JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P.

OBILLOS, brothers and sisters, petitioners

vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

This case is about the income tax liability of four brothers and sisters who sold two
parcels of land which they had acquired from their father.

Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots located at
Greenhills, San Juan, Rizal and transferred his rights to his four children (petitioners)
the next day, to enable them to build their residences. The company sold the two
lots to petitioners for P178,708.12. Presumably, the Torrens titles issued to them
would show that they were co-owners of the two lots.

After having held the two lots for more than a year, the petitioners resold them to
the Walled City Securities Corporation and Olga Cruz Canda deriving a total profit of
P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain
and paid an income tax on one-half thereof.

One day before the expiration of the five-year prescriptive period, the CIR required
petitioners to pay corporate income tax on the total profit in addition to individual
income tax on their shares thereof including fraud surcharge and accumulated
interest. CIR also considered the share of the profits of each petitioner as a " taxable
in full (not a mere capital gain of which is taxable) and required them to pay
deficiency income taxes including fraud surcharge and the accumulated interest.

Thus, the petitioners are being held liable for deficiency income taxes and penalties
totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital
gains already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a) and
84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102
Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained
the same. Judge Roaquin dissented. Hence, the instant appeal.
Ruling: Error to consider the petitioners as having formed a partnership under
article 1767 of the Civil Code simply because they allegedly contributed to buy the
two lots, resold the same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership would
result in oppressive taxation and confirm the dictum that the power to tax involves
the power to destroy.
No intention of forming a partnership. They were co-owners pure and simple. To
consider them as partners would obliterate the distinction between a co-ownership
and a partnership. The petitioners were not engaged in any joint venture by reason
of that isolated transaction.

LOURDES NAVARRO AND MENARDO NAVARRO, petitioners,

vs.
COURT OF APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge,
Regional Trial Court of Bacolod City, Branch 52, Sixth Judicial Region and Spouses
OLIVIA V. YANSON AND RICARDO B. YANSON, respondents.
On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint
against petitioner Lourdes Navarro for "Delivery of Personal Properties With
Damages". The complaint subsequently amended to include private respondent's
husband, Ricardo B. Yanson, as co-plaintiff, and petitioner's husband, as codefendant was incorporated an application for a writ of replevin which was
approved.
Petitioners claim that the trial judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually formed a verbal partnership
engaged in the business of Air Freight Service Agency in Bacolod"; and that the
decision sustaining the writ of replevin is void since the properties belonging to the
partnership do not actually belong to any of the parties until the final disposition
and winding up of the partnership"
Issue: Whether there was a partnership that existed between the parties based on
their verbal contention;

Whether the properties that were commonly used in the operation of Allied Air
Freight belonged to the alleged partnership business; and the status of the parties
in this transaction of alleged partnership.
Legal issues: (1) Dissolution and winding up in case a partnership so existed (2)
ownership over the properties subject matter of recovery.
Ruling: Both the plaintiff and the defendant-wife made admission to have entered
into an agreement of operating this Allied Air Freight Agency of which the plaintiff
personally constituted with the Manila Office. Plaintiff did supply the necessary
equipment and money while her brother Atty. Rodolfo Villaflores was the Manager
and the defendant the Cashier.
It was also admitted that part of this agreement was an equal sharing of whatever
proceeds realized. Plaintiff brought into this transaction certain chattels in
compliance with her obligation. The same has been done by the herein brother and
the herein defendant who started to work in the business.
No proof that a partnership, whether oral or written had been constituted at the
inception of this transaction. True it is that even up to the filing of this complaint
those movables brought by the plaintiff for the use in the operation of the business
remain registered in her name.
While there may have been co-ownership or co-possession of some items and/or
any sharing of proceeds by way of advances received by both plaintiff and the
defendant, these are not indicative and supportive of the existence of any
partnership between them.
The Audit Report of the appointed Commissioner was not highly reliable in the sense
that it was more of his personal estimate of what is available on hand. Besides, the
alleged profits was a difference found after valuating the assets and not arising from
the real operation of the business. In accounting procedures, strictly, this could not
be profit but a net worth.
There being no partnership that existed, any dissolution, liquidation or winding up is
beside the point. The plaintiff himself had summarily ceased from her contract of
agency and it is a personal prerogative to desist. On the other hand, the assumption
by the defendant in negotiating for herself the continuance of the Agency with the
principal in Manila is comparable to plaintiff's. Any account of plaintiff with the
principal as alleged, bore no evidence as no collection was ever demanded of from
her.
OSCAR ANGELES and EMERITA ANGELES, petitioners, vs.
THE HON. SECRETARY OF JUSTICE and FELINO MERCADO, respondents.

