G.R. No. 51058 - Asia Production Co., Inc. vs. Pano

Case Summary (G.R. No. 51058)

Factual Background

Petitioners alleged that in March 1976 private respondents, purported owners of a building constructed on a leased lot in Valenzuela, Bulacan, agreed to sell the building for P170,000 and orally promised to assign the underlying lease, with delivery of a deed of conveyance and deed of assignment within sixty days of payment of a P20,000 downpayment. Petitioners paid the P20,000 downpayment on 20 March 1976 and issued eight postdated checks covering the installment balance; petitioners constructed a weaving factory on the leased lot in reliance on respondents' assurances. Petitioners alleged that private respondents cashed checks totaling P30,000 but failed to execute the deed and assignment and that the lot owner refused consent to assignment unless onerous terms were accepted; petitioners then ordered stop payments on the remaining six checks, removed their machinery and equipment about 29 December 1976, returned possession to private respondents, and demanded refund of P50,000, which private respondents refused.

Trial Court Proceedings

Petitioners filed a complaint to recover P50,000 and for damages in Civil Case No. Q-23593 before the Court of First Instance of Quezon City, Branch XVIII. Private respondent Lolita Lee Le Hua defaulted for failure to answer. Private respondent Alberto Dy moved to dismiss on the ground that the oral purchase and the alleged promise to assign the lease were barred by the Statute of Frauds and could not be proved by parol. In an Order of 18 April 1979 respondent Judge granted the motion to dismiss on the ground that the agreement was within the Statute of Frauds and that plaintiffs could not rely on parol evidence; the Judge found that partial payment did not remove the agreement from the Statute of Frauds absent full payment of the purchase price. A motion for reconsideration was denied in an Order of 21 June 1979, invoking authorities such as Paterno v. Jao Yan and Babao v. Perez.

Petition to the Supreme Court and Assignments of Error

Petitioners filed a petition for certiorari alleging grave abuse of discretion by respondent Judge in dismissing the complaint. Petitioners assigned, among others, that the trial court erred in requiring full payment to remove the oral contract from the Statute of Frauds; erred in mischaracterizing the nature of petitioners' cause of action as one for specific performance rather than recovery of money paid; and erred in dismissing the complaint without affording petitioners the opportunity to prove partial performance by parol.

Respondents' Position

Private respondent Alberto Dy contended by motion to dismiss and by subsequent comment that the oral agreement to sell the building and to assign the lease was unenforceable under the Statute of Frauds and that the complaint therefore could not be sustained because the essential contract was not in writing as required by Art. 1403, Civil Code; the trial court accepted this contention and dismissed the complaint.

Issue Presented

The determinative issue was whether an action by the buyer to recover partial payments of the purchase price made under an oral agreement to sell a building and to assign a lease is barred by the Statute of Frauds, or whether the complaint for refund is permissible and the alleged oral contract may be proved by parol evidence by reason of partial performance or withdrawal caused by the seller's bad faith.

Ruling of the Supreme Court

The Supreme Court granted the petition, held that respondent Judge committed grave abuse of discretion in dismissing the complaint, annulled and set aside the Orders of 18 April 1979 and 21 June 1979, and ordered the complaint reinstated. The default order against Lolita Lee Le Hua was left standing and Alberto Dy was ordered to file his Answer within ten days. Costs were imposed against private respondents.

Legal Basis and Reasoning

The Court analyzed Art. 1403, Civil Code and the underlying purpose of the Statute of Frauds, namely to prevent fraud and perjury where evidence would otherwise rest on unassisted memory. The Court emphasized that the statute renders certain contracts merely unenforceable unless evidenced by a writing; it does not render them void. The Court reiterated settled doctrine that the Statute of Frauds applies to executory contracts and actions for specific performance, but does not apply to contracts that have been totally or partially performed. The Court cited precedent including Almirol, et al. v. Monserrat, Carbonnel v. Poncio, and other authorities to support the rule that part performance of a parol contract for the sale of real estate may take the contract out of the operation of the Statute of Frauds because equity will not permit the seller to retain benefits already received while escaping obligations. The Court further held that when partial performance is pleaded the plaintiff is entitled to a reasonable opportunity to establish by parol evidence both the contract and the part performance, and tha

Case Syllabus (G.R. No. 51058)

Parties and Posture

Petitioners were Asia Production Co., Inc., Wang Ta Peng and Winston Wang, who sought review of interlocutory orders dismissing their complaint.
Respondents were Hon. Ernani Cruz Pano, as Judge of the Court of First Instance of Rizal (Quezon City, Branch XVIII), and private respondents Lolita Lee Le Hua and Alberto Dy.
The petition assailed the respondent Judge’s Orders of 18 April 1979 and 21 June 1979 dismissing Civil Case No. Q-23593 and denying reconsideration respectively.
The Court of First Instance originally heard the complaint for recovery of partial payments and for damages and attorney’s fees.
The petition was brought to this Court alleging grave abuse of discretion by the respondent Judge in applying the Statute of Frauds to dismiss the action.

Key Facts

In March 1976 private respondents offered to sell a building to petitioners for P170,000.
Petitioners agreed because private respondents promised to assign the contract of lease over the lot on which the building stood.
The agreement to sell the building and to assign the lease was oral and included an undertaking to deliver a deed of conveyance and a deed of assignment within 60 days from the downpayment.
On 20 March 1976 petitioners paid a downpayment of P20,000 and issued eight postdated checks covering eight monthly installments, of which checks dated 30 June and 30 July 1976 totaling P30,000 were encashed.
Petitioners constructed a weaving factory on the leased lot in May 1976 relying on private respondents’ assurances.
The lot owner refused consent to assign the lease without onerous new terms, prompting petitioners to stop payment on the remaining six checks and to vacate and return possession of the building on or about 29 December 1976.
Petitioners demanded the return of P50,000 representing the downpayment and two installments, and thereafter filed the complaint when private respondents refused.

Issues Presented

Whether the complaint for recovery of partial payments is barred by the Statute of Frauds as embodied in Article 1403 of the Civil Code.
Whether a withdrawing party may recover partial payments made under an oral contract otherwise unenforceable under the Statute of Frauds.
Whether the respondent Judge committed grave abuse of discretion in dismissing the complaint without permitting proof of part performance.

Parties' Contentions

Petitioners contended that the action was essentially for recovery of money paid and not for specific performance of an oral sale, and that private respondents’ failure to perform precluded reliance on the Statute of Frauds.
Private respondent Alberto Dy moved to dismiss on the ground that the alleged sale and lease assignment required a writing under Article 1356 in relation to Article 1358 and thus could not be proven by parol.
Petitioners further contended that private respondents could not retain benefits received in bad faith and that partial performance and withdrawal entitled them to a refund.

Statutory Framework

Article 1403 of the Civil Code was the op