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PRIME WHITE CEMENT CORPORATION v. IAC

FACTS:

The petitioner, Prime White Cement Corporation, entered into a dealership agreement with the plaintiff, Alejandro Te, to act as the exclusive dealer and distributor of the petitioner's cement products in the Mindanao area for a term of five years. The agreement stated that the petitioner would sell and supply 20,000 bags of white cement per month to the plaintiff, who would pay P9.70 per bag. The agreement also required the plaintiff to open an irrevocable letter of credit with a bank upon certification of the shipment of the goods. The plaintiff, relying on the dealership agreement, entered into contracts with several hardware stores to sell the white cement. However, the petitioner later imposed new conditions, such as delaying the delivery, reducing the quantity, and increasing the price of the white cement. The petitioner also entered into an exclusive dealership agreement with another party. As a result, the plaintiff canceled his contracts and filed a lawsuit against the petitioner. The trial court ruled in favor of the plaintiff and awarded him damages. The appellate court affirmed the decision based on the principle of estoppel. The petitioner now seeks the reversal of the decision, arguing that the dealership agreement is not a valid and enforceable contract.

ISSUES:

  1. Whether the fixed price of P9.70 per bag for a period of five years in the "dealership agreement" was fair and reasonable.

  2. Whether the "dealership agreement" entered into by the President of the corporation without authority from the Board of Directors is void or voidable.

  3. Whether the stockholders ratified the "dealership agreement" or were fully aware of its provisions.

  4. Whether the petitioner is entitled to damages.

RULING:

  1. The fixed price of P9.70 per bag for a period of five years in the "dealership agreement" was not fair and reasonable.

  2. The "dealership agreement" entered into by the President of the corporation without authority from the Board of Directors is void or voidable.

  3. The stockholders did not ratify the "dealership agreement" and were not fully aware of its provisions.

  4. The petitioner is not entitled to moral damages; however, the respondent is ordered to pay the petitioner the sum of P20,000.00 for attorney's fees, plus the cost of suit and expenses of litigation.

PRINCIPLES:

  • Under the Corporation Law and the present Corporation Code, corporate powers are exercised by the Board of Directors, unless otherwise provided by law. The Board may delegate specific powers to its President or any officer, and a contract entered into by the President can bind the corporation if ratified expressly or impliedly by the Board. Implied ratification may take various forms such as silence, acquiescence, acts showing approval, or acceptance and retention of benefits. The President may also bind the corporation in the ordinary course of business if the contract is reasonable. These rules apply when the President is dealing with a third person outside the corporation.

  • In a situation where a director or officer is dealing with his own corporation, the director owes a duty of loyalty and cannot sacrifice the corporation's interests for personal advantage. Directors have a duty to seek maximum profits for the corporation and cannot violate rules of fair play. They cannot use their power for personal advantage to the detriment of stockholders and creditors. A director's contract with his own corporation is not always void or voidable. It may be ratified by the stockholders if the contract is fair and reasonable, and a full disclosure of the director's adverse interest is made.

  • Section 32 of the Corporation Code provides the conditions for a contract of the corporation with one or more of its directors or officers to be voidable unless the following conditions are present: (1) the director's presence in the board meeting was not necessary to constitute a quorum, (2) the director's vote was not necessary for contract approval, (3) the contract is fair and reasonable under the circumstances, and (4) the contract with an officer has been previously authorized by the Board. If any of the first two conditions are absent, the contract may be ratified by a vote of the stockholders representing at least two-thirds of the outstanding capital stock or members, provided that full disclosure of the adverse interest is made and the contract is fair and reasonable.

  • A contract entered into without authority from the Board of Directors may be rendered void or voidable.

  • A contract must be fair and reasonable to be considered valid.

  • Directors have a duty to act in a manner that does not unduly prejudice the corporation.

  • Contracts entered into by a director in which the director is a party must be free from conflicts of interest and act in the best interest of the corporation.

  • Moral damages cannot be awarded to a corporation under the Civil Code.