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718 SUPREM COURT REPORTS ANNOTATED

Carceller vs. Court of Appeals


G.R. No. 124791. Februa 10, 1999.
JOSE RAMON CARCELLER, pettioner,
APPEALS ad STATE IESTMENT
respondents.
vs. COURT OF
HOUSES, IC.,
Civil La; Contracts; An option is a separate agreement ditinct fom
the contract which the parties may enter into upon the consummation of the
option.-An option is a prepatory contact in which one pay gnts to te
oter, fr a fxed period and under specifed conditions, te power to decide,
whether or not to enter into a principal contact. It binds te pa who has
given te opton, not to enter into the principal contact wth any other
person dung te period desigated, and, witin that period, to enter into
such contct wth te one to whom the opton was gnted, if te latter
should decide to use te opton. It is a separate ageement distnct fom te
contact which the paes may enter into upon te consum tion of te
opton.
Same; Same; Statutor Constction; Analysis and constction should
not be limited to the words used in the contract, as the may not accurately
refect the parties' tre intent.-The contactng paes' primary intent in
entering into said lease contact wth opton to purchase cos, in our
view, te corectess of respondent court's ruling. Analysis and
constuction, however, should not be limited to te words used in te
contact, as tey may not accurately reflect te partes' te intent. The
reasonableness of te result obtained, afer said aalysis, ought likewise to
be caeflly considered.
Same; Same; Same; It is well-settled that in construing a written
agreement, the reason behind and the circumstances surounding its
execution are of paramount importance.-It is well-settled in both law ad
jurisprudence, that contacts ae the law between the contactng paes ad
should be flflled, if their ters ae clear ad leave no room fr doubt as to
te intenton of te contacting paes. Fuer, it is well-settled tat in
constng a written ageement, the reason behind ad te circustances
surrounding its execution are of paaount importance. Sound constucton
requires one to be
SECOND DMSION.
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VOL. 302, FEBRUARY 10, 1999 719
Carceller vs. Court of Appeals
placed mentally in te situaton occupied by te parties conceed at te
tme the writng was executed. Thereby, te intenton of the contacting
partes could be made to prevail, because teir ageement has the frce of
law between them.
Same; Same; Same; 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 together, consistent with the
parties ' contemporaneous and subsequent act as regards the eecution of
the contract.-Moreove, to asce the intent of the paties in a
contactual relationship, it is imperative that the vaious stipulatons
provided fr in te contact be consted together, consistent with the
partes' contemporaeous and subsequent acts as regads the executon of
te contact. And once te intention of the partes has been ascertained, tat
element is deemed as an integal part of the contact as tough it has been
originally expressed in unequivocal terms.
Same; Same; Same; Court found the delay neither "substantial" nor
"fndamental" and did not amount to a breach that would defeat the
intention of the parties when the eecuted the leae contract with option to
purchase.-The lease contact provided tat to exercise te option,
petitioner h to send a letter to SII, manifesting his intent to exercise said
opton wt the lease period ending Jauary 30, 1986. However, what
pettoner did wa to request on Jauary 15, 1986, fr a six-month extension
of te lease contact, fr the alleged puose of raising fds intended to
purchase the property subject of the option. It was only afer the request wa
denied on Februry 14, 1986, that petitioner notfed SIH of his desire to
exercise te option frmally. This was by letter dated Februy 18, 1986. I
private respondent's view, tere was already a delay of 18 days, ftal to
pettoner's cause. But respondent court fund te delay neiter
"substantial" nor "fdamental" and did not amount to a breach that would
defat the intenton of the paties when they executed te lease contact with
opton to purchase.
PETITION fr review on certorari of a decision ad resolution of
te Cou of Appeals.
The fcts are stated in the opinion of te Cou.
Blanco La Firm fr petitioner.
720 SUPREM COURT REPORTS ANNOTATED
Carceller vs. Court of Appeals
720
De Bora, Medialdea, Bello, Guevarra, Serapio & Gerodias fr
private respondent.