On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa
under Article 315 of the Revised Penal Code against Mercado before the Provincial
Prosecution Office. Mercado is the brother-in-law of the Angeles spouses, being
married to Emerita Angeles sister Laura. Angeles spouses claimed that Mercado
convinced them to enter into a contract of antichresis to last for five years.
After three years, the Angeles spouses asked for an accounting from Mercado.
Mercado explained that the subject land earnings were used to buy more lanzones
trees (1993) and that the trees bore no fruits (1994) and no accounting in 1995. The
Angeles spouses claim that only after this demand for an accounting did they
discover that Mercado had put the contract of sanglaang-perde over the subject
land under Mercado and his spouses names.
Mercado claimed that there exists an industrial partnership, between him and his
spouse as industrial partners and the Angeles spouses as the financiers. This
industrial partnership had existed since 1991, before the contract of antichresis
over the subject land. As the years passed, Mercado used his and his spouses
earnings as part of the capital in the business transactions which he entered into in
behalf of the Angeles spouses. It was their practice to enter into business
transactions with other people under the name of Mercado because the Angeles
spouses did not want to be identified as the financiers.
SOJ - a partnership truly existed between the [Angeles spouses] and [Mercado]. The
formation of a partnership was clear from the fact that they contributed money to a
common fund and divided the profits among themselves. Records would show that
[Mercado] was able to make deposits for the account of the [Angeles spouses].
These deposits represented their share in the profits of their business venture.
Although the [Angeles spouses] deny the existence of a partnership, they, however,
never disputed that the deposits made by [Mercado] were indeed for their account.
The transcript of notes on the dialogue between the [Angeles spouses] and
[Mercado] during the hearing of their barangay conciliation case reveals that the
[Angeles spouses] acknowledged their joint business ventures with [Mercado]
although they assailed the manner by which [Mercado] conducted the business and
handled and distributed the funds.
ISSUE: WON Partnership exists
Partnership exists.
First, the Angeles spouses contributed money to the partnership and not immovable
property. Second, mere failure to register the contract of partnership with the SEC
does not invalidate a contract that has the essential requisites of a partnership. The
purpose of registration of the contract of partnership is to give notice to third

parties. Failure to register the contract of partnership does not affect the liability of
the partnership and of the partners to third persons. Neither does such failure to
register affect the partnerships juridical personality. A partnership may exist even if
the partners do not use the words partner or partnership.
Indeed, the
partnership:
contribution
between the

Angeles spouses admit to facts that prove the existence of a

a contract showing a sosyo industrial or industrial partnership,
of money and industry to a common fund, and division of profits
Angeles spouses and Mercado.

Litonjua vs Litonjua
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua,
Sr. (Eduardo) are brothers. The legal dispute between them started when, Aurelio
filed a suit against his brother Eduardo and herein respondent Robert T. Yang (Yang)
and several corporations for specific performance and accounting.
Aurelio alleged that, since June 1973, he and Eduardo are into a joint
venture/partnership arrangement in the Odeon Theater business which had
expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon
Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner
of lands and buildings, among other corporations. Yang is described in the complaint
as petitioners and Eduardos partner in their Odeon Theater investment.
ISSUES:
A. When it ruled that there was no partnership created by the actionable document
because this was not a public instrument and immovable properties were
contributed to the partnership.
B. When it ruled that the actionable document did not create a demandable right in
favor of petitioner.
C. When it ruled that the complaint stated no cause of action against [respondent]
Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal when all that
Petitioner had done was to support his pleaded cause of action by another legal
perspective/argument.
The underlying issue that necessarily comes to mind in this proceedings is
whether or not petitioner and respondent Eduardo are partners in the
theatre, shipping and realty business, as one claims but which the other
denies.

