G.R. No. L-23377; April 27, 1967
CARLOS KHAN and LUIS S. KHAN, plaintiffs-appellants, vs. JACOBO ASUNCION, deceased, substituted by TRINIDAD R. DE ASUNCION, ROBERTO ASUNCION, SILVINO ANTONIO and CONSUELO ASUNCION ANTONIO, defendants-appellees.

FACTS

Plaintiff Luz S. Khan, assisted by her husband, filed a suit against spouses Jacobo Asuncion and Trinidad R. de Asuncion to enforce an alleged oral agreement for the joint venture development of defendants’ land into a subdivision. The terms, as alleged, included: plaintiff developing the land into 50 lots; gross income division of 55% for plaintiff and 45% for defendants; plaintiff borrowing money to pay defendants’ debts secured by encumbrances on the land; defendants amortizing the loan from their share; lot sales at not less than P40 per square meter; plaintiff spending at least P160,000 for development and a right of way; plaintiff having exclusive control over hiring and administration, with expenses from her share; and defendants delivering possession of the lot. Plaintiff alleged partial performance by: obtaining a loan/overdraft line to pay encumbrances; negotiating with prospective buyers; contracting an engineer for subdivision; paying for a project study; and negotiating for a right of way. She sought to reduce the agreement to a public instrument, delivery of the land, a right of way through another defendants’ lot, and damages. Defendants denied any agreement was reached, stated negotiations were abandoned, and raised the affirmative defense that the claim was unenforceable under the Statute of Frauds. The trial court granted a preliminary hearing on this defense and subsequently dismissed the complaint on the ground of unenforceability under the Statute of Frauds. Plaintiff appealed.

ISSUE

Does the Statute of Frauds bar the present suit?

RULING

No, the Statute of Frauds does not necessarily bar the suit at this preliminary stage. The Supreme Court set aside the order of dismissal and remanded the case for trial. The Court held that while Article 1403(2)(e) of the Civil Code renders an agreement for the sale of real property or an interest therein unenforceable unless in writing, the statute does not apply if the contract has been partially executed. The reason is to prevent fraud, where one party could keep benefits from the partial execution while evading responsibilities. The Court examined the alleged acts of partial execution by the plaintiff (obtaining a loan/overdraft, negotiating with buyers, contracting an engineer, paying for a study, negotiating for right of way) and found that from the records, it could not be indubitably ascertained whether these acts redounded to the defendants’ benefit. Since the suit was dismissed after a preliminary hearing akin to a motion to dismiss, and the ground for dismissal (the Statute of Frauds defense) did not appear indubitable, the determination should be deferred until trial as per Section 3, Rule 16 of the Rules of Court. The case was remanded for trial to thresh out the evidence on whether an agreement was perfected, whether there was partial execution benefiting defendants, and the relevance of an alleged handwritten document, without prejudice to ultimately resolving the affirmative defense based on the evidence presented. The petition to lift the annotation of lis pendens was denied.