United States Supreme Court
STRONG v. REPIDE, (1909)
No. 110
Argued: Decided: May 3, 1909
FACTS:
Among the lands comprising the friar lands are the
Dominican lands, the only valuable asset owned by the
corporation Philippine Sugar Estates Development Company
Limited (Philippine Sugar Estates). Francisco Gutierrez
Repide (Repide), defendant, was the majority stockholder
and one of the five directors of Philippine Sugar Estates. He
was likewise elected by the board as the agent and
administrator general of such company.
The factual backdrop being during US occupation,
the US Government wanted to secure title over the friar
lands. To accomplish this objective, Governor for the
Philippines entered into negotiations for the purchase of the
Dominican lands, during which Repide represented
Philippine Sugar Estates. The first offer of the Governor was
to purchase the subject lands in the amount of
$6,043,219.47. As the majority stockholder of Philippine
Sugar Estates and without prior consultation with the other
stockholders, Repide rejected the offer. For the second offer,
the purchase price was increased to $7,535,000.
While negotiations for the second offer were
ongoing and while still holding out for a higher price of the
Dominican lands, Repide took steps to purchase the 800
shares of stock of Philippine Sugar Estates. These shares
were owned by Mrs. Eleanor Strong (Strong) which were
then in the possession of her agent, F. Stuart Jones (Jones).
Repide, instead of seeing Jones, employed Kauffman who
later on employed Sloan, a broker, to purchase the shares of
Strong. Jones sold the 800 shares of Strong for 16,000
Mexican currency. For this sale transaction a check of one
Rueda Ramos was issued.
Later on, the negotiations for the purchase of the
Dominican lands were concluded and a contract of sale was
subsequently executed. This sale transaction increased the
value of the shares of stocks originally owned by Strong from
16,000 Mexican currency to 76,256 US currency. During the
negotiations regarding the purchase of the shares of stock of
Strong, not one word of the facts affecting the value of this
stock was made known to her nor her agent, Jones. After the
sale of Dominican lands and after the purchase of the 800
shares of Strong, Repide became the owner of 30,400 out of
the 42,030 shares of Philippine Sugar Estates.
Strong filed a complaint for the recovery of her 800
shares. She argued that her agent Jones had no authority to
sell her shares and that Repide fraudulently concealed the
facts affecting their value.
ISSUE:
Was there fraud in effecting the purchase of
Strongs shares?
RULING:
Yes. With the factual circumstances of this case, it
became the duty of Repide, acting in good faith, to state the
facts before making the purchase of Strongs shares. That
Repide was one of the directors of Philippine Sugar Estates
was but one of the facts upon which liability is asserted. He
was not only a director, but he owned three-fourths of the
shares of its stock, and was, at the time of the purchase of
the stock, administrator general of the company with large
powers and engaged in the negotiations which finally led to
the sale of the companys lands at a price which greatly
enhanced the value of the stock. He was the negotiator for
the sale of the Dominican lands and was acting substantially
as the agent of the shareholders of Philippine Sugar Estates
by reason of his ownership of the shares in the company.
Because of such ownership and agency, no one knew as
well as he does about the exact condition of the
negotiations. He was the only one who knew of the
probability of the sale of the Dominican lands to the
government and of the probable purchase price. Under
these circumstances, Repide employed an agent to
purchase the stock of Strong, concealed his own identity and
his knowledge of the state of negotiations and their probable
result. The concealment of his identity while procuring the
purchase of the stock, by his agent, was in itself strong
evidence of fraud on the part of Repide. By such means, the
more easily was he able to avoid questions relative to the
negotiations for the sale of Dominican lands and actual
misrepresentations regarding that subject. He kept up the
concealment as long as he could by giving the check of a
third person Rueda Ramos, for the purchase money. This
move of Repide was a studied and intentional omission to be
characterized as part of the deceitful machinations to obtain
the purchase without giving any information whatever as to
the state and probable result of the negotiations and to
obtain a lower price for the shares of Strong. After the
purchase of stock, he continued negotiations for the sale of
the Dominican lands as the administrator general and
eventually entered into a contract of sale. The whole
transaction gives conclusive evidence of the overwhelming
influence Repide had in the negotiations and it is clear that
the final consummation was in his hands at all times.
OBITER DICTUM:
The directors are declared to be mandatories of
the society and that they are prohibited from acquiring by
purchase, even at public or judicial auction, the property the
administration or sale of which, may have been entrusted to
them, and that this is the extent of the prohibition.