Real property was contributed, in which case an inventory of the contributed

property duly signed by the parties should be attached to the public instrument,
else there is legally no partnership to speak of.
Petitioner has not, in his complaint, provide the logical nexus that would tie Yang to
him as his partner
1. joint venture/partnership with Eduardo was for the continuation of their family
business and common family funds which were theretofore being mainly managed
by Eduardo. But Yang denies kinship with the Litonjua family and petitioner has not
disputed the disclaimer.
2. No allegation is made whatsoever about what Yang contributed, if any, let alone
his proportional share in the profits. How, indeed, could a person be considered a
partner when the document purporting to establish the partnership contract did not
even mention his name.
3. the partnership between petitioner and Eduardo came first; Yang became their
partner in their Odeon Theater investment thereafter. Several paragraphs later,
however, petitioner would contradict himself by alleging that his investment and
that of Eduardo and Yang in the Odeon theater business has expanded through a
reinvestment of profit income and direct investments in several corporation
including but not limited to [six] corporate respondents This simply means that the
Odeon Theatre business came before the corporate respondents. Significantly
enough, petitioner refers to the corporate respondents as progeny of the Odeon
Theatre business.

Ortega vs CA
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO,
petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN
L. MISA, respondents.
FACTS: Ortega, then a senior partner in the law firm Bito, Misa, and Lozada withdrew
from the said firm. He filed with SEC a petition for dissolution and liquidation of the
partnership. The SEC en banc ruled that withdrawal of Misa from the firm had
dissolved the partnership. Since it is partnership at will, the law firm could be
dissolved by any partner at anytime, such as by withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the partnership
against his will.
ISSUE: 1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo)is a partnership at will
2. WON the withdrawal of Misa dissolved the partnership regardlessof his good or
bad faith

HELD: 1. Yes. The partnership agreement of the firm provides that [t]he
partnership shall continue so long as mutually satisfactory and upon the death or
legal incapacity of one of the partners, shall be continued by the surviving
partners. 2. Yes. Any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will (e.g. by way of withdrawal of a partner). He
must, however, act in good faith, not that the attendance of bad faith can prevent
the dissolution of the partnership but that it can result in a liability for damages

Moran Vs CA
Pecson and Moran entered into an agreement whereby both would contribute
P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to
the 1971 Constitutional Convention), with Moran actually supervising the work; that
Pecson would receive a commission of P l,000 a month starting on April 15, 1971 up
to December 15, 1971; that on December 15, 1971, a liquidation of the accounts in
the distribution and printing of the 95,000 posters would be made, that Pecson gave
Moran P10,000 for which the latter issued a receipt; that only a few posters were
printed; that on or about May 28, 1971, Moran executed in favor of Pecson a
promissory note in the amount of P20,000 payable in two equal installments
(P10,000 payable on or before June 15, 1971 and P10,000 payable on or before June
30, 1971), the whole sum becoming due upon default in the payment of the first
installment on the date due, complete with the costs of collection.
Pecson filed with the Court of First Instance of Manila an action for the recovery of a
sum of money and alleged in his complaint three (3) causes of action, namely: (1)
on the alleged partnership agreement, the return of his contribution of P10,000.00,
payment of his share in the profits that the partnership would have earned, and,
payment of unpaid commission; (2) on the alleged promissory note, payment of the
sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees.
CFI held: xxx Of the expected 95,000 copies of the posters, the defendant was able
to print 2,000 copies only authorized of which, however, were sold at P5.00 each.
Nothing more was done after this and it can be said that the venture did not really
get off the ground. On the other hand, the plaintiff failed to give his full contribution
of P15,000.00. Thus, each party is entitled to rescind the contract which right is
implied in reciprocal obligations under Article 1385 of the Civil Code whereunder
'rescission creates the obligation to return the things which were the object of the
contract
The first question raised in this petition refers to the award of P47,500.00 as the
private respondents share in the unrealized profits of the partnership. The
petitioner contends that the award is highly speculative. The petitioner maintains

