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Everett vs.

The Asia Banking Corporation


Facts:
The plaintiffs, by Thomas Cary Welch, complaint of the
defendants and for cause of action against them allege:

This complaint mentioned the defendant the Asia


Banking Corporation(the Bank), was a foreign
banking corporation duly licensed to transact
banking business in the Philippine and its principal
office and place of business at Manila but never has
been empowered by law or licensed to do any
business other than commercial banking in the
Philippine Islands. That the defendants Mullen, Alfred
F. Kelly, Mears, and Macintosh were officers, agents
and employees of the said Bank.
The Teal and Company (the Company) was a
domestic corporation duly incorporated under the
laws of the Philippine and principal office and place of
business at Manila. The plaintiffs Everett, Clifford,
Teal and Robinson were the principal stockholders in
the Company that the defendant Barclay was the
only other stockholder, owning one share.
In 1921, The Company has become indebted to the
firm of H. W. Peabody and Company in about the sum
of P300,000, being for tractors, plows and parts
which had been ordered and delivered, the Bank and
other banks in Manila held drafts accepted by the
Company under said H. W. Peabody and Company's
guarantee. The Company made payments on its
indebtedness through the Bank to H. W. Peabody and
Company.
In 1921, the Bank persuaded the Company and the
said H. W. Peabody and Co. and Smith, Kirkpatrick
and Co. to enter into a so called "creditors

agreement" with itself, wherein it was mutually


agreed that neither of the parties should take action
to collect its debts from the Company for the term of
two years after the date thereof. The plaintiffs have
no copy of said agreement but beg leave to refer to
the original of same, in possession of the Bank, for
greater certainty.
In December, 1922, said company was solvent and in
the enjoyment of a large, growing, and lucrative
business and in the possession of a valuable
reputation and good-will and had done its banking
business and financing almost exclusively thru and
with the Bank and by reason of such continued
relations the officers of the Company had acquired
trust and confidence in the integrity and good
intentions of the said bank and its officers and the
other defendants.
Toward the end of the year 1922, the Bank,
through its defendant Mullen represented to
the Company and its managers that for the
protection both of the Bank and the Company
it was advisable for them both that the Bank
should temporarily obtain control of the
management and affairs of the Company in
order that the affairs of the Company could be
conducted by the Bank without interference or
hindrance from outside, and to this end that it
would be necessary for the stockholders in the
Company to place their shares therein in a
Voting Trust to be held by the Bank would then
finance the Company under its own supervision
and that if and when the same were successful
and in position to resume independent
operation the said trust would be terminated
and the stock returned to its true owners, and
in case the Bank decided to discontinue

operation under the said trust then the stock


also would be so returned.
It was also stated by Mullen that in order to protect
the mutual interests of the Bank and the Company it
was necessary to carry into effect the proposed
voting trust without the knowledge of the creditors
place the Bank in an advantageous position with
regard to them. The plaintiffs were induced to sign
and did sign and deliver to the Bank simultaneously a
so-called "Voting Trust Agreement," executed by the
plaintiff stockholders and a Memorandum of
Agreement executed by the Company.
Subsequent to the execution and delivery of the
voting trust and MOA the defendant Mullen, caused
and procured, by virtue of the powers delegated in
the said voting trust, the displacement and removal
from the Board of Directors of the Company of each
and every person who was at the time of the
execution of the said voting trust a stockholder in the
Company and the substitution in their places as such
directors, the defendants, or employees of the Bank,
and no subsequent time did the trustee allow to act
as a Director of the Company any person who was in
fact a stockholder in the Company, and the latter has
been exclusively controlled and managed by the said
defendants.
To defraud these plaintiffs, the new so-called
directors proceeded to remove from office the
Secretary of the Company, and to discharge from
employment all of the old managers and the
stockholders (Plaintiffs, who were also the real
owners).
The said defendants gave pledges and mortgages
from the Company to the Bank and entered contracts
foreclose and to sell the property of the Company
without knowing the interests of the Company in

which the Company was not represented by anyone


defendant and tricked and deluded the courts into
giving judgments in which the rights of the real
parties were concealed and unknown to the courts.
In August 1923, said defendants, filed in the Bureau
of Commerce and Industry of the Philippine Islands,
articles of incorporation of a corporation called the
"Philippine Motors Corporation," and the defendants
were officers or employee of the Bank. Such
incorporation was a fraud upon these plaintiffs for
the reason that it was intended for the sole purpose
of taking over the assets of the Company and said
defendants were enabled to effectuate such intent by
reason of their positions as officers and employees of
the Bank and because each of them were de facto
directors of the Company, by reason of their
appointments by defendant Mullen, the Voting
Trustee.
Thereafter said Bank turned over to the Philippine
Motors Corporation all of the business and assets of
the company of every name nature and description.
Since then, the PMC has continued to conduct and
advantage itself of the business of the Company.

Issue:
WON the plaintiffs, not being stockholders in
corporation, had a legal right to proceed the case? YES

the

Held:
The court below held that the corporation Teal and
Company is a necessary party plaintiff and that the
plaintiff stockholders, not having made any demand
on the Board to bring the action, are not the proper
parties plaintiffs. But, like most rules, the rule in
question has its exceptions. It is alleged in the
complaint and, consequently, admitted through

the demurrer that the corporation Teal and


Company is under the complete control of the
principal defendants in the case, and, in these
circumstances, it is obvious that a demand
upon the Board of Directors to institute an
action and prosecute the same effectively
would have been useless, and the law does not
require litigants to perform useless acts.
It was necessary for the plaintiffs to set forth in full
the history of the various transactions which
eventually led to the alleged loss of their property
and, in making a full disclosure, references to the
Philippine Motors Corporation appear to have been

inevitable. It is to be noted that the plaintiffs seek no


judgment against the corporation itself at this stage
of the proceedings.
The judgment of the court below is therefore
reversed, the defendants demurrer is overruled
Take note:
The court recognized the right of the transferring
stockholders to set aside the trust agreement when their
rights are trampled upon by the trustee. Under the general
principles of law, stockholders who are defrauded by their
trustees have a right to revoke the trust and recover
damages from such trustees.

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