[G.R. No. 124791. February 10, 1999.

]
JOSE RAMON CARCELLER, Petitioner, v. COR! OF A""EALS a#$ S!A!E
%N&ES!MEN! 'OSES, %NC., Respondents.
( E C % S % O N
)%SM*%NG, J.+
Before us is a petition for review of the Decision 1 dated September 21, 1995 of the Court of
Appeals 2 in CA - ! "! C# $o! %&52', as well as its "esolution % dated April 25, 199(, den)in*
both parties+ motion for partial reconsideration or clarification! ,he assailed decision affirmed
with modification the -ud*ment . of the "e*ional ,rial Court of Cebu Cit), Branch 5, in Civil
Case $o! C/B .&'', and disposed of the controvers) as follows0-*c0chanrobles!com!ph
12owever, 3e do not find it -ust that the appellee, in e4ercisin* his option to bu), should pa)
appellant S525 onl) 61,7'','''!''! 5n fairness to appellant S525, the purchase price must be
based on the prevailin* mar8et price of real propert) in Bulacao, Cebu Cit)!1 9Emphasis
supplied:
,he factual bac8*round of this case is ;uite simple!
6rivate respondent State 5nvestment 2ouses, 5nc! 9S525: is the re*istered owner of two 92:
parcels of land with a total area of 9,&&. s;uare meters, includin* all the improvements thereon,
located at Bulacao, Cebu Cit), covered b) ,ransfer Certificate of ,itles $os! ,-79152 and ,-
7915% of the "e*istr) of Deeds of Cebu Cit)!
<n =anuar) 1', 1975, petitioner and S525 entered into a lease contract with option to purchase 5
over said two parcels of land, at a monthl) rental of ,en ,housand 961','''!'': pesos for a
period of ei*hteen 917: months, be*innin* on Au*ust 1, 197. until =anuar) %', 197(! ,he
pertinent portion of the lease contract sub-ect of the dispute reads in part0-*c0chanrobles!com!ph
1.! As part of the consideration of this a*reement, the >/SS<" hereb) *rants unto the >/SS//
the e4clusive ri*ht, option and privile*e to purchase, within the lease period, the leased premises
thereon for the a**re*ate amount of 61,7'','''!'' pa)able as follows0chanrob1es virtual 1aw
librar)
a! ?pon the si*nin* of the Deed of Sale, the >/SS// shall immediatel) pa) 6%(','''!''!
b! ,he balance of 6 1,..','''!'' shall be paid in e;ual installments of 6.1,.25!7& over si4t)
9(': consecutive months computed with interest at 2.@ per annum on the diminishin* balanceA
6rovided, that the >/SS// shall have the ri*ht to accelerate pa)ments at an)time in which event
the stipulated interest for the remainin* installments shall no lon*er be imposed!
! ! ! ,he option shall be e4ercised b) a written notice to the >/SS<" at an)time within the option
period and the document of sale over the afore-described properties has to be consummated
within the month immediatel) followin* the month when the >/SS// e4ercised his option under
this contract!1 (
<n =anuar) &, 197(, or appro4imatel) three 9%: wee8s before the e4piration of the lease contract,
S525 notified petitioner of the impendin* termination of the lease a*reement, and of the short
period of time left within which he could still validl) e4ercise the option! 5t li8ewise re;uested
petitioner to advise them of his decision on the option, on or before =anuar) 2', 197(! &
5n a letter dated =anuar) 15, 197(, which was received b) S525 on =anuar) 29, 197(, petitioner
re;uested for a si4-month e4tension of the lease contract, alle*in* that he needs ample time to
raise sufficient funds in order to e4ercise the option! ,o support his re;uest, petitioner averred
that he had alread) made a substantial investment on the propert), and had been punctual in
pa)in* his monthl) rentals! 7
<n Bebruar) 1., 197(, S525 notified petitioner that his re;uest was disapproved! $evertheless, it
offered to lease the same propert) to petitioner at the rate of ,hirt) ,housand 96%','''!'': pesos
a month, for a period of one 91: )ear! 5t further informed the petitioner of its decision to offer for
sale said leased propert) to the *eneral public! 9
<n Bebruar) 17, 197(, petitioner notified S525 of his decision to e4ercise the option to purchase
the propert) and at the same time he made arran*ements for the pa)ment of the down pa)ment
thereon in the amount of ,hree 2undred Si4t) ,housand 96%(','''!'': pesos! 1'
<n Bebruar) 2', 197(, S525 sent another letter to petitioner, reiteratin* its previous stand on the
latter+s offer, stressin* that the period within which the option should have been e4ercised had
alread) lapsed! S525 as8ed petitioner to vacate the propert) within ten 91': da)s from notice, and
to pa) rental and penalt) due! 11
2ence, on Bebruar) 27, 197(, a complaint for specific performance and dama*es 12 was filed b)
petitioner a*ainst S525 before the "e*ional ,rial Court of Cebu Cit), to compel the latter to
honor its commitment and e4ecute the correspondin* deed of sale!
