On March 31, 1959, the Makati Development Corporation sold to Rodolfo P. Andal a lot. A so-called “special condition” contained in the deed of sale provides that “the VENDEE/S shall commence the construction and complete at least 50% of his/her/their/its residence on the property within two (2) years to the satisfaction of the VENDOR and, in the event of his/her/their/its failure to do so will be forfeited in favor of the VENDOR by the mere fact of failure of the VENDEE/S to comply with this special condition.” To ensure faithful compliance with this “condition,” Andal gave a surety bond the sum of P12,000 in case Andal failed to comply with his obligation under the deed of sale.
Andal did not build his house; instead, he sold the lot to Juan Carlos. As neither Andal nor Juan Carlos built a house on the lot within the stipulated period, the Makati Development Corporation, sent a notice of claim to the Empire Insurance Co. advising it of Andal’s failure to comply with his undertaking. Demand for the payment was refused, whereupon the Makati Development Corporation filed a complaint against the Empire Insurance Co. to recover on the bond in the full amount, plus attorney’s fees. In due time, the Empire Insurance Co. filed its answer with a third-party complaint against Andal.
WHETHER OR NOT Andal is entitled to pay the surety bond of Php12,000 as a penal sanction.
No. The so-called “special condition” in the deed of sale is, in reality, an obligation1 — to build a house at least 50 percent of which must be finished within two years. It was to secure the performance of this obligation that a penal clause was inserted. Here the trial court found that Juan Carlos had finished more than 50 percent of his house or barely a month after the expiration of the stipulated period. There was, therefore, a partial performance of the obligation within the meaning and intendment of article 1229. The penal clause, in this case, was inserted not to indemnify the Makati Development Corporation for any damage it might suffer as a result of a breach of the contract but rather compel performance of the so-called “special condition” and thus encourage home building among lot owners in the Urdaneta Village.
Considering that a house had been built shortly after the period stipulated, the substantial, if tardy, performance of the obligation, having in view the purpose of the penal clause, fully justified the trial court in reducing the penalty.
The stipulation, in this case, to commence the construction and complete at least 50 percent of the vendee’s house within two years cannot be construed as imposing a strictly personal obligation on Andal. To adopt such a construction would be to limit Andal’s right to dispose of the lot. There is nothing in the deed of sale restricting Andal’s right to sell the lot at least within the two-year period and we think it plain that a reading of such a limitation on one of the rights of ownership must rest on more explicit language in the contract. It cannot be left to mere inference.
* Case digest by Prince Dave C. Santiago, LLB-1, Andres Bonifacio Law School, SY 2017-2018