STRONG v.

REPIDE ISSUE
213 US 419 | 3 May 1909
DOCTRINE: Even though a director may not be under the obligation of a fiduciary
nature to disclose to a shareholder his knowledge affecting the value of the shares,
that duty may exist in special cases (and it exists upon the facts in this case).
FACTS
1. During this time of the case, in 1902, the US government thought it important to
secure title to the “friar lands” in the Philippines. One of the owners of the friar lands
was Philippine Sugar Estates Development Company (PSEDC).
2. The Philippine government negotiated with PSEDC where the government will
purchase PSEDC’s lands (together with other friar lands) at a price which would
greatly enhance the value of the stock.
3. REPIDE was the owner of almost three fourths of the shares of stock of the
company, was one of the 5 directors of PSEDC, and was elected by the board, the
agent and administrator general of such company.
4. Before the final offer had been made by the governor (in behalf of the Philippine
government), REPIDE took steps to purchase the 800 shares of stock in his company
owned by Mrs. STRONG, which he knew were in the possession of JONES, as her
agent.
5. Repide employed KAUFFMAN, who employed SLOAN (a broker) to purchase
the stock to JONES. KAUFFMAN told SLOAN that the stock was for a member of
his wife's family. SLOAN or JONES did not know who wanted to buy the shares.
W/N (under the circumstances) it was the duty of REPIDE to disclose to the agent of
STRONG the facts which might affect the value of the stock.
HELD
YES.
General rule: The ordinary relations between directors and shareholders in a business
corporation are not of such a fiduciary nature as to make it the duty of a director to
disclose to a shareholder the general knowledge which he may possess regarding the
value of the shares of the company before he purchases any from a shareholder.
Exception: There are cases where, by reason of the special facts, such duty exists.
-> Some special facts are present in this case such as the fact that REPIDE is not
only a director of the corporation but an owner of ¾ shares of stock. He was the
chief negotiator for the sale of all the lands and was acting substantially as the
agent of the shareholders by reason of his ownership of the shares.
-> Repide, conceals from the STRONG’s agent his own identity and his knowledge
of the state of the negotiations with the government and their probable result, with
which he was familiar as the agent of the shareholders. Concealing his identity
when procuring the purchase of the stock, by his agent, was in itself strong
evidence of fraud on the part of REPIDE.
-> Moreover, his machinations easily avoid any questions relative to the negotiations
for the sale of the lands and their probable result, and could also avoid any actual
misrepresentations on that subject, which he evidently thought were necessary in his
case to constitute a fraud.

6. JONES would not have sold at the present price (par value $100 per share,
Mexican currency) if he had known it was REPIDE who was purchasing, because, as
he said, it would show increased value, as REPIDE would not be likely to purchase
more stock unless the price was going up.

7. In all the negotiations in regard to the purchase of the stock from Mrs. STRONG,
through her agent Jones, not one word of the facts affecting the value of this stock
was made known to JONES by REPIDE, but, on the contrary, perfect silence was
kept. The probable value of the shares in the very near future was thus unknown to
anyone but REPIDE.

8. STRONG filed a case to recover the shares from REPIDE on the ground that the
(1) shares had been sold and delivered by STRONG’s agent, JONES, without
authority to do so and on the ground that (2) REPIDE fraudulently concealed from
STRONG’s agent the facts affecting the value of the stock sold and delivered. (The
first ground has already been resolved – there was authority)