G.R. No. L-51058 January 27, 1992
ASIA PRODUCTION CO., INC., WANG TA PENG and WINSTON WANG, petitioners, vs. HON. ERNANI CRUZ PAÑO, as Judge of the Court of First Instance of Rizal (Quezon City, Branch XVIII), LOLITA LEE LE HUA and ALBERTO DY, respondents.

FACTS

Petitioners agreed to purchase a building from private respondents for P170,000.00, based on an oral agreement that included an oral promise to assign the lease contract for the underlying land. They paid a P20,000.00 downpayment and issued eight postdated checks for the balance. Relying on the agreement, petitioners constructed a weaving factory on the lot. Private respondents, however, failed to execute the required deeds of sale and lease assignment. Furthermore, the lot owner imposed onerous new terms for the lease assignment. Petitioners consequently stopped payment on the remaining checks, vacated the premises, and demanded a refund of their P50,000.00 in partial payments, which was refused.

ISSUE

Whether an action for the refund of partial payments made under an oral contract for the sale of real estate is barred by the Statute of Frauds.

RULING

No, the action is not barred. The Supreme Court reversed the trial court’s dismissal order. The legal logic is that the Statute of Frauds (Article 1403, Civil Code), which renders certain unsigned contracts unenforceable, applies to actions seeking to enforce the contract itself. Here, petitioners are not seeking to enforce the oral agreement to sell. Instead, their action is for the recovery of a sum of money paid by reason of a contract that failed to materialize due to the respondents’ own breach and failure to execute the necessary documents. The Court held that where a party has partially performed by making payments and the other party fails to fulfill its obligations, the withdrawing party is entitled to recover his payments. To bar such an action under the Statute of Frauds would be unjust, as it would allow the defaulting party to retain the benefits of partial performance without consequence. The Court emphasized that the rule requiring written evidence does not apply to an action for restitution, and petitioners must be given the opportunity to prove by parol evidence both the contract and their partial performance to substantiate their claim for refund.