AURELIO K. LITONJUA, JR., PETITIONER, VS. EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING A…

Litonjua versus Litonjua

The Case

This is a petition for review brought by Aurelio Litonjua, Junior against his brother Eduardo Litonjua, Senior, against their alleged business partner Robert Yang, and against several family corporations. Aurelio sued for specific performance and accounting, claiming that he and Eduardo had formed a joint venture or partnership over the family theatre, shipping, and realty businesses, and that he was entitled to his share after an accounting. The case matters because it is the Supreme Court's cleanest statement of the formal requisites of a partnership when immovable property is contributed: no public instrument, no signed inventory, no partnership at all. It also teaches the bar examinee how the Statute of Frauds operates, and why a litigant cannot change his theory of the case midway.

Procedural History

Aurelio filed his complaint for specific performance and accounting before the Regional Trial Court at Pasig City, which was raffled to Branch 68. Eduardo, the corporate defendants, and Yang each attacked the complaint, raising affirmative defenses and, in Yang's case, a motion to dismiss for failure to state a cause of action. In an Omnibus Order dated March 5, 2003, the trial court denied the affirmative defenses and set the case for pre-trial, except as to Yang. In a second Omnibus Order dated April 2, 2003, the trial court denied reconsideration and also denied Yang's motion to dismiss. Yang moved again for reconsideration, and that was denied on July 4, 2003.

Eduardo and the corporate defendants then went to the Court of Appeals by petition for certiorari, docketed as one case, and Yang filed his own petition for certiorari, docketed as another. The Court of Appeals consolidated the two petitions. On March 31, 2004, the appellate court rendered a Decision granting the writ of certiorari, annulling the three assailed orders of the trial court, and dismissing Aurelio's complaint against all the defendants. Aurelio's motion for reconsideration was denied in a Resolution dated December 7, 2004. Aurelio then came to the Supreme Court by petition for review under Rule 45.

Facts

Aurelio and Eduardo are brothers. Aurelio alleged that since June 1973 they had been in a joint venture or partnership in the Odeon Theater business, which expanded through investments in Cineplex, Incorporated, LCM Theatrical Enterprises, Odeon Realty Corporation, Avenue Realty, Incorporated, and other corporations. Robert Yang was described as their partner in the Odeon Theater investment. Aurelio claimed that the agreement was embodied in a memorandum Eduardo addressed to his siblings, parents, and other relatives, and that the portion meant for him promised him one million pesos or ten percent equity in all the family businesses, whichever is greater, in exchange for his retaining his share in the remaining family businesses and contributing his industry to their continued operation.

Aurelio further alleged that from June 1973 to about August 2001, a span of twenty eight years, he and Eduardo accumulated various assets, including the corporate defendants and their properties. He claimed that other assets were registered by Eduardo in the names of other parties. Sometime in 1992, relations between the brothers soured, and Aurelio demanded an accounting and liquidation of his share, but his demands were not heeded. He also feared that properties were being transferred to other parties in fraud of him, and so he caused notices of lis pendens to be annotated on the titles.

Eduardo and the corporate defendants answered, denying under oath that any partnership existed, and asserting that the complaint stated no cause of action because the actionable document was void under the partnership provisions of the Civil Code, and that any undertaking in it was unenforceable under the Statute of Frauds. Yang separately moved to dismiss on the ground that, as to him, the complaint stated no cause of action. The trial court refused to dismiss, and the Court of Appeals reversed, holding the alleged partnership void or legally inexistent.

Issues

• Whether or not the Court of Appeals erred in ruling that no partnership was created by the actionable document because it was not a public instrument and immovable properties were contributed to the partnership.
• Whether or not the Court of Appeals erred in ruling that the actionable document did not create a demandable right in favor of Aurelio.
• Whether or not the Court of Appeals erred in ruling that the complaint stated no cause of action against Robert Yang.
• Whether or not the Court of Appeals erred in ruling that Aurelio changed his theory on appeal.

Applicable Provisions

Article 1771 of the Civil Code provides:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

This is the general form requirement, and it is the first hurdle the unsigned memorandum fails.

Article 1772 of the Civil Code provides:

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

This requires public instrumentation and registration for partnerships of the stated capital, which the document cannot satisfy.

Article 1773 of the Civil Code provides:

Art. 1773. 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 provision that decides the case: because immovable property was contributed and no signed inventory was attached, the partnership is void.

Ruling

On the first issue, the Court held that the petition lacks merit. A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of profits and losses. A joint venture is hardly distinguishable from a partnership and is generally governed by the law on partnership. The Court examined the actionable document and found it typewritten, personal in tone, but unsigned and undated. Being unsigned, it does not meet the public instrumentation required by Article 1771. Being unsigned and involving more than three thousand pesos, it cannot be notarized or registered with the Securities and Exchange Commission under Article 1772. And because Aurelio himself admitted that his contribution consisted of his share in the family businesses that already owned immovable properties, the inventory requirement of Article 1773 applies. The Court stressed that it does not matter which partner contributed the immovables; what matters is that real property was contributed, and without a signed inventory attached to a public instrument, there is legally no partnership to speak of. Aurelio's argument that the immovables were acquired after the partnership was formed was rejected as specious, since he himself admitted contributing a share in businesses that already owned immovables.

On the second issue, the Court refused to entertain Aurelio's new theory that the document was an innominate contract. A void or legally inexistent contract cannot be the source of any contractual or legal right, and so the complaint stated no cause of action. Even assuming the document were a perfected innominate contract, the promise it contained was not to be performed within one year from its execution, and so it is covered by the Statute of Frauds and unenforceable for non-compliance. The Court quoted the Statute of Frauds rule that an agreement not to be performed within a year shall be unenforceable by action unless it, or some note or memorandum, be in writing and subscribed by the party charged.

On the third issue, the Court held that the claim against Yang was doomed from the start, since Aurelio pointed to Eduardo as the author of the document, and the promise ran only from Eduardo.

On the fourth issue, the Court held that changing one's theory on appeal is an impermissible practice and an implied admission that the original theory was erroneous. The appellate court's certiorari jurisdiction was circumscribed by the positions the parties had defined below.

Doctrine

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. Where the partnership has a capital of three thousand pesos or more, it must appear in a public instrument recorded with the Securities and Exchange Commission. Most importantly, whenever immovable property is contributed, the contract of partnership is void if an inventory of the property is not made, signed by the parties, and attached to the public instrument. It is immaterial which partner contributed the immovables. A void or legally inexistent contract produces no effect and cannot be the source of any right, so a complaint founded on it states no cause of action. A joint venture is governed by the law on partnership. Finally, a party may not change his theory of the case on appeal, and an agreement not to be performed within one year is unenforceable under the Statute of Frauds unless evidenced by a writing subscribed by the party charged.

Disposition

The Supreme Court denied the petition and affirmed the Court of Appeals, dismissing Aurelio's complaint against all the respondents.

Remember This

Memorize the rule: contribute immovable property to a partnership and omit the signed inventory attached to a public instrument, and the partnership is void under Article 1773, not merely unenforceable. Examiners use this case to test the formal requisites of partnership, the void effect of a missing inventory, and the prohibition on changing one's theory on appeal.