Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

L-39780 November 11, 1985 ELMO MUAS UE, petitioner, vs. COURT O! APPEALS,CELEST"NO GALAN TROP"CAL COMMERC"AL COMPAN# $%& RAMON PONS,respondents. John T. Borromeo for petitioner. Juan D. Astete for respondent C. Galan. Paul Gornes for respondent R. Pons. Viu Montecillo for respondent Tropical. Paterno P. Natinga for nter!enor Blue Diamond Glass Palace.

GUTT"ERRE', (R., J.: In this petition for certiorari, the petitioner see s to annul and set added the decision of the !ourt of "ppeals affir#in$ the e%istence of a partnership bet&een petitioner and one of the respondents, !elestino 'alan and holdin$ both of the# liable to the t&o intervenors &hich e%tended credit to their partnership. The petitioner &ants to be e%cluded fro# the liabilities of the partnership. Petitioner (l#o Mu)as*ue filed a co#plaint for pa+#ent of su# of #one+ and da#a$es a$ainst respondents !elestino 'alan, Tropical !o##ercial, !o., Inc. ,Tropical- and Ra#on Pons, alle$in$ that the petitioner entered into a contract &ith respondent Tropical throu$h its !ebu .ranch Mana$er Pons for re#odellin$ a portion of its buildin$ &ithout e%chan$in$ or e%pectin$ an+ consideration fro# 'alan althou$h the latter &as casuall+ na#ed as partner in the contract/ that b+ virtue of his havin$ introduced the petitioner to the e#plo+in$ co#pan+ ,Tropical-. 'alan &ould receive so#e ind of co#pensation in the for# of so#e percenta$es or co##ission/ that Tropical, under the ter#s of the contract, a$reed to $ive petitioner the a#ount of P0,111.11 soon after the construction be$an and thereafter, the a#ount of P2,111.11 ever+ fifteen ,34- da+s durin$ the construction to #a e a total su# of P54,111.11/ that on 6anuar+ 7, 3720, Tropical and8or Pons delivered a chec for P0,111.11 not to the plaintiff but to a stran$er to the contract, 'alan, &ho succeeded in $ettin$ petitioner9s indorse#ent on the sa#e chec persuadin$ the latter that the sa#e be deposited in a :oint account/ that on 6anuar+ 52, 3720 &hen the second chec for P2,111.11 &as due, petitioner refused to indorse said chee presented to hi# b+ 'alan but throu$h later #anipulations, respondent Pons succeeded in chan$in$ the pa+ee9s na#e fro# (l#o Mu)as*ue to 'alan and "ssociates, thus enablin$ 'alan to cash the sa#e at the !ebu .ranch of the Philippine !o##ercial and Industrial .an ,P!I.- placin$ the petitioner in $reat financial difficult+ in his construction business and sub:ectin$ hi# to de#ands of creditors to pa+9 for construction #aterials, the pa+#ent of &hich should have been #ade fro# the P3;,111.11 received b+ 'alan/ that petitioner undertoo the construction at his o&n e%pense co#pletin$ it prior to the March 32, 3720 deadline/that because of the unauthori<ed disburse#ent b+ respondents Tropical and Pons of the su# of P3;,111.11 to 'alan petitioner de#anded that said a#ount be paid to hi# b+ respondents under the ter#s of the &ritten contract bet&een the petitioner and respondent co#pan+. The respondents ans&ered the co#plaint b+ den+in$ so#e and ad#ittin$ so#e of the #aterial aver#ents and settin$ up counterclai#s. Durin$ the pre=trial conference, the petitioners and respondents a$reed that the issues to be resolved are>

