PRIME WHITE CEMENT CORPORATION vs.

INTERMEDIATE APPELLATE COURT and ALEJANDRO

TE G.R. No. L-68555. March 19, 1993
March 14, 2018

FACTS:
Falcon, president of Prime White Cement Corporation (PWCC) and Trazo, Board member of
PWCC entered into an agreement with Te, also a Board member of PWCC. They agreed that the
latter shall be the sole dealer of Prime White cement in Mindanao. Te already made known to
the public that he is the sole dealer of cements in Mindanao before the cement is to be
delivered, thus various hardware then approached him to be his sub-dealers and consequently
he entered into various contracts with them.

Falcon and Trazo were not authorized by the Board of PWCC to enter into such contract.
Nevertheless, the Board wished to retain the contract but they wanted some amendment
which includes the increase of the selling price per bag, decrease of the total amount of cement
bags plus the contract shall only be effective for a period of three months and not 6 years. Te
refused the counter-offer. PWCC then awarded the contract to someone else.

ISSUE: Whether PWCC is correct in terminating the contract of Te, Falcon and Trazo.

HELD:
YES. Te is what can be called as a self-dealing director as he deals business with the same
corporation in which he is a director. There is nothing wrong per se with that. However, Sec. 32
provides that a contract of the corporation with one or more of its directors or trustees or
officers is voidable, at the option of such corporation, unless all the following conditions are
present:

1. That the presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in the case of an officer, the contract with the officer has been previously authorized by
the Board of Directors.
In this particular case, the Supreme Court focused on the fact that the contract between PWCC
and Te through Falcon and Trazo was not reasonable because of the very low selling price. The
Price at that time was at least P13.00 per bag and the original contract only stipulates P9.70.
Also, the original contract was for 6 years and there’s no clause in the contract which protects
PWCC from inflation. As a director, Te in this transaction should protect the corporation’s
interest more than his personal interest. His failure to do so is disloyalty to the corporation.
Hence, PWCC has all the rights to void the contract and look for someone else, which it did.