Alfredo Velayo vs Shell Company

Prior to 1948, Commercial Airlines (CALI) owed P170k (abt. $79k) to Shell
Company. CAL 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 CALIs 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 CALIs
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 CALIs assets. CALI then filed for insolvency
proceedings to protect its assets in the Philippines from being attached. Alfredo
Velayos appointment as CALIs 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 C54 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.