Litonjua, Jr. vs. Litonjua, Sr.

A contract of partnership is void whenever immovable property or real rights are contributed thereto and the requirements of a public instrument and a signed inventory of contributed property are not satisfied, and a complaint predicated solely on such void partnership document states no cause of action.

Aurelio K. Litonjua, Jr. and Eduardo K. Litonjua, Sr. are brothers who, according to petitioner, entered into a joint venture/partnership arrangement in June 1973 for the continuation of their family business — consisting mostly of movie theaters, shipping, and land development — with Robert T. Yang described as their partner in the Odeon Theater investment. The dispute arose from petitioner's claim to a partnership share allegedly promised by Eduardo in a memorandum addressed to family members (Annex "A-1"), which petitioner sought to enforce through a complaint for specific performance and accounting. The case required resolution of whether the actionable document could legally establish a partnership given the formal requisites imposed by the Civil Code on partnerships involving immovable property.

Aurelio K. Litonjua, Jr. and Eduardo K. Litonjua, Sr. are brothers. On December 4, 2002, Aurelio filed a complaint for specific performance and accounting against Eduardo, Robert T. Yang, and several corporations in the Regional Trial Court at Pasig City, docketed as Civil Case No. 69235 and raffled to Branch 68. In his complaint, Aurelio alleged that since June 1973, he and Eduardo had been in a joint venture/partnership arrangement in the Odeon Theater business, which had expanded through investments in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation, Avenue Realty, Inc., and other corporations. Yang was described as Aurelio's and Eduardo's partner in their Odeon Theater investment.

The complaint predicated Aurelio's right on a memorandum (Annex "A") addressed by Eduardo to his siblings, parents, and other relatives, with the portion referring to Aurelio submarked as Annex "A-1." Annex "A-1" contained typewritten entries, personal in tone, stating that Aurelio would be given ₱1 Million or 10% equity in all the family businesses, whichever was greater, in exchange for his retaining his share in the remaining family businesses and contributing his industry to their continued operation. The document was unsigned and undated. Aurelio alleged that from June 22, 1973 to about August 2001, he and Eduardo accumulated various assets in their joint venture/partnership, including the corporate defendants and their respective assets, and that Eduardo caused some of these assets to be registered in the names of other parties. Aurelio further alleged that his relations with Eduardo turned sour sometime in 1992, prompting demands for accounting and liquidation that went unheeded, and that Eduardo and the corporate defendants were transferring real properties in fraud of Aurelio.

Eduardo and the corporate defendants filed an answer with compulsory counterclaim, denying under oath the material allegations of the complaint and asserting that no cause of action could be derived from Annex "A-1" because it was void under Articles 1767 and 1773 of the Civil Code, and that any undertaking therein was unenforceable under the Statute of Frauds. Yang moved to dismiss on the ground that the complaint stated no cause of action against him. The trial court denied the affirmative defenses and Yang's motion to dismiss, prompting both Eduardo's group and Yang to file separate petitions for certiorari in the Court of Appeals, which were consolidated. The appellate court granted the petitions, annulled the trial court's orders, and dismissed the complaint, ruling that the alleged partnership was void or legally inexistent because Annex "A-1" was not a public instrument and no inventory of contributed immovable property was made, signed by the parties, and attached to a public instrument. Aurelio's motion for reconsideration was denied, leading to the present petition.

• Existence of Partnership: Petitioner argued that a partnership was created by the actionable document (Annex "A-1") and that the CA erred in ruling otherwise on the ground that it was not a public instrument and immovable properties were contributed.
• Demandable Rights: Petitioner maintained that Annex "A-1," even if not a valid partnership document, created demandable rights in his favor as an innominate contract under Article 1307 of the Civil Code.
• Cause of Action Against Yang: Petitioner contended that the complaint stated a cause of action against Yang as a partner in the Odeon Theater investment.
• No Change of Theory: Petitioner argued that introducing the innominate contract concept was not a change of theory but merely supporting his pleaded cause of action by another legal perspective or argument.

• Void Partnership: Respondents Eduardo and the corporate defendants countered that the complaint stated no cause of action because Annex "A-1" was void under Articles 1767 and 1773 of the Civil Code, as it was not a public instrument and no inventory of contributed immovable property was attached.
• Statute of Frauds: Respondents argued that any undertaking under Annex "A-1" was unenforceable under the Statute of Frauds.
• No Cause of Action Against Yang: Respondent Yang argued that the complaint stated no cause of action against him, as he was not mentioned in Annex "A-1" and no allegation directly established a contractual relationship between him and petitioner.
• Impermissible Change of Theory: Respondents maintained that petitioner's shift from a partnership theory to an innominate contract theory on appeal was prohibited and constituted an implied admission that his original theory was erroneous.