After trial, the court a ;uo promul*ated its decision dated April 1, 1991, the dispositive portion
of which reads0-*c0chanrobles!com!ph
15n the li*ht of the fore*oin* considerations, the Court hereb) renders -ud*ment in Civil Case
$o! C/B .&'', orderin* the defendant to e4ecute a deed of sale in favor of the plaintiff, coverin*
the parcels of land to*ether with all the improvements thereon, covered b) ,ransfer Certificates
of ,itle $os! 79152 and 7915% of the "e*istr) of Deeds of Cebu Cit), in accordance with the
lease contract e4ecuted on =anuar) 1', 197. between the plaintiff and the defendant, but the
purchase price ma) be b) 1one shot pa)ment1 of 61,7'','''!''A and the defendant to pa)
attorne)+s fee of 62','''!''!
$o dama*es awarded!1 1%
$ot satisfied with the -ud*ment, S525 elevated the case to the Court of Appeals b) wa) of a
petition for review!
<n September 21, 1995, respondent court rendered its decision, affirmin* the trial court+s
-ud*ment, but modified the basis for assessin* the purchase price! 3hile respondent court
affirmed appellee+s option to bu) the propert), it added that, 1the purchase price must be based
on the prevailin* mar8et price of real propert) in Bulacao, Cebu Cit)!1 1.
Baffled b) the modification made b) respondent court, both parties filed a motion for
reconsideration andCor clarification, with petitioner, on one hand, pra)in* that the prevailin*
mar8et price be the value of the propert) in Bebruar) 197(, the time when the sale would have
been consummated! S525, on the other hand, pra)ed that the mar8et price of the propert) be
based on the prevailin* price inde4 at least 1' )ears later, that is, 199(!
"espondent court conducted further hearin*s to clarif) the matter, but no a*reement was reached
b) the parties! ,hus, on April 25, 199(, respondent court promul*ated the assailed resolution,
which denied both parties+ motions, and directed the trial court to conduct further hearin*s to
ascertain the prevailin* mar8et value of real properties in Bulacao, Cebu Cit) and fi4 the value
of the propert) sub-ect of the controvers)! 1.a
2ence, the instant petition for review!
,he fundamental issue to be resolved is, should petitioner be allowed to e4ercise the option to
purchase the leased propert), despite the alle*ed dela) in *ivin* the re;uired notice to private
respondentD
An option is a preparator) contract in which one part) *rants to the other, for a fi4ed period and
under specified conditions, the power to decide, whether or not to enter into a principal contract!
5t binds the part) who has *iven the option, not to enter into the principal contract with an) other
person durin* the period desi*nated, and, within that period, to enter into such contract with the
one to whom the option was *ranted, if the latter should decide to use the option! 15 5t is a
separate a*reement distinct from the contract which the parties ma) enter into upon the
consummation of the option! 1(
Considerin* the circumstances in this case, we find no reason to disturb the findin*s of
respondent court, that petitioner+s letter to S525, dated =anuar) 15, 197(, was fair notice to the
latter of the former+s intent to e4ercise the option, despite the re;uest for the e4tension of the
lease contract! As stated in said letter to S525, petitioner was re;uestin* for an e4tension 9of the
contract: for si4 months 1to allow us to *enerate sufficient funds in order to e4ercise our option
to bu) the sub-ect propert)!1 1& ,he anal)sis b) the Court of Appeals of the evidence on record
and the process b) which it arrived at its findin*s on the basis thereof, impel this Court+s assent
to said findin*s! ,he) are consistent with the parties+ primar) intent, as hereafter discussed, when
the) e4ecuted the lease contract! As respondent court ruled0-*c0chanrobles!com!ph
13e hold that the appellee Eherein petitionerF acted with honest) and *ood faith! #eril), 3e are in
accord with the trial court that he should be allowed to e4ercise his option to purchase the lease
propert)! 5n fact, S525 will not be pre-udiced! A contrar) rulin*, however, will definitel) cause
dama*e to the appellee, it appearin* that he has introduced considerable improvements on the
propert) and has borrowed hu*e loan from the ,echnolo*) "esources Center!1 1&a
,he contractin* parties+ primar) intent in enterin* into said lease contract with option to
purchase confirms, in our view, the correctness of respondent court+s rulin*! Anal)sis and
construction, however, should not be limited to the words used in the contract, as the) ma) not
accuratel) reflect the parties+ true intent! ,he reasonableness of the result obtained, after said
anal)sis, ou*ht li8ewise to be carefull) considered!