,3- ?hether or not there e%isted a partners bet&een !elestino 'alan and (l#o Mu)as*ue/ and ,5- ?hether or not there e%isted a :ustifiable cause on the part of respondent Tropical to disburse #one+ to respondent 'alan. The business fir#s !ebu Southern @ard&are !o#pan+ and .lue Dia#ond 'lass Palace &ere allo&ed to intervene, both havin$ le$al interest in the #atter in liti$ation. "fter trial, the court rendered :ud$#ent, the dispositive portion of &hich states> IN VI(? ?@(R(OF, 6ud$#ent is hereb+ rendered> ,3- orderin$ plaintiff Mu)as*ue and defendant 'alan to pa+ :ointl+ and severall+ the intervenors !ebu and Southern @ard&are !o#pan+ and .lue Dia#ond 'lass Palace the a#ount of P2,557.;A and P5,53;.43, respectivel+/ ,5- absolvin$ the defendants Tropical !o##ercial !o#pan+ and Ra#on Pons fro# an+ liabilit+, No da#a$es a&arded &hatsoever. The petitioner and intervenor !ebu Southern !o#pan+ and its proprietor, Tan Siu filed #otions for reconsideration. On 6anuar+ 34, 370 3, the trial court issued 9another order a#endin$ its :ud$#ent to #a e it read as follo&s> IN VI(? ?@(R(OF, 6ud$#ent is hereb+ rendered> ,3- orderin$ plaintiff Mu)as*ue and defendant 'alan to pa+ :ointl+ and severall+ the intervenors !ebu Southern @ard&are !o#pan+ and .lue Dia#ond 'lass Palace the a#ount of P2,557.;A and P5,53;.43, respectivel+, ,5- orderin$ plaintiff and defendant 'alan to pa+ Intervenor !ebu Southern @ard&are !o#pan+ and Tan Siu :ointl+ and severall+ interest at 35B per annu# of the su# of P2,557.;A until the a#ount is full+ paid/ ,;- orderin$ plaintiff and defendant 'alan to pa+ P411.11 representin$ attorne+9s fees :ointl+ and severall+ to Intervenor !ebu Southern @ard&are !o#pan+> ,A- absolvin$ the defendants Tropical !o##ercial !o#pan+ and Ra#on Pons fro# an+ liabilit+, No da#a$es a&arded &hatsoever. On appeal, the !ourt of "ppeals affir#ed the :ud$#ent of the trial court &ith the sole #odification that the liabilit+ i#posed in the dispositive part of the decision on the credit of !ebu Southern @ard&are and .lue Dia#ond 'lass Palace &as chan$ed fro# C:ointl+ and severall+C to C:ointl+.C Not satisfied, Mr. Mu)as*ue filed this petition. The present controvers+ be$an &hen petitioner Mu)as*ue in behalf of the partnership of C'alan and Mu)as*ueC as !ontractor entered into a &ritten contract &ith respondent Tropical for re#odellin$ the respondent9s !ebu branch buildin$. " total a#ount of P54,111.11 &as to be paid under the contract for the entire services of the !ontractor. The ter#s of pa+#ent &ere as follo&s> thirt+ percent ,;1B- of the &hole a#ount upon the si$nin$ of the contract and the balance thereof divided into three e*ual install#ents at the lute of Si% Thousand Pesos ,P2,111.11- ever+ fifteen ,34- &or in$ da+s.

