Short answer. Yes. Article 1823 binds the partnership to make good the loss where one partner, acting within the scope of his apparent authority, receives a third person's money or property and misapplies it — and also where the firm receives such money in the course of business and any partner misapplies it while in the firm's custody.
What the law says
Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it
Civil Code, Article 1823 — Partnership Liability for Misapplied Property. Read the full provision →
The firm makes good the loss
Article 1823 makes the partnership answer for money or property of outsiders that a partner misapplies. It sets out two situations, opening with the operative words: the partnership is bound to make good the loss. The first is where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it. So when a client hands money to a partner who appeared authorised to take it, and that partner then misapplies it, the loss falls on the partnership, not on the client who trusted the firm.
Apparent authority is the key
The first situation turns on apparent authority — how things reasonably looked to the outsider, not on what the partners privately allowed. If a partner appeared to be acting within the authority a partner in his position would ordinarily have, the client is entitled to rely on that appearance, and the firm cannot escape by showing it had secretly limited him. This is what protects the person dealing with the firm: he sees a partner apparently empowered to receive his money and hands it over, and he should not lose because of restrictions he could not have known about.
The second case: money in the firm's custody
The second situation is broader still, and does not even require the receiving partner to be at fault. The partnership is bound 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. Here the firm itself properly received the outsider's money — no question of apparent authority — and the loss arises because some partner then misapplied it while the firm held it. The partnership is liable even though it took the money in perfectly properly, because it accepted custody of another's property and failed to keep it safe.
If your money was misapplied
If you entrusted money or property to a partnership and a partner misapplied it, this article is your route to recovery against the firm itself — not only against the wrongdoing partner, who may be unable to pay. Establish how you came to hand over the money: whether you dealt with a partner who appeared authorised to receive it, or whether the firm took it in the ordinary course of its business and held it. Keep the receipts, instructions and correspondence that show the firm received your property and what it was for.
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.
- Michael C. Guy vs. Atty. Glenn C. Gacott, G.R. No. 206147, January 13, 2016 — read the decision on LawPhil →
- Ma. Julieta B. Bendecio and Merlyn Mascariñas vs. Virginia B. Bautista, G.R. No. 242087, December 7, 2021 — read the decision on LawPhil →