The Supreme Court ruled that an “as-is-where-is” clause in a sales contract does not excuse the seller from their obligation to deliver the property. This case clarifies that such clauses only pertain to the physical condition of the property sold, not to the legal responsibility of transferring ownership and possession to the buyer. The seller remains responsible for ensuring the buyer gains control and possession of the items sold, regardless of the ‘as-is-where-is’ arrangement.

When “As-Is” Doesn’t Mean “Hands-Off”: Who Bears the Risk in Property Sales?

Asset Privatization Trust (APT) entered into a contract to sell machinery and refrigeration equipment to T.J. Enterprises. The agreement included an “as-is-where-is” clause. T.J. Enterprises paid for the equipment, but when they tried to collect it, they were prevented from taking all the items due to the property being held by a third party, Creative Lines, Inc. After some of the equipment was released, it was found to be damaged with missing parts. T.J. Enterprises then sued APT for failing to deliver the goods as per the sale agreement. This case examines whether the “as-is-where-is” clause absolves the seller of the duty to ensure the buyer obtains control and possession of the purchased items, or if the clause solely pertains to the physical condition of the goods.

The central issue revolves around the concept of delivery in sales contracts under the Philippine Civil Code. Article 1477 states that ownership is transferred upon actual or constructive delivery. Furthermore, Article 1497 clarifies that the thing sold is considered delivered when it’s placed in the control and possession of the buyer. Here, APT argued that the execution of the deed of sale constituted constructive delivery, thus fulfilling their obligation. However, the Court emphasized that constructive delivery requires the seller to have control over the thing sold at the time of the sale. Since Creative Lines, not APT, had physical possession, no constructive delivery occurred.

APT also argued that the “as-is-where-is” clause absolved them of responsibility for the condition of the equipment. The Court dismissed this argument, explaining that this phrase refers only to the physical condition of the item at the time of sale. The “as-is-where-is” clause doesn’t diminish the seller’s fundamental duty to deliver the item. The clause merely indicates the buyer accepts the item with existing flaws, if any.

Regarding the disclaimer of warranty, the Court referenced Article 1495 of the Civil Code, which dictates the vendor must transfer ownership, deliver, and warrant the thing sold. While the deed contained a disclaimer, it also included mutual warranties of authority and obligation to perform under the agreement. Given that delivery didn’t occur, APT failed to fulfill its duty to transfer ownership and possession. This highlights the precedence of delivery obligations over general disclaimers in cases involving non-performance.

APT contended that Creative Lines’ refusal to allow the removal of equipment was a fortuitous event beyond their control. The Court referred to Article 1174 of the Civil Code, which states that no person is responsible for unforeseen events, except when otherwise specified by law or stipulation, or when the nature of the obligation requires assumption of risk. A fortuitous event must be independent of human will, impossible to foresee, and render fulfillment of the obligation impossible.

The Court supported the Court of Appeals’ finding that Creative Lines’ refusal was not a fortuitous event. APT knew that the equipment was housed on property leased to Creative Lines and should have made prior arrangements. Additionally, Article 1504 of the Civil Code places the risk of loss or deterioration on the party at fault if delivery is delayed. The Supreme Court found APT liable because the refusal was not entirely independent of human intervention and should have been foreseen, and delivery had not occurred.

The Supreme Court therefore affirmed the Court of Appeals’ decision, holding APT liable for damages due to breach of contract. This case underscores the principle that sellers cannot evade their obligation to deliver sold items, even with an “as-is-where-is” clause. This ruling protects buyers by ensuring sellers remain accountable for transferring ownership and control of purchased goods, irrespective of their condition at the time of sale.

FAQs

What was the key issue in this case?	The central issue was whether an “as-is-where-is” clause in a sales contract excuses the seller from the obligation to deliver the property to the buyer.
What does “as-is-where-is” mean?	The phrase “as-is-where-is” refers solely to the physical condition of the thing sold, meaning the buyer accepts the property with all existing faults and in its current location.
Did the Supreme Court side with the buyer or the seller?	The Supreme Court sided with the buyer (T.J. Enterprises), ruling that the seller (APT) was still responsible for delivering the equipment despite the “as-is-where-is” clause.
What is the seller’s obligation in a contract of sale?	The seller is obligated to transfer ownership of the thing sold and deliver it to the buyer. This includes ensuring that the buyer gains control and possession of the property.
What constitutes a valid delivery?	Valid delivery can be either actual (physical transfer) or constructive (symbolic transfer). Constructive delivery requires the seller to have control over the property at the time of the sale.
What is a fortuitous event?	A fortuitous event is an unforeseen or inevitable event that is independent of human will, such as a natural disaster, that makes it impossible to fulfill an obligation.
Can a seller be excused from liability due to a fortuitous event?	A seller may be excused if the event meets the criteria of a fortuitous event. However, if the event was foreseeable or partly caused by the seller’s actions, they may still be liable.
What kind of damages was the seller liable for?	The seller (APT) was held liable for actual damages suffered by the buyer (T.J. Enterprises) as a result of the breach of contract due to failure to deliver the goods.

In conclusion, the Supreme Court’s decision serves as a crucial reminder that sales agreements are not merely about transferring title on paper. The responsibility to ensure the buyer receives actual control and possession of the purchased property rests squarely on the seller’s shoulders. The ruling shields buyers from scenarios where sellers attempt to sidestep their delivery obligations using “as-is-where-is” clauses.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: ASSET PRIVATIZATION TRUST VS. T.J. ENTERPRISES, G.R. No. 167195, May 08, 2009