Gatchalian vs. Collector of Internal Revenue [G.R. No.

L-45425, April 29, 1939] Facts: Plaintiffs purchased, in the ordinary course of business, from one of the duly authorized agents of the National Charity Sweepstakes Office one ticket for the sum of two pesos (P2), saidticket was registered in the name of Jose Gatchalian and Company. The ticket won one of the third-prizes in the amount of P50,000. Jose Gatchalian was required to file the corresponding income tax return covering the prize won. DefendantCollector made anassessment against Jose Gatchalian and Co. requesting thepayment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan. Plaintiffs, however through counsel made a request for exemption. It was denied. Plaintiffs failed to pay the amount due, hence a warrant of distraint and levy was issued. Plaintiffs paid under protest a part of the tax and penalties to avoid the effects of the warrant. A request that the balance be paid by plaintiffs in installments was made. This was granted on the condition that a bond be filed. Plaintiffs failed in their installment payments. Hence a request for execution of the warrant of distraint and levy was made. Plaintiffs paid under protest to avoid the execution. A claim for refund was made by the plaintiffs, which was dismissed, hence the appeal. Issue: Whether the plaintiffs formed a partnership hence liable fori ncome tax. Held: Yes. According to the stipulation facts the plaintiffs organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000. The partnership was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and formed a community of property only.

LORENZO OA V CIR GR No. L -19342 | May 25, 1972 | J. Barredo Facts: Julia Buales died leaving as heirs her surviving spouse, Lorenzo Oa and her five children. A civil case was instituted for the settlement of her state, in which Oa was appointed administrator and later on the guardian of the three heirs who were still minors when the project for partition was approved. This shows that the heirs have undivided interest in 10 parcels of land, 6 houses and money from the War Damage Commission. Although the project of partition was approved by the Court, no attempt was made to divide the properties and they remained under the management of Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners properties and investments gradually increased. Petitioners returned for income tax purposes their shares in the net income but they did not actually receive their shares because this left with Oa who invested them. Based on these facts, CIR decided that petitioners formed an unregistered partnership and therefore, subject to the corporate income tax, particularly for years 1955 and 1956. Petitioners asked for reconsideration, which was denied hence this petition for review from CTAs decision.

Issue: W/N there was a co-ownership or an unregistered partnership W/N the petitioners are liable for the deficiency corporate income tax Held: Unregistered partnership. The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to the project of partition, the heirs allowed their properties to remain under the management of Oa and let him use their shares as part of the common fund for their ventures, even as they paid corresponding income taxes on their respective shares. Yes. For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason is simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly, he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed, for the purpose, for tax purposes, at least, an unregistered partnership is formed. For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships The term partnership includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on (8 Mertens Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.) with the exception only of duly registered general copartnerships within the purview of the term corporation. It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations. Judgment affirmed.

G.R. No. L-68118 October 29, 1985 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. Demosthenes B. Gadioma for petitioners. AQUINO, J.: 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. On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children,

the petitioners, to enable them to build their residences. The company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots. In 1974, or 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 for the total sum of P313,050 (Exh. C and D). They derived from the sale 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 or of P16,792. In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56. Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a mere capital gain of which is taxable) and required them to pay deficiency income taxes aggregating P56,707.20 including the 50% 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. We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 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. That eventuality should be obviated. As testified by Jose Obillos, Jr., they had no such intention. 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. Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeas says: Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad? El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad presupone necesariamente la convencion, mentras que la comunidad puede existir y existe ordinariamente sin ela; y por razon del fin objecto, en que el objeto de la sociedad es obtener lucro, mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer su conservacion. Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro Derecho positive se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad de bienes y contrato de

sociedad, la moderna orientacion de la doctrina cientifica seala como nota fundamental de diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la finalidad perseguida por los interesados: lucro comun partible en la sociedad, y mera conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329). Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.* Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership. The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oa vs. ** This view is supported by the following rulings of respondent Commissioner: Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in questionpro-indiviso from their deceased parents; they did not contribute or invest additional ' capital to increase or expand the inherited properties; they merely continued dedicating the property to the use to which it had been put by their forebears; they individually reported in their tax returns their corresponding shares in the income and expenses of the 'hacienda', and they continued for many years the status of co-ownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue the existing contractual relations with the Central Azucarera de Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963). All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78). Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves, it was held that they were taxable as an unregistered partnership. It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased a lot and building, entrusted the administration of the building to an administrator and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought four pieces of real property which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an unregistered partnership. In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It might have already prescribed. WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs. SO ORDERED.