• Validity of Partnership: Whether a valid partnership was created by Annex "A-1" despite its being unsigned, undated, and not a public instrument, and despite the contribution of immovable property without the required inventory.
• Demandable Rights Under Annex "A-1": Whether Annex "A-1," assuming it did not create a valid partnership, nevertheless created demandable rights in favor of petitioner as an innominate contract.
• Cause of Action Against Yang: Whether the complaint stated a cause of action against respondent Robert T. Yang.
• Change of Theory: Whether petitioner impermissibly changed his theory of the case on appeal.

• Validity of Partnership: No. The partnership was void or legally inexistent, Annex "A-1" being unsigned and undated, hence not a public instrument as required by Articles 1771 and 1772, and no inventory of contributed immovable property having been made and attached as required by Article 1773.
• Demandable Rights Under Annex "A-1": No. Even assuming Annex "A-1" partook of an innominate contract, the promise therein was not to be performed within one year, rendering it unenforceable under the Statute of Frauds; and petitioner's attempt to shift to an innominate contract theory on appeal was impermissible.
• Cause of Action Against Yang: No. Yang was not mentioned in Annex "A-1," no allegation directly established a contractual relationship between petitioner and Yang, and no valid partnership existed to which Yang could be linked.
• Change of Theory: Yes. Petitioner impermissibly shifted from a joint venture/partnership theory to an innominate contract theory on appeal, which is prohibited and constitutes an implied admission of the untenability of the original theory.

• Validity of Partnership: A partnership may be constituted in any form, except where immovable property or real rights are contributed, in which case a public instrument is necessary (Article 1771). Where the partnership capital is ₱3,000.00 or more, the contract must appear in a public instrument recorded with the SEC (Article 1772). When immovable property is contributed, an inventory of the property signed by the parties must be attached to the public instrument, otherwise the partnership is void (Article 1773). Annex "A-1" was unsigned and undated, thus not a public instrument, and could not be notarized or registered with the SEC. Petitioner himself admitted that his contribution consisted of his share in the Litonjua family businesses, which owned immovable properties — movie theaters, shipping, and land development. Petitioner's argument that the immovables were acquired after formation, not contributed, was rejected because he admitted contributing his share in businesses that already owned immovables before Annex "A-1" was allegedly executed. The inventory requirement under Article 1773 applies as long as real property or real rights are initially brought into the partnership, regardless of which partner contributed them. Annex "A-1" therefore could not support the existence of a valid partnership.

• Demandable Rights Under Annex "A-1": Petitioner thrust the notion of an innominate contract only after the CA ruled against him, constituting an impermissible change of theory. The CA's certiorari jurisdiction was circumscribed by the positions taken before the trial court, where petitioner consistently pursued a partnership/joint venture theory. Even assuming arguendo that Annex "A-1" partook of a perfected innominate contract, the promise therein — to give ₱1 Million or 10% equity — was not to be performed within one year from the alleged execution on June 22, 1973, thus falling under the Statute of Frauds (Article 1403(2)(a) of the Civil Code) and being unenforceable for non-compliance. Moreover, the stated amount or equity was intended to go to petitioner as beneficiary, not to a common fund, which further negated the existence of a partnership requiring contribution to a common fund.

• Cause of Action Against Yang: Petitioner pointed to Eduardo as the author of Annex "A-1," which did not even mention Yang's name. Petitioner failed to allege any contribution by Yang or his proportional share in profits. The complaint's own allegations were contradictory regarding whether Yang's partnership preceded or followed the corporate respondents. Since no valid partnership existed between petitioner and Eduardo, Yang could not have been a partner in or had any business relationship with an inexistent partnership. The complaint lacked the ultimate facts necessary to establish the elements of a cause of action against Yang.

• Change of Theory: Petitioner used the terms "joint venture/partnership" nineteen times and "partner" four times in his complaint, and referenced the law of joint venture/partnership as applicable to the business relationship. His right of action pivoted on the existence of the partnership. After the CA ruled the partnership void, petitioner shifted to an innominate contract theory, which is prohibited as it springs surprises on the opposing party and offends due process. An issue neither averred in the complaint cannot be raised for the first time on appeal. Petitioner's protestation that he was merely supporting his pleaded cause of action by another legal perspective was rejected as a strained rationalization, his motion for reconsideration having relegated partnership to a fall-back theory.

