FACTS:

The case involves a lease contract with an option to purchase between petitioner and private respondent State Investment Houses, Inc. (SIHI). Petitioner was granted the exclusive right to purchase two parcels of land owned by SIHI for P1,800,000. The option was exercisable within the lease period from August 1, 1984, to January 30, 1986. SIHI notified petitioner of the lease contract's impending termination and requested him to decide on the option before January 20, 1986. Petitioner requested an extension of the lease contract, but it was disapproved by SIHI. SIHI, however, offered to lease the property to petitioner for one year at a higher rate. Petitioner exercised the option to purchase on February 18, 1986, but SIHI claimed that the option period had already lapsed. Petitioner filed a complaint for specific performance and damages, resulting in the trial court ordering SIHI to execute a deed of sale in favor of petitioner. The Court of Appeals affirmed the trial court's judgment with modifications to the basis for assessing the purchase price. Both parties filed motions for reconsideration or clarification, but the Court of Appeals denied them and directed the trial court to determine the prevailing market value of the property. Petitioner then filed a petition for review before the Supreme Court.

ISSUES:

1. Whether petitioner's request for a six-month extension of the lease contract constitutes fair notice of his intent to exercise the option to purchase.

2. Whether the delay in formally notifying SIHI of the exercise of the option is substantial and fatal to petitioner's cause.

3. Whether the petitioner's exercise of the option to purchase the property was done within a reasonable time-frame.

4. Whether the respondent can increase the selling price of the property.

RULING:

1. The Court finds no reason to disturb the lower court's finding that petitioner's request for an extension of the lease contract was fair notice of his intent to exercise the option. The request clearly stated that the purpose of the extension was to generate sufficient funds to exercise the option to purchase the property.

2. Both lower courts found that the delay in formally notifying SIHI of the exercise of the option was not substantial or fundamental, and did not amount to a breach that would defeat the intention of the parties. Petitioner's delay of 18 days in notifying SIHI does not bar him from exercising the option.

3. The court held that the petitioner's exercise of the option to purchase the property was done within a reasonable time-frame. The court also ruled that the respondent cannot increase the selling price of the property.

PRINCIPLES:

• Contracts are the law between the contracting parties and should be fulfilled, if their terms are clear and leave no room for doubt as to the intention of the contracting parties.

• In construing a written contract, the reason behind and the circumstances surrounding its execution are of paramount importance. The intention of the parties should prevail, as their agreement has the force of law between them.

• The various stipulations provided for in a contract should be construed together, consistent with the parties' contemporaneous and subsequent acts as regards the execution of the contract.

• Substantial and fundamental delays in exercising contractual rights may defeat the intention of the parties, but delays that are not substantial or fundamental may not be fatal to the exercising party's cause.

• In contractual relations, the law allows the parties reasonable leeway on the terms of their agreement.

• If the lessor makes an offer to the lessee to purchase the property on or before the termination of the lease, and the lessee fails to accept or make the purchase on time, the lessee loses the right to buy the property later on the terms and conditions set in the offer.

• Courts of law, being also courts of equity, may not countenance unfair results and must administer fair and equal justice for all.