit; “but there is a stronger objection to the
plaintiff's attempt to make the firm responsible to him. According to the articles of copartnership
of 'Hill & Ceron,' filed in the Bureau of Commerce. Sixth. That the management of the business
affairs of the copartnership shall be entrusted to both copartners who shall jointly administer the
business affairs, transactions and activities of the copartnership, shall jointly open a current
account or any other kind of account in any bank or banks, shall jointly sign all checks for the
withdrawal of funds and shall jointly or singly sign, in the latter case, with the consent of the
other partner xxx Under this stipulation, a written contract of the firm can only be signed by one
of the partners if the other partner consented. Without the consent of one partner, the other
cannot bind the firm by a written contract. Now, assuming for the moment that Ceron attempted
to represent the firm in this contract with the plaintiff (the plaintiff conceded that the firm name
was not mentioned at that time), the latter has failed to prove that Hill had consented to such
contract.

It follows from the sixth paragraph of the articles of partnership of Hill &n Ceron above quoted
that the management of the business of the partnership has been entrusted to both partners

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thereof, but we dissent from the view of the Court of Appeals that for one of the partners to bind
the partnership the consent of the other is necessary. Third persons, like the plaintiff, are not
bound in entering into a contract with any of the two partners, to ascertain whether or not this
partner with whom the transaction is made has the consent of the other partner. The public
need not make inquires as to the agreements had between the partners. Its knowledge, is
enough that it is contracting with the partnership which is represented by one of the managing
partners.

There is a general presumption that each individual partner is an authorized agent

for the firm and that he has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle, 112 Pac., 617.)

The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of members of the firm acting apparently in its behalf
and within the scope of his authority. (Le Roy vs. Johnson, 7 U. S. [Law. ed.], 391.)

The second paragraph of the articles of partnership of Hill & Ceron states viz;

Second: That the purpose or object for which this copartnership is organized is to
engage in the business of brokerage in general, such as stock and bond brokers, real
brokers, investment security brokers, shipping brokers, and other activities pertaining to
the business of brokers in general.

The kind of business in which the partnership Hill & Ceron is to engage being thus determined,
none of the two partners, under article 130 of the Code of Commerce, may legally engage in the
business of brokerage in general as stock brokers, security brokers and other activities
pertaining to the business of the partnership. Ceron, therefore, could not have entered into the
contract of sale of shares with Litton as a private individual, but as a managing partner of Hill &
Ceron.

Respondent argued that even admitting that one of the partners could not, in his individual
capacity, engage in a transaction similar to that in which the partnership is engaged without
binding the latter, nevertheless there is no law which prohibits a partner in the stock brokerage
business for engaging in other transactions different from those of the partnership, as it happens
in the present case, because the transaction made by Ceron is a mere personal loan, and this
argument, so it is said, is corroborated by the Court of Appeals. The Court does not find this
alleged corroboration, for the only finding of fact made by the Court of Appeals is to the
effect that the transaction made by Ceron with the plaintiff was in his individual capacity.

The appealed decision is reversed and the defendants are ordered to pay to the plaintiff,
jointly and severally, the sum of P720, with legal interest, from the date of the filing of the
complaint, minus the commission of one-half per cent (½%) from the original price of
P1,870, with the costs to the respondents. So ordered.

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 GOQUIOLAY vs. SYCIP
G.R. NO. L-11840, JULY 26, 1960, 108 PHIL 947-988

DOCTRINE:
● The public need not make inquiries as to the agreements had between the partners. Its
knowledge is enough that it is contracting with the partnership which is represented by one of the
managing partners.
● There is a general presumption that each individual partner is an agent for the firm and that he
has authority to bind the firm in carrying on the partnership transactions.
● The presumption is sufficient to permit third persons to hold the firm liable on transactions entered
into by one of the members of the firm acting apparently in its behalf and within the scope of his
authority.