5t is well-settled in both law and -urisprudence, that contracts are the law between the contractin*
parties and should be fulfilled, if their terms are clear and leave no room for doubt as to the
intention of the contractin* parties! 17 Burther, it is well-settled that in construin* a written
a*reement, the reason behind and the circumstances surroundin* its e4ecution are of paramount
importance! Sound construction re;uires one to be placed mentall) in the situation occupied b)
the parties concerned at the time the writin* was e4ecuted! ,hereb), the intention of the
contractin* parties could be made to prevail, because their a*reement has the force of law
between them! 19
Goreover, to ascertain the intent of the parties in a contractual relationship, it is imperative that
the various stipulations provided for in the contract be construed to*ether, consistent with the
parties+ contemporaneous and subse;uent acts as re*ards the e4ecution of the contract! 2' And
once the intention of the parties has been ascertained, that element is deemed as an inte*ral part
of the contract as thou*h it has been ori*inall) e4pressed in une;uivocal terms!
As sufficientl) established durin* the trial, S525, prior to its ne*otiation with petitioner, was
alread) beset with financial problems! S525 was e4periencin* difficult) in meetin* the claims of
its creditors! ,hus, in order to repro*ram the compan)+s financial investment plan and facilitate
its rehabilitation and viabilit), S525, bein* a ;uasi-ban8in* financial institution, had been placed
under the supervision and control of the Central Ban8 9CB:! 5t was in dire need of li;uidatin* its
assets, so to spea8, in order to sta) afloat financiall)!
,hus, S525 was compelled to dispose some of its assets, amon* which is the sub-ect leased
propert), to *enerate sufficient funds to au*ment its badl)-depleted financial resources! ,his then
brou*ht about the e4ecution of the lease contract with option to purchase between S525 and the
petitioner!
,he lease contract provided that to e4ercise the option, petitioner had to send a letter to S525,
manifestin* his intent to e4ercise said option within the lease period endin* =anuar) %', 197(!
2owever, what petitioner did was to re;uest on =anuar) 15, 197(, for a si4-month e4tension of
the lease contract, for the alle*ed purpose of raisin* funds intended to purchase the propert)
sub-ect of the option! 5t was onl) after the re;uest was denied on Bebruar) 1., 197(, that
petitioner notified S525 of his desire to e4ercise the option formall)! ,his was b) letter dated
Bebruar) 17, 197(! 5n private respondent+s view, there was alread) a dela) of 17 da)s, fatal to
petitioner+s cause! But respondent court found the dela) neither 1substantial1 nor 1fundamental1
and did not amount to a breach that would defeat the intention of the parties when the) e4ecuted
the lease contract with option to purchase! 2'a
5n allowin* petitioner to e4ercise the option, however, both lower courts are in accord in their
decision, rationaliHin* that a contrar) rulin* would definitel) cause dama*e to the petitioner, as
he had the whole place renovated to ma8e the same suitable and conducive for the business he
established there! Goreover, -ud*in* from the subse;uent acts of the parties, it is undeniable that
S525 reall) intended to dispose of said leased propert), which petitioner indubitabl) intended to
bu)!
