IN RE: Giant Portland Cement Co.

AUTHOR: Tiglao, Jose Angelo

[21 A. 2d 697, 1951]
TOPIC: Deadlock in close corporations – Proxy device
PONENTE: Court of Chancery of Delaware
NOTES: To understand clearly, read the main doctrine of the
case in the latter part of this digest. This involves the validity
of the use of a proxy during election for the board of directors.
So long as the new owner of the stock has not been registered
in the record book of the corporation, the old owner who has
a proxy during the stockholders’ meeting shall remain valid.

With the stock in question, the stocks were sold but not yet
registered. That’s why the petitioners were questioning if the
vote should still be counted. Apparently, yes, because as long
as it has not been registered, the old stockholder in record
shall remain effective, including the proxy.
FACTS:
 This is a proceeding in the matter of the Giant Portland Cement Company, where William H. Brown and Katherine
S. Murray, on behalf of themselves and all other stockholders of the Giant Portland Cement Company similarly
situated, filed a petition to review the validity of the election of directors of the corporation at a stockholders’ meeting
on Feb 24, 1991.
 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 this petition, William Brown had been the owner of 1,600 shares of common stock, and
Katherine Murray had been the owner of 160 shares of common stock.
 The persons declared to have been elected directors were asked by the Court to show case as to the claim.
 During the contested election, nine directors were to be elected. Two tickets were nominated: (1) Management and
(2) Opposition.
 Craigmyle et al, who were nominated on the Opposition ticket, were declared elected by the inspectors of the
election. Their opponents, from the Management ticket bring up the issue that they are the ones legally elected by a
considerable plurality, not Craigmyle et al.
 Giant Portland had issued 282,542 shares of common stock. 214,823 shares, including those of Brown and Murray,
were represented at the meeting.
 Craigmyle et al led the race with a plurality of 611 votes while the other four he was with only had a plurality of 91
votes
 Brown and Murray claim that numerous votes cast on certain shares should not be counted for the Opposition ticket.
Further, they claim that certain other votes cast for Management were improperly rejected by the inspectors, and
should be counted.
ISSUE(S): W/N petitioners’ contention, tha

HELD: No.

RATIO:
 There primary contention relevant to our discussion:
1. Petitioners claim that numerous votes cast on certain shares should not be counted for the Opposition
2. Petitioners claim that certain other votes cast for Management were improperly rejected by the inspectors
and should have been counted
 The first contention involves the consideration of Sections 17 and 29 of the Corporation Law (1935). Section 17
provides that 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; 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, 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.
 By a resolution of the Board of Directors, the stock transfer books of the corporation were closed from Feb 4 to Feb
24, or for twenty days prior to the stockholders meeting.
 During that period, no stock was transferred on the corporate records. Certain shares, however, were 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. 1384 shares in the same
 category were voted and counted for the Management. This makes a difference of 4088 votes, which Brown and
Murray claim to be improperly counted.
 If the votes in controversy should be rejected by this Court, it will affect the result of the election. 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 vote either by the transferor or transferee. BUT, all stock sold within that
period is not necessarily temporarily disfranchised.
 On February 24, the stock in question had not ben 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
their bylaws “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
the meaning of the law, though they were not the real beneficial or equitable owners of that stock.
 The right to vote shares of corporate stock, having voting owners, has always been incidental to its legal ownership
 Under the rule, as between the transferor and the unrecorded transferee of the stock certificates, the legal title,
apparently passes to the latter. However, a different rule applies between the corporation and the mere unrecorded
assignee of the certificate of stock. That is because limited contract restrictions, relating to stock transfers, are for
the benefit of the corporation, and to enable it to ascertain from its records who its members or stockholders are.
 So far as the corporation is concerned, the record owners, must therefore, be regarded as the real owner of the stock
with the consequent general right to vote it by proxy, or otherwise.
 When considered from a legal standpoint, there is no privity of contract between the mere holder of the certificate
and the corporation, and he is not a real member of that organization until the transfer is recorded.
 In other words, a real novation, whereby a new contract between the mere holder of the certificate and the corporation
is substituted for the prior contract of the record owner, can only be brought about by complying with the corporate
regulation relating to transfers of stock.
 The record owner may, therefore, be the mere nominal owner, or technically, a trustee for the holder of the certificate,
but legally he is still a stockholder in the corporation.
CASE LAW/ DOCTRINE:
*When sir asks, can you state the ratio decidendi of this case, this is the most important:
Even if stocks are sold, the stockholder of record remains the owner of the stocks and has the voting right until the by-law
requiring recording of transfer in the transfer book is complied with. Thus, a proxy given by the stockholder of record even
if he has already sold the share/s of stock remains effective.
DISSENTING/CONCURRING OPINION(S):