9.

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 mere much more reason the Defendant should be liable for indemnity for acts it committed
in bad faith and with betrayal of confidence.

VELAYO v. SHELL
G.R. No. L-7817. October 31, 1956
FELIX, J.

FACTS:

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 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:
WON Shell is liable for damages considering that it did not violate any law.

HELD:

YES. The writer of this decision does not entertain any doubt that the Defendant — 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 and the Assignee that was latter
appointed, of the opportunity to recover said plane. In addition to the aforementioned Section 37,
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 maybe said that this article only contains a mere declarations 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".

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 mere much more reason the Defendant should be liable for indemnity for acts it committed
in bad faith and with betrayal of confidence.