QUISUMIG, J.:
1
Befre us is a petition fr review of the Decision dated September
2
21, 1995 of te Cou of Appeals in CA-G.R. CV No. 37520, as
3
well as its Resoluton dated April 25, 1996, denying both partes'
motion fr partial reconsideraton or clarification. The assailed
4
decision afed wit modifcation te judgent of te Regional
Trial Cou of Cebu City, Brach 5, in Civil Case No. CEB 4700,
ad disposed of te contoversy as fllows:
"However, We do not f it just tat the appellee, in exercising his option
to buy, should pay appellat SIH only Pl ,800,000.00. I faess t
appellat SII, the purchase price must be based on the prevailing markt
price of real propert in Bulacao, Cebu Cit." (mphasis supplied)
The fctu backgound of tis case is quite simple.
Private respondent State Investent Houses, Inc. (SI) is the
registered owner of two (2) parcels ofland with a total aea of 9,774
square meters, including all te improvements thereon, located at
Bulacao, Cebu City, covered by Transfr Certifcate of Titles Nos.
T-89152 ad T-89153 of the Regist of Deeds of Cebu City.
O Jaua 10, 1985, pettioner ad SIHI entered into a lease
5
contact wit option to purchase over said two parcels of lad, at a
monthly rental of Ten Thousand (Pl 0,000.00)
1 Rollo, p. 18-28.
2 Fif Division, composed of Associate Justce Angelina Sadoval Guterez,
ponente, wt Associate Justces Pedo A. Raez (Chairan), ad Condo M.
Vasquez, Jr., concuring.
3 Rollo, p. 35-36.
4 Penned by Judge Celso M. Gmenez; CA Records, pp. 57-68.
s An e "A," Complaint, RTC Records, p. 9-15.
VOL. 302, FEBRUARY 10, 1999
Carceller vs. Court of Appeals
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721
pesos fr a period of eighteen (18) months, beginning on August 1,
1984 until Januar 30, 1986. The pertinent portion of te lease
contact subject of the dispute reads in part:
"4. As part of te consideration of tis ageement, the LESSOR hereby
gants unto te LESSEE te exclusive right, option ad privilege to
purchase, within the lease period, te leased premises thereon fr
te aggegate amount of Pl,800,000.00 payable as fllows:
a. Upon the siging of te Deed of Sale, te LESSEE shall
immediately pay P360,000.00.
b. The balace of Pl,440,000.00 shall be paid in equal installments of
P41,425.87 over sixty (60) consecutve monts computed with
interest at 24% per anum on te diminishing balance; Provided,
tat the LESSEE shall have te right to accelerate payments at
anyme in which event the stipulated interest fr the remaining
installments shall no longer be imposed.
. . . The option shall be exercised by a wt notice to te LESSOR at
anyme within te option period ad the document of sale over the afre
described propertes has to be consum ted within the mont immediately
following the month when te LESSEE exercised his option under this
6
contact."
On January 7, 1986, or approximately tree (3) weeks befre the
expiraton of the lease contact, SIHI notifed petitoner of te
impending termination of te lease ageement, and of the short
period of tme lef within which he could still validly exercise te
option. I likewise requested petitioner t advise them of his decision
7
on the option, on or befre Jauar 20, 1986.
I a letter dated Janua 15, 1986, which was received by SIHI
on Janua 29, 1986, petitioner requested fr a six-month extension
of the lease contract, alleging that he needs aple time t raise
sufcient fnds in order to exercise te
6 Rollo, p. 19-20.
1 Ae "B," Complat, RTC Recor, pp. 16-17.
722 SUPREM COURT REPORTS ANNOTATED
Carceler vs. Court of Appeals
722
option. To support his request, petitioner avered tat he had already
made a substantial investent on the property, and h been
8
punctual in paying his monthly rentals.
O Februy 14, 1986, SIHI notifed petitioner that his request
was disapproved. Neverteless, it ofered to lease the same property
to pettioner at te rate of Thirty Thousand (P30,000.00) pesos a
month, fr a period of one (1) year. I fher infred the petitoner
of its decision t ofer fr sale said leased property to te general
9
public.
O February 18, 1986, petitoner notifed SIHI of his decision t
exercise te option to purchase te property ad at the same tme he
made arangements fr te payment of te downpayment tereon in
10
te amount of Three Hundred Sixty Thousad (P360,000.00) pesos.
O Februry 20, 1986, SI sent another letter to petitioner,
reiteratng its previous stand on the latter's ofer, stessing tat the
period wt which the opton should have been exercised had
already lapsed. SIHI asked petitioner to vacate te prop within
ten (10) days fom notce, and to pay rental and penalty due.
