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Juan D. Evangelista et al. v. Rafael Santos AUTHOR: Magsino, Patricia Marie C.

G. R. No. L-1721 (May 19, 1950) NOTES:


TOPIC: Derivative suits Derivative suit a suit by a shareholder to enforce a
PONENTE: Reyes, J. corporate cause of action
- a suit brought by one or more
stockholders/members in the name and on behalf of
the corporation to redress wrongs committed against
it (from UP reviewer)

Nominal party An entity whose involvement as a


defendant/plaintiff in a case has no bearing on the
outcome

* For plaintiffs, only Evangelista was named

FACTS:
Action by the minority stockholders (Evangelista et al as plaintiffs) of Vitali Lumber Company, Inc. against
defendant Rafael Santos a majority stockholder, holding more than 50% of the stocks of the corporation
The complaint alleges that Santos, in his triple capacity as President, Manager, and Treasurer mismanaged the
affairs of the corporation causing its properties and assets to disappear, and the subsequent complete ruin and
total depreciation of the corporation stocks
Complaint prays for the judgment requiring the defendant to render an account of his administration of the
corporate affairs and assets, and to pay the plaintiffs the value of the stocks they each hold
Defendant Santos filed a motion for the dismissal of the complaint on 2 grounds; (1) improper venue, and (2)
complaint did not state a cause of action in favor of the plaintiffs
LOWER COURT DISMISSED THE COMPLAINT BASED ON THOSE GROUNDS
For improper venue Defendant Santos was served summons at his residence in Pasay but he states that he is
not a resident of that city but actually a resident of Iloilo City
The plaintiffs, believing that Santos resided in the province of Rizal, brought their action in the CFI of that
province, the lower court found that Santos is not a resident of Rizal but of Iloilo City
Plaintiffs now appeal to the court as to their right to bring this action for their benefit

ISSUE(S):

Do the plaintiffs have a right to bring this action for their benefit?

HELD:
NO. They do not have the right to bring this action for their benefit. The real party in interest is the
corporation, they may not directly claim damages for themselves.
Lower Court decision is affirmed.

RATIO:

The complaint shows that the action is for damages resulting form the mismanagement of the affairs, and assets
resulting to the complete ruin of the corporation, and the subsequent loss of the value of its stocks. Clearly the
injury suffered was primarily to the corporation and not to the plaintiffs. The real party in interest is the
corporation.
The stockholders (Evangelista et al.) cannot directly claim those damages for themselves because it would result in
appropriation and distribution of the corporate assets before the dissolution of the corporation
The damages to be recovered should pertain to the corporation, in other words, it is a derivative suit brought by a
stockholder as the nominal party for the benefit of the corporation the real party in interest.
In this case, the plaintiffs brought the action not for the corporations benefit but for their own benefit
The Court finds that the plaintiffs complaint shows no cause of action in their favor and affirms the ruling of the
lower court dismissing their complaint on that ground
The Court notes that the action stated in the complaint is susceptible of being converted into a derivative suit for
the benefit of the corporation by a mere change of prayer.
Since it was filed in the wrong venue, it is not possible now so the complaint has to be dismissed on this ground as
well
Order appealed from is affirmed, but with no prejudice to the filing of the proper action in the proper venue.
CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):