G.R. No. L-1721 - Evangelista vs. Santos

The case is an action filed by minority stockholders of the Vitali Lumber Company, Inc., a corporation organized to exploit a lumber concession in Zamboanga, Philippines.
Plaintiffs, holding minority stock, allege that the defendant, Rafael Santos, controls more than 50% of the corporation’s stocks and simultaneously holds the positions of president, manager, and treasurer.
The complaint alleges that in his triple capacity, the defendant mismanaged the corporation’s affairs by neglecting his duties, which led to the lapse of the lumber concession and the disappearance of corporate properties and assets (machineries, buildings, warehouses, trucks, etc.).
Plaintiffs claim that such mismanagement resulted in the complete ruin of the corporation and a significant depreciation of its stocks.
As remedies, plaintiffs prayed that the defendant:

Render an account of his administration of the corporate affairs and assets.
Pay them the value of their respective participation in said assets based on their stock holdings.
Pay the costs of the suit.

In their complaint, plaintiffs alleged that for venue purposes, the defendant resided at 2112 Dewey Boulevard, Pasay, Rizal province.
Defendant filed a motion to dismiss the complaint on two primary grounds:

Defendant submitted an affidavit stating that although he maintains a house in Pasay (where his family resides and he temporarily stays for business), his permanent residence is in Iloilo City, where he is registered as a voter and maintains his residence certificate.
At the hearing, defendant further emphasized that his true domicile is in Iloilo City and that serving him in Pasay did not establish a proper venue.

Plaintiffs countered only with reference to the Sheriff’s return showing service of summons on the defendant at the Pasay address.
The trial court granted the defendant’s motion for dismissal on both grounds, a decision which the plaintiffs appealed to a higher court.

The first question pertains to the issue of venue, specifically whether the complaint was filed in the proper province given the defendant’s actual residence in Iloilo City rather than Pasay.
The second question concerns the right of the plaintiffs to bring the action for damages:

Whether the suit, which alleges mismanagement causing corporate ruin, is properly instituted by minority stockholders for their personal benefit.
Whether such an action, affecting corporate assets, should properly be filed as a derivative suit for the benefit of the corporation instead of a direct personal claim by the stockholders.

Is the court where the lawsuit was filed in the province of Rizal proper, given that the defendant’s true permanent residence is in Iloilo City?
How should the rules on venue under section 1 of Rule 5, particularly the interpretation of “reside” versus “found,” be applied in this context?

Do the allegations in the complaint establish a valid cause of action for damages by minority stockholders?
Does the nature of the alleged mismanagement, which resulted in damage to the corporation’s assets, require that the suit be brought as a derivative action for the benefit of the corporation rather than a direct claim by the stockholders?