G.R. No. L-32873. August 18, 1972.
AQUILINO NIETES, petitioner, vs. HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.

FACTS

Petitioner Aquilino Nietes and respondent Dr. Pablo Garcia entered into a “Contract of Lease with Option to Buy” concerning the Angeles Educational Institute. The contract stipulated a five-year lease term commencing June 1960, with a total rental of P25,000 payable in installments. Crucially, paragraph 4 granted Nietes an option to buy the property for P100,000 within the lease period. Paragraph 5 provided that should Nietes exercise the option, “the unused payment for the Contract of Lease will be considered as part payment for the sale.” Nietes made various payments exceeding the stipulated rental schedule. On December 13, 1962, Garcia issued a receipt acknowledging a sum from Nietes as “partial payment on the purchase of the property.” In July 1964, Garcia, through counsel, sought to rescind the contract, citing alleged breaches by Nietes. Nietes’s counsel replied, formally demanding that Garcia execute a deed of sale as Nietes was exercising his option to buy and was ready to pay the balance.

ISSUE

The core issue was whether petitioner Aquilino Nietes had validly exercised his option to buy the property under the contract.

RULING

The Supreme Court ruled that Nietes had validly exercised the option. The legal logic centered on the interpretation of the parties’ acts and communications as constituting a valid and effective exercise of the option, notwithstanding the absence of a formal, separate declaration. The Court emphasized that the option was an integral part of the principal contract of lease and was not a separate offer requiring a distinct acceptance to form a binding contract of sale. The conduct of the parties demonstrated the exercise of the option. Garcia’s own receipt dated December 13, 1962, explicitly acknowledged a payment as being “on the purchase of the property,” which unequivocally recognized that the transaction had progressed beyond a mere lease and into the realm of sale. Furthermore, Nietes’s counsel’s letter in response to the rescission demand was a clear, formal notice exercising the option and demanding compliance, which Garcia refused. The Court held that these acts left no doubt that Nietes had chosen to buy. Applying paragraph 5 of the contract, the Court computed the applicable payments, deducting accrued rentals from the total payments made to arrive at the amount creditable to the purchase price. The decision of the Court of Appeals was reversed, and Garcia was ordered to execute a deed of sale upon payment of the computed balance by Nietes.