FACTS:
Tan Sin An and Antonio C. Goquiolay entered into a general commercial partnership under the
partnership name "Tan Sin An and Antonio C. Goquiolay", for the purpose of dealing in real
estate. The agreement lodged upon Tan Sin An the sole management of the partnership affairs.
The lifetime of the partnership was fixed at ten (10) years and also that "In the event of the death of any of
the partners at any time before the expiration of said term, the co-partnership shall not be dissolved but
will have to be continued and the deceased partner shall be represented by his heirs or assigns in said
co-partnership"

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3) parcels of
land, subject-matter of the instant litigation, assuming the payment of a mortgage obligation of
P25,000.00, payable to "La Urbana Sociedad Mutua de Construcción y Prestamos" for a period of ten
(10) years, with 10% interest per annum. Another 46 parcels were purchased by Tan Sin An in his
individual capacity, and he assumed payment of a mortgage debt thereon for P35,000.00, with interest.
The down payment and the amortization were advanced by Yutivo and Co., for the account of the
purchasers.

On September 25, 1940, the two separate obligations were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco
Hipotecario de Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to pay,
jointly and severally, the remaining balance of their unpaid accounts amounting to P52,282.80 within eight
8 years, with 8% annual interest, payable in 96 equal monthly installments.

On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four minor
children.

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the
intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged obligations
of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interests and
taxes paid in amortizing and discharging their obligations to "La Urbana" and the "Banco Hipotecario".

Kong Chai Pin executed on April 4, 1949, a deed of sale of the 49 parcels of land to the defendants
Washington Sycip and Betty Lee in consideration of P37,000.00 and of vendees' assuming payment of
the claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc.

Later, in July, 1949, defendants Sycip and Betty Lee executed in favor of the Insular Development Co.,
Inc. a deed of transfer covering the said 49 parcels of land.

Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or about July
25, 1949, a petition in the intestate proceedings seeking to set aside the order of the probate court
approving the sale in so far as his interest over the parcels of land sold was concerned.

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ISSUE: Whether or not the sale in favor of the sale in favor of Washington Sycip and Betty Lee, and their
subsequent conveyance in favor of the Insular Development Co., Inc., in so far as the three (3) lots owned
by the plaintiff partnership are concerned should be annulled.

RULING: NO. Strangers dealing with a partnership have the right to assume, in the absence of restrictive
clauses in the co-partnership agreement, that every general partner has power to bind the partnership,
specially those partners acting with ostensible authority. And so, we held in one case:
". . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the two
partners, to ascertain whether or not this partner with whom the transaction is made has the
consent of the other partner. The public need not make inquiries as to the agreements had between
the partners. Its knowledge is enough that it is contracting with the partnership which is represented
by one of the managing partners.

There is a general presumption that each individual partner is an agent for the firm and that he has
authority to bind the firm in carrying on the partnership transactions.'

'The presumption is sufficient to permit third persons to hold the firm liable on transactions entered
into by one of the members of the firm acting apparently in its behalf and within the scope of his
authority.'

The regular course of business procedure does not require that each time a third person contracts with
one of the managing partners, he should inquire as to the latter's authority to do so, or that he should first
ascertain whether or not the other partners had given their consent thereto. In fact, Article 130 of the
same Code of Commerce provides that even if a new obligation was contracted against the express will
of one of the managing partners, "it shall not be annulled for such reason, and it shall produce its effects
without prejudice to the responsibility of the member or members who contracted it, for the damages they
may have caused to the common fund."

Although the partnership under consideration is a commercial partnership and, therefore, to be governed
by the Code of Commerce, the provisions of the old Civil Code may give us some light on the right of one
partner to bind the partnership. States Art. 1695 thereof:
"Should no agreement have been made with respect to the form of management, the following rules
shall be observed:
1. All the partners shall be considered agents, and whatever any one of them may do individually
shall bind the partnership; but each one may oppose any act of the others before it has become
legally binding."

The records fail to disclose that appellant Goquiolay made any opposition to the sale of the partnership
realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he (Goquiolay) only
interposed his objections after the deed of conveyance was executed and approved by theprobate court,
and, consequently, his opposition came too late to be effective.

Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with costs against
appellant Antonio Goquiolay.

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 SINGSON vs. ISABELA SAWMILL
G.R. NO. L-27343, FEBRUARY 28, 1979, 177 PHIL 575-595

FACTS:
Saldajeno, Garibay and Tubungbanua entered into a contract of partnership. Later,
Saldajeno withdrew and brought an action to dissolve the partnership. The suit resulted in the
execution of "Assignment of Rights with Chattel mortgage" in favor of Saldajeno. Garibay and
Tubungbanua, however, continued the business under the same firm name.
Meanwhile, plaintiffs Singson extended credits to the partnership. Later, the chattel
mortgage was foreclosed and the mortgaged properties were sold at public auction to
Saldajeno, who in turn sold the same for P45,000. They sued defendants to recover the sums of
money they advanced to the partnership and asked for the nullity of the chattel mortgage
between Saldajeno and her former partners. The trial court held that plaintiffs, the partnership's
creditors, had a preferred right over the proceeds of the sale. The Saldajeno appealed alleging
that (1) the trial court had no jurisdiction because plaintiffs sought to collect sums of money, the
biggest amount of which was less than P2,000; and (2) the chattel mortgage, having been
judicially approved and foreclosed cannot be nullified by another court of co-equal, concurrent
and coordinate jurisdiction

ISSUE/S:
Whether or not Saldajeno may still be made liable to the creditors of the partnership.

RULING:
Yes. The remaining partners did not terminate the business of the partnership "Isabela
Sawmill". Instead of winding up the business of the partnership, they continued the business still
in the name of said partnership. It is expressly stipulated in the memorandum-agreement that
the remaining partners had constituted themselves as the partnership entity, the "Isabela
Sawmill". There was no liquidation of the assets of the partnership. The remaining partners,
Leon Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in
the name of "Isabela Sawmill". They used the properties of said partnership. The properties
mortgaged to Saldajeno by the remaining partners, Leon Garibay, and Timoteo Tubungbanua,
belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was
correctly held liable by the trial court because she purchased at public auction the properties of
the partnership which were mortgaged to her.
Additionally, it does not appear that the withdrawal of Saldajeno from the partnership
was published in the newspapers. The appellees and the public in general had a right to expect
that whatever credit they extended to Garibay and Tubungbanua doing the business in the
name of the partnership could be enforced against the properties of said partnership. The
judicial foreclosure of the chattel mortgage executed in favor of Saldajeno did not relieve her
from liability to the creditors of the partnership.
Hence, Saldajeno cannot complain. She is partly to blame for not insisting on the
liquidation of the assets of the partnership. She even agreed to let Garibay and Tubungbanua
continue doing the business of the partnership "Isabela Sawmill" by entering into the
memorandum-agreement with them. Although it may be presumed that Saldajeno had acted in
good faith, the appellees also acted in good faith in extending credit to the partnership.
Where one of two innocent persons must suffer, that person who gave occasion for the
damaged to be caused must bear the consequences. Had Saldajeno not entered into the
memorandum-agreement allowing Garibay and Tubungbanua to continue doing the business of
the partnership, the appellees would not have been misled into thinking that they were still
dealing with the partnership "Isabela Sawmill".

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 Under the facts, it is of no moment that technically speaking the partnership "Isabela
Sawmill" was dissolved by the withdrawal therefrom of Saldajeno. The partnership was not
terminated and it continued doing business through the two remaining partners. The contention
of the appellants that the appellees cannot bring an action to annul the chattel mortgage of the
properties of the partnership executed by Garibay and Tubungbanua in favor of Margarita G.
Saldajeno has no merit. As a rule, a contract cannot be assailed by one who is not a party
thereto. However, when a contract prejudices the rights of a third person, he may file an action
to annul the contract.
The chattel mortgage over the properties of the partnership "Isabela Sawmill" in favor of
Saldajeno by the remaining partners, Garibay and Tubungbanua. Hence, said appellees have a
right to file the action to nullify the chattel mortgage in question. The portion of the decision
appealed from ordering the appellants to pay attorney's fees to the plaintiffs-appellees cannot
be sustained. There is no showing that the appellants displayed a wanton disregard of the rights
of the plaintiffs. Indeed, the appellant believed in good faith, albeit erroneously, that they are not
liable to pay the claims. The defendants-appellants have a right to be reimbursed whatever
amounts they shall pay the appellees by their co-defendants Garibay and Tubungbanua. In the
memorandum-agreement, Garibay and Tubungbanua undertook to release Saldajeno from any
obligation of "Isabela Sawmill" to third persons.

