## Facts

- Eleanor Erica Strong owned 800 shares of the Philippine Sugar Estates Development Co., Ltd.
- Francisco Gutiérrez Repide was a director, “administrator general,” and controlling shareholder (about three-quarters of the stock), with effective control over corporate management.
- The company’s principal asset was a large tract of Philippine “friar lands.”
- The Philippine government was negotiating to purchase those lands; the negotiations were conducted exclusively by Repide and were not publicly disclosed.
- The value of the company’s shares depended materially on the outcome of the negotiations and on corporate action Repide controlled.
- During the negotiations and before public disclosure of any deal, Repide arranged to buy Strong’s shares through intermediaries and brokers to conceal that he was the purchaser.
- Strong and her agent were not told about the status and likely favorable terms of the government negotiations or that Repide was the buyer.
- After the government purchase was completed, the company’s stock increased dramatically in value.
- Strong sued in the Court of First Instance to annul the sale, alleging lack of authority in her agent and fraud by Repide; the trial court ruled for Strong.
- The Supreme Court of the Philippine Islands ultimately reversed after a new trial based on newly discovered evidence of the agent’s authority and dismissed the complaint, finding no fraud.
- The United States Supreme Court reviewed the judgment on writ of error and considered the dispute where lower courts differed on dispositive facts.

## Issues

1. Whether a controlling director with exclusive, material, nonpublic knowledge about corporate action affecting share value commits actionable fraud by secretly buying a shareholder’s stock through intermediaries without disclosure.
2. Whether the agent’s authority to sell is material if the buyer procured the sale by fraud or deceit.

## Decision

- The United States Supreme Court reversed the judgment dismissing Strong’s complaint and restored relief in Strong’s favor.
- The Court held that, on these facts, Repide had a duty to disclose information about the impending government transaction and his role, and his concealment constituted fraud and deceit.
- The Court treated the agent’s authority to sell as immaterial once fraud was established.
- Evidence about the chain of intermediaries and the payment method was admissible to show intent and a scheme to conceal the purchaser’s identity and material facts.

## Legal Principles

- Although a director does not always owe a disclosure duty when buying shares from a shareholder, a duty to speak arises in special circumstances, including when the director:
  - exercises dominant control over corporate affairs,
  - possesses exclusive, material, nonpublic information about corporate action, and
  - uses concealment to keep the seller ignorant while acquiring the seller’s shares.
- A director “upon whose action the value of the shares depends” cannot use knowledge of his own expected corporate action to acquire shares from persons he intentionally keeps uninformed about that action and its effect on value.
- A sale procured by the buyer’s fraud or deceit is voidable; where fraud is shown, it is not determinative whether the seller’s agent had authority to sell.
- Under civil-law consent principles applied by the Court, a contract may be avoided when consent was obtained under circumstances where it would not have been given had the party known material facts exclusively known and intentionally concealed by the other party.

## Conclusion

Because Repide controlled both the negotiations and the corporate action driving share value, and intentionally concealed material, nonpublic facts while secretly purchasing Strong’s shares through intermediaries, the stock sale was infected by fraud and could be set aside regardless of the selling agent’s authority.


Strong v. Repide, 213 U.S. 419 (1909)