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ASIA PRODUCTION CO. v. ERNANI CRUZ PAÑO

FACTS:

Private respondents claimed to be the owners of a building constructed on a leased lot and offered to sell it to the petitioners for P170,000. Petitioners agreed based on private respondents' promise to assign the contract of lease over the land. The agreement was not reduced to writing. Petitioners paid a downpayment and issued postdated checks for the monthly installments. Private respondents failed to execute the deed of sale and assign the lease contract despite encashing some of the checks. The lot owner also imposed onerous terms for the lease assignment. Petitioners requested a stop payment order on the remaining checks and removed their property from the building. They demanded the return of their partial payment, but private respondents refused. Petitioners filed a complaint for the refund of their partial payment and damages. The case was dismissed by the trial court based on the Statute of Frauds. Petitioners filed the present petition, alleging grave abuse of discretion on the part of the trial court.

ISSUES:

  1. Whether the contract of purchase and sale is removed from the operation of the Statute of Frauds only if there is full and complete payment of the purchase price.

  2. Whether the lower court erred in failing to appreciate the nature of petitioners' cause of action.

  3. Whether this case is covered by the Statute of Frauds.

  4. Whether the lower court erred in not following the procedure prescribed by the Supreme Court in cases when partial performance is alleged.

  5. Whether the lower court erred in dismissing the case.

  6. Whether the action is for specific performance or for refund of partial payment.

  7. Whether the Statute of Frauds applies.

  8. Whether partial execution of the contract bars the application of the Statute of Frauds.

RULING:

  1. The Court finds merit in the petition and holds that the respondent judge committed grave abuse of discretion in dismissing the complaint. The Court declares that the statute of frauds only applies to executory contracts and actions for their specific performance. It does not apply to actions which are neither for violation of a contract nor for the performance thereof. In this case, the contract has been totally or partially performed, and the exclusion of parol evidence would promote fraud or bad faith. Therefore, the petition is given due course and the lower court's dismissal of the case is reversed.

  2. The action is for refund of partial payment and not for specific performance. Therefore, the Statute of Frauds does not apply.

  3. The action for refund of partial payment is not covered by the Statute of Frauds.

  4. Partial execution of the contract by the party seeking refund effectively bars the other contracting party from invoking the Statute of Frauds.

PRINCIPLES:

  • The purpose of the statute of frauds is to prevent fraud and perjury in the enforcement of obligations depending on the unassisted memory of witnesses.

  • The statute of frauds makes only ineffective actions for specific performance of the contracts covered by it; it does not declare them absolutely void and of no effect.

  • The statute of frauds applies only to executory contracts, not to contracts that are totally or partially performed.

  • Partial execution of a parol contract for the sale of real estate removes the contract from the operation of the statute of frauds, allowing for specific performance or other equitable relief.

  • The statute of frauds does not apply to actions which are neither for violation of a contract nor for the performance thereof.

  • Contracts that are otherwise unenforceable under the Statute of Frauds can still be the basis for an action for refund of partial payment.

  • A party pleading partial performance is entitled to a reasonable chance to establish the truth of the partial performance and the contract itself through parol evidence.

  • The exception for part performance takes oral evidence into consideration to prove both the contract and the part performance.

  • The Statute of Frauds should not become a shield for fraud or unjust enrichment by allowing one party to escape performance of obligations while keeping what they received from the other party.