Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-32873 August 18, 1972

AQUILINO NIETES, petitioner,
vs.
HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.
Conrado V. del Rosario for petitioner.
Romeo D. Magat for private respondent.

CONCEPCION, C.J.:p
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.
It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia entered
into a "Contract of Lease with Option to Buy," pursuant to the terms and conditions set forth in
the deed Exhibits A and A-1, (also, marked as Exhibit 2) namely:
That the LESSOR is an owner of the ANGELES EDUCATIONAL INSTITUTE
situated at Angeles, Pampanga, a school which is duly recognized by the
Government;
That the lessor agrees to lease the above stated school to the LESSEE under the
following terms and conditions:
1. That the term will be for a period of five (5) years;
2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per year
payable in the following manners:
a. That the amount of FIVE THOUSAND FIVE HUNDRED
PESOS (P5,500) will be paid upon the execution of this Contract
of Lease;
b. That the amount of FOUR THOUSAND FIVE HUNDRED
PESOS (P4,500) is payable on or before the 30th day of October,
1959;
c. That the remaining balance of FIFTEEN THOUSAND PESOS
(P15,000) will be paid on or before March 30, 1960;
3. That all improvements made during the lease by the LESSEE will be owned by
the LESSOR after the expiration of the term of this Contract of Lease;

4. That the LESSOR agrees to give the LESSEE an option to buy the land and
the school building, for a price of ONE HUNDRED THOUSAND PESOS
(P100,000) within the period of the Contract of Lease;
5. That should the LESSEE buy the lot, land and the school building within the
stipulated period, the unused payment for the Contract of Lease will be
considered as part payment for the sale of the land and school;
6. That an inventory of all properties in the school will be made on March 31,
1960;
6A. That the term of this Contract will commence in June 1960 and will terminate
in June 1965;
7. That the LESSEE will be given full control and responsibilities over all the
properties of the school and over all the supervisions and administrations of the
school;
8. That the LESSEE agrees to help the LESSOR to collect the back accounts of
students incurred before the execution of this contract.
Instead of paying the lessor in the manner set forth in paragraph 2 of said contract, Nietes had,
as of August 4, 1961, made payments as follows:
October 6,1960 ....................................... P18,957.00 (Exh. D)
November 23, 1960 ................................. 300.00 (Exh. E)
December 21, 1960 ................................. 200.00 (Exh. F)
January 14, 1961 ..................................... 500.00 (Exh. G)
February 16, 1961 ................................... 3,000.00 (Exh. H)
March 12, 1961 ....................................... 1,000.00 (Exh. I)
March 13, 1961 ....................................... 700.00 (Exh. J)
August 4, 1961 ........................................ 100.00 (Exh. K) _________
TOTAL ..................................... P24,757.00
Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he paid Garcia
the additional sums of P3,000 and P2,200, respectively, for which Garcia issued receipts Exhibit
B and C, reading:
Received the amount of (P3,000.00) Three Thousand Pesos from Mrs. Nietes as
per advance pay for the school, the contract of lease being paid.
(Sgd.) PABLO GARCIA (Exh. B)
To Whom it May Concern:

This is to certify that I received the sum of Two Thousand Two Hundred Pesos,
Philippine Currency, from Mrs. Catherine R. Nietes as the partial payment on the
purchase of the property as specified on the original contract of "Contract of
Lease with the First Option to Buy" originally contracted and duly signed.
(Sgd.) DR. PABLO GARCIA (Exh. C)
On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also Exhibit
V) stating:
The Director
Philippine Institute of Electronics
Angeles, Pampanga
Sir:
I regret to inform you that our client, Dr. Pablo Garcia, desires to rescind your
contract, dated 19 October 1959 because of the following:
1. That you had not maintained the building, subject of the lease contract in good
condition.
2. That you had not been using the original name of the school Angeles
Institute, thereby extinguishing its existence in the eyes of the public and injuring
its prestige.
3. That through your fault, no inventory has been made of all properties of the
school.
4. That up to this time, you had not collected or much less helped in the collection
of back accounts of former students.
This is to remind you that the foregoing obligations had been one, if not, the
principal moving factors which had induced the lessor in agreeing with the terms
embodied in your contract of lease, without which fulfillment, said contract could
not have come into existence. It is not simply one of those reminders that we
make mention, that our client under the circumstances, is not only entitled to a
rescission of the contract. He is likewise entitled to damages actual,
compensatory and exemplary.
In view of the serious nature of the breach which warrant and sanction drastic
legal remedies against you, we earnestly request you to please see the
undersigned at the above-named address two days from receipt hereof.
Otherwise, if we shall not hear from you, the foregoing will serve notice on your
part to vacate the premises within five (5) days to be counted from date of notice.
Very truly yours,
(Sgd.) VICTOR T. LLAMAS, JR.
to which counsel for Nietes replied in the following language:
Atty. Victor T. Llamas, Jr.
Victor Llamas Law Office
Corner Rivera-Zamora Streets
Dagupan City