LIM TONG LIMvs.PHILIPPINE FISHING GEAR INDUSTRIES, INC.G.R. No. 136448 November 3, 1999PANGANIBAN, Facts: On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao enteredinto a Contract for the purchase of fishing nets and floats from respondent Philippine FishingGear Industries, Inc. They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement.The buyers, however, failed to pay for the fishing nets and the floats; hence, privaterespondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities asgeneral partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistentcorporation as shown by a Certification from the Securities and Exchange Commission.The trial court maintained the Writ, and upon motion of private respondent, ordered thesale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the biddingand deposited with the said court the sales proceeds of P900,000. Thereafter, the trial court ruled that Philippine Fishing Gear Industries was entitled to theWrit of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to payrespondent. It also ruled that a partnership among Lim, Chua and Yao existed based (1) on thetestimonies of the witnesses presented and (2) on a Compromise Agreement executed by thethree in a civil case which provides that the proceeds of the sale of four (4) vessels including thefishing net shall be applied as full payment in favor of JL Holdings Corporation and/or Lim TongLim; and to divide equally among them the excess or loss.The CA affirmed the decision of the RTC ruling that petitioner was a partner of Chua andYao in a fishing business and may thus be held liable as a such for the fishing nets and floatspurchased by and for the use of the partnership.Hence, petitioner brought this recourse before this Court.Issue: Whether by their acts, Lim, Chua and Yao could be deemed to have entered into apartnership.Held: YES. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim haddecided to engage in a fishing business, which they started by buying boats worth P3.35 million,financed by a loan secured from Jesus Lim who was petitioner's brother. In their CompromiseAgreement, they subsequently revealed their intention to pay the loan with the proceeds of thesale of the boats, and to divide equally among them the excess or loss. These boats, thepurchase and the repair of which were financed with borrowed money, fell under the term"common fund" under Article 1767. The contribution to such fund need not be cash or fixedassets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also showsthat they had indeed formed a partnership.Moreover, it is clear that the partnership extended not only to the purchase of the boat,but also to that of the nets and the floats. The fishing nets and the floats, both essential tofishing, were obviously acquired in furtherance of their business. It would have beeninconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded.Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, apartnership engaged in the fishing business. They purchased the boats, which constituted themain assets of the partnership, and they agreed that the proceeds from the sales andoperations thereof would be divided among them

Litonjua, Jr. Case DECISION GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA) dated March 31, 2004 [1] in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07, 2004,[2] denying petitioners motion for reconsideration. The recourse is cast against the following factual backdrop: Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them started when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several corporations for specific performance and accounting. In his complaint,[3] docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the court, [4] 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. [5] The same complaint also contained the following material averments: 3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the continuation of their family business and common family funds . 3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and made an integral part as Annex Aand the portion referring to [Aurelio] submarked as Annex A-1. 3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelios] retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land development) and contributing his industry to the continued operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater. . . . 4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had accumulated in their joint venture/partnership various assets including but not limited to the corporate defendants and [their] respective assets. 4.02 In addition . . . the joint venture/partnership had also acquired [various other assets], but Eduardo caused to be registered in the names of other parties. xxx xxx xxx

4.04 The substantial assets of most of the corporate defendants consist of real properties . A list of some of these real properties is attached hereto and made an integral part as Annex B. xxx xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested for an accounting and liquidation of his share in the joint venture/partnership [but these demands for complete accounting and liquidation were not heeded]. xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants as well as Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the joint venture/partnership to other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of these real properties a notice of lis pendens . (Emphasis in the original; underscoring and words in bracket added.) For ease of reference, Annex A-1 of the complaint, which petitioner asserts to have been meant for him by his brother Eduardo, pertinently reads: 10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]: You have now your own life to live after having been married. . I am trying my best to mold you the way I work so you can follow the pattern . You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office every time I am away. I want you to run it the way I am trying to run it because I

will be all alone and I will depend entirely to you (sic). My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the whole thing of what I have and what you are entitled to. . It will be you and me alone on this. If ever I pass away, I want you to take care of all of this. You keep my share for my two sons are ready take over but give them the chance to run the company which I have built. xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of stocks which you can keep. This stock I assure you is good and saleable. I will also gladly give you the share of Wack-Wack and Valley Golf because you have been good. The rest will be in stocks from all the corporations which I repeat, ten percent (10%) equity. [6]

