Short answer. Yes. Article 1823 makes the partnership bound to make good the loss where it receives money in the course of business and a partner misapplies it while it is still in the partnership's custody. Because the money was misapplied while held by the firm, the partnership must reimburse your client.
What the law says
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.
Civil Code, Article 1823 — Partnership Liability for Misapplied Property. Read the full provision →
The second ground squarely covers your situation
Article 1823 makes the partnership bound to make good the loss in two situations, and the second matches what happened here: 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. Your client's money was received by the firm in the ordinary course of your business, and it was then misapplied by a partner while the firm still held it. That is exactly the scenario this provision addresses, and it makes the partnership itself answerable for the loss.
Why it does not matter which partner is at fault
This ground for liability does not depend on the misapplying partner having authority over that specific money, unlike the first ground in the same article, which covers a partner acting within apparent authority who personally receives and misapplies funds. Here, what matters is that the partnership itself received the money in the course of its business, and the misapplication happened while the partnership still had custody of it. Once those two facts are established, the identity of which particular partner did the misapplying does not change the partnership's own obligation to make the client whole.
Why the law places this loss on the partnership
A client who entrusts money to a partnership in the ordinary course of its business is dealing with the firm as an institution, not gambling on the personal integrity of whichever partner happens to handle the funds. Placing responsibility for misapplication on the partnership, rather than leaving the client to chase down the individual wrongdoer alone, reflects that the partnership took custody of the money as such and should bear the consequences of what happened to it while in that custody, regardless of which partner was responsible for the theft or diversion.
What the partnership should do
Since the partnership is bound to make good the loss to your client, reimbursing the client is the direct consequence of Article 1823 rather than something the partnership can defer while it sorts out internal responsibility. Separately from that obligation to the client, the partnership and the other partners retain whatever rights they have against the partner who actually misapplied the money, but resolving that internal dispute is independent of, and should not delay, making the client whole for the loss the partnership is legally bound to cover.
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 →