### Facts:
Jose Ramon Carceller (petitioner) and State Investment Houses, Inc. (SIHI, respondent) entered into a lease contract with an option to purchase two parcels of land in Bulacao, Cebu City, on January 10, 1985. The lease was for 18 months, with a monthly rental of PHP 10,000, and granted the petitioner an exclusive option to purchase the property for PHP 1,800,000. The option needed to be exercised within the lease period, ending January 30, 1986.
SIHI reminded Carceller of the approaching deadline on January 7, 1986. Carceller, in response on January 15, 1986, sought a six-month extension to raise funds for the purchase. SIHI rejected this on February 14, 1986, offering instead a new lease at an increased rate and intending to sell the property publicly.
Ignoring SIHI’s stance, Carceller notified them of his decision to exercise the purchase option on February 18, 1986, attempting to arrange the downpayment. SIHI, on February 20, maintained that the option period had lapsed and requested Carceller to vacate the premises.
Carceller filed a complaint for specific performance and damages against SIHI in the Regional Trial Court (RTC) of Cebu City. The RTC ruled in favor of Carceller but modified the purchase price to reflect the “one-shot payment” of PHP 1,800,000, deviating from the installment plan. Dissatisfied, SIHI appealed to the Court of Appeals (CA), which affirmed the RTC’s decision but indicated the purchase price should be based on the current market value in Bulacao, Cebu City.
Both parties sought reconsideration on the valuation date, leading to further hearings by the CA. Eventually, the CA stood by its decision and remanded the case to the RTC to ascertain the market value as of February 1986.
### Issues:
1. Whether Carceller should be allowed to exercise the option to purchase despite the delay in notification.
2. If the option is exercisable, on what basis should the purchase price be determined?
### Court’s Decision:
The Supreme Court upheld the CA’s ruling allowing Carceller to exercise the purchase option, stating his January 15, 1986, letter constituted fair notice of his intention. The Court also decided that the purchase price should reflect the fair market value as of February 1986 when the contract was supposed to be consummated. The case was remanded to the RTC for the determination of said market value, and Carceller was ordered to pay legal interest on the purchase price from February 1986 until actual payment and also cover the property taxes due.
### Doctrine:
The Supreme Court reiterated that contracts are the law between the parties and should be fulfilled according to their clear terms. Furthermore, an option contract grants one party a period to decide to enter into a principal contract under specified conditions, binding itself not to enter into the said contract with another party during the option period.
### Class Notes:
– **Key Concepts:** Option Contracts, Specific Performance, Market Value Determination.
– **Legal Provisions:**
– Civil Code, Article 1370: Interpretation of Contracts.
– Civil Code, Article 1371: Construction of Contracts.
– **Application:** In contractual disputes, the intention of the parties, as reflected in their agreement and subsequent actions, is paramount. An option to purchase, if granted within a contract, must be executed according to the terms agreed upon or, if those terms are disputed, as determined to be fair and equitable by the court.
### Historical Background:
This case reflects the legal intricacies involved in lease options and the enforcement of such agreements in Philippine jurisprudence. It underscores the judiciary’s role in interpreting contracts not only based on their literal stipulations but also considering the parties’ intent, equitable considerations, and subsequent actions.
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