On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER With Compulsory Counterclaim denying under oath the material allegations of the complaint, more particularly that portion thereof depicting petitioner and Eduardo as having entered into a contract of partnership. As affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint states no cause of action, since no cause of action may be derived from the actionable document, i.e., Annex A-1, being void under the terms of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to do, if any, under Annex A-1, are unenforceable under the provisions of the Statute of Frauds.[7] For his part, Yang - who was served with summons long after the other defendants submitted their answer moved to dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and the complaint does not state any.[8] Petitioner opposed this motion to dismiss. On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.[9] To this motion, petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial.[10] Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated March 5, 2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10, 2003.[11] In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for reconsideration[12] and Yangs motion to dismiss. The following then transpired insofar as Yang is concerned: 1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss [13] to its full resolution. 2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion was denied in an Order of July 4, 2003.[14] 3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,[15] to nullify the separate orders of the trial court, the first denying his motion to dismiss the basic complaint and, the second, denying his motion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and injudicious haste attended the issuance of the trial courts aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief from the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,[16] the CAs 14th Division ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987. Following the submission by the parties of their respective Memoranda of Authorities, the appellate court came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein, disposing as follows: WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent [now petitioner Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a quo is hereby dismissed. SO ORDERED.[17] (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as evidenced by the actionable documents, Annex A and A-1 attached to the complaint, and upon which petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate defendants a quo is void or legally inexistent. In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailed Resolution of December 7, 2004.[18] . Hence, petitioners present recourse, on the contention that the CA erred: 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 petition lacks merit. Petitioners demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or payment to him, as Eduardos and Yangs partner, of his partnership/joint venture share, after an accounting has been duly conducted of what he deems to be partnership/joint venture property. [19] 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 the profits and losses between them.[20] A contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves.[21] A joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are similar, i.e., community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint venture is generally governed by the law on partnership. [22] 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. And the issue bearing on the first assigned error relates to the question of what legal provision is applicable

under the premises, petitioner seeking, as it were, to enforce the actionable document - Annex A-1 - which he depicts in his complaint to be the contract of partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions determinative of the existence, or defining the formal requisites, of a partnership is indicated. Foremost of these are the following provisions of the Civil Code: 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. 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. Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. 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. Annex A-1, on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that Annex A-1 does not meet the public instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, Annex A-1 cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the next logical point of inquiry turns on the nature of petitioners contribution, if any, to the supposed partnership. The CA, addressing the foregoing query, correctly stated that petitioners contribution consisted of immovables and real rights. Wrote that court: A further examination of the allegations in the complaint would show that [petitioners] contribution to the so-called partnership/joint venture was his supposed share in the family business that is consisting of movie theaters, shipping and land development under paragraph 3.02 of the complaint. In other words, his contribution as a partner in the alleged partnership/joint venture consisted of immovable properties and real rights. . [23] Significantly enough, petitioner matter-of-factly concurred with the appellate courts observation that, prescinding from what he himself alleged in his basic complaint, his contribution to the partnership consisted of his share in the Litonjua family businesses which owned variable immovable properties. Petitioners assertion in his motion for reconsideration[24] of the CAs decision, that what was to be contributed to the business [of the partnership] was [petitioners] industry and his share in the family [theatre and land development] business leaves no room for speculation as to what petitioner contributed to the perceived partnership. Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code applies as long real property or real rights are initially brought into the partnership. In short, it is really of no moment which of the partners, or, in this case, who between petitioner and his brother Eduardo, contributed immovables. In context, the more important consideration is that 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, in an obvious bid to evade the application of Article 1773, argues that the immovables in question were not contributed, but were acquired after the formation of the supposed partnership. Needless to stress,

