Asia Production Co., Inc. v. Cruz Paño
REITERATIONFacts
The Antecedents: Petitioners agreed to purchase a building from private respondents for P170,000.00, with an oral promise to assign the lease contract of the lot on which the building stood. The agreement was not in writing. Petitioners paid a downpayment of P20,000.00 and issued eight postdated checks for the monthly installments. Petitioners constructed a weaving factory on the lot. Private respondents failed to deliver the deed of conveyance and the deed of assignment of the lease contract within the agreed 60 days. The lot owner imposed onerous terms for the assignment. Petitioners issued a stop payment order for the remaining checks and returned the building's possession to private respondents. Petitioners demanded the return of their P50,000.00 partial payment, which private respondents refused. Procedural History: Petitioners filed a complaint for recovery of the P50,000.00 and damages. Private respondent Lolita Lee Le Hua was declared in default. Private respondent Alberto Dy filed a motion to dismiss, arguing the action was barred by the Statute of Frauds as the contract was not in writing. Petitioners opposed, stating the action was for collection of money, not enforcement of the sale, and that partial payment removed it from the Statute of Frauds. The respondent Judge granted the motion to dismiss, holding the contract was condemned by the Statute of Frauds and that partial payment was insufficient as there was no full payment. The motion for reconsideration was denied. The Petition: Petitioners filed a petition for certiorari, alleging grave abuse of discretion on the part of the respondent Judge in issuing the orders of dismissal and denial of reconsideration.
Issue(s)
Whether the respondent Judge committed grave abuse of discretion in dismissing the complaint on the ground that the action is barred by the Statute of Frauds. Whether an action to recover partial payments made under an oral contract, which is otherwise unenforceable under the Statute of Frauds, is covered by the Statute of Frauds.
Ruling
The petition is granted. The challenged Orders of April 18, 1979, and June 21, 1979, are annulled and set aside, and the complaint is reinstated. Private respondent Alberto Dy is ordered to file his Answer within ten (10) days from receipt of the decision. The decision is immediately executory.
Ratio Decidendi
On the issue of whether the respondent Judge committed grave abuse of discretion in dismissing the complaint on the ground that the action is barred by the Statute of Frauds: The Supreme Court ruled that the respondent Judge committed grave abuse of discretion. The Statute of Frauds, as provided in Article 1403 of the Civil Code, renders certain contracts unenforceable unless they are in writing. However, the purpose of the statute is to prevent fraud and perjury in the enforcement of obligations that depend on unassisted memory of witnesses, not to perpetuate fraud. The statute applies only to executory contracts and not to those that are totally or partially performed. In this case, the petitioners had already made partial payments, and the private respondents failed to fulfill their undertaking. The action filed was for the recovery of partial payments, not for specific performance of the contract. Therefore, the Statute of Frauds was not applicable. On the issue of whether an action to recover partial payments made under an oral contract, which is otherwise unenforceable under the Statute of Frauds, is covered by the Statute of Frauds: The Court held that such an action is not covered by the Statute of Frauds. The Statute of Frauds is applicable only to executory contracts and not to contracts that are totally or partially performed. The reason for this is that if a contract has been partially performed, excluding parol evidence would promote fraud or bad faith, as it would allow the defendant to keep the benefits derived from the transaction while evading their obligations. In this case, the petitioners sought to recover their partial payment due to the private respondents' failure to comply with their obligations. To allow the private respondents to invoke the Statute of Frauds would enable them to escape performance and retain the P50,000.00 received, thus unjustly enriching themselves and making the statute a shield for fraud. Furthermore, even if the action were for specific performance, the allegation of partial payment would have barred the application of the Statute of Frauds, and petitioners should have been given a chance to prove such partial performance by parol evidence.
Main Doctrine
An action to recover partial payments made under an oral contract, which is otherwise unenforceable under the Statute of Frauds, due to the other party's failure to comply with their obligation, is not covered by the Statute of Frauds. The Statute of Frauds applies only to executory contracts and not to those that are totally or partially performed. Allowing a party to invoke the Statute of Frauds in such a situation would allow them to escape performance and keep what they received, thereby perpetuating fraud.