that the respondent court did not take into account the great risks involved in the
business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in
fact and law.
There is no dispute over the nature of the agreement between the petitioner and
the private Respondent. It is a contract of partnership. The latter in his complaint
alleged that he was induced by the petitioner to enter into a partnership with him
under
the
following
terms
and
conditions:chanrobles
virtualawlibrary
chanrobles.com:chanrobles.com.ph
"1.
That the partnership will print colored posters of
the delegates to the Constitutional Convention;
"2.
That they will invest the amount of Fifteen
Thousand Pesos (P15,000.00) each;
"3.
That they will
(95,000) copies of the said posters;

print Ninety Five

Thousand

"4.
That plaintiff will receive a commission of one
Thousand Pesos (P1,000.00) a month starting April 15, 1971 up to December 15,
1971;
"5.
That upon the termination of the partnership on
December 15, 1971, a liquidation of the account pertaining to the distribution and
printing of the said 95,000 posters shall be made."cralaw virtua1aw library
The petitioner on the other hand admitted in his answer the existence of the
partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails
to do so, he becomes a debtor of the partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code) and for interests and damages from
the time he should have complied with his obligation (Art. 1788, Civil Code). Thus in
Uy v. Puzon (19 SCRA 598), which interpreted Art. 2200 of the Civil Code of the
Philippines, we allowed a total of P200,000.00 compensatory damages in favor of
the appellee because the appellant therein was remiss in his obligations as a
partner and as prime contractor of the construction projects in question. This case
was decided on a particular set of facts. We awarded compensatory damages in the
Uy case because there was a finding that the "constructing business is a profitable
one and that the UP construction company derived some profits from its contractors
in the construction of roads and bridges despite its deficient capital." Besides, there

was evidence to show that the partnership made some profits during the periods
from July 2, 1956 to December 31, 1957 and from January 1, 1958 up to September
30, 1959. The profits on two government contracts worth P2,327,335.76 were not
speculative. In the instant case, there is no evidence whatsoever that the
partnership between the petitioner and the private respondent would have been a
profitable venture. In fact, it was a failure doomed from the start. There is therefore
no basis for the award of speculative damages in favor of the private Respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy
contributed much more than what was expected of him. In this case, however, there
was mutual breach. Private respondent failed to give his entire contribution in the
amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise
failed to give any of the amount expected of him. He further failed to comply with
the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000
copies.
Article 1797 of the Civil Code provides:jgc:chanrobles.com.ph
"The losses and profits shall be distributed in conformity with the agreement. If only
the share of each partner in the profits has been agreed upon, the share of each in
the losses shall be in the same proportion."cralaw virtua1aw library
Being a contract of partnership, each partner must share in the profits and losses of
the venture. That is the essence of a partnership. And even with an assurance made
by one of the partners that they would earn a huge amount of profits, in the
absence of fraud, the other partner cannot claim a right to recover the highly
speculative profits. It is a rare business venture guaranteed to give 100% profits. In
this case, on an investment of P15,000.00, the respondent was supposed to earn a
guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000
posters costing P2.00 each but 2,000 of which were sold at P5.00 each. The
fantastic nature of expected profits is obvious. We have to take various factors into
account. The failure of the Commission on Elections to proclaim all the 320
candidates of the Constitutional Convention on time was a major factor. The
petitioner used his best business judgment and felt that it would be a losing venture
to go on with the printing of the agreed 95,000 copies of the posters. Hidden risks in
any business venture have to be considered.chanrobles law library : red
It does not follow however that the private respondent is not entitled to recover any
amount from the petitioner. The records show that the private respondent gave
P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000
posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The
records further show that the 2,000 copies were sold at P5.00 each. The gross
income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from
the gross income of P10,000.00 and with no evidence on the cost of distribution, the