the Court cannot accord cogency to this specious argument. For, as earlier stated, petitioner himself admitted contributing his share in the supposed shipping, movie theatres and realty development family businesses which already owned immovables even before Annex A-1 was allegedly executed. Considering thus the value and nature of petitioners alleged contribution to the purported partnership, the Court, even if so disposed, cannot plausibly extend Annex A-1 the legal effects that petitioner so desires and pleads to be given. Annex A-1, in fine, cannot support the existence of the partnership sued upon and sought to be enforced. The legal and factual milieu of the case calls for this disposition. A partnership may be constituted in any form, save when immovable property or real rights are contributed thereto or when the partnership has a capital of at least P3,000.00, in which case a public instrument shall be necessary. [25] And if only to stress what has repeatedly been articulated, an inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to it. Given the foregoing perspective, what the appellate court wrote in its assailed Decision[26] about the probative value and legal effect of Annex A-1 commends itself for concurrence: 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. Indeed, because of the failure to comply with the essential formalities of a valid contract, the purported partnership/joint venture is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot be the source of any contractual or legal right. Accordingly, the allegations in the complaint, including the actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal right which could be violated by the [individual respondents] herein. As a consequence, [petitioners] complaint does NOT state a valid cause of action because NOT all the essential elements of a cause of action are present. (Underscoring and words in bracket added.) Likewise well-taken are the following complementary excerpts from the CAs equally assailed Resolution of December 7, 2004[27] denying petitioners motion for reconsideration: Further, We conclude that despite glaring defects in the allegations in the complaint as well as the actionable document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal provisions which were brought to its attention by herein [respondents] in the their pleadings. In our evaluation of [petitioners] complaint, the latter alleged inter alia to have contributed immovable properties to the alleged partnership but the actionable document is not a public document and there was no inventory of immovable properties signed by the parties. Both the allegations in the complaint and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which could be violated by [respondents]. (Words in bracket added.) Under the second assigned error, it is petitioners posture that Annex A-1, assuming its inefficacy or nullity as a partnership document, nevertheless created demandable rights in his favor. As petitioner succinctly puts it in this petition: 43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article 1307). 44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create rights and obligations of the parties and which rights and obligations may be enforceable and demandable. Just because the relationship created by the agreement cannot be specifically

labeled or pigeonholed into a category of nominate contract does not mean it is void or unenforceable. Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA after he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however, cannot really be faulted for not yielding to petitioners dubious stratagem of altering his theory of joint venture/partnership to an innominate contract. For, at bottom, the appellate courts certiorari jurisdiction was circumscribed by what was alleged to have been the order/s issued by the trial court in grave abuse of discretion. As respondent Yang pointedly observed,[28] since the parties basic position had been well-defined, that of petitioner being that the actionable document established a partnership/joint venture, it is on those positions that the appellate court exercised its certiorari jurisdiction. Petitioners act of changing his original theory is an impermissible practice and constitutes, as the CA aptly declared, an admission of the untenability of such theory in the first place. [Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended that the actionable instrument may be considered an innominate contract. xxx Verily, this now changes [petitioners] theory of the case which is not only prohibited by the Rules but also is an implied admission that the very theory he himself has adopted, filed and prosecuted before the respondent court is erroneous. Be that as it may . . We hold that this new theory contravenes [petitioners] theory of the actionable document being a partnership document. If anything, it is so obvious we do have to test the sufficiency of the cause of action on the basis of partnership law xxx.[29] (Emphasis in the original; Words in bracket added). But even assuming in gratia argumenti that Annex A-1 partakes of a perfected innominate contract, petitioners complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot be overemphasized that petitioner points to Eduardo as the author of Annex A-1. Withal, even on this consideration alone, petitioners claim against Yang is doomed from the very start. As it were, the only portion of Annex A-1 which could perhaps be remotely regarded as vesting petitioner with a right to demand from respondent Eduardo the observance of a determinate conduct, reads: xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office everytime I am away. I want you to run it the way I am trying to run it because I will be alone and I will depend entirely to you, My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he indeed wrote Annex A-1, is a promise which is not to be performed within one year from contract execution on June 22, 1973. Accordingly, the agreement embodied in Annex A-1 is covered by the Statute of Frauds and ergo unenforceable for non-compliance therewith.[30] By force of the statute of frauds, an agreement that by its terms is not to be performed within a year from the making thereof shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing and subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by the statute of frauds is complied with.[31] Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses supposedly promised by Eduardo to give in the near future. Any suggestion that the stated amount or the equity component of the promise was intended to go to a common fund would be to read something not written in Annex A-1. Thus, even this angle alone argues against the very idea of a partnership, the creation of which requires 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. [32]

