Civil Law

Alfredo Velayo vs Shell Company

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G.R. No. L-7817 – 100 Phil 168 – Civil Law – Torts and Damages – Obligations arising from human relations

Prior to 1948, Commercial Airlines (CALI) owed P170k (abt. $79k) to Shell Company. CALI offered its C-54 plane as payment to Shell Company (the plane was in California) 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 Fitzgerald to the three man working committee. Later, the working committee convened to discuss how CALI’s asset should be divided amongst the creditors but while such was pending, Fitzgerald sent a telegraph message to Shell USA 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 is 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 made by Shell. This prompted these 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 it is not liable for damages because there is nothing in the 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.

HELD: Yes. The basis of such liability, in the absence of law, is Article 21 of the Civil Code which states:

Art. 21. Any person who willfully 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.

Thus at one stroke, the legislator, if the forgoing rule is approved (as it was approved), would vouchsafe adequate legal remedy for that untold numbers of moral wrongs which is impossible for human foresight to provide for specifically in the statutes. A moral wrong or injury, even if it does not constitute a violation of a statute law, should be compensated by damages. Moral damages (Art. 2217) may be recovered (Art. 2219). In Article 20, the liability for damages arises from a willful or negligent act contrary to law. In this article, the act is contrary to morals, good customs or public policy.

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