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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. To ensure payment of their claims against CALI, the creditors agreed that it would be
advantageous not to file suits against CALI but to strive for a fair pro-rata division of its assets,
although CALI announced that in case of non-agreement of the creditors on a pro-rata division
of the assets, it would file insolvency proceedings. 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.
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 (sister company) in
the amount of $79k.
Shell USA then filed with a California court an action for collection of the assigned credit and
applied for a writ of attachment against CALI’s Douglas C-54 plane which was in California. The
writ of attachment 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 was appointed as assignee of the other creditors of CALI. 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.

RULING:

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.

: PROVISIONS ON HUMAN RELATIONS INTENDED AS CATCH-ALL PROVISIONS FOR ANY


WRONG FOR WHICH NO SPECIFIC REMEDY IS PROVIDED FOR BY LAW.

Defendant schemed and effected the transfer to 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 and the Assignee that was latter appointed, of the
opportunity to recover said plane.

Chapter 2 of the PRELIMINARY TITLE of the Civil Code, dealing on Human Relations, provides
the following:

"Art 19. Any person must, in the exercise of his rights and in the performances of his duties, act
with justice, give everyone his due and observe honesty and good faith".

It may be said that this article only contains a mere declaration of principles and while such
statement may be is essentially correct, yet We find that such declaration is implemented by
Article 21 and sequence of the same Chapter which prescribe the following:

"Art. 21. 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".

Another rule is expressed in Article 24 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. It is most needful that this ancient principle be clearly and specifically consecrated in
the Civil Code to the end that in cases not foreseen by the lawmaker, no one may unjustly
benefit himself to the prejudice of another. 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 defendant, the latter shall be liable for indemnity if through the act or event
he was benefited." with much more reason the Defendant should be liable for indemnity
for acts it committed in bad faith and with betrayal of confidence.

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