In sum then, the Court rules, as did the CA, that petitioners complaint for specific performance anchored on an actionable document of partnership which is legally inexistent or void or, at best, unenforceable does not state a cause of action as against respondent Eduardo and the corporate defendants. And if no of action can successfully be maintained against respondent Eduardo because no valid partnership existed between him and petitioner, the Court cannot see its way clear on how the same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could not have had any form of business relationship with, an inexistent partnership. As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as his partner. In fact, attendant circumstances would indicate the contrary. Consider: 1. Petitioner asserted in his complaint that his so-called 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. [33] But Yang denies kinship with the Litonjua family and petitioner has not disputed the disclaimer. 2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with Eduardo and what his share in the businesses will be. No allegation is made whatsoever about what Yang contributed, if any, let alone his proportional share in the profits. But such allegation cannot, however, be made because, as aptly observed by the CA, the actionable document did not contain such provision, let alone mention the name of Yang. 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. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo are business partners in the [respondent] corporations, while Bobby is his and Eduardos partner in their Odeon Theater investment (par. 2.03). This means that 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.[34] Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he sourced his right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and formulated the legal situation in the following wise: [Respondent] Yang, is impleaded because, as alleged in the complaint, he is a partner of [Eduardo] and the [petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits and direct investments in several corporations, thus: xxx xxx xxx Clearly, [petitioners] claim against Yang arose from his alleged partnership with petitioner and the respondent. However, there was NO allegation in the complaint which directly alleged how the supposed contractual relation was created between [petitioner] and Yang. More importantly, however, the foregoing ruling of this Court that the purported partnership between [Eduardo] is void and legally inexistent directly affects said claim against Yang. Since [petitioner] is trying to establish his claim against Yang by linking him to the legally inexistent partnership . . . such attempt had become futile because there was NOTHING that would contractually connect [petitioner] and Yang. To establish a valid cause of action, the complaint should have a statement of fact upon which to connect [respondent] Yang to the alleged partnership between

[petitioner] and respondent [Eduardo], including their alleged investment in the Odeon Theater. A statement of facts on those matters is pivotal to the complaint as they would constitute the ultimate facts necessary to establish the elements of a cause of action against Yang. [35] Pressing its point, the CA later stated in its resolution denying petitioners motion for reconsideration the following: xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is controlling. Suffice it to state, We have not ignored the actionable document As a matter of fact, We emphasized in our decision that insofar as [Yang] is concerned, he is not even mentioned in the said actionable document. We are therefore puzzled how a person not mentioned in a document purporting to establish a partnership could be considered a partner.[36] (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as peremptorily determined by the CA, has been discussed at length earlier and need not detain us long. Suffice it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner took a different tack. Thus, from a joint venture/partnership theory which he adopted and consistently pursued in his complaint, petitioner embraced the innominate contract theory. Illustrative of this shift is petitioners statement in par. #8 of his motion for reconsideration of the CAs decision combined with what he said in par. # 43 of this petition, as follows: 8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal matter. What is determinative for purposes of sufficiency of the complainants allegations, is whether the actionable document bears out an actionable contract be it a partnership, a joint venture or whatever or some innominate contract It may be noted that one kind of innominate contract is what is known as du ut facias (I give that you may do).[37] 43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article 1307).[38]

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.[39] On the same rationale, an issue which was neither averred in the complaint cannot be raised for the first time on appeal.[40] It is not difficult, therefore, to agree with the CA when it made short shrift of petitioners innominate contract theory on the basis of the foregoing basic reasons. Petitioners protestation that his act of introducing the concept of innominate contract was not a case of changing theories but of supporting his pleaded cause of action that of the existence of a partnership - by another legal perspective/argument, strikes the Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his motion for reconsideration of the CAs decision virtually relegates partnership as a fall-back theory. Two paragraphs later, in the same notion, petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not to pursue theoriginal cause of action or altogether abandoning the same, thus: 12. Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo, Sr. and [petitioner], no immovables were contributed to this partnership. xxx 14. All told, the Decision takes off from a false premise that the actionable document attached to the complaint does not establish a contractual relationship between [petitioner] and Eduardo, Sr. and Roberto T Yang simply because his document does not create a partnership or a joint venture. This is a myopic reading of the actionable document.

Per the Courts own count, petitioner used in his complaint the mixed words joint venture/partnership nineteen (19) times and the term partner four (4) times. He made reference to the law of joint venture/partnership [being applicable] to the business relationship between [him], Eduardo and Bobby [Yang] and to his rights in all specific properties of their joint venture/partnership. Given this consideration, petitioners right of action against respondents Eduardo and Yang doubtless pivots on the existence of the partnership between the three of them, as purportedly evidenced by the undated and unsigned Annex A-1. A void Annex A-1, as an actionable document of partnership, would strip petitioner of a cause of action under the premises. A complaint for delivery and accounting of partnership property based on such void or legally non-existent actionable document is dismissible for failure to state of action. So, in gist, said the Court of Appeals. The Court agrees. WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of Appeals AFFIRMED. Cost against the petitioner. SO ORDERED.

