No. 12386 INTHE SUPREME COURT OF THE STATE OF MONTANA 19 

### 73

STATE ex re1JAMES R. HOWETH, plaintiff and Appellant,

D. A. DAVIDSON & CO.

## ,a Montana Corporation; and IANB. DAVIDSON and LEON

### WEAR; Defendants and Respondents.

Appeal from: District Court of theEighth JudicialDistrict, Honorable R. J. Nelson, Judge presiding. Counsel of Record: For Appellant: Loble, Picotteand Loble, Helena, Montana Gene Picotte argued, Helena, Montana For Respondents: Church, Harris, Johnson and Williams, Great Falls,

Montana Charles C. Love11 and Richard F. Gallagher argued,

Great Falls, Montana

Submitted: September 

### 24, 1973 Decided: 

### DEC8

## 6

## lm.Mr Justice Frank I. Haswell delivered the Opinion of the Court.

This action began as a mandamus action filed by James R. Howeth,who claimed to be a stockholder in defendant D. A. Davidson & Company, to secure access to financial and other records of the company. The application forwrit was filed in Lewis and Clark County againstD. 

### A. Davidson & Company, Ian B. Davidson, as president, and Leon Wear, as secretary and custodian of the corporate records. Venue was changed by stipulation to Cascade County. Defendants counterclaimed,demanding specific performance of a buy-back agreement covering plaintiff's stock and seeking equitable relief. At the time set for trial,plaintiff dismissed his petition, interposed additional affirmative defenses to the counterclaim,and immediately thereafter, the counterclaimand defenses came on for trial before the Hon. R. J. Nelson, sitting without a jury, in the district court of Cascade County. The court granted defendant specific performance of the stock buy-back agreement. From this judgment,plaintiff appeals. D. A. Davidson & Company is a closely held corporation, conducting a stock brokerage business in Montana. Howeth was an employee of Davidson Company from 1959 until September 30, 1970. He was employed as a stock salesman,manager of DavidsonlsHelena branch office, and he became a vice president and director of the company in 1964 and 1969,respectively. In 1965 Howeth and the Davidson Company entered into a written agreement whereby Howeth would purchase 60 shares of treasury stock held by the corporation. Howeth tendered $15,000 for these shares,representing approximately 50% of book value. As part of this agreement the corporationretained an option to repurchase the stockwithin 90 days in the event Howeth's employment was terminated for any reason. The agreement provides that if said event should occur 

### " 

## * * * the purchase price shallbe fifty percent (50%)of the book value, or the cost basis of the SECOND PARTY in the stock,whichever is greater (thisprice may be increased upon a majority vote of the Board of Directors of the CORPORATION,but not to exceed one hundred percent (100%) book value.)

### '' Sixty shares of stock evidenced by Stock Certificate #16 was issued to Howethpursuant to this agreement. At the time of issuance the stock certificatecontained the following language written on the reverse side: "Theholder of this certificatehas a written agreementwith the Pacific Coast Stock Exchange, dated January 22, 1965,which states 'that so long as the corporation is a member of the exchangeno stock in the corporation shallbe transferred, sold, assigned,pledged or otherwise encumbered or disposed of without theprior written consent of such exchange.'" On September 30, 1970, IanDavidson,president of the DavidsonCompanyrpersonallydelivered a letter written by himself to Howeth. The letter informed Howeth that as of thisday his employmentwith the Davidson Company was terminated. Over the course of the next three months the Davidson Companywas conducting negotiationswith Howeth for the repurchase of his stock. On December 2, 1970, IanDavidson wrote Howeth to advisehim: 

