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AURELIO K. LITONJUA v. EDUARDO K. LITONJUA

FACTS:

The case involves a legal dispute between brothers Aurelio K. Litonjua, Jr. (Aurelio) and Eduardo K. Litonjua, Sr. (Eduardo). Aurelio filed a suit against Eduardo and respondent Robert T. Yang (Yang) and several corporations for specific performance and accounting. Aurelio alleged that since June 1973, he and Eduardo entered into a joint venture/partnership arrangement in the Odeon Theater business. Aurelio claimed that in consideration of his industry and contribution to the business, he would receive P1 million or 10% equity in all their businesses. Aurelio also alleged that the joint venture/partnership had accumulated various assets and acquired other assets registered in the names of other parties. Aurelio further claimed that Eduardo and/or the corporate defendants, as well as Yang, were transferring various real properties of the corporations belonging to the joint venture/partnership to other parties in fraud of Aurelio. Aurelio sought an accounting and liquidation of his share in the joint venture/partnership. Eduardo and the corporate defendants, in their answer, denied the material allegations of the complaint, particularly the existence of a contract of partnership.

The case involves a dispute between petitioner Aurelio and respondents Eduardo, Yang, and the corporate defendants over the existence of a partnership or joint venture in the theatre, shipping, and realty business. Petitioner filed a complaint seeking delivery or payment of his share in the partnership/joint venture. The trial court denied the affirmative defenses raised by Eduardo and set the case for pre-trial. Yang filed a motion to dismiss, which was denied. Yang then filed his answer and later sought reconsideration of the denial of his motion to dismiss, but his motion was denied. Eduardo and the corporate defendants also sought relief from the Court of Appeals (CA) through a petition for certiorari. The CA consolidated the cases and eventually issued a decision, granting the issuance of the writ of certiorari and dismissing the complaint filed by petitioner against the respondents. Petitioner filed a motion for reconsideration, which was denied by the CA. Dissatisfied, petitioner filed a petition for review on certiorari before the Supreme Court.

The case involves a dispute over the existence and validity of a contract of partnership or joint venture between the petitioner and Eduardo. The petitioner argues that a partnership exists based on a document titled "Annex A-1," which describes the supposed partnership. However, the document is unsigned and does not meet the requirement of being a public instrument under Article 1771 of the Civil Code. Additionally, the petitioner's contribution to the partnership consists of immovable properties and real rights, as stated in the complaint and confirmed by the Court of Appeals. This brings into question the applicability of the inventory requirement under Article 1773 of the Civil Code. It is established that the requirement applies when real property or real rights are initially brought into the partnership. Ultimately, the determination of the validity of the partnership revolves around the issue of which partner contributed immovable assets.

ISSUES:

  1. What was the nature of the petitioner's contribution to the supposed partnership?

  2. Did the failure to comply with the inventory requirement invalidate the partnership?

  3. Whether the actionable document created a valid partnership or an innominate contract.

  4. Whether the cause of action for specific performance is valid against respondent Eduardo and respondent Yang.

  5. Whether the alleged partnership between the petitioner and Eduardo is valid.

  6. Whether the petitioner has sufficiently established a legal vinculum between him and the respondent Yang.

  7. Whether the petitioner changed his theory of the case.

  8. Whether the petition should be granted and the decision of the Court of Appeals reversed.

RULING:

  1. The petitioner's contribution to the partnership consisted of immovable properties and real rights.

  2. Yes, the failure to comply with the inventory requirement under Article 1773 of the Civil Code invalidated the partnership.

  3. The Court held that the actionable document did not create a valid partnership. Even assuming it is an innominate contract, the complaint would still be dismissible as against respondent Eduardo and respondent Yang. The agreement embodied in the document is unenforceable under the Statute of Frauds because it is not to be performed within one year. Moreover, there is no provision in the document indicating an intention to create a partnership.

  4. The Court ruled that the cause of action for specific performance is not valid against respondent Eduardo and respondent Yang. Petitioner failed to establish a valid partnership between him and respondent Eduardo, therefore no action can be successfully maintained against Eduardo. Consequently, the Court cannot see how the same action could prosper against respondent Yang, who could not have had any business relationship with an inexistent partnership.

  5. The Court of Appeals (CA) ruled that the alleged partnership between the petitioner and Eduardo is void and legally inexistent. Therefore, the partnership is not valid.

  6. The CA stated that there is no statement of fact in the complaint that directly connects the respondent Yang to the alleged partnership between the petitioner and Eduardo. As such, there is no legal vinculum established between the petitioner and Yang.

  7. The CA found that the petitioner changed his theory of the case. He initially pursued a joint venture/partnership theory in his complaint, but later embraced the concept of an innominate contract. The CA held that shifting theories and raising new issues on appeal are prohibited.

  8. The instant petition is denied and the decision and resolution of the Court of Appeals are affirmed.

PRINCIPLES:

  • The contract-validating inventory requirement under Article 1773 of the Civil Code applies when real property or real rights are initially brought into the partnership. Without an inventory duly signed by the parties, there is no valid partnership.

  • A partnership may be constituted in any form except when immovable property or real rights are contributed, in which case a public instrument is necessary.

  • A void or legally inexistent contract cannot be the source of any contractual or legal right, and therefore cannot be the basis of a valid cause of action.

  • An innominate contract is a type of contract not specifically categorized or labeled under nominate contracts, but still creates enforceable rights and obligations between parties. (Civil Code, Article 1307)

  • An agreement that is not to be performed within one year from its execution is unenforceable unless it is in writing and subscribed by the party charged, due to the Statute of Frauds. (Statute of Frauds)

  • To establish a valid partnership, there must be two or more contracting minds mutually agreeing to contribute money, property, or industry to a common fund with the intention of dividing the profits between or among themselves. (Partnership Law)

  • For a partnership to be valid, there should be mutual contribution of money, property, or industry with the intention of sharing profits (Unanimous Decision Bourns, Inc. v. Laguna Metts Corporation, G.R. No. 192935, August 13, 2014).

  • A party must establish a legal vinculum or contractual relation between themselves and the other party to maintain a valid cause of action (Unanimous Decision Serrano v. Court of Appeals, G.R. No. 102542, December 19, 1994).

  • Parties are prohibited from changing their theory of the case during appellate proceedings and from raising new issues not stated in the complaint (Concurring Opinion Chief Justice Puno Quality Hotels, Inc. v. National Union of Workers in the Hotel, Restaurant and Allied Industries, G.R. NOS. 78499-500, March 21, 1989).

  • A complaint for delivery and accounting of partnership property based on a void or legally non-existent actionable document is dismissible for failure to state a cause of action.

  • A claim of innominate contract cannot be used to support a cause of action for the existence of a partnership if the party has already pleaded partnership as the cause of action.