• Formal Requisites of Partnership Involving Immovable Property — Under Articles 1771, 1772, and 1773 of the Civil Code, a partnership involving immovable property or real rights requires: (a) a public instrument (Article 1771); (b) where capital is ₱3,000.00 or more, the public instrument must be recorded with the SEC (Article 1772); and (c) an inventory of the contributed immovable property, signed by the parties and attached to the public instrument (Article 1773). Failure to comply with the inventory requirement renders the partnership void. The Court applied these provisions to hold Annex "A-1" void as a partnership document, it being unsigned, undated, and lacking the required inventory.

• Statute of Frauds — Under Article 1403(2)(a) of the Civil Code, an agreement that by its terms is not to be performed within one year from the making thereof is unenforceable by action unless the same, or some note or memorandum thereof, is in writing and subscribed by the party charged. The Court found that the promise in Annex "A-1" to give ₱1 Million or 10% equity was not to be performed within one year, rendering it unenforceable.

• Prohibition Against Changing Theory on Appeal — A party may not change or shift his theory of the case on appeal, as this is offensive to fair play, justice, and due process. An issue neither averred in the complaint nor raised at the trial court level cannot be raised for the first time on appeal. The Court held that petitioner's shift from a partnership theory to an innominate contract theory was impermissible.

• "A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument." — This is the text of Article 1773 of the Civil Code, the controlling provision that rendered Annex "A-1" void as a partnership document.

• "Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the alleged partnership, the 'Memorandum' (Annex 'A' of the complaint) which purports to establish the said 'partnership/joint venture' is NOT a public instrument and there was NO inventory of the immovable property duly signed by the parties. As such, the said 'Memorandum' … is null and void for purposes of establishing the existence of a valid contract of partnership." — This passage from the CA decision, quoted and adopted by the Supreme Court, articulates the ratio decidendi for nullifying the actionable document and dismissing the complaint.

• "Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due process; hence, the proscription against a party shifting from one theory at the trial court to a new and different theory in the appellate court." — This passage states the doctrinal basis for rejecting petitioner's attempt to shift from a partnership theory to an innominate contract theory on appeal.

• Heirs of Tan Eng Kee vs. CA, 341 SCRA 740 (2000) — Cited for the proposition that a joint venture is hardly distinguishable from a partnership and is generally governed by the law on partnership, and that a partnership requires contribution to a common fund with the intention of dividing profits.

• Aurbach vs. Sanitary Wares Manufacturing Corp., 180 SCRA 130 (1989) — Cited via Heirs of Tan Eng Kee for the principle that a joint venture is a form of partnership governed by partnership law.

• San Agustin vs. Barrios, 68 Phil. 475 (1939) — Cited for the doctrine that a party may not shift from one theory at the trial court to a different theory in the appellate court.

• Union Bank vs. CA, 359 SCRA 480 (2001) — Cited for the rule that an issue neither averred in the complaint nor raised below cannot be raised for the first time on appeal.

• Article 1767, Civil Code — Defines a contract of partnership as one where two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. Applied to determine whether Annex "A-1" established a partnership.

• Article 1771, Civil Code — Provides that a partnership may be constituted in any form, except where immovable property or real rights are contributed, in which case a public instrument is necessary. Applied to hold Annex "A-1" deficient, it being unsigned and undated.

• Article 1772, Civil Code — Requires that every partnership with capital of ₱3,000.00 or more appear in a public instrument recorded with the SEC. Applied to hold that Annex "A-1" could not be notarized or registered with the SEC.

• Article 1773, Civil Code — Declares a partnership void whenever immovable property is contributed and no inventory signed by the parties is attached to the public instrument. Applied as the decisive provision rendering the alleged partnership void.

• Article 1307, Civil Code — Recognizes innominate contracts. Petitioner invoked this provision to recharacterize Annex "A-1," but the Court rejected the attempt as an impermissible change of theory.

• Article 1403(2)(a), Civil Code — Statute of Frauds provision rendering unenforceable an agreement not to be performed within one year unless in writing and subscribed by the party charged. Applied to hold that even assuming Annex "A-1" created an innominate contract, the promise therein was unenforceable.

Panganiban (Chairman, Third Division), Sandoval-Gutierrez, Corona, and Carpio Morales concurred. No separate concurring opinions were written.