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#4
Muñasque v. Court of Appeals
G.R. No. L-39780, [November 11, 1985], 224 PHIL 79-91

FACTS:
Petitioner Elmo Muñasque filed a complaint for payment of sum of money and damages
against respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon
Pons, alleging that he entered into a contract with respondent Tropical through its Cebu Branch
Manager Pons for remodelling a portion of its building without exchanging or expecting any
consideration from Galan although the latter was casually named as partner in the contract; that
by virtue of his having introduced the petitioner to the employing company (Tropical), Galan
would receive some kind of compensation in the form of some percentages or commission; that
Tropical, under the terms of the contract, agreed to give petitioner the amount of P7,000.00
soon after the construction began and thereafter the amount of P6,000.00 every fifteen (15)
days during the construction to make a total sum of P25,000.00; that on January 9, 1967,
Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a stranger to the
contract, Galan, who succeeded in getting petitioner’s indorsement on the same check
persuading the latter that the same be deposited in a joint account; that on January 26, 1967,
when the second check for P6,000.00 was due, petitioner refused to indorse said check
presented to him by Galan but through manipulations, respondent Pons succeeded in changing
the payee’s name from Elmo Muñasque to Galan and Associates, thus enabling Galan to cash
the same at the Cebu Branch of the Philippine Commercial and Industrial Bank (PCIB) placing
the petitioner in great financial difficulty in his construction business and subjecting him to
demands of creditors to pay for construction materials, the payment of which should have been
made from the P13,000.00 received by Galan; that petitioner undertook the construction at his
own expense completing it prior to the March 16, 1967 deadline; that because of the
unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to
Galan, petitioner demanded that said amount be paid to him by respondents under the terms of
the written contract between the petitioner and respondent company. The business firms Cebu
Southern Hardware Company and Blue Diamond Glass Palace intervened as they both have
legal interest on the matter. The trial court rendered a judgment ordering Muñasque and Galan
to pay solidarily the intervenors Cebu and Southern Hardware Company and Blue Diamond
Glass Palace. The CA affirmed the judgment thus, Mr. Muñasque filed the present petition.

ISSUES:
(1) Whether or not there exists a partnership between petitioner Muñasque and
defendant Galan.
(2) If there is, whether or not the court erred in not finding Galan guilty of malversing the
13,000.00 covered by the first and second check and thus, accountable to the petitioner for the
said amount.
(3) Whether or not the court committed grave abuse of discretion in holding that the
payment made by Tropical through its manager Pons to Galan was "good payment"

HELD:

The existence of partnership between Muñasque and Galan

YES. "There is a general presumption that each individual partner is an authorized agent
for the firm and that he has authority to bind the firm in carrying on the partnership transactions."
(Mills v. Riggle, 112 Pac., 617). "The presumption is sufficient to permit third persons to hold the

