VELAYO vs. SHELL CO.

G.R. No. L-7817, October 31, 1956

FACTS:

 Since the start of Commercial Air Lines, Inc. (CALI) operations, its fuel
needs were all supplied by the defendant Shell Company (Shell PH).

 Prior to 1948, (CALI) owed P170,162.S8 (abt. $79k) to Shell

Company. CALI offered its C-54 plane located in California as payment to
Shell Company but Shell at that time declined as it thought CALI had
sufficient money to pay its debt.

 In 1948 however, CALI was going bankrupt so it called upon an informal

meeting of its creditors. In that meeting, the creditors agreed to appoint
representatives to a working committee that would determine the order of
preference as to how each creditor should be paid. They also agreed not
to file suit against CALI but CALI did reserve that it will file insolvency
proceedings should its assets be not enough to pay them up. Shell
Company was represented by a certain Mr. Desmond Fitzgerald to the
(three man) working committee. Later, the working committee convened to
discuss how CALI’s asset should be divided amongst the creditors. While
such was pending, Fitzgerald sent a telegraph message to Shell Oil (USA),
Shell Philippines’ sister company, advising the latter that Shell Philippines
is assigning its credit to Shell USA in the amount of $79k, thereby
effectively collecting almost all if not the entire indebtedness of CALI to
Shell Philippines. Shell USA got wind of the fact that CALI has a C-54
plane situated in California and so Shell USA petitioned before a California
court to have the plane be the subject of a writ of attachment which was
granted.

 Meanwhile, the stockholders of CALI were unaware of the assignment of

credit made by Shell Philippines to Shell USA and they went on to approve
the sale of CALI’s asset to the Philippine Airlines.

 In September 1948, the other creditors learned of the assignment of credit

made by Shell. This prompted the other creditors to file their own complaint
of attachment against CALI’s assets.

 CALI then filed for insolvency proceedings to protect its assets in the
Philippines from being attached. Alfredo Velayo’s appointment as
CALI’s assignee was approved in lieu of the insolvency proceeding.
In order for him to recover the C-54 plane in California, it filed for a writ of
injunction against Shell Philippines in order for the latter to restrain Shell
USA from proceeding with the attachment and in the alternative that
 judgment be awarded in favor of CALI for damages double the amount of
the C-54 plane. The C-54 plane was not recovered.

 Shell Company argued that it is not liable for damages because there
is no law which prohibits a company from assigning its credit, it
being a common practice.

ISSUE: Whether or not Shell is liable for damages considering that it did not
violate any law.

RULING:

YES.

Article 21 of the Civil Code states that any person who wilfully causes loss or
injury to another in a manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage. This is the legal remedy for
that untold numbers of moral wrongs which is impossible for human foresight
to provide for specifically in the statutes.

Another rule is expressed in Article 23 which compels the return of a thing

acquired ‘without just or legal grounds’. This provision embodies the doctrine
that no person should unjustly enrich himself at the expense of another, which
has been one of the mainstays of every legal system for centuries.

Now, if Article 23 of the Civil Code goes as far as to provide that: “Even if an
act or event causing damage to another’s property was not due to the fault or
negligence of the Shell, the latter shall be liable for indemnity if through the act
or event he was benefited” with mere much more reason the Shell should be
liable for indemnity for acts it committed in bad faith and with betrayal of
confidence. Shell taking advantage of his knowledge that insolvency
proceedings were to be instituted by CALI if the creditors did not come to an
understanding as to the manner of distribution of the insolvent asset among
them, and believing it most probable that they would not arrive at such
understanding as it was really the case — schemed and effected the transfer
of its sister corporation in the United States, where CALI’s plane C-54 was by
that swift and unsuspected operation efficaciously disposed of said insolvent’s
property depriving the latter, of the opportunity to recover said plane –to the
detriment of the other creditors.