G.R. No. L-68555 March 19, 1993
PRIME WHITE CEMENT CORPORATION, petitioner, vs. HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, respondents.

FACTS

On July 16, 1969, petitioner Prime White Cement Corporation, through its President Zosimo Falcon and Chairman of the Board Justo C. Trazo, entered into a dealership agreement with private respondent Alejandro Te. Te was a member of the corporation’s Board of Directors and its Auditor. The agreement appointed Te as the exclusive dealer/distributor of the corporation’s white cement in Mindanao for five years, with the corporation obligated to supply 20,000 bags per month starting September 1970 at P9.70 per bag, FOB Davao and Cagayan de Oro ports. In reliance on this agreement, Te advertised his dealership and entered into subsequent contracts with various hardware stores in Mindanao to sell the anticipated cement supply. When Te prepared to open the required letter of credit for the initial delivery, the corporation, through its corporate secretary, imposed new conditions: delivery of only 8,000 bags per month for three months starting November 1970 at an increased price of P13.30 per bag, subject to unilateral adjustment, with delivery at Asturias and payment in advance. The corporation refused to comply with the original agreement and later entered into an exclusive dealership with another party for Mindanao. Te sued for damages. The trial court awarded Te actual damages, moral damages, and attorney’s fees, which the Intermediate Appellate Court affirmed, ruling the agreement was valid and the corporation was estopped from denying its officers’ authority.

ISSUE

Whether the “dealership agreement” entered into by the President and Chairman of the Board of the petitioner corporation with a director of the same corporation (Alejandro Te) is a valid and enforceable contract.

RULING

No. The Supreme Court reversed the decision of the Intermediate Appellate Court. The agreement is not valid and enforceable. While corporate officers can generally bind the corporation, the situation is different when a director or officer is dealing with his own corporation as a “self-dealing” director. A director holds a position of trust and owes a duty of loyalty to the corporation, and cannot sacrifice corporate interests for personal advantage. A contract between a director and the corporation is voidable unless specific conditions are met, including that the contract is fair and reasonable. In this case, the agreement was grossly disadvantageous to the corporation. It fixed the price at P9.70 per bag for five years without any provision for price adjustment, while Te’s subsequent contracts with third parties contained protective clauses against price increases and were for shorter terms. There was no showing of full disclosure to or ratification by the stockholders. Te, as a director and the other party, was guilty of disloyalty for attempting to enrich himself at the corporation’s expense. The contract was therefore not valid. The Court set aside the appellate court’s decision, denied Te’s claims, and ordered him to pay the corporation attorney’s fees and costs. The Court also noted that a corporation cannot be awarded moral damages.