Hence, on February 28, 1986, a complaint fr specifc
12
perforce ad daages was fled by pettoner against SIHI
befre the Regional Trial Cou of Cebu City, to compel the latter to
honor its commitent and execute the coresponding deed of sale.
Afer tial, the cou a quo promulgated its decision dated April
1, 1991, te dispositive portion of which reads:
"I the light of the fregoing consideratons, the Cou herby renders
judgment in Civil Case No. CEB 4700, ordering te defendat t execute a
deed of sale in fvor of te plaintf covering te
8
A ex ''C," Comlat, RTC Recos, p. 18.
9 A ex "D," Complat, RTC Recors, p. 19.
10 A ex "E," Complat, RTC Reors, p. 20.
11 A ex "F," Complat, RTC Rcos, p. 21.
12
RTC Recors, p. 1-8.
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VOL. 302, FEBRUARY 10, 1999 723
Carceler vs. Court of Appeal
parcels of lad togeter wth all te improvements tereon, covered by
Transfer Certificates of Title Nos. 89152 ad 89153 of te Registy of
Deeds of Cebu City, i accordance wit the lease contact executed on
Januay 10, 1984 between te plaintif ad the defendant, but the purchase
price may be by "one shot payment" of Pl,800,000.00; ad te defendant to
pay attorey's fe of P20,000.00.
13
No damages awaded."
Not satisfed wit the judgment, SI elevated te case to the Court
of Appeals by way of a petition fr review.
O September 21, 1995, respondent court rendered its decision,
af ing te tal cou's judgent, but modifed te basis fr
assessing the purchase price. While respondent court afd
appellee's option t buy te property, it added that, "te purchase
price must be based on te prevailing market price of real propert
14
in Bulacao, Cebu City."
Bafed by the modifcaton made by respondent court, bot
parties fled a motion fr reconsideration andor claifcation, wit
petitioner, on one had, praying that the prevailing market price be
te value of the property in Februry 1986, the time when te sale
would have been consu ated. SIHI, on the other hand, prayed that
te market price of the property be based on the prevailing price
index at least 10 years later, tat is, 1996.
Respondent court conducted fher hearings to clarif the
matter, but no ageement was reached by te paies. Thus, on April
25, 1996, respondent court promulgated te assailed resoluton,
which denied bot paies' motions, ad drected te tial court to
conduct fer hearings to ascertain the prevailing market value of
real properties in Bulacao, Cebu City and f the value of te
14
property subject of the contoversy.
Hence, the instat petition fr review.
13 CA Records, p. 68.
14 Rolo, p. 27; Ane "A," Decision, p. 10.
14 Rolo, p. 36.
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724 SUPREM COURT REPORTS ANOTATED
Carceler vs. Court of Appeals
The fndamental issue to be resolved is, should petitoner be
allowed to exercise the option to purchase the leased property,
despite the alleged delay in giving the required notice to private
respondent?
A option is a preparatory contact in which one party grants to
te oter, fr a fxed period and under specifed conditions, the
power to decide, wheter or not to enter into a principal contact. I
binds te paty who has given the option, not to enter into te
principal contact wit any other person dung te period
desigated, and, within tat period, to enter into such contact with
te one to whom the option was gated, if the latter should decide
IS
to use the opton. I is a separate ageement distinct fom the
contact which te parties may enter into upon the consu ation of
16
te opton.
Considering te circumstaces in this case, we fnd no reason to
disturb the fndings of respondent court, tat petitioner's letter to
SII, dated Januay 15, 1986, was fair notice to the latter of the
frer' s intent to exercise te opton, despite te request fr the
extension of the lease contact. As stated in said letter to SI,
petitioner was requesting fr an extension (of te contact) fr six
months "to allow us to generate sufcient fnds in order to exercise
17
ou option to buy te subject property." The analysis by the Cout
of Appeals of te evidence on record and the process by which it
arived at its fndings on the basis thereof, impel this Court's assent
to said fndings. They are consistent with te parties' primary intent,
as hereafer discussed, when tey executed the lease contact. As
respondent court ruled:
"We hold that the appellee [herein petitoner] acted wit honesty and good
faith. Verily, We ae in accord wth te ta court that he should be allowed
to exercise his opton t purchase the lease property. I fct, SII will not
be prejudiced. A contary ruing,
is
Tolentino, Comentaes ad Jurisprudence o the Civil Code of the Pilippines (Vol.
IV), 1991 ed., pp. 466-467.
