State ex rel. Price v. DuBrul

100 Ohio St. (N.S.) 272
CourtOhio Supreme Court
DecidedJuly 8, 1919
DocketNo. 16201
StatusPublished

This text of 100 Ohio St. (N.S.) 272 (State ex rel. Price v. DuBrul) is published on Counsel Stack Legal Research, covering Ohio Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
State ex rel. Price v. DuBrul, 100 Ohio St. (N.S.) 272 (Ohio 1919).

Opinion

Jones, J.

A great deal of irrelevant matter has crept into the pleadings and briefs of counsel, relating especially to the policy of the two factions with respect to the control of this corporation. The only question presented to this court is the legal one, whether, upon the facts stated, and by the method of cumulative voting adopted by the stockholders at their meeting on January 18, 1919, a new board of directors was legally elected for the ensuing year.

In this instance the corporate stock was in the control of a single family and was equally divided between two factions of that family, each of which held 320 shares. No question is made that the annual meeting was not properly called. In any event all the corporate stock was present in person or by proxy and participated in the early part of the [276]*276proceedings, including the first ballot for the election of directors. On the first ballot each faction cumulated its voting strength for its particular nominees. On that ballot, while four of the nominees received 533 votes, two of the nominees, to-wit, Marguerite T. DuBrul and Anna M. DuBrul, each received 534 votes, which comprising a majority of the number of shares validly elected them as two of the five 'directors of this corporation. From this point throughout, the attitude of the chairman of the meeting was that no board had been elected because of the tie vote. He refused to entertain further balloting, and, over the protest of the opposing faction, declared the meeting adjourned and that the old board of directors held over.

For a number of years we have had engrafted in our law the principle of cumulative voting for the election of corporate directors. This voting rule abrogates the old common-law rule and now permits the shareholder to vote his shares either singly for as many directors as are to be elected, or to cumulate his shares by a multiple equivalent to the number of directors to be elected and to vote the multiple either for a single person or distribute it among as many nominees as he may see fit.

Section 8636, General Code, provides that at such election of directors “each stockholder shall have the right to vote in person or by proxy the number of shares owned by him for as many persons as there are directors to be elected, or to cumu- _ late his shares and give one candidate as many votes as the number of directors multiplied by the [277]*277number of his shares of stock equals, or to distribute them on the same principal [principle] among as many candidates as he thinks fit. Such directors shall not be elected in any other manner ”

It is conceded that this privilege of cumulation is accorded for the sole purpose of protecting the minority stockholders, and so important has this policy become that several states haA^e incorporated this right into their organic law. If this statute is followed and the privilege therein given is exercised in good faith by shareholders of a corporation neither the majority nor the minority stockholders have any right to complain, for, while the majority may still control the corporate management, the minority, if, it has sufficient strength, can obtain representation on the board. The stronger the strength of the minority the larger will be the representation which it will be able to obtain by this method of cumulative voting; but, in no instance, if the majority follow the same tactics as the minority and cumulate its strength, can such minority acquire the majority of the board of directors. ' On the ' other hand, by obtaining a minority representation upon its board of-directors, the minority can thereby obtain direct contact with the business of the corporation, and its management, and observe the conduct of the corporate officers whom the directors may employ.

One of the principal legal questions that arises in this case is to what extent and for how many ballots may a shareholder exercise his privilege of cumulative voting. At this meeting, the result of the first ballot, in which all the stockholders had [278]*278cumulated their votes, disclosed that while two of the candidates, had received 534 votes each, four other nominees had received but 533 votes each, and as a matter of course but two were elected, to-wit, Marguerite T. DuBrul and Anna M. DuBrul. They should have been declared elected by the chairman of the stockholders’ meeting. It became incumbent thereupon to elect three other members of the board. In support of the chairman’s ruling, the defendants now say, that under the section above quoted the shareholders could cumulate their shares but for a single ballot, and that all of the shareholders having expended their strength on the first ballot no further ballot could be taken.

An examination of Section 8636, General Code, discloses that this privilege is not thus limited in express terms. By its language this privilege would seem unlimited, for the section does not curtail the rights of the shareholder in this respect to a single ballot, a first ballot or to any other ballot. The section gives the shareholder the right to vote for “as many persons as there are directors to be elected,” and further gives him the right to vote his cumulative shares for any one candidate or to distribute them among more. After the first ballot there were three “directors to be elected ” If this voting had proceeded as before, inasmuch as the rival factions had equal shares, it is manifest that no full board of directors could have been elected, unless one or more of the shares changed its voting attitude. However, we are more concerned with the adoption of a general rule which [279]*279will apply to corporate affairs rather than to this particular instance.

We have no hesitancy in holding that the language and purpose of the statute is to permit the privilege of cumulative voting to all of the shareholders, not only on the first, but on successive ballots, where “directors are to be elected.” By exercising the right of cumulative voting on the first and successive ballots, giving the majority the same right that the minority has, the majority at all times may succeed in controlling a majority of the board. It is true, if the majority contents itself with distributing its votes among all five directors, that a strong minority may be able by its cumulative voting strength to elect four of them. Let us take for an illustration the stock of a corporation which has one hundred shares, whereof the majority controls fifty-one shares and the minority strength of the shareholders constitutes the balance, or forty-nine shares. Here the factional strength is nearly equal, and yet should the majority content itself with casting its cumulative vote for three of five directors it could secure their election, thereby permitting the minority to secure two members of the board. However, in such a case, if the majority frittered its strength among five candidates, while the minority cumulated its strength upon four, it would be the fault of the majority if it thus permitted the minority to obtain control of the corporate management, as was done in the case of Pierce v. Commonwealth, 104 Pa. St., 150. One distinct advantage is to be gained from the adoption of this construction. It may [280]*280cause a quorum of directors to be elected, which could continue the management of the corporation!

If the second ballot taken at the annual election, whereby Telford A. DuBrul and Clarence J.

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Bluebook (online)
100 Ohio St. (N.S.) 272, Counsel Stack Legal Research, https://law.counselstack.com/opinion/state-ex-rel-price-v-dubrul-ohio-1919.