Dear Sir:
Your letter dated July 31, 1964 addressed to my client, the Director of the
Philippine Institute of Electronics, Angeles City, has been referred to me and in
reply, please, be informed that my client has not violated any provision of the
CONTRACT OF LEASE WITH OPTION TO BUY, executed by him as LESSEE
and Dr. Pablo Garcia as LESSOR. For this reason, there is no basis for
rescission of the contract nor of the demands contained in your letter.
In this connection, I am also serving this formal notice upon your client Dr. Pablo
Garcia, thru you, that my client Mr. AQUILINO T. NIETES will exercise his
OPTION to buy the land and building subject matter of the lease and that my said
client is ready to pay the balance of the purchase price in accordance with the
contract. Please, inform Dr. Pablo Garcia to make available the land title and
execute the corresponding Deed of Sale pursuant to this notice, and that if he
fails to do so within fifteen (15) days from the receipt of this letter, we shall take
the corresponding action to enforce the agreement.
Truly yours,
(Sgd.) CONRADO V. DEL ROSARIO
Counsel for Mr. Aquilino T. Nietes
Angeles City
On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in Angeles
City checks amounting to P84,860.50, as balance of the purchase price of the property, but he
withdrew said sum of P84,860.50 on August 12, 1965, after the checks had been cleared. On
August 2, 1965, he commenced the present action, in the Court of First Instance of Pampanga,
for specific performance of Dr. Garcia's alleged obligation to execute in his (Nietes') favor a deed
of absolute sale of the leased property, free from any lien or encumbrance whatsoever, he having
meanwhile mortgaged it to the People's Bank and Trust Company, and to compel him (Garcia) to
accept whatever balance of the purchase price is due him, as well as to recover from him the
aggregate sum of P90,000 by way of damages, apart from attorney's fees and the costs.
Dr. Garcia filed an answer admitting some allegations of the complaint and denying other
allegations thereof, as well as setting up a counterclaim for damages in the sum of P150,000.
After due trial, said court rendered its decision, the dispositive part of which reads:
WHEREFORE, in view of the preponderance of evidence in favor of the plaintiff
and against the defendant, judgment is hereby rendered ordering the latter to
execute the Deed of Absolute Sale of property originally leased together with the
school building and other improvements thereon which are covered by the
contract, Annex "A", upon payment of the former of the balance (whatever be the
amount) of the stipulated purchase price; to free the said property from any
mortgage or encumbrance and deliver the title thereto to the plaintiff free from
any lien or encumbrance, and should said defendant fail to do so, the proceeds
from the purchase price be applied to the payment of the encumbrance so that
the title may be conveyed to the plaintiff; to pay the plaintiff the sum of P1,000.00
as attorney's fees, and the cost of this suit.
Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had neither
dismissed the complaint nor upheld his counterclaim and failed to order Nietes to vacate the
property in question, and Nietes insofar as the trial court had granted him no more than nominal
damages in the sum of P1,000, as attorney's fees.