S525+s a*reement to enter first into a lease contract with option to purchase with herein
petitioner, is a clear proof of its intent to promptl) dispose said propert) althou*h the full
financial returns ma) materialiHe onl) in a )ear+s time! Burthermore, its letter dated =anuar) &,
197(, remindin* the petitioner of the short period of time left within which to consummate their
a*reement, clearl) showed its desire to sell that propert)! Also, S525+s letter dated Bebruar) 1.,
197( supported the conclusion that it was bent on disposin* said propert)! Bor this letter made
mention of the fact that, 1said propert) is now for sale to the *eneral public1 !
6etitioner+s determination to purchase said propert) is e;uall) indubitable! 2e introduced
permanent improvements on the leased propert), demonstratin* his intent to ac;uire dominion in
a )ear+s time! ,o increase his chances of ac;uirin* the propert), he secured an 67 Gillion loan
from the ,echnolo*) "esources Center 9,"C:, thereb) au*mentin* his capital! 2e averred that
he applied for a loan since he planned to pa) the purchase price in one sin*le pa)ment, instead of
pa)in* in installment, which would entail the pa)ment of additional interest at the rate of 2.@
per annum, compared to & %C.@ per annum interest for the ,"C loan! 2is letter earlier re;uestin*
e4tension was premised, in fact, on his need for time to secure the needed financin* throu*h a
,"C loan!
5n contractual relations, the law allows the parties reasonable leewa) on the terms of their
a*reement, which is the law between them! 21 $ote that b) contract S525 had *iven petitioner .
periods0 9a: the option to purchase the propert) for 61,7'','''!'' within the lease period, that is,
until =anuar) %', 197(A 9b: the option to be e4ercised within the option period b) written notice
at an)timeA 9c: the 1document of sale!!!to be consummated within the month immediatel)
followin* the month1 when petitioner e4ercises the optionA and 9d: the pa)ment in e;ual
installments of the purchase price over a period of (' months! 5n our view, petitioner+s letter of
=anuar) 15, 197( and his formal e4ercise of the option on Bebruar) 17, 197( were within a
reasonable time-frame consistent with periods *iven and the 8nown intent of the parties to the
a*reement dated =anuar) 1', 1975! A contrar) view would be harsh and ini;uitous indeed!
5n ,uason, =r!, etc! v! De Asis, 22 this Court opined that 1in a contract of lease, if the lessor ma8es
an offer to the lessee to purchase the propert) on or before the termination of the lease, and the
lessee fails to accept or ma8e the purchase on time, the lessee losses the ri*ht to bu) the propert)
later on the terms and conditions set in the offer!1 ,hus, on one hand, petitioner herein could not
insist on bu)in* the said propert) based on the price a*reed upon in the lease a*reement, even if
his option to purchase it is reco*niHed! <n the other hand, S525 could not ta8e advanta*e of the
situation to increase the sellin* price of said propert) b) nearl) 9'@ of the ori*inal price! Such
leap in the price ;uoted would show an opportunistic intent to e4ploit the situation as S525 8new
for a fact that petitioner badl) needed the propert) for his business and that he could afford to
pa) such hi*her amount after havin* secured an 67 Gillion loan from the ,"C! 5f the courts
were to allow S525 to ta8e advanta*e of the situation, the result would have been an in-ustice to
petitioner, because S525 would be un-ustl) enriched at his e4pense! Courts of law, bein* also
courts of e;uit), ma) not countenance such *rossl) unfair results without doin* violence to its
solemn obli*ation to administer fair and e;ual -ustice for all!
32/"/B<"/, the appealed decision of respondent court, insofar as it affirms the -ud*ment of
the trial court in *rantin* petitioner the opportunit) to e4ercise the option to purchase the sub-ect
propert), is hereb) ABB5"G/D! 2owever the purchase price should be based on the fair mar8et
value of real propert) in Bulacao, Cebu Cit), as of Bebruar) 197(, when the contract would have
been consummated! Burther, petitioner is hereb) ordered to pa) private respondent S525 le*al
interest on the said purchase price be*innin* Bebruar) 197( up to the time it is actuall) paid, as
well as the ta4es due on said propert), considerin* that petitioner have en-o)ed the beneficial use
of said propert)! ,he case is hereb) remanded to "e*ional ,rial Court of Cebu, Branch 5, for
further proceedin*s to determine promptl) the fair mar8et value of said real propert) as of
Bebruar) 197(, in Bulacao, Cebu Cit)!
Costs a*ainst private Respondent!
S< <"D/"/D!