TITLE: Strong vs.

Repide, 41 Phil 947 (May 3, 1909) (Peckham, J)

DOCTRINE: Special facts doctrine is a term used in corporate law to describe the fiduciary
duty of a corporate officer to shareholders to disclose information
during a transaction involving a stock transfer. This duty arises because
of the superior knowledge the officer holds by virtue of his or her position.
FACTS: This action was commenced in CFI Manila by the plaintiffs Eleanor Erica
Strong and Richard P. Strong her husband, against defendant Repide.

In 1902 it was thought important for the government of the United States to
secure title, if reasonably possible, to what were called the friar lands in the
Philippine Islands. The lands were not owned by the same people, but were
divided among different and separate owners.

After a year, the governor of the Philippine Islands, on behalf of the

Philippine government, made an offer of purchase for the total sum of $
6,043,219.47 in gold for all the friar lands, though owned by different
owners. This offer, so far as concerned that portion of the lands owned by
defendant's company, was rejected by Repide in his capacity as majority
shareholder, without any consultation with the other shareholders. The
representatives of all the different owners of all the lands, including
defendant's company, in answer to the above offer, then fixed their selling
price at $13,700,000 for all such lands. An offer was finally, and towards the
end of October, 1903, made by the governor of $7,535,000. All the owners of
all these friar lands, except defendant, who represented his company, were
willing and anxious to accept this offer and to convey the lands to the
government at that price. He alone held out for a better offer while all the other
owners were endeavoring to persuade him to accept the offer of the
government. The defendant continued his refusal to accept until the other
owners consented to pay to his company $335,000 of the purchase price for
their land, and until the government consented that a thousand hectares
should be excluded from the sale to it of the land of defendant's company.
This being agreed to, the contract for the sale was finally signed by the
defendant as attorney in fact for his company, December 21, 1903.

While this state of things existed, and before the final offer had been made
by the governor, the defendant, although still holding out for a higher price for
the lands, took steps, about the middle or latter part of September, 1903, to
purchase the 800 shares of stock in his company owned by Mrs. Strong,
which he knew were in the possession of F. Stuart Jones, as her agent. The
defendant, having decided to obtain these shares, instead of seeing Jones,
who had an office next door, employed one Kauffman, a connection of his
by marriage, and Kauffman employed a Mr. Sloan, a broker, who had an
office some distance away, to purchase the stock for him, and told Sloan
that the stock was for a member of his wife's family. Sloan communicated
with the husband of Mrs. Strong, and asked if she desired to sell her stock.
The husband referred him to Mr. Jones for consultation, who had the stock in
his possession. Sloan did not know who wanted to buy the shares, nor did
Jones when he was spoken to. Jones would not have sold at the price he did
had he known it was the defendant who was purchasing, because, as he said,
it would show increased value, as the defendant would not be likely to
purchase more stock unless the price was going up.
 The result of the negotiations was that Jones, on or about October 10, 1903,
assuming that he had the power, and without consulting Mrs. Strong, sold the
800 shares of stock for $16,000, Mexican currency, delivering the stock to
Kauffman in Sloan's office, who paid for it with the check of Rueda Hermanos
for $18,000, the surplus $2,000 being arranged for, and Kauffman being paid
$1,800 by defendant for his services. The defendant thus obtained the 800
shares for about one tenth of the amount they became worth by the sale
of the lands between two and three months thereafter.
ISSUE/S: Whether it is the duty of the defendant, acting in good faith, to disclose to the
agent of the plaintiff the facts bearing upon or which might affect the value of
the stock.
RULING: If it were conceded, for the purpose of the argument, that 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, yet there are cases where, by reason of the special facts, such
duty exists.

It is here sought to make defendant responsible for his actions, not alone and
simply in his character as a director, but because, in consideration of all the
existing circumstances above detailed, it became the duty of the defendant,
acting in good faith, to state the facts before making the purchase. That
the defendant was a director of the corporation is but one of the facts upon
which the liability is asserted, the existence of all the others in addition making
such a combination as rendered it the plain duty of the defendant to speak. 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 company's lands
(together with all the other friar lands) to the government at a price which very
greatly enhanced the value of the stock. He was the chief negotiator for the
sale of all the lands, and was acting substantially as the agent of the
shareholders of his company by reason of his ownership of the shares
of stock in the corporation and by the acquiescence of all the other
shareholders, and the negotiations were for the sale of the whole of the
property of the company. By reason of such ownership and agency, and his
participation as such owner and agent in the negotiations then going on, no
one knew as well as he the exact condition of such negotiations. No one knew
as well as he the probability of the sale of the lands to the government. No
one knew as well as he the probable price that might be obtained on such
sale. The lands were the only valuable asset owned by the company. Under
these circumstances, and before the negotiations for the sale were completed,
the defendant employs an agent to purchase the stock, and conceals
from the plaintiff's agent his own identity and his knowledge of the state
of the negotiations and their probable result, with which he was familiar as
the agent of the shareholders, and much of which knowledge he obtained
while acting as such agent, and by reason thereof. The inference is inevitable
that, at this time, he had concluded to press the negotiations for a sale of the
lands to a successful conclusion.
Concealing his identity when procuring the purchase of the stock, by his
agent, was in itself strong evidence of fraud on the part of the defendant.
The giving of the check could not have induced the prior consent, but it was
proper evidence as tending to show that the concealment of identity was not a
mere inadvertent omission, an omission without any fraudulent or deceitful
intent, but 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, to
the vendor of the stock, and to, in that way, obtain the same at a lower price.

The defendant was guilty of a fraud in procuring the purchase from the
plaintiff's agent, it was a fraud for which he became liable to the plaintiff, even
though the plaintiff maintained that her agent was not authorized to sell. The
court held that he was authorized, and therefore, if he sold by  reason of
the fraud committed by defendant, the plaintiff was thereby injured and
the defendant became liable. In legal effect her consent was obtained by
the fraud.