SECOND DIVISION

ASSET PRIVATIZATION TRUST, G.R. No. 167195

Petitioner,
Present:
CARPIO MORALES, J.,*
- versus - Acting Chairperson,
TINGA,
VELASCO, JR.,
LEONARDO-DE CASTRO,** and
BRION, JJ.
T.J. ENTERPRISES,
Respondent. Promulgated:
May 8, 2009
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DECISION
TINGA, J.::
This is a Rule 45 petition [1] which seeks the reversal of the Court of Appeals
decision[2] and resolution[3] affirming the RTCs decision[4] holding petitioner liable for
actual damages for breach of contract.
Petitioner Asset Privatization Trust[5] (petitioner) was a government entity
created for the purpose to conserve, to provisionally manage and to dispose assets
of government institutions.[6] Petitioner had acquired from the Development Bank
of the Philippines (DBP) assets consisting of machinery and refrigeration
equipment which were then stored at Golden City compound, Pasay City. The
compound was then leased to and in the physical possession of Creative Lines,
Inc., (Creative Lines). These assets were being sold on an as-is-where-is basis.
On 7 November 1990, petitioner and respondent entered into an absolute
deed of sale over certain machinery and refrigeration equipment identified as Lots
Nos. 2, 3 and 5. Respondent paid the full amount of P84,000.00 as evidenced by
petitioners Receipt No. 12844. After two (2) days, respondent demanded the

delivery of the machinery it had purchased. Sometime in March 1991, petitioner

issued Gate Pass No. 4955. Respondent was able to pull out from the compound
the properties designated as Lots Nos. 3 and 5. However, during the hauling of Lot
No. 2 consisting of sixteen (16) items, only nine (9) items were pulled out by
respondent. The seven (7) items that were left behind consisted of the following:
(1) one (1) Reefer Unit 1; (2) one (1) Reefer Unit 2; (3) one (1) Reefer Unit 3; (4)
one (1) unit blast freezer with all accessories; (5) one (1) unit chest freezer; (6) one
(1) unit room air-conditioner; and (7) one (1) unit air compressor. Creative Lines
employees prevented respondent from hauling the remaining machinery and
equipment.
Respondent filed a complaint for specific performance and damages against
petitioner and Creative Lines. During the pendency of the case, respondent was
able to pull out the remaining machinery and equipment. However, upon inspection
it was discovered that the machinery and equipment were damaged and had
missing parts.
[7]

Petitioner argued that upon the execution of the deed of sale it had complied
with its obligation to deliver the object of the sale since there was no stipulation to
the contrary. It further argued that being a sale on an as-is-where-is basis, it was the
duty of respondent to take possession of the property. Petitioner claimed that there
was already a constructive delivery of the machinery and equipment.
The RTC ruled that the execution of the deed of absolute sale did not result
in constructive delivery of the machinery and equipment. It found that at the time
of the sale, petitioner did not have control over the machinery and equipment and,
thus, could not have transferred ownership by constructive delivery. The RTC ruled
that petitioner is liable for breach of contract and should pay for the actual
damages suffered by respondent.

On petitioners appeal, the Court of Appeals affirmed in toto the decision of

the RTC.
Hence this petition.

Before this Court, petitioner raises issues by attributing the following errors
to the Court of Appeals, to wit:
I.
The Court of Appeals erred in not finding that petitioner had complied
with its obligation to make delivery of the properties subject of the
contract of sale.
II.
The Court of Appeals erred in not considering that the sale was on an asis-where-is basis wherein the properties were sold in the condition and in
the place where they were located.
III.
The Court of Appeals erred in not considering that respondents acceptance
of petitioners disclaimer of warranty forecloses respondents legal basis to
enforce any right arising from the contract.
IV.
The reason for the failure to make actual delivery of the properties was not
attributable to the fault and was beyond the control of petitioner. The claim
for damages against petitioner is therefore bereft of legal basis.[8]

The first issue hinges on the determination of whether there was a

constructive delivery of the machinery and equipment upon the execution of the
deed of absolute sale between petitioner and respondent.
The ownership of a thing sold shall be transferred to the vendee upon the
actual or constructive delivery thereof.[9] The thing sold shall be understood as
delivered when it is placed in the control and possession of the vendee.[10]
As a general rule, when the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is the object
of the contract, if from the deed the contrary does not appear or cannot clearly be

inferred. And with regard to movable property, its delivery may also be made by
the delivery of the keys of the place or depository where it is stored or kept. [11] In
order for the execution of a public instrument to effect tradition, the purchaser must
be placed in control of the thing sold.[12]

