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Prime White Cement vs.

IAC
G.R. No. L-68555; March 19, 1993
FACTS:
Prime White Cement entered into a dealership agreement with one of its
directors, Alejandro Te, for the latter to be the exclusive distributor of 20,000 bags of
Prime White cement per month @ P9.70 per bag for the entire Mindanao area for 5
years, and that a letter of credit be opened to secure payment. Te advertised his
dealership and was able to obtain possible clients, and entered into agreements with
several hardware stores for the purchase of the cement. Te then informed Prime White
of the orders, but the latter imposed additional conditions, which effectively delayed the
delivery of the cement, lowered the number of bags to be delivered, and increased the
price per bag. It also made the prices subject to change unilaterally and additional
conditions on the manner of payment. Te refused to comply and Prime White cancelled
the dealership agreement. Te sued for specific performance and damages. TC ruled in
favor of Te.
ISSUE:
WON the dealership agreement is a valid and enforceable contract binding on the
corporation.
HELD:

NO. It is not valid and enforceable. All corporate powers are exercised by the
Board. It may also delegate specific powers to its President or other officers. In the
absence of express delegation, a contract entered into by the President in behalf of the
corporation, may still bind the latter if the board should ratify expressly or impliedly. In
the absence of express or implied ratification, the President may as a general rule bind
the corporation through a contract in the ordinary course of business, provided the
same is reasonable under the circumstances. These rules are applicable where the
President or other officer acting for the corporation is dealing with a third person.
The situation is different where a director or officer is dealing with his own
corporation. Te was not an ordinary stockholder; he was a member of the Board and
Auditor of the corporation. He is what is often called a self-dealing director. As a
director, he holds a position of trust and owes a duty of loyalty to his corporation. In
case his interests conflict with those of the corporation, he cannot sacrifice the latter to
his own advantage and benefit. The trust relationship springs from the control and
guidance of the corporate affairs and property interests of the stockholders. A directors
contract with his corporation is not in all instances void or voidable. If the contract is fair
and reasonable under the circumstances, it may be ratified by the stockholders
provided a full disclosure of his adverse interest is made.