G.R. No. L-39780 November 11, 1985
ELMO MUÑASQUE, petitioner, vs. COURT OF APPEALS, CELESTINO GALAN, TROPICAL COMMERCIAL COMPANY and RAMON PONS, respondents.

FACTS

Petitioner Elmo Muñasque entered into a written contract with respondent Tropical Commercial Company for a remodeling project. The contract named the contractor as “Galan and Muñasque,” though Muñasque later claimed Galan was merely named casually and was not a true partner, expecting only a commission. Under the contract, Tropical was to make progress payments totaling P25,000.00. The first check for P7,000.00, payable to Muñasque, was endorsed by him to respondent Celestino Galan for deposit into a purported joint account to pay for project expenses. Galan allegedly misused a large portion of these funds. When the second check for P6,000.00 was issued, Muñasque refused to endorse it. However, Tropical, upon being informed of a “misunderstanding” between Muñasque and Galan, altered the payee on this second check to “Galan and Associates”—the registered name of the partnership between Galan and Muñasque—and delivered it to Galan.
Muñasque completed the project at his own expense and sued Tropical and its manager, Ramon Pons, for improperly disbursing the funds to Galan. He also sought to be excluded from partnership liabilities. During trial, intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace, which supplied materials on credit for the project, claimed payment. The trial court found a partnership existed between Muñasque and Galan and held them jointly and severally liable to the intervenors, while absolving Tropical and Pons. The Court of Appeals affirmed the existence of the partnership but modified the liability from solidary to merely joint. Muñasque appealed to the Supreme Court.

ISSUE

Whether a partnership existed between Muñasque and Galan, and if so, what is the nature and extent of their liability to the intervenor-creditors.

RULING

The Supreme Court affirmed the existence of a partnership between Muñasque and Galan. The contract with Tropical was executed in the name of “Galan and Muñasque,” and the business was conducted under the registered name “Galan and Associates,” for which a municipal permit was issued. These objective manifestations established a partnership in the eyes of third parties. The law on partnership is clear that as to third persons who transact with the partnership in good faith, the existence of the partnership is governed by the conduct and representations of the alleged partners, not by any private or secret agreements between them.
Regarding liability, the Court modified the appellate decision and reinstated the solidary (joint and several) liability of Muñasque and Galan to the intervenor-creditors. Under Articles 1822 and 1823 of the Civil Code, a partnership is liable to a third person for loss caused by any wrongful act or misapplication of funds by any partner acting in the ordinary course of business or within apparent authority. Furthermore, Article 1824 provides that all partners are solidarily liable with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. The intervenors, Cebu Southern Hardware and Blue Diamond Glass Palace, supplied materials on credit to the partnership in good faith, relying on the apparent authority of the partners. Therefore, the law protects these creditors by imposing solidary liability on all partners. However, the Court also ruled that as between the partners, Muñasque is entitled to recover from Galan any amounts he pays to the intervenors, as Galan acted in bad faith and misapplied the partnership funds. The decision against Tropical and Pons was affirmed.