The first pa+#ent #ade b+ respondent Tropical &as in the for# of a chec for P0,111.11 in the na#e of the petitioner.Petitioner, ho&ever, indorsed the chec in favor of respondent 'alan to enable the latter to deposit it in the ban and pa+ for the #aterials and labor used in the pro:ect. Petitioner alle$ed that 'alan spent P2,3D;.;0 out of the P0,111.11 for his personal use so that &hen the second chec in the a#ount of P2,111.11 ca#e and 'alan as ed the petitioner to indorse it a$ain, the petitioner refused. The chec &as &ithheld fro# the petitioner. Since 'alan infor#ed the !ebu branch of Tropical that there &as aC#isunderstandin$C bet&een hi# and petitioner, respondent Tropical chan$ed the na#e of the pa+ee in the second chec fro# Mu)as*ue to C'alan and "ssociatesC &hich &as the dul+ re$istered na#e of the partnership bet&een 'alan and petitioner and under &hich na#e a per#it to do construction business &as issued b+ the #a+or of !ebu !it+. This enabled 'alan to encash the second chec . Mean&hile, as alle$ed b+ the petitioner, the construction continued throu$h his sole efforts. @e stated that he borro&ed so#e P35,111.11 fro# his friend, Mr. (spina and althou$h the e%penses had reached the a#ount of P57,111.11 because of the failure of 'alan to pa+ &hat &as partl+ due the laborers and partl+ due for the #aterials, the construction &or &as finished ahead of schedule &ith the total e%penditure reachin$ P;A,111.11. The t&o re#ainin$ chec s, each in the a#ount of P2,111.11,&ere subse*uentl+ $iven to the petitioner alone &ith the last chec bein$ $iven pursuant to a court order. "s stated earlier, the petitioner filed a co#plaint for pa+#ent of su# of #one+ and da#a$es a$ainst the respondents,see in$ to recover the follo&in$> the a#ounts covered b+ the first and second chec s &hich fell into the hands of respondent 'alan, the additional e%penses that the petitioner incurred in the construction, #oral and e%e#plar+ da#a$es, and attorne+9s fees. .oth the trial and appellate courts not onl+ absolved respondents Tropical and its !ebu Mana$er, Pons, fro# an+ liabilit+ but the+ also held the petitioner to$ether &ith respondent 'alan, hable to the intervenors !ebu Southern @ard&are !o#pan+ and .lue Dia#ond 'lass Palace for the credit &hich the intervenors e%tended to the partnership of petitioner and 'alan In this petition the le$al *uestions raised b+ the petitioner are as follo&s> ,3- ?hether or not the appellate court erred in holdin$ that a partnership e%isted bet&een petitioner and respondent 'alan. ,5- "ssu#in$ that there &as such a partnership, &hether or not the court erred in not findin$ 'alan $uilt+ of #alversin$ the P3;,111.11 covered b+ the first and second chec s and therefore, accountable to the petitioner for the said a#ount/ and ,;- ?hether or not the court co##itted $rave abuse of discretion in holdin$ that the pa+#ent #ade b+ Tropical throu$h its #ana$er Pons to 'alan &as C$ood pa+#ent, C Petitioner contends that the appellate court erred in holdin$ that he and respondent 'alan &ere partners, the truth bein$ that 'alan &as a sha# and a perfidious partner &ho #isappropriated the a#ount of P3;,111.11 due to the petitioner.Petitioner also contends that the appellate court co##itted $rave abuse of discretion in holdin$ that the pa+#ent #ade b+ Tropical to 'alan &as C$oodC pa+#ent &hen the sa#e $ave occasion for the latter to #isappropriate the proceeds of such pa+#ent. The contentions are &ithout #erit. The records &ill sho& that the petitioner entered into a con=tract &ith Tropical for the renovation of the latter9s buildin$ on behalf of the partnership of C'alan and Mu)as*ue.C This is readil+ seen in the first para$raph of the contract &here it states> This a$ree#ent #ade this 51th da+ of Dece#ber in the +ear 3722 b+ 'alan and Mu)as*ue hereinafter called the !ontractor, and Tropical !o##ercial !o., Inc., hereinafter called the o&ner do hereb+ for and in consideration a$ree on the follo&in$> ... . There is nothin$ in the records to indicate that the partner=ship or$ani<ed b+ the t&o #en &as not a $enuine one. If there &as a fallin$ out or #isunderstandin$ bet&een the partners, such does not convert the partnership into a sha# or$ani<ation.

