Asset Privatization Trust vs. T.J. Enterprises

The execution of a public instrument does not effect constructive delivery where the vendor lacks actual possession and control of the thing sold, and an "as-is-where-is" basis pertains solely to the physical condition of the property, not the vendor's obligation to deliver.

Asset Privatization Trust (APT) acquired refrigeration equipment and machinery from the Development Bank of the Philippines, stored at the Golden City compound in Pasay City. The compound was leased to and physically possessed by Creative Lines, Inc. APT sold the assets to T.J. Enterprises on an as-is-where-is basis. After full payment, T.J. Enterprises demanded delivery, but Creative Lines' employees prevented the hauling of seven items. T.J. Enterprises filed a complaint for specific performance and damages. During the pendency of the case, T.J. Enterprises pulled out the remaining items, which were subsequently found to be damaged and missing parts.

• The Sale: On November 7, 1990, APT and T.J. Enterprises executed an absolute deed of sale for machinery and refrigeration equipment identified as Lots Nos. 2, 3, and 5 on an as-is-where-is basis. T.J. Enterprises paid the full amount of ₱84,000.00.
• Attempted Delivery: Two days later, T.J. Enterprises demanded delivery of the purchased items. In March 1991, APT issued Gate Pass No. 4955. T.J. Enterprises successfully pulled out Lots Nos. 3 and 5, along with nine items from Lot No. 2.
• Third-Party Interference: Creative Lines' employees prevented the hauling of the remaining seven items of Lot No. 2, which consisted of three reefer units, a blast freezer, a chest freezer, a room air-conditioner, and an air compressor.
• Subsequent Recovery and Damage: T.J. Enterprises filed a complaint for specific performance and damages. While the case was pending, T.J. Enterprises managed to pull out the remaining seven items, but discovered they were damaged and missing parts.

• Constructive Delivery: Petitioner argued that the execution of the deed of absolute sale and the issuance of the gate pass effected constructive delivery, fulfilling its obligation to deliver the object of the sale.
• As-Is-Where-Is Basis: Petitioner maintained that because the sale was on an as-is-where-is basis, it was the duty of the vendee to take possession of the property from its location, thereby relieving the vendor of further delivery obligations.
• Disclaimer of Warranty: Petitioner contended that the vendee's acceptance of the disclaimer of warranty in the deed of absolute sale foreclosed any legal basis to enforce rights arising from the contract.
• Fortuitous Event: Petitioner claimed that the failure to make actual delivery was beyond its control, asserting that Creative Lines' refusal to allow hauling was unforeseen and constituted a fortuitous event exempting it from liability.

• Lack of Delivery: Respondent countered that no actual or constructive delivery occurred because APT lacked control over the property, which was in the possession of Creative Lines.
• Breach of Contract: Respondent argued that APT remained obligated to deliver the machinery and was liable for breach of contract when the items were withheld and subsequently found damaged.
• Liability for Damages: Respondent maintained that APT's failure to secure the property and arrange for its removal made it liable for the actual damages suffered.

• Constructive Delivery: Whether the execution of the deed of absolute sale and the issuance of a gate pass resulted in constructive delivery of the machinery and equipment.
• As-Is-Where-Is Basis: Whether the as-is-where-is basis of the sale relieves the vendor of its obligation to deliver the property sold.
• Disclaimer of Warranty: Whether the disclaimer of warranty in the deed of absolute sale absolves the vendor from liability for breach of contract.
• Fortuitous Event: Whether the refusal of a third party (Creative Lines) to allow the hauling of the machinery constitutes a fortuitous event that exempts the vendor from liability for damages.