However, 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. It is necessary that the vendor shall
have control over the thing sold that, at the moment of sale, its material delivery
could have been made.[14] Thus, a person who does not have actual possession of
the thing sold cannot transfer constructive possession by the execution and delivery
of a public instrument.[15]
In this case, there was no constructive delivery of the machinery and equipment
upon the execution of the deed of absolute sale or upon the issuance of the gate
pass since it was not petitioner but Creative Lines which had actual possession of
the property. The presumption of constructive delivery is not applicable as it has to
yield to the reality that the purchaser was not placed in possession and control of
the property.
[13]

On the second issue, petitioner posits that the sale being in an as-is-whereis basis, respondent agreed to take possession of the things sold in the condition
where they are found and from the place

where they are located. The phrase as-is where-is basis pertains solely to the
physical condition of the thing sold, not to its legal situation. [16] It is merely
descriptive of the state of the thing sold. Thus, the as-is where-is basis merely
describes the actual state and location of the machinery and equipment sold by
petitioner to respondent. The depiction does not alter petitioners responsibility to
deliver the property to respondent.
Anent the third issue, petitioner maintains that the presence of the disclaimer
of warranty in the deed of absolute sale absolves it from all warranties, implied or
otherwise. The position is untenable.
The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale. [17] Ownership of the thing sold is
acquired by the vendee from the moment it its delivered to him in any of the ways
specified in articles 1497 to 1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to the vendee. [18] A perusal of the
deed of absolute sale shows that both the vendor and the vendee represented
andwarranted to each other that each had all the requisite power and
authority to enter into the deed of absolute sale and that they shall

perform each of their respective obligations under the deed of absolute in

accordance with the terms thereof.[19] As previously shown, there was no actual or
constructive delivery of the things sold. Thus, petitioner has not performed its
obligation to transfer ownership and possession of the things sold to respondent.
As to the last issue, petitioner claims that its failure to make actual delivery
was beyond its control. It posits that the refusal of Creative Lines to allow the
hauling of the machinery and equipment was unforeseen and constituted a
fortuitous event.
The matter of fortuitous events is governed by Art. 1174 of the Civil Code
which provides that except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires
assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which though foreseen, were inevitable. The elements of a
fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence,
must have been independent of human will; (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to render it impossible for the
debtors to fulfill their obligation in a normal manner, and; (d) the obligor must
have been free from any participation in the aggravation of the resulting injury to
the creditor.[20]
A fortuitous event may either be an act of God, or natural occurrences such
as floods or typhoons, or an act of man such as riots, strikes or wars. [21] However,
when the loss is found to be partly the result of a persons participationwhether by
active intervention, neglect or failure to actthe whole occurrence is humanized and
removed from the rules applicable to a fortuitous event.[22]
We quote with approval the following findings of the Court of Appeals, to
wit:
We find that Creative Lines refusal to surrender the property to the vendee
does not constitute force majeure which exculpates APT from the payment of

damages. This event cannot be considered unavoidable or unforeseen. APT knew

for a fact that the properties to be sold were housed in the premises leased by
Creative Lines. It should have made arrangements with Creative Lines beforehand
for the smooth and orderly removal of the equipment. The principle embodied in
the act of God doctrine strictly requires that the act must be one occasioned
exclusively by the violence of nature and all human agencies are to be excluded
from creating or entering into the cause of the mischief. 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.[23]

Moreover, Art. 1504 of the Civil Code provides that 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 of the goods sold does not
pass to the buyer until there is actual or constructive delivery thereof. As
previously discussed, there was no actual or constructive delivery of the machinery
and equipment. Thus, the risk of loss or deterioration of property is borne by
petitioner. Thus, it should be liable for the damages that may arise from the delay.
Assuming arguendo that Creative Lines refusal to allow the hauling of the
machinery and equipment is a fortuitous event, petitioner will still be liable for
damages. This Court agrees with the appellate courts findings on the matter of
damages, thus:
Article 1170 of the Civil Code states: Those who in the performance of
their obligations are guilty of fraud, negligence, or delay and those who in any
manner contravene the tenor thereof are liable for damages. In contracts and
quasi-contracts, the damages for which the obligor who acted in good faith is
liable shall be those that are the natural and probable consequences of the breach
of the obligation, and which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted. The trial court correctly
awarded actual damages as pleaded and proven during trial.[25]
[24]

WHEREFORE, the Court AFFIRMS in toto the Decision of the Court of

Appeals dated 31 August 2004. Cost against petitioner.
SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
Acting Chairperson

PRESBITERO J. VELASCO, JR. TERESITA LEONARDO-DE CASTRO

Associate Justice Associate Justice

ARTURO D. BRION
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.

