G.R. No. L-21780 - Makati Development Corp. vs. Empire Insurance Co.

On March 31, 1959, Makati Development Corporation (MDC) sold a 1,589 sqm lot in Urdaneta Village, Makati, Rizal, to Rodolfo P. Andal for ₱55,615.
The deed contained a “special condition” requiring the vendee to commence and complete at least 50 % of a residence on the property within two years (i.e., by March 31, 1961), failing which the cash bond of ₱11,123 would be forfeited.

To secure performance, Andal executed on April 10, 1959 a surety bond with Empire Insurance Company as surety, obliging payment of ₱12,000 in case of breach.
Andal thereafter did not build the required residence; instead, he sold the lot to Juan Carlos on January 18, 1960.

As of March 31, 1961, neither Andal nor Carlos had completed 50 % of the house. On April 3, 1961, MDC sent a notice of claim to Empire Insurance; payment was refused.
MDC filed suit on May 22, 1961 in the CFI of Rizal for the full ₱12,000 plus attorney’s fees. Empire Insurance filed an answer with a third-party complaint against Andal for indemnity. Andal admitted the bond but challenged the special condition’s validity and alleged that Carlos had commenced construction.
On March 28, 1963, the trial court found partial performance by Carlos (stone fence erected, building materials on site, and over 50 % of the residence completed by end-April 1961). It reduced the penalty to ₱1,500 plus 12 % interest from filing and ₱500 attorney’s fees against Empire Insurance, and ordered Andal to reimburse Empire Insurance ₱1,500 plus interest and ₱50 fees if paid.

Whether Empire Insurance is liable for the full penal sum of ₱12,000 under the surety bond.
Whether evidence of partial performance by a third party (Juan Carlos) may mitigate Andal’s liability under the penal clause.