net profits amount to only P6,000.00. This net profit of P6,000.00 should be divided
between the petitioner and the private Respondent. And since only P4,000.00 was
used by the petitioner in printing the 2,000 copies, the remaining P6,000.00 should
therefore be returned to the private Respondent.
Relative to the second alleged error, the petitioner submits that the award of
P8,000.00 as Pecsons supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private
respondent a monthly commission of P1,000.00 from April 15, 1971 to December
15, 1971 for a total of eight (8) monthly commissions. The agreement does not
state the basis of the commission. The payment of the commission could only have
been predicated on relatively extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or failure of the venture. Since
the venture was a failure, the private respondent is not entitled to the P8,000.00
commission.
1. CIVIL LAW; PARTNERSHIP; CONTRIBUTIONS; PARTNER IS DEBTOR OF PARTNERSHIP
FOR UNPAID CONTRIBUTIONS. The rule is, when a partner who has undertaken to
contribute a sum of money fails to do so, he becomes a debtor of the partnership
for whatever he may have promised to contribute (Art. 1786, Civil Code) and for
interests and damages from the time he should have complied with his obligation
(Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art.
2200 of the Civil Code of the Philippines, the Court allowed a total of P200,000.00
compensatory damages in favor of the appellee because the appellant therein was
remiss in his obligations as a partner and as prime contractor of the construction
projects in question.
2. ID.; ID.; ID.; ID.; AWARD OF DAMAGES FOR NON-PAYMENT OF CONTRIBUTIONS; UY
VS. PUZON (79 SCRA 598) DISTINGUISHED FROM CASE AT BAR. The Court
awarded compensatory damages in the Uy case because there was a finding that
the "constructing business is a profitable one and that the UP construction company
derived some profits from its contractors in the construction of roads and bridges
despite its deficient capital." Besides, there was evidence to show that the
partnership made some profits during the periods from July 2,1956 to December 31,
1957 and from January 1, 1958 up to September 31, 1959. The profits on two
government contracts worth P2,327,335.76 were not speculative. In the instant
case, there is no evidence whatsoever that the partnership between the petitioner
and the private respondent would have been a profitable venture. In fact, it was a
failure doomed from the start. There is therefore no basis for the award of
speculative damages in favor of the private Respondent. Furthermore, in the Uy
case. only Puzon failed to give his full contribution while Uy contributed much more

than what was expected of him. In this case, however, there was mutual breach.
Private respondent failed to give his entire contribution in the amount of
P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give
any of the amount expected of him. He further failed to comply with the agreement
to print 95,000 copies of the posters. Instead, he printed only 2,000 copies.
3. ID.; ID.; PROFITS AND LOSSES SHARED BY EACH PARTNER. Being a contract of
partnership, each partner must share in the profits and losses of the venture. That is
the essence of a partnership. And even with an assurance made by one of the
partners that they would earn a huge amount of profits in the absence of fraud, the
other partner cannot claim a right to recover the highly speculative profits. It is rare
business venture guaranteed to give 100% profits.
4. ID.; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF CONTRACTS; OF
CONTRACTS; FAILURE OF AGREEMENT TO STATE BASIS OF COMMISSION; EFFECT.
The partnership agreement stipulated that the petitioner would give the private
respondent a monthly commission of P1,000.00 from April 15, 1971 to December
15, 1971 for a total of eight (8) monthly commissions. The agreement does not
state the basis of the commission. The payment of the commission could only have
been predicated on relatively extravagant profits. The parties could not have
intended the giving of a commission in spite of loss or failure of the venture. Since
the venture was a failure, the private respondent is not entitled to the P8,000.00
commission.
Uy vs Puzon