CONCHITA CARPIO MORALES

Associate Justice
Acting Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

*Acting Chairperson in lieu of Senior Associate Justice Leonardo Quisumbing, who is on official leave per
Special Order No. 618.
**Designated as an additional member of the Second Division in lieu of Senior Associate Justice Leonardo
Quisuimbing, who is on official leave, per Special Order No. 619.
[1]

Rollo, pp. 27-64.

[2]
Dated 31 August 2004. Penned by Associate Justice Magdangal M. De Leon and concurred in by
Associate Justices Romeo A. Brawner and Mariano C. Del Castillo; Id. at 14-24.

Dated 17 February 2005. Penned by Associate Justice Magdangal M. De Leon and concurred in by
Associate Justices Romeo A. Brawner and Mariano C. Del Castillo. Id. at 11-13
[3]

[4]

[5]

Dated 21 September 1998. Penned by Judge Francisco B. Ibay; Id. at 79-86.

R.A. No. 7886 extended the term of APT up to December 31, 1999.

[6]

Proclamation No. 50, Sec. 9

Sec. 9. Creation.There is hereby created a public trust to be known as the Asset Privatization Trust,
hereinafter referred to as the Trust, which shall, for the benefit of the National Government, take title to and
possession of, conserve, provisionally mange and dispose the assets as defined in Section 2 herein which have been
identified for privatization or disposition and transferred to the Trust for the purpose, pursuant to Section 23 of this
Proclamation.
[7]

Records, pp. 1-5.

[8]

Rollo, pp. 40-41.

[9]

CIVIL CODE, Art. 1477.

[10]

[11]

CIVIL CODE, Art. 1497.

CIVIL CODE, Art. 1498.

[12]

Santos v. Santos, 418 Phil. 681, 690-691 (2001), citing Danguilan v. IAC 168 SCRA 22.

Ten Forty Realty and Development Corp. v. Cruz, 457 Phil. 603, citing Equatorial Realty Development
Inc. v. Mayfair Theater, Inc., 370 SCRA 56, November 21, 2001.
[13]

[14]

BAVIERA, ARACELI. SALES. U.P. Law Complex 2005 p. 67.

[15]

Id. citing Masallo v. Cesar, 39 Phil. 134 (1918).

[16]

National Development Company v. Madrigal Wan Hai Lines Corporation, 458 Phil. 1038, 1054 (2003).

[17]

CIVIL CODE, Art. 1495.

[18]

CIVIL CODE, Art. 1496.

[19]

Item no. 2 of the terms and conditions of the Deed of Absolute Sale. C.A. Records p. 525.

Lea Mer Industries, Inc. v. Malayan Insurance Co., Inc. G.R. No. 161745, 30 September 2005, 471
SCRA 698,708 citing Mindex Resources Development v. Morillo, 428 Phil. 934, 944; Philippine American General
Insurance Co., Inc. v. MGG Marine Services, Inc., 428 Phil. 705,714; Metal Forming Corp. v. Office of the
President, 317 Phil.853, 859; Vasquez v. Court of Appeals, 138 SCRA 553, 557, September 13, 1985; Republic v.
Luzon Stevedoring Corp., 128 Phil. 313, 318.
[20]

Philippine Communications Satellite Corporation v. Globe Telecom, Inc. G.R. Nos. 147324 and
147334, 25 May 2005, 429 SCRA153,163.
[21]

Sicam v. Jorge, G.R. No. 159617, 8 August 2007, 529 SCRA 443, 460, citing Mindex v. Resources
Development Corporation v. Morillo, 482 Phil. 934, 944.
[22]

[23]

Rollo, pp. 21-22, citing National Power Corporation v. Court of Appeals, 222 SCRA 415.

[24]

CIVIL CODE, Art. 2201.

[25]

Rollo. pp. 22-23.