GR L 1721; (May, 1950) (Digest)
G.R. No. L-1721; May 19, 1950
JUAN D. EVANGELISTA ET AL., plaintiffs-appellants, vs. RAFAEL SANTOS, defendant-appellee.
FACTS
Minority stockholders of Vitali Lumber Company, Inc. sued its president, manager, and treasurer (who held over 50% of the stock), Rafael Santos, for damages due to alleged mismanagement and misuse of corporate assets, leading to the corporation’s ruin. The complaint, filed in the Court of First Instance of Rizal, alleged Santos resided in Pasay, Rizal. Santos moved to dismiss on grounds of improper venue (claiming his true residence was Iloilo City) and failure of the complaint to state a cause of action. The trial court granted the motion to dismiss on both grounds.
ISSUE
1. Whether the venue was improperly laid.
2. Whether the complaint stated a cause of action in favor of the plaintiff stockholders.
RULING
1. Yes, the venue was improper. For actions in personam, venue lies where the defendant resides or may be found, or where the plaintiff resides, at the plaintiff’s election. The phrase “may be found” applies only when the defendant has no residence in the Philippines. Here, the defendant proved his residence was Iloilo City, not Rizal. Therefore, the action was filed in the wrong province.
2. No, the complaint failed to state a cause of action for the plaintiffs’ benefit. The action, as pleaded, was a direct suit by the stockholders for their personal benefit (seeking payment for the value of their shares). However, a claim for mismanagement by corporate officers is a cause of action belonging to the corporation itself. A stockholder may bring a derivative suit on behalf of the corporation only if corporate officers refuse to sue, but any recovery must pertain to the corporation, not directly to the stockholder. Furthermore, direct distribution to stockholders is prohibited by section 16 of the Corporation Law until all corporate debts are paid and the corporation is lawfully dissolved.
The order of dismissal was affirmed, but without prejudice to the filing of a proper derivative suit in the correct venue.
AI Generated by Armztrong.