16
Enrqe de la Cavada v. Da, 37 Ph. 982, 983 (1918).
11
Rollo, p. 45; Coment of private respondent, p. 7.
725
VOL. 302, FEBRUARY 10, 1999 725
Carceler vs. Court of Appeal
however, will defnitely cause damage to the appellee, it appearing tt he
has intoduced considerable improvements on te property ad has
l7a
borowed huge loan fm te Technology Resources Center."
The contacting parties' primary intent in entering into said lease
contact wit option to puchase cons, in ou view, the
corectess of respondent cou's ruling. Analysis and constction,
however, should not be limited to the words used in the contact, as
tey may not accurately reflect the parties' te intent. The
reasonableness of the result obtained, afer said analysis, ought
likewise to be careflly considered.
I is well-settled in bot law and jurisprudence, that contacts are
te law between the contacting paes and should be flfilled, if
teir ters are clear and leave no room fr doubt as to te intention
18
of the contacting parties. Further, it is well-settled that in
constng a written ageement, the reason behind and the
circumstances surounding its execution ae of paout
importnce. Sound constcton requires one to be placed mentally
in the situation occupied by the parties concered at the tme the
writing was executed. Thereby, te intention of the contacting
parties could be made to
l
evail, because teir ageement has te
frce of law between tem.
Moreover, to ascertain the intent of te paies in a contactual
relationship, it is imperative that te various stipulatons provided
fr in the contact be consted togeter, consistent wit the parties'
contemporaneous and subsequent acts as regards te execution of
20
te contact. And once te intention of the parties has been
ascertained, tat element is deemed as an integal part of te contact
as tough it has been originally expressed in unequivocal ters.
17a Rolo, p. 27.
1s Acle 1370, Civil Coe; Salvatiera v. CA, 261SCR45 (1996); Abella v. C,
257 SCR 482 (1996).
19 Cuion v. CA, 260 SCR 645 at 649 (1996).
20 Acle 1371, Civil Coe.
726 SUPREM COURT RPORTS ANOTATED
Carceller vs. Court of Appeals
726
As sufciently established dung the tial, SI, prior t its
negotiaton wit pettioner, was already beset wit fmacial
problems. SI was experiencing difculty in meeting the claims of
its creditors. Thus, in order to reprogra te company's fmacial
investent pla ad fcilitate its rehabilitation ad viability, SI,
being a quasi-banking fmacial institution, had been placed uder
te supervision and contol of te Cental Bak (CB). It was in dire
need of liquidating its assets, so to speak, in order to stay afoat
:cially.
Thus, SI was compelled to dispose some of its assets, among
which is te subject leased propert, to generate sufcient fnds t
augent its badly-depleted fnancial resouces. This ten brought
about the execution of the lease contact with opton to purchase
between SI ad the petitioner.
The lease contact provided that to exercise te option, petitioner
had to send a letter to SIHI, manifsting his intent to exercise said
option within the lease period ending January 30, 1986. However,
what petitioner did was to request on Jauary 15, 1986, fr a six
month extension of te lease contact, fr the alleged puose of
raising fnds intended t purchae the propert subject of te option.
I was only afer the request was denied on Febru 14, 1986, that
petitioner notifed SI of his desire to exercise the option frally.
This was by letter dated Februa 18, 1986. I private respondent's
view, tere was already a delay of 18 days, ftal to petitioner's
cause. But respondent court fund the delay neither "substatial" nor
"fndaental" ad did not amout to a breach tat would defat the
intention of te paes when they executed te lease contact with
2a
option to purchase.
I allowing petitioner to exercise te option, however, both lower
cous ae in accord in their decision, rationaliing tat a conta
ruling would defmitely cause daage to the petitoner, as he h te
whole place renovated to mae the sae suitable ad conducive fr
te business he established there. Moreover, judging fom the
subsequent acts of the paties, it
2oa Rolo, p. 26; Ane "A," Decision, p. 9.
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VOL. 302, FEBRUARY 10, 1999 727
Carceler vs. Court of Appeals
is undeniable that SIHI really intended to dispose of said leased
property, which petitioner indubitably intended to buy.
