In re Giant Portland Cement Co.

• Decision Date: 18 August 1941
• Citation: 21 A.2d 697,26 Del.Ch. 32
• Court: Court of Chancery of Delaware
• Parties: IN THE MATTER OF GIANT PORTLAND CEMENT COMPANY, a corporation of the State of Delaware

21 A.2d 697

26 Del.Ch. 32

IN THE MATTER OF GIANT PORTLAND CEMENT COMPANY, a corporation of the State of Delaware

Court of Chancery of Delaware, New Castle

August 18, 1941

PETITION TO REVIEW the validity of the election of directors of the defendant corporation at a stockholders' meeting held February 24th, 1941.

Case heard on petition, the answer thereto, and an agreed statement of facts.

The petition was filed by William H. Brown and Katherine S Murray, on behalf of themselves and all other stockholders of Giant Portland Cement Company similarly situated.

All voting powers were vested in the holders of the common stock of the corporation, and for more than one year prior to the filing of the petition the said William H. Brown had been the owner of 1600 shares of that stock, and the said Katherine S Murray had likewise been the owner of 160 shares.

Other material facts will appear in the opinion of the court.

Rules to show cause were issued, directed to the defendant corporation and to the persons declared to have been elected directors.

All of the persons nominated on the "Opposition" ticket were, legally elected directors of the defendant corporation. No other contentions made could possibly change this result.

E Ennalls Berl, of Southerland, Berl, Potter & Leahy, and George Gray Thouron, (George C. Doub of Marshall, Carey & Doub, of Baltimore, Md., of counsel) for petitioners.

James R. Morford, of Marvel & Morford, and William H. Bennethum, (A. O. Dawson, of Hines, Rearick, Dorr & Hammond, of New York City, of counsel), for defendants.

OPINION

THE CHANCELLOR:

This is a proceeding under Section 31 of the General Corporation Law, as amended, § 2063, Revised Code 1935, to determine the validity of the election of certain directors of Giant Portland Cement Company, at a stockholders' meeting held February 24th, 1941. The voting rights of the corporation were vested in its common stock, and both of the petitioners were owners of that class of stock. Nine directors of the corporation were to be elected, and two tickets were nominated. For convenience, one of these tickets will be called the corporate "Management" ticket, and the other the "Opposition." Four of the persons nominated for directors were, however, on both tickets, and were, therefore, unquestionably elected. It is unnecessary to give their names. R. M. Craigmyle, E. G. Capen, Walter C. Beecken, Herbert C. Hauth and Alex Pinney, all of whom had been nominated on the "Opposition" ticket, were also declared elected by the inspectors conducting the election. Their pluralities were small, and the question is whether Walter L. Haehnlen, Sidney N. Peters, C. T. Williams, Jr., George Masters and Clayton D. Quaw, or any of them, all of whom were nominated by the corporate "Management" were in fact legally elected by a considerable plurality.

The defendant corporation had issued 282,543 shares of common stock, of which 214,823 shares, including those held by the petitioners, were represented at the meeting and were voted either in person or by proxy. Mr. Craigmyle led his associates in the vote cast for the ticket declared elected. His plurality was 611 votes; the plurality of the other four was only 91 votes. The petitioners not only claim that numerous votes cast on certain shares should not be counted for the "Opposition" ticket, declared elected, but also claim that certain other votes cast for the corporate "Management" ticket were improperly rejected by the inspectors, and should be counted. I am unable to agree with either of these contentions.

The first contention involves the consideration of Sections 17 and 29 of the General Corporation Law, §§ 2049, and 2061 Revised Code 1935.

Section 17 provides, in part:

(1) "Unless otherwise provided in the Certificate of Incorporation, 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 held by such stockholder, * * *.

(2) "* * * and, 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, as hereinafter provided, 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.

(3) "The board of directors shall have power to close the stock transfer books of the corporation for a period not exceeding fifty days preceding the date of any meeting of stockholders * * *; provided, however, that in lieu of closing the stock transfer books, as aforesaid, the by-laws may fix or authorize the Board of Directors to fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders * * * as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting * * *.