After appropriate proceedings, a special division of Court of Appeals rendered its decision, on
October 18, 1969, affirming, in effect, that of the trial court, except as regards said attorney's
fees, which were eliminated. The dispositive part of said decision of the Court of Appeals reads:
WHEREFORE, with the modification that the attorney's fees awarded by the trial court in favor of
the plaintiff is eliminated, the appealed judgment is hereby affirmed in all other respects, and the
defendant is ordered to execute the corresponding deed of sale for the school building and lot in
question in favor of the plaintiff upon the latter's full payment of the balance of the purchase
price. The costs of this proceedings shall be taxed against the defendant-appellant.
On motion for reconsideration of defendant Garcia, said special division set aside its
aforementioned decision and rendered another one, promulgated on March 10, 1970 reversing
the appealed decision of the court of first instance, and dismissing the complaint of Nietes, with
costs again him. Hence, the present petition of Nietes for review certiorari of the second decision
of the Court of Appeals, dated March 10, 1970, to which petition We gave due course.
Said decision of the Court of Appeals, reversing that of the Court of First Instance, is mainly
predicated upon the theory that, under the contract between the parties, "the full purchase price
must be paid before the option counsel be exercised," because "there was no need nor sense
providing that "the unused payment for the Contract Lease will be considered as part payment
for the sale the land and school'" inasmuch as "otherwise there is substantial amount from which
such unused rental could be deducted"; that the statement in the letter, Exhibit L, of Nietes, dated
August 7, 1964, to the effect that he "will exercise his OPTION to buy the land and building,"
indication that he did not consider the receipts, Exhibits B and for P3,000 and P2,200,
respectively, "as an effective exercise of his option to buy"; that the checks for P84,860.50
deposited by Nietes with the Agro-Industrial Development Bank, did not constitute a proper
tender of payment, which, at any rate, was "made beyond the stipulated 5-year period"; that such
deposit "was not seriously made, because on August 12, 1965, the same was withdrawn from
the Bank and ostensibly remains in the lessee's hand"; and that "the fact that such deposit was
made by the lessee shows that he himself believed that he should have paid the entire amount of
the purchase price before he could avail of the option to buy, otherwise, the deposit was a
senseless gesture ... ."
Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the price of
the contract of lease between the parties which were paid late and not within the periods and/or
schedules fixed by the contract (Annex A.)." What is more, on the witness stand, Garcia claimed
that he did "not know" whether the signatures on Exhibits B and C the receipt for P3,000 and
P2,200, respectively were his, and even said that he was "doubtful" about it.
This testimony is manifestly incredible, for a man of his intelligence a Doctor of Medicine and
the owner of an educational institution could not possibly "not know" or entertain doubts as to
whether or not the aforementioned signatures are his and the payments therein acknowledged
had been received by him. His dubious veracity becomes even more apparent when we consider
the allegations in paragraph (4) of his answer referring to paragraphs 5 and 6 of the complaint
alleging, inter alia, the aforementioned partial payments of P3,000 and P2,200, on account of the
stipulated sale price to the effect that said sums " paid to the herein defendant were part of the
price of the contract of lease." In other words, payment of said sums of P3,000 and P2,200 is
admitted in said answer. Besides, the rentals for the whole period of the lease aggregated
P25,000 only, whereas said sums of P3,000 and P2,200, when added to the payments
previously made by Nietes, give a grand total of P29,957.00, or P4,957 in excess of the agreed
rentals for the entire period of five years. Thus, Dr. Garcia was less than truthful when he tried to
cast doubt upon the fact of payment of said sums of P3,000 and P2,200, as well as when he
claimed that the same were part of the rentals collectible by him.
We, likewise, find ourselves unable to share the view taken by the Court of Appeals. Neither the
tenor of the contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of Dr. Garcia as

reflected in the receipts Exhibits B and C justifies such view. The contract does not say that
Nietes had to pay the stipulated price of P100,000 before exercising his option to buy the
property in question. Accordingly, said option is governed by the general principles on
obligations, pursuants to which:
In reciprocal obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay by the other
begins. 1
In the case of an option to buy, the creditor may validly and effectively exercise his right by
merely advising the debtor of the former's decision to buy and expressing his readiness to pay
the stipulated price, provided that the same is available and actually delivered to the debtor upon
execution and delivery by him of the corresponding deed of sale. Unless and until the debtor
shall have done this the creditor is not and cannot be in default in the discharge of his obligation
to pay. 2 In other words, notice of the creditor's decision to exercise his option to buy need not be
coupled with actual payment of the price, so long as this is delivered to the owner of the property upon
performance of his part of the agreement. Nietes need not have deposited, therefore, with the AgroIndustrial Bank checks amounting altogether to P84,860.50 on July 26, 1965, and the withdrawal
thereof soon after does not and cannot affect his cause of action in the present case. In making such
deposit, he may have had the intent to show his ability to pay the balance of the sum due to Dr.
Garcia as the sale price of his property. In short, said deposit and its subsequent withdrawal cannot
affect the result of the present case.
Nietes was entitled to exercise his option to buy "within the period of the Contract of Lease,"
which pursuant to paragraph 6-A of said contract commenced "in June 1960" and was to
"terminate in June 1965." As early as September 4, 1961, or well "within the period of the
Contract of Lease," Nietes had paid Dr. Garcia the following sums:
October 6, 1960 ............................ P18,957.00 (Exh. D)
November 23, 1960 ....................... 300.00 (Exh E)
December 21, 1960 ....................... 200.00 (Exh. F)
January 14, 1961 ........................... 500.00 (Exh. G)
February 16, 1961 ......................... 3,000.00 (Exh. H)
March 12, 1961 ............................. 1,000.00 (Exh. I)
March 13, 1961 ............................. 700.00 (Exh. J)
August 4, 1961 ............................... 100.00 (Exh. K)
September 4, 1961 ......................... 3,000.00 (Exh. B)
________
TOTAL ............................... P27,757.00
It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959, P4,500
on or before October 30, 1959, and P15,000 on or before March 30, 1960, or the total sum of
P25,000, from October 19, 1959 to March 30, 1960, whereas his first payment was not made
until October 10, 1960, when he delivered the sum of P18,957 to Dr. Garcia, and the latter had
by August 4, 1961, received from the former the aggregate sum of P24,757. This is, however,

