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In re Giant Portland Cement Co.

Aug. 18, 1941 | The Chancellor

DOCTRINE: IN THE ELECTION OF DIRECTORS, VOTES MADE BY A PROXY OF THE


RECORD OWNER USING STOCK SOLD WITHIN 20 DAYS OF THE ELECTION IS VALID;
PROVIDED IT IS NOT INJURIOUS TO THE TRANSFEREE OF STOCK.

FACTS:
 The case stems from the results of an election for the Board of Directors of the Giant
Portland Cement Co. held in February 24, 1941. Nine (9) Directors of the Corporation
were to be elected, and two tickets were nominated: “The Management” and “The
Opposition”. However, four persons were nominated on both tickets – resulting in
their unquestionable election.
 Petitioners Brown and Murray question the results of the election, filing a case in the
Court of Chancery of Delaware.
 Petitioners contend that the election inspectors were incorrect in counting certain
votes for “The Opposition”· The contention is based on these facts:
o In February 4, 1941 (20 days prior to the Election), in a resolution, the Board
of Directors closed the Stock Transfer Books of the Corporation.
o Sec. 17 of the General Corporation Law, states:

§ (1) “each stockholder, shall at every meeting of the stockholders be entitled


to one vote in person or by proxy for each share of the capital stock”

§ (2) “except where the transfer books of the corporation shall have been
closed or a date shall have been fixed as a record date for the determination of
its stockholders entitled to vote xxx no share of stock shall be voted on at any
election for directors which shall have been transferred on the books of the
corporation within twenty days next preceding such election of directors”

§ (4) only such stockholders, as shall be stockholders of record on the date so


fixed, shall be entitled to xxx vote at such meeting.

 Section 17 was also incorporated in the by-laws of the Corporation.


 During this period, no stock was transferred on the corporate records. However,
certain shares were sold by the record owners and the stock certificates were duly
assigned and delivered to the purchasers prior to the stockholders’ meeting. The
record owners who sold their shares assigned proxies to vote based on shares they
already sold.
 Of the shares sold within the 20 day period, 5,472 were voted in favor of “The
Opposition” while 1,384 shares were voted for “The Management”. In essence, if
these votes are not counted – it may affect the result of the election in favor of “The
Management”
ISSUE:
WON certain votes for “The Opposition” should be counted.

HELD:
YES.
 In accordance with the first and second paragraph of Section 17, stock transferred on
the books within 20 days prior to stockholders’ meeting for the election of directors
are temporarily disfranchised and cannot be voted either by the transferor or the
transferee. However, based on the fourth paragraph of Section 17, the stockholders
of record on the date fixed are the ones entitled to vote.
 The proxies who voted at the stockholders’ meeting were proxies assigned by the
record owners, and NOT the purchasers. As between the transferor (record owner)
and the transferee (purchaser), the legal title of the stock is with the transferee.
However, in relation to the corporation, until such transfer of stock is recorded, the
recognized owner is the one on record. The votes of the proxy assigned by the record
owners are, therefore, valid in the elections.
 It is true that the record owner/transferor would be liable to the
purchaser/transferee if the votes were injurious to the latter. However, no evidence
was presented that showed the purchasers of the stock objected to the votes made by
the proxies of the record owners. In fact, evidence was presented wherein the votes
casted by the proxies were in accordance with the wishes of the purchasers.
 In any case, absent evidence, consent is presumed.