SIHI' s agreement to enter frst into a lease contact wit option to
purchase with herein petitioner, is a clear proof of its intent t
promptly dispose said property although the fll fnacial rets
may materialize only in a yea's tme. Fuhermore, its letter dated
January 7, 1986, reminding te petitioner of the short period of time
lef within which to consu ate teir ageement, clearly showed its
desire to sell that property. Also, SII's letter dated February 14,
1986 supported te conclusion that it was bent on disposing said
property. For tis letter made mention of the fct that, "said propert
is now fr sale to the general public."
Pettioner's determination t purchase said property is equally
indubitable. He intoduced permanent improvements on te leased
property, demonstating his intent to acquire domion in a year's
tme. To increase his chaces of acquiring te property, he secured
a PS Million loan fom the Technology Resouces Center (TRC),
tereby augmenting his capital. He avered that he applied fr a loan
since he planned to pay the puchase price in one single payment,
instead of paying in installment, which would entail te payment of
additional interest at the rate of 24% per annu, compaed to 7
3/4% per annum interest fr te TRC loa. His letter earlier
requestng extension wa premised, in fct, on his need fr time to
secure te needed fnancing trough a TRC loan.
I contactual relations, te law allows te parties reasonable
leewa

on the terms of teir ageement, which is te law between
tem. Note tat by contact SI had given pettioner 4 periods: (a)
te option to purchase the property fr Pl ,800,000.00 witin the
lease period, that is, until Januay 30, 1986; (b) the option to be
exercised witin the option period by written notice at aytme; ( c)
te "document of sale . . . to be consuated witin the mont
immediately fllowing te month" when pettioner exercises the
option; and ( d) te
21 Cuion v. CA, 260 SCR 649 (1996), citing Vale v. Villa, 35 Phl. 769.
728 SUPREM COURT REPORTS ANNOTATED
Carceller vs. Court of Appeals
728
payment in equal installments of the purchase price over a period of
60 months. In our view, petitioner's letter of January 15, 1986 and
his frmal exercise of the opton on February 18, 1986 were within a
reasonable time-fame consistent with periods given and the kown
intent of te partes t the ageement dated Januay 10, 1985. A
conty view would be harsh and in
9
uituous indeed.
I Tuason, Jr., etc. vs. De Asis, this Court opined tat "in a
contact of lease, if the lessor makes an ofer to the lessee to
purchase te propert on or befre the termination of the lease, and
te lessee fils to accept or make the puchase on time, the lessee
losses te right to buy te property later on the terms and conditions
set in the ofer." Thus, on one hand, petitioner herein could not insist
on buying te said property based on the price ageed upon in the
lease ageement, even if his opton to puchase it is recogized. O
te other hand, SI could not take advantage of the situaton to
increase the selling price of said property by nearly 90% of the
original price. Such leap in te price quoted would show a
opportnistic intent to exploit te situaton as SI kew fr a fct
tat petitioner badly needed the property fr his business and tat he
could aford to pay such higher amount afer having secured a P8
Million loan fom the TRC. If te couts were to allow SIHI t take
advantage of the situation, the result would have been an injustice to
petitioner, because SI would be ujustly enriched at his expense.
Cous of law, being also cous of equity, may not countenance
such gossly unfair results without doing violence to its solemn
obligation t administer fair and equal justice fr all.
WHEREFORE, the appealed decision of respondent cou,
insofar as it afs the judgment of the tial cou in gating
petitioner the opportunity to exercise the option to puchase te
subject property, is hereby AFFIMED. However, the purchase
price should be based on the fair maket value of real propert in
Bulacao, Cebu City, as of Februay 1986, when the contact would
have been consu ated. Fuer,
22 107 Ph. 131 ( 1960). (Itlics suplie.)
729
VOL. 302, FEBRUARY 10, 1999 729
Carceller vs. Court of Appeals
petitioner is hereby ordered to pay private respondent SII legal
interest on the said purchase price beginning February 1986 up to
te time it is actually paid, as well as the taxes due on said property,
consideng that petitoner have enjoyed the beneficial use of said
property. The case is hereby remaded to Regional Trial Court of
Cebu, Branch 5, fr fher proceedings to determine promptly the
fair market value of said real property as of February 1986, in
Bulacao, Cebu City.
Costs against private respondent.
SO ORDERED.
Bellosillo (Chairan), Puno, Mendoza ad Buena, JJ,
concur.
Judgent afred.
N ote.-In order to judge the intenton of te contactng parties,
teir contemporaeous ad subsequent acts shall be principally
considered. (Matanguihan vs. Court of Appeals, 215 SCR 380
[1997
])
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730
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