• Constructive Delivery: No constructive delivery occurred. The execution of a public instrument yields a mere prima facie presumption of delivery, which is destroyed when the purchaser is not placed in possession and control of the property. Because Creative Lines had actual possession and prevented the vendee from taking the items, APT could not transfer constructive possession.
• As-Is-Where-Is Basis: The as-is-where-is clause pertains solely to the physical condition of the thing sold, not its legal situation. It does not alter the vendor's responsibility to deliver the property to the vendee.
• Disclaimer of Warranty: The disclaimer of warranty does not absolve the vendor of its fundamental obligation to transfer ownership and deliver the thing sold. Because no delivery was made, the vendor contravened the tenor of the obligation.
• Fortuitous Event: Creative Lines' refusal to surrender the property does not constitute force majeure. APT knew the property was housed in premises leased by Creative Lines and should have made prior arrangements for removal. Furthermore, under Article 1504 of the Civil Code, the risk of loss or deterioration remains with the vendor in fault for delayed delivery. Even assuming a fortuitous event, APT remains liable for damages under Article 1170 for contravening the tenor of its obligation.

• Presumption of Constructive Delivery via Public Instrument — The execution of a public instrument gives rise to a prima facie presumption of delivery, which is destroyed when delivery is not effected due to a legal impediment or when the vendor lacks control over the thing sold. A party without actual possession cannot transfer constructive possession merely by executing a public instrument.
• As-Is-Where-Is Basis in Sales — This phrase pertains solely to the physical condition of the thing sold, not its legal situation. It describes the actual state and location of the property but does not relieve the vendor of the obligation to deliver.
• Fortuitous Event (Caso Fortuito) — A fortuitous event requires: (a) the cause be independent of human will; (b) the event be impossible to foresee or avoid; (c) the occurrence render it impossible for the debtor to fulfill the obligation in a normal manner; and (d) the obligor be free from participation in the aggravation of the injury. When the loss is partly the result of human participation, whether by active intervention, neglect, or failure to act, the occurrence is humanized and removed from the rules applicable to acts of God.
• Risk of Loss in Delayed Delivery — Where actual delivery has been delayed through the fault of either the buyer or seller, the goods are at the risk of the party in fault. The risk of loss or deterioration does not pass to the buyer until actual or constructive delivery.

• "The execution of a public instrument only gives rise to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment."
• "The phrase as-is where-is basis pertains solely to the physical condition of the thing sold, not to its legal situation."
• "When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God."

• Santos v. Santos, 418 Phil. 681 (2001) — Followed; held that for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold.
• Ten Forty Realty and Development Corp. v. Cruz, 457 Phil. 603 — Followed; established that the presumption of delivery by public instrument is destroyed when delivery is not effected due to legal impediment.
• National Development Company v. Madrigal Wan Hai Lines Corporation, 458 Phil. 1038 (2003) — Followed; defined that an as-is-where-is basis pertains solely to the physical condition of the thing sold.
• National Power Corporation v. Court of Appeals, 222 SCRA 415 — Followed; ruled that when an event is partly the result of human participation, it is removed from the rules applicable to acts of God.

• Art. 1477, Civil Code — Stipulates that ownership of the thing sold is transferred to the vendee upon actual or constructive delivery. Applied to show that ownership did not transfer to the vendee due to the absence of delivery.
• Art. 1495, Civil Code — Obliges the vendor to transfer the ownership of and deliver, as well as warrant, the thing sold. Applied to establish petitioner's undischarged obligation despite the as-is-where-is stipulation.
• Art. 1498, Civil Code — Provides that the execution of a public instrument is equivalent to delivery unless the contrary appears. Applied to clarify that this creates only a prima facie presumption destroyed by lack of vendor control.
• Art. 1174, Civil Code — Defines fortuitous events and exempts liability therefrom. Applied to reject the defense of force majeure, as the third party's refusal was not unforeseen or unavoidable.
• Art. 1170, Civil Code — Imposes liability for damages on those who contravene the tenor of their obligation. Applied to hold petitioner liable for actual damages for breach of contract.
• Art. 1504, Civil Code — Places the risk of loss on the party at fault for delayed delivery. Applied to hold that the risk of deterioration remained with the vendor since no actual or constructive delivery occurred.

Conchita Carpio Morales, Presbitero J. Velasco, Jr., Teresita Leonardo-De Castro, Arturo D. Brion.