G.R. No. L-68555 Case Digest

G.R. No. L-68555, March 19, 1993

Prime White Cement Corporation

vs Hon. Intermediate Appellate Court and Alejandro Te

Ponente: Campos, Jr.

Facts:

July 1969, plaintiff and Defendant Corporation thru its President, entered into a dealership agreement whereby plaintiff was obligated to act as the exclusive distributor of the cement products in Mindanao for 5 years.

As a result, some business associates propose to be a sub-dealer in Mindanao. Relying on the dealership agreement, plaintiff entered into a written agreement with several hardware stores dealing in buying and selling white cement in Davao and Cagayan de Oro.

Later on, the defendant corporation decide to impose conditions which were answered by several demands from the plaintiff to comply with the dealership agreement. However, defendant refused to comply. After the trial court adjudged the corporation liable to Alejandro Te, the CA affirmed the said decision based on:

There is no dispute that when Zosimo R. Falcon and Justo B. Trazo signed the dealership agreement Exhibit “A”, they was the President and Chairman of the Board, respectively, of defendant-appellant Corporation. Neither is the genuineness of the said agreement contested. As a matter of fact, it appears on the face of the contract itself that both officers were duly authorized to enter into the said agreement and signed the same for and in behalf of the corporation. When they, therefore, entered into the said transaction they created the impression that they were duly clothed with the authority to do so. It cannot now be said that the disputed agreement which possesses all the essential requisites of a valid contract was never intended to bind the corporation as this avoidance is barred by the principle of estoppel.

Issue: Whether or not the dealership agreement referred by the President and Chairman of he Board of petitioner corporation is  valid and enforceable contract.

Ruling: No, it is not valid.

Under the Corporation Law, which was then in force at the time this case arose, as well as under the present Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as otherwise provided by law. Although it cannot completely abdicate its power and responsibility to act for the juridical entity, the Board may expressly delegate specific powers to its President or any of its officers. In the absence of such express delegation, a contract entered into by its President, on behalf of the corporation, may still bind the corporation if the board should ratify the same expressly or impliedly.

Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a general rule, bind the corporation by a contract in the ordinary course of business, provided the same is reasonable under the circumstances. These rules are basic, but are all general and thus quite flexible. They apply where the President or other officer, purportedly acting for the corporation, is dealing with a third person, i. e., a person outside the corporation.

The situation is quite different where a director or officer is dealing with his own corporation. In the instant case respondent Te was not an ordinary stockholder; he was a member of the Board of Directors and Auditor of the corporation as well. He was what is often referred to as a "self-dealing" director. A director of a corporation holds a position of trust and as such, he 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.