8
firm liable on transactions entered into by one of members of the firm acting apparently in its
behalf and within the scope of his authority." (Le Roy v. Johnson, 7 U.S. (Law. ed.), 391.). It
should be known that the first payment made by Tropical was in the form of the check for
P7,000.00 in the name of petitioner who indorsed the check in favor of Galan to enable him to
deposit it in the bank and pay for the materials and the labor used in the project. That when
Galan spent a portion of the first check for his personal use, petitioner refused when asked by
Galan to indorse the second check to him. Since Galan informed the Cebu Branch of Tropical
that there was a misunderstanding between him and petitioner, Tropical changed the name of
the payee in the second check Muñasque to "Galan and Associates" which is the duly
registered name of the partnership between Galan and petitioner and under which name a
permit to do construction business was issued by the mayor of Cebu City. Petitioner contends
that there was no partnership and Galan was a sham and a perfidious partner who is liable for
malversation. This is without merit because the records will show that the petitioner entered into
a contract with Tropical for the renovation of the latter’s building on behalf of the partnership of
"Galan and Muñasque." as is readily seen in the first paragraph of the contract. There was
nothing in the records to indicate that the partnership was not a genuine one. And even if there
was a misunderstanding, such does not convert it into a sham organization. When the petitioner
also indorsed the first check in favor of Galan, Tropical had all the right to presume that he and
Galan were, indeed, true partners. If they were not, then the petitioner only had himself to blame
for making it appear otherwise, not only to Tropical but also to their other creditors.

The amounts malversed

NO. Petitioner also maintains that the appellate court committed grave abuse of
discretion in not holding Galan liable for the amounts which he "malversed" to the prejudice of
the petitioner. He adds that although this was not one of the issues agreed upon by the parties
during the pre-trial, he, nevertheless, alleged the same in his amended complaint which was
duly admitted by the court. When the petitioner amended his complaint, it was only for the
purpose of impleading Ramon Pons in his personal capacity. And albeit he made allegations as
to the alleged malversation of Galan, these were the same ones in his original complaint. Thus,
the petitioner should be bound by the delimitation of the issued during the pre-trial because he
himself agreed to the same. Petitioner could have asked at least for a modification of the issues
if he really wanted to include the determination of Galan’s personal liability to their partnership
but he chose not to do so, as he denied the existence of the partnership, At any rate, the issue
raised in this petition is the contention of Muñasque that the amounts payable to the intervenors
should be shouldered exclusively by Galan. The Court notes that the petitioner is not solely
burdened by the obligations of the partnership. The records show that there is an existing
judgment against respondent Galan, holding him liable for the total amount of P7,000,00 in favor
of Eden Hardware which extended credit to the partnership aside from the P2,000.00 he already
paid to Universal Lumber. The Court, however, take exception to the ruling of the appellate
court that the trial court’s ordering petitioner and Galan to pay the credits of Blue Diamond and
Cebu Southern Hardware "jointly and severally" is plain error since the liability of partners under
the law to third persons for contracts executed in connection with partnership business is only
pro rata under Art. 1816, of the Civil Code. While it is true that under Article 1816 of the Civil
Code, "All partners, including industrial ones, shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, for the contracts which may be entered
into the name and for the account of the partnership, under its signature and by a person
authorized to act for the partnership. . . .", this provision should be construed together with
Article 1824 which provides that: "All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823." In short, while the
liability of the partners are merely joint in transactions entered into by the partnership, a third

9
person who transacted with said partnership can hold the partners solidarily liable for the whole
obligation if the case of the third person falls under Articles 1822 or 1823.

"good payment"

YES. "Art. 1823. The partnership is bound to make good the loss:
"(1) Where one partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it; and

"(2) Where the partnership in the course of its business receives money or property of a third
person and the money or property so received is misapplied by any partner while it is in the
custody of the partnership."

In the case at bar the respondent Tropical had every reason to believe that a partnership
existed between the petitioner and Galan and no fault or error can be imputed against it for
making payments to "Galan and Associates" and delivering the same to Galan because as far
as it was concerned, Galan was a true partner with real authority to transact on behalf of the
partnership with which it was dealing. This is even more true in the cases of Cebu Southern
Hardware and Blue Diamond Glass Palace who supplied materials on credit to the partnership.
Thus, it is but fair that the consequences of any wrongful act committed by any of the partners
therein should be answered solidarily by all the partners and the partnership as a whole.
However, as between the partners Muñasque and Galan, justice also dictates that Muñasque
be reimbursed by Galan for the payments made by the former representing the liability of their
partnership to herein intervenors, as it was satisfactorily established that Galan acted in bad
faith in his dealings with Muñasque as a partner.

10