Aurbach vs. Sanitary Wares ( P a r t n e r s h i p ; J o i n t V e n t u r e ; F o r e i g n a n d Domestic Corp)F : T h is c o ns o l i d a t e d p e t i t i o n a s s a i l e d t h e d e c i s i o n o f t h e C A d i r e c t i n g a c e r t a i n MANNER OF ELECTION OF OFFICERS IN THEBOARD OF DIRECTORS* T h e r e a r e t w o g r o u p s i n t h i s c a s e , t h e Lagdameo group c o m p o s e d o f F i l i p i n o investors and the American Standard Inc .(ASI) composed of foreign investors. The ASI Group and petitioner Salazar (G.R. N o s . 7 5 9 7 5 7 6 ) c o n t e n d t h a t t h e a c t u a l i n t e n t i o n o f t h e p a r t i e s s h o u l d b e v i e we d s t r i c t l y o n t h e " A g r e em e n t " d a t e d A u g u s t 15,1962 wherein it is clearly stated that theparties' intention was to form a corporationand not a joint venture.I : T h e m a i n i s s u e h i n g e s o n wh o we r e t h e duly elected directors of Saniwares for theye a r 1 9 8 3 d u r i n g i t s a n n u a l s t o c k h o l d e rs ' meeting held on March 8, 1983. To answer this question the following factors should bedetermined: *(1) the nature of the business establishedby the parties whether it was a joint ventureor a corporation andH: W h i l e c e r t a i n p r o v i s i o n s o f t h e Agreement would make it appear thatt h e p a r t i e s t h e r e t o d i s c l a i m b e i n g p a r t n e r s o r j o i n t v e n t u r e r s s u c h discl aimer is directed at third parties and is not inconsistent with, and doesn o t p r e c l u d e , t h e e x i s t e n c e o f t w o d i s t i n c t g r o u p s o f s t o c k h o l d e r s i n Sani wares one of which (the PhilippineI n v e s t o r s ) s h a l l c o n s t i t u t e t h e m a j o r i t y , a n d t h e o t h e r A S I s h a l l constitute the minority stockholder. Inany event, the evident intention of t h e P h i l i p p i n e I n v e s t o r s a n d A S I i n e n t e r i n g i n t o t h e A g r e e m e n t i s t o e n t e r i n t o a j o i n t v e n t u r e enterprise An examination of the Agreementshows that certain provisions wereinccuded to protect the interests of ASI as the minority. For example, thevote of 7 out of 9 directors is requiredin certain enumerated

corporate acts.ASI is contractually entitled todesignate a member of the ExecutiveCommittee and the vote of thismember is required for certaintransactions The Agreement also requires a 75%super-majority vote for theamendment of the articles and by-laws of Saniwares. ASI is also giventhe right to designate the presidentand plant manager .The Agreementfurther provides that the sales policyof Saniwares shall be that which isnormally followed by ASI and thatSaniwares should not export"Standard" products otherwise thanthrough ASI's Export MarketingServices. Under the Agreement, ASIagreed to provide technology andknow-how to Saniwares and the latterpaid royalties for the same. The l e g a l c o n c e p t o f a j o i n t venture i s o f c om m o n l a w o r i g i n . I t h a s n o p r ec i s e l e g a l d e f i n i t i o n b u t ith a s b e e n g e n e r a l l y u n d e r s t o o d t o m e a n a n o r g a n i z a t i o n f o r m e d f o r some temporary purpose. It is in fact h a r d l y d i s t i n g u i s h a b l e f r o m t h e partnership, since their elements ares i m i l a r c o m m u n it y o f i n t e r e st i n t h e business, sharing of profits and losses,and a mutual right of control. T h e m a i n d i s t i n c t i o n c i t e d b y m os t opinions in common law jurisdictions isthat the partnership contemplatesa g e n e r a l b u s i n e s s w i t h s o m e d e g r e e o f c o n t i n u i t y , while the j o i n t v e n t u r e i s f o r m e d f o r t h e execution of a single transaction,and is thus of a temporary nature .