(4) "* * * and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof * * *."

Section 29 provides:

"The original or duplicate stock ledger shall be the only evidence as to whom [sic] are the stockholders entitled to examine such list or the books of the corporation, or to vote in person or by proxy at such election."

Pursuant to the provisions of Section 17, the by-laws of Giant Portland Cement Company provide:

1. "At each meeting of the stockholders every stockholder shall be entitled to vote in person, or by proxy * * * and he shall have one vote for each share of stock registered in his name at the time of the closing of the transfer books for said meeting. No share of stock shall be voted on at any election which has been transferred on the books of the corporation within twenty days next preceding such election. * * *"

2. "The Board of Directors may close the transfer books in their discretion for a period not exceeding thirty days preceding any meeting, annual or special, of the stockholders, or the day appointed for the payment of a dividend."

The by-laws of that corporation also provide:

"Transfers of stock shall be made on the books of the corporation only by the person named in the certificate, or by attorney, lawfully constituted in writing, and upon surrender of such certificate."

By a resolution of the board of directors, the stock transfer books of the corporation were closed from February 4th to February 24th, 1941, or for twenty days prior to the stockholders' meeting on the latter date. During that period no stock was transferred on the corporate records. Certain shares were, however, sold by record owners, and the stock certificates were duly assigned and delivered to the purchasers prior to the stockholders' meeting. Some of these shares were voted for each ticket on proxies given by the record owners. Of the shares claimed to have been improperly counted, 5472 were cast and counted for the "Opposition" ticket, on which Craigmyle and his associates were the nominees, and all of whom were declared elected. Thirteen hundred and eighty-four (1384) shares in the same category were, however, voted and counted for the "Management" ticket, on which Walter L. Haehnlen and his associates were the nominees. This makes a difference of 4088 votes, in favor of the winning ticket, which the petitioners claim were improperly counted; while as already indicated the plurality of Craigmyle, the high man on that ticket, was only 611 votes.

If the votes in controversy should be rejected by this court, it might affect the result of the election, as shown by the report of the inspectors. In cases coming within the provisions of paragraph 2 of Section 17 of the General Corporation Law, stock transferred on the books of the corporation within twenty days prior to a stockholders' meeting, for the election of directors, is temporarily disfranchised, and cannot be voted either by the transferor or by the transferee. Moon v. Moon Motor Car Co., 17 Del.Ch. 176, 151 A. 298; Italo Petroleum Corp. v. Producers' Oil Corp., 20 Del.Ch. 283, 174 A. 276. But all stock sold within that period is not necessarily temporarily disfranchised, and this case is not governed by that provision of the statute. Thompson v. Blaisdell, 93 N.J.L. 31, 107 A. 405. It comes within the exceptions referred to in paragraph 2 which are more specifically covered by paragraphs 3 and 4 of Section 17. On February 24th, 1941 the stock in question had not been transferred on the books of the corporation to the purchasers of the certificates. When the corporate transfer books are closed by appropriate action taken by the board pursuant to authority given by the by-laws, Section 17 provides that "such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to * * * notice * * * and to vote" for the election of directors at the subsequent stockholders' meeting. The persons on whose proxies the stock was voted at the stockholders' meeting were stockholders of record within this provision of the statute, though they were not the real beneficial or equitable owners of that stock.

The right to vote shares of corporate stock having voting powers has always been incident to its legal ownership. 5 Fletcher Cyc. Corp., (Per. Ed.) §§ 2027, 2032, 2033; In re North Shore Staten Island Ferry Co., 63 Barb., (N.Y.) 556; People v. Devin, 17 Ill. 84; Dennistoun v. Davis, 179 Minn. 373, 229 N.W. 353. Nor is the first part of Section 17 anything more than declaratory of that common law rule. Moreover, whatever the rights of the mere unrecorded assignee of the...