Ei e&ise, &hen Mu)as*ue received the first pa+#ent of Tropical in the a#ount of P0,111.11 &ith a chec #ade out in his na#e, he indorsed the chec in favor of 'alan. Respondent Tropical therefore, had ever+ ri$ht to presu#e that the petitioner and 'alan &ere true partners. If the+ &ere not partners as petitioner clai#s, then he has onl+ hi#self to bla#e for #a in$ the relationship appear other&ise, not onl+ to Tropical but to their other creditors as &ell. The pa+#ents #ade to the partnership &ere, therefore, valid pa+#ents. In the case of "ingsong !. sa#ela "a$mill ,DD S!R" 2A;-,&e ruled> "lthou$h it #a+ be presu#ed that Mar$arita '. Salda:eno had acted in $ood faith, the appellees also acted in $ood faith in e%tendin$ credit to the partnership. ?here one of t&o innocent persons #ust suffer, that person &ho $ave occasion for the da#a$es to be caused #ust bear the conse*uences. No error &as co##itted b+ the appellate court in holdin$ that the pa+#ent #ade b+ Tropical to 'alan &as a $ood pa+#ent &hich binds both 'alan and the petitioner. Since the t&o &ere partners &hen the debts &ere incurred, the+, are also both liable to third persons &ho e%tended credit to their partnership. In the case of George %itton !. &ill and Ceron' et al, ,20 Phil. 43;, 43A-, &e ruled> There is a $eneral presu#ption that each individual partner is an authori<ed a$ent for the fir# and that he has authorit+ to bind the fir# in carr+in$ on the partnership transactions. ,Mills vs. Ri$$le,335 Pan, 230-. The presu#ption is sufficient to per#it third persons to hold the fir# liable on transactions entered into b+ one of #e#bers of the fir# actin$ apparentl+ in its behalf and &ithin the scope of his authorit+. ,Ee Ro+ vs. 6ohnson, 0 F.S. ,Ea&. ed.-, ;73.Petitioner also #aintains that the appellate court co##itted $rave abuse of discretion in not holdin$ 'alan liable for the a#ounts &hich he C#alversedC to the pre:udice of the petitioner. @e adds that althou$h this &as not one of the issues a$reed upon b+ the parties durin$ the pretrial, he, nevertheless, alle$ed the sa#e in his a#ended co#plaint &hich &as, dul+ ad#itted b+ the court. ?hen the petitioner a#ended his co#plaint, it &as onl+ for the purpose of i#pleadin$ Ra#on Pons in his personal capacit+. "lthou$h the petitioner #ade alle$ations as to the alle$ed #alversations of 'alan, these &ere the sa#e alle$ations in his ori$inal co#plaint. The #alversation b+ one partner &as not an issue actuall+ raised in the a#ended co#plaint but the alle$ed connivance of Pons &ith 'alan as a #eans to serve the latter9s personal purposes. The petitioner, therefore, should be bound b+ the deli#itation of the issues durin$ the pre=trial because he hi#self a$reed to the sa#e. In Permanent Concrete Products' nc. !. Teodoro , ,52 S!R" ;;2-, &e ruled> %%% %%% %%% ... The appellant is bound b+ the deli#itation of the issues contained in the trial court9s order issued on the ver+ da+ the pre=trial conference &as held. Such an order controls the subse*uent course of the action, unless #odified before trial to prevent #anifest in:ustice.In the case at bar, #odification of the pre=trial order &as never sou$ht at the instance of an+ part+. Petitioner could have as ed at least for a #odification of the issues if he reall+ &anted to include the deter#ination of 'alan9s personal liabilit+ to their partnership but he chose not to do so, as he vehe#entl+ denied the e%istence of the partnership. "t an+ rate, the issue raised in this petition is the contention of Mu)as*ue that the a#ounts pa+able to the intervenors should be shouldered e%clusivel+ b+ 'alan. ?e note that the petitioner is not solel+ burdened b+ the obli$ations of their illstarred partnership. The records sho& that there is an e%istin$ :ud$#ent a$ainst respondent 'alan, holdin$ hi# liable for the total a#ount of P0,111.11 in favor of (den @ard&are &hich e%tended credit to the partnership aside fro# the P5, 111. 11 he alread+ paid to Fniversal Eu#ber. ?e, ho&ever, ta e e%ception to the rulin$ of the appellate court that the trial court9s orderin$ petitioner and 'alan to pa+ the credits of .lue Dia#ond and !ebu Southern @ard&areC:ointl+ and severall+C is plain error since the liabilit+