P243.00 only less than the P25,000 due as of March 30, 1960, so that Nietes may be considered
as having complied substantially with the terms agreed upon. Indeed, Dr. Garcia seems to have
either agreed thereto or not considered that Nietes had thereby violated the contract, because
the letter of the former, dated July 31, 1964, demanding rescission of the contract, did not
mention said acts or omissions of Nietes among his alleged violations thereof enumerated in said
communication. In fact, when, on September 4, 1961, Mrs. Nietes turned over the sum of P3,000
to Dr. Garcia, he issued the receipt Exhibit B, stating that said payment had been made "as per
advance pay for the school, the Contract of Lease being paid" in other words, in accordance
or conformity with said contract. Besides, when, on December 13, 1962, Mrs. Nietes delivered
the additional sum of P2,200, Dr. Garcia issued a receipt accepting said amount "as the partial
payment on the purchase price of the property as specified on the original contract," thus further
indicating that the payment, in his opinion, conformed with said contract, and that, accordingly,
the same was in full force and effect.
In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the total
sum of P27,757, or P2,757 in excess of the P25,000 representing the rentals for the entire period
of the lease, and over P21,200 in excess of the rentals for the unexpired portion of the lease,
from September 4, 1961 to June 1965. This circumstance indicates clearly that Nietes had, on
September 4, 1961, chosen to exercise and did exercise then his option to buy. What is more,
this is borne out by the receipt issued by Dr. Garcia for the payment of P2,200, on December 13,
1962, to which he referred therein as a "partial payment on the purchase of the property as
specified on the original contract of 'Contract of Lease with the First Option to Buy' ... ."
Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 also, within
the period of the lease stating that he "will exercise his OPTION to buy the land and building
subject matter of the lease." It is not correct to construe this expression as did the appealed
decision as implying that the option had not been or was not yet being exercised, or as a mere
announcement of the intent to avail of it at some future time. This interpretation takes said
expression out of the context of Exhibit L, which positively states, also, that Nietes "is ready to
pay the balance of the purchase price in accordance with the contract," and requests counsel for
Dr. Garcia to inform or advise him "to make available the land title and execute the
corresponding Deed of Sale pursuant to this notice, and that if he fails to do so within fifteen (15)
days ... we shall take the corresponding action to enforce the agreement." Such demand and
said readiness to pay the balance of the purchase price leave no room for doubt that, as stated
in Exhibit L, the same is "a formal notice" that Nietes had exercised his option, and expected Dr.
Garcia to comply, within fifteen (15) days, with his part of the bargain. Surely, there would have
been no point for said demand and readiness to pay, if Nietes had not yet exercised his option to
buy.
The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE" choose to
make use of his option to buy "the unused payment for the Contract of Lease will be considered
as payment for the sale of the land and school, "simply means that the rental paid for the unused
portion of the lease shall be applied to and deducted from the sale price of P100,000 to be paid
by Nietes at the proper time in other words, simultaneously with the delivery to him of the
corresponding deed of sale, duly executed by Dr. Garcia.
It is, consequently, Our considered opinion that Nietes had validly and effectively exercised his
option to buy the property of Dr. Garcia, at least, on December 13, 1962, when he acknowledged
receipt from Mrs. Nietes of the sum of P2,200 then delivered by her "in partial payment on the
purchase of the property" described in the "Contract of Lease with Option to Buy"; that from the
aggregate sum of P29,957.00 paid to him up to that time, the sum of P12,708.33 should be
deducted as rental for the period from June 1960 to December 13, 1962, or roughly thirty (30)
months and a half, thereby leaving a balance of P17,248.67, consisting of P12,291.67,
representing the rentals for the unused period of the lease, plus P4,957.00 paid in excess of said
rental and advanced solely on account of the purchase price; that deducting said sum of
P17,248.67 from the agreed price of P100,000.00, there results a balance of P82,751.33 which
should be paid by Nietes to Dr. Garcia, upon execution by the latter of the corresponding deed of

absolute sale of the property in question, free from any lien or encumbrance whatsoever, in favor
of Nietes, and the delivery to him of said deed of sale, as well as of the owner's duplicate of the
certificate of title to said property; and that Dr. Garcia should indemnify Nietes in the sum of
P2,500 as and for attorney's fees.
Thus modified, the decision of the Court of First Instance of Pampanga is hereby affirmed in all
other respects, and that of the Court of Appeals reversed, with costs against respondent herein,
Dr. Pablo C. Garcia. It is so ordered.