G.R. No. 124791 - Carceller vs. Court of Appeals

Petitioner (Jose Ramon Carceller) and State Investment Houses, Inc. (SIHI) entered into a lease contract with an option to purchase two parcels of land in Bulacao, Cebu City.
The property measured a total of 9,774 square meters with improvements, documented under Transfer Certificate of Titles Nos. T-89152 and T-89153.
The lease contract, executed on January 10, 1985, provided for a monthly rental of P10,000.00 over an 18‑month period (August 1, 1984 to January 30, 1986).
The option to purchase was fixed at an aggregate price of P1,800,000.00, with a downpayment of P360,000.00 and the balance payable in 60 equal installments computed with interest at 24% per annum on a diminishing balance.

On January 7, 1986, SIHI notified petitioner of the impending termination of the lease, indicating the short period available to exercise the purchase option.
Petitioner, by letter dated January 15, 1986 (received on January 29, 1986), requested a six‑month extension of the lease contract to secure sufficient funds—citing his investment in the property and timely rental payments.
SIHI denied the extension request on February 14, 1986, and simultaneously offered an alternative lease at a higher rental rate (P30,000.00 per month) for one year and informed petitioner that the property would be sold to the general public.
Despite the denial, petitioner exercised the purchase option by notifying SIHI on February 18, 1986 and arranging the downpayment of P360,000.00.
SIHI, in its subsequent correspondence on February 20, 1986, reiterated that the option period had lapsed and instructed petitioner to vacate the property while demanding the payment of rental and penalties.

Petitioner filed a complaint for specific performance and damages before the Regional Trial Court (RTC) of Cebu City in Civil Case No. CEB 4700, asserting his right to compel SIHI to execute a deed of sale based on the lease contract.
The RTC rendered a decision on April 1, 1991, ordering SIHI to execute the deed of sale covering the property at the agreed price of P1,800,000.00 (with a “one shot payment” option) and awarding attorney’s fees to petitioner, while not granting damages.

Dissatisfied with the RTC judgment, SIHI elevated the case to the Court of Appeals.
On September 21, 1995, the Court of Appeals affirmed the trial court’s decision but modified the purchase price determination, stating that the price should be based on the prevailing market value of the property in Bulacao, Cebu City.
Subsequent motions by both parties sought clarification: petitioner argued that the market price should be as of February 1986 (when the sale would have been consummated), while SIHI contended for a price index based on conditions as late as 1996.
The respondent court, after further hearings, denied the motions for reconsideration/clarification and remanded the case to the RTC for determination of the fair market value.

SIHI, a quasi‑banking financial institution, was facing severe financial difficulties and was under Central Bank supervision, necessitating a rapid liquidation of assets including the subject property.
The contractual negotiations and subsequent actions evidenced that both parties had a primary intent to enter into a definitive sale.
Petitioner’s substantial investments on the property—including renovations and securing a large loan (P8 Million) from the Technology Resources Center (TRC)—underscored his commitment to purchase.

Whether petitioner’s exercise of the option to purchase, despite the delay in giving the required notice (requesting an extension on January 15, 1986 and formally exercising on February 18, 1986), is valid and binding.
Whether the purchase price should be determined based on the original contractual price (P1,800,000.00) or recalculated according to the prevailing market value in Bulacao, Cebu City as of February 1986.
How to reconcile the parties’ contractual intent with the equitable considerations arising from petitioner's investments and SIHI’s financial difficulties.
The extent to which delays in contractual notices may be excused when they do not fundamentally defeat the agreed intent.