Strong and Strong vs. Repide 41 Phil.

947 PONENTE: Justice Peckham 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. 3 May 1909

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.