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Nietes v.

CA (1996):

DOCTRINE: OPTION BUY


In 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

RECIT READY:
 NIETES & GARCIA entered into a CONTRACT OF LEASE with certain terms
and conditions
 → THAT term is 5 years
 → LEASE PRICE: 25k to be PAID
 5k, execution of contract
 4.5k, OCT 30 1959
 15k, MAR 30 1960
 → OPTION TO BUY land for 100k, WITHIN THE 5 YEAR TERM
 → Should lessee choose to BUY lot, the UNUSED PAYMENT for the contract
of lease will be considered as PART PAYMENT for the sale of the land and
school
 → and other stuffs (like helping Garcia collect back accounts from students)
 NIETES PAID IN INCREMENTS, not following the contract (diba nga 5k, 4.5k
and 15k dapat) which totaled 24.7k
 NIETES paid subsequently, 3k and 2.2k, which Garcia issued receipts for**
 In 1964, GARCIA said he was rescinding because NIETES didn't pay in the
way stipulated in the contract (the 5k/4.5k/15k) because of breach of
contract (see Detailed Version, pero actually wala naman yung mga sinabi
na rason ni Garcia sa kontrata)
 NIETES answered that he DID NOT breach anything, and that he is
exercising his option to buy. Subsequently, he deposited 90k in Agro-
Industrial Bank → He also insituted an action specific performance, to
compel an execution of a Deed of Sale
 SC RULED THAT
 → CONTRARY TO CA RULING, NIETES did NOT need to pay 100k before
exercising option to buy
 → In 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
 UNLESS and UNTIL debtor shall have done this, the CREDITOR is NOT
and CANNOT be in default in the discharge of his obligation to pay
 **TL;DR** NOTICE of decision to EXERCISE OPTION TO BUY NEED NOT
BE COUPLED with actual payment of the price
 By AUG 1961, NIETES had paid 24,757PHP, only 243 PHP short of the
full lease price of 25k → by this time he is deemed to have
SUBSTANTIALLY COMPLIED with the contract → but when he EXCEEDED
the amount of 25k by the payment of 3k on SEP 1961, NIETES had
already opted to exercise his option to buy, as evidenced by the receipt
for the 2.2k that followed, which said “partial payment on the PURCHASE
of the property as specified on the original contract...”

DETAILED VERSION
 PEITTIONER Aquilino NIETES and RESPONDENT Pablo Garcia entered into a
Contract of Lease With Option to Buy – following certain terms and
conditions
 (LESSOR is an owner of a school in Pampanga, recognized by gov)
 → Term is 5 yrs
 → 5k rent PER YEAR, PAYABLE: [[1. Upon execution of contract of lease, 5k
→ 2. 4,500PHP payabe ON OR BEFOREOCT 30, 1959 → 3. Balance of 15k to
be paid ON OR BEFORE mar 30 1960]]
 → ALL IMPROVEMENTS made during the lease will be OWNED by lessor
after expiration of the term of lease
 → OPTION TO BUY LAND for 100k within period of lease
 → Should LESSEE buy the lot, unused payment for the contract of lease will
be considered as part payment for the sale of the land and school
 Inventory will be made
 Term is from June 1960 – 1965
 LESSEE given full control and responsibilities over all the properties of the
school → AND over all the supervisions and administrations of the school
 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 par 2 of said
contract, Nietes paid in increments from Oct 1960 – Aug 4 1961, amounting
to 24, 757PHP (plus an ADDITIONAL 5,200k, but this will be important later
on → REMEMBER THIS)
 ON JUL 1964, Garcia's counsel wrote to Nietes' informing him that Garcia is
rescinding the contract because NIETES failed to maintain the building in
good condition, not used the original name, that no inventory was made,
and that there was no help in collecting back accounts of former students
 NIETES answers back that he has not violated ANY provision of the contract
of lease, and that he is now exercising his OPTION TO BUY both land and
building
 NIETES deposited in Agro-Industrial Bank Angeles City checks amounting to
85k as balance but withdrew them after being cleared → Commenced action
in CFI for specific performance (to execute in his favor a deed of absolute
sale, free from lien/encumrance as he had mortgaged it, and Garcia to
accept whatever balance of the purchase price is due him; as well as
recover 90k in damages)
 TRIAL COURT IN FAVOR OF NIETES.
 CA IN FAVOR OF NIETES → MR, REVERSED TRIAL COURT
 → FULL PURCHASE PRICE MUST BE PAID BEFORE THE OPTION COULD
BE EXERCISED
 → no need nor sense in providing the unused payment, for the contract
of lease will be considered as part payment for the sale of the land and
school inasmuch as otherwise tehre is no substantial amount from which
such unused rental could be deducted
 That the 5,200k was paid (3k and 2.2k respectively, which had
RECEIPTS but was disputed by GARCIA as ever having been issued or
signed by him) in EXCESS of the lease price of 25k (hehe with the 5.2k
it's around... 4k extra hehe)
 SC RULING:
 The contract does NOT say that NIETES had to pay 100k BEFORE
exercising his option to buy the property in question
 In 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
 UNLESS and UNTIL debtor shall have done this, the CREDITOR is NOT
and CANNOT be in default in the discharge of his obligation to pay
 **TL;DR** NOTICE of decision to EXERCISE OPTION TO BUY NEED NOT
BE COUPLED with actual payment of the price
 By AUG 1961, NIETES had paid 24,757PHP, only 243 PHP short of the
full lease price of 25k → by this time he is deemed to have
SUBSTANTIALLY COMPLIED with the contract → but when he EXCEEDED
the amount of 25k by the payment of 3k on SEP 1961, NIETES had
already opted to exercise his option to buy, as evidenced by the receipt
for the 2.2k that followed, which said “partial payment on the PURCHASE
of the property as specified on the original contract...”

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