Everett vs. The Asia Banking Corporation G.R. No.

L-25241
November 3, 1926

Facts:

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. 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 the corporation, had a legal right to
proceed the case? YES

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

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.