of partners under the la& to third persons for contracts e%ecuted inconnection &ith partnership business is onl+ pro rata under "rt. 3D32, of the !ivil !ode. ?hile it is true that under "rticle 3D32 of the !ivil !ode,C"ll partners, includin$ industrial ones, shall be liable prorate &ith all their propert+ and after all the partnership assets have been e%hausted, for the contracts &hich #a+ be entered into the na#e and f# the account cd the partnership, under its si$nature and b+ a person authori<ed to act for the partner=ship. ...C. this provision should be construed to$ether &ith "rticle 3D5A &hich provides that> C"ll partners are liable solidaril+ &ith the partnership for ever+thin$ char$eable to the partnership under "rticles 3D55 and 3D5;.C In short, &hile the liabilit+ of the partners are #erel+ :oint in transactions entered into b+ the partnership, a third person &ho transacted &ith said partnership can hold the partners solidaril+ liable for the &hole obli$ation if the case of the third person falls under "rticles 3D55 or 3D5;. "rticles 3D55 and 3D5; of the !ivil !ode provide> "rt. 3D55. ?here, b+ an+ &ron$ful act or o#ission of an+ partner actin$ in the ordinar+ course of the business of the partner=ship or &ith the authorit+ of his co=partners, loss or in:ur+ is caused to an+ person, not bein$ a partner in the partnership or an+ penalt+ is incurred, the partnership is liable therefor to the sa#e e%tent as the partner so actin$ or o#ittin$ to act. "rt. 3D5;. The partnership is bound to #a e $ood> ,3- ?here one partner actin$ &ithin the scope of his apparent authorit+ receives #one+ or propert+ of a third person and #isapplies it/ and ,5- ?here the partnership in the course of its business receives #one+ or propert+ of a third person and t he #one+ or propert+ so received is #isapplied b+ an+ partner &hile it is in the custod+ of the partnership. The obli$ation is solidar+, because the la& protects hi#, &ho in $ood faith relied upon the authorit+ of a partner, &hether such authorit+ is real or apparent. That is &h+ under "rticle 3D5A of the !ivil !ode all partners, &hether innocent or $uilt+, as &ell as the le$al entit+ &hich is the partnership, are solidaril+ liable. In the case at bar the respondent Tropical had ever+ reason to believe that a partnership e%isted bet&een the petitioner and 'alan and no fault or error can be i#puted a$ainst it for #a in$ pa+#ents to C'alan and "ssociatesC and deliverin$ the sa#e to 'alan because as far as it &as concerned, 'alan &as a true partner &ith real authorit+ to transact on behalf of the partnership &ith &hich it &as dealin$. This is even #ore true in the cases of !ebu Southern @ard&are and .lue Dia#ond 'lass Palace &ho supplied #aterials on credit to the partnership. Thus, it is but fair that the conse*uences of an+ &ron$ful act co##itted b+ an+ of the partners therein should be ans&ered solidaril+ b+ all the partners and the partnership as a &hole @o&ever. as bet&een the partners Mu)as*ue and 'alan,:ustice also dictates that Mu)as*ue be rei#bursed b+ 'alan for the pa+#ents #ade b+ the for#er representin$ the liabilit+ of their partnership to herein intervenors, as it &as satisfactoril+ established that 'alan acted in bad faith in his dealin$s &ith Mu)as*ue as a partner. ?@(R(FOR(, the decision appealed fro# is hereb+ "FFIRM(D &ith the MODIFI!"TION that the liabilit+ of petitioner and respondent 'alan to intervenors .lue Dia#ond 'lass and !ebu Southern @ard&are is declared to be :oint and solidar+. Petitioner #a+ recover fro# respondent 'alan an+ a#ount that he pa+s, in his capacit+ as a partner, to the above intervenors, SO ORD(R(D. Teehan(ee )Chairman*' Melencio+&errera' De la ,uente and Pata-o' JJ.' concur. Plana' J.' too( no part. Relo!a' J.' is on lea!e.