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## * 

## * * pursuant to a corporate resolution passed on t.he 30th day of November, 1970,at a special meeting of the Board of Directors of D. A. Davidson & Co. the corporationhas elected to exercise its option to pu;chase your stock in the corporation.It Upon unanimous vote of the board of directorspresent, Ian B. Davidson,David S. Davidson, and William S. MacFadden, (representing 335 of the 440 shares outstanding) itwas decided to purchase the stock at 50% of book value as provided in the agreement discussed above. The repurchaseprice of Howethtsstockwas set at $43,473.30.This amount was computed by Howard Gaare, a certifiedpublic accountant. The districtcourt found that when Davidson Company initiatedtherepurchase of Howeth's stock, it was discovered thatHoweth had borrowed monies from theUnion Bank and Trust Company, Helena, Montana, had delivered certificate#16 to said bank, had executed a stockpower to said bank, and thatthe Union Bank claimed a security interest incertificate#16 as collateral for the loan toHoweth. This was done without the knowledge or consent of either theDavidson Company or the PacificCoast Stock Exchange inviolation of his agreement with the Davidson Company, and inviolation of exchange rules. Howeth had alsoborrowed monies from the FirstNational Bank, Helena, Montana and had given written instructions tothe Davidson Company ina letterof May 1, 1967, topay said bank from the proceeds of any sale of stock certificate #16. Robert Burke, president of the First National Bank testified Howeth had told him on October 12, 1970 that he was going to sellhis stock to the Davidson Company and that the $12,800 he owed toFirstNational Bank would be paid by the Davidson Company from the saleproceeds. Burke confirmed thisunderstanding of the conversation with Howeth by his letter of October 13, 1970 which was received by Howeth and Davidson. To remove any encumbrances upon the stock the Davidson Company caused its attorneys toprepare a written consent tothe payment termswith the December 2, 1970 letter. The consent provided that Davidson would repurchase the stock for $43,473.30, payable as follows: (a) $8,357.00, plus interest, toUnion Bank and Trust Zompany

# .(b) $12,800.00, plus interest, toFirstNational Bank.(c) The differencebetween the total of (a) and (b) above and $23,473.30 toHoweth, on or before December 31, 1970. (d) Remainder of $20,000.00 by Davidsonlspromissory note payable toHoweth, on orbefore January 15, 1971. Howeth did receive the December 2, 1970 letter but did not sign and return theconsent. He did, however, keep and retainthe $20,000 promissory notedated November 30, 1970, executed by Ian Davidson, and saidnote is stillinHoweth's possession. Ian Davidson called Howeth on or about December 10, 1970, toinquirewhy he had not yet returned the consent forwarded to him with the letter of December 2, 1970. Howeth replied that he

was concerned about the income tax consequences of the stock repurchase. In order tominimize Howethls income taxes on the $28,473.30 capital gain thepayment terms were revised as follows: (a) $8,357.00, plus interest, tothe Union Bank and Trust Company. (b) The differencebetween (a) above and $13,000.00 to Howeth on or before December 31, 1970. (c) $12,800 principal and $531.20 interest (totalof $13,331.20) totheFirstNational Bank on January 5, 1971. (d) The remaining balance of $17,142.10 toHoweth on January 15, 1972. Davidson again caused its attorneys toprepare a written consent tothe above payment termsand a promissory note, and mailed these toHoweth with its letter of December 15, 1970. Howeth received the letter and enclosures but did not sign and return theconsent. Howeth did, however, keep and retain the $17,142.10 promissory notedated November 30, 1970 which was signed by Ian Davidson.Ian Davidson called Howeth on December 21, 1970 and inquired about the papers sent Howeth on December 15. Davidson testified thatHoweth reaffirmed his agreement to acceptpayment and again promised to sign and mail the consent to Davidson. At the time of that telephone conversation, Ian Davidsonmade a note of the conversation in the upper right hand corner of the file copy of the December 15 letter which reads: "656-6322

called 12-21-70 he said okay wld send papers back IBD" Howeth, however, did not sign and return the consentpapers. In fact he has denied that he ever agreed to accept the purported offer by oral telephone conversation. Howeth testified that he found the letters "surprising"and "somewhatmaddening" because they seemed to assume that he had agreed to Davidson'spropositions when in fact he had not. Ian Davidson realizing that Howeth's written consent was not forthcoming and the 90day option period at its end, sent Howeth another check. The check was in the amount of $12,500representing the minimum payment the corporationwas required to tender as a down payment to exercise its option. This letter and tender of payment for the repurchase of the stockwas dated December 30, 1970, 91days after the event specified by the option, i.e. Howeth's termination as an employee. The annual meeting of Davidson and Co. was held on February 13, 1971. Howeth received notice of thatmeeting. Howeth

was not re-elected as a director. At thatmeeting all the acts of the officers and directors of the corporationwere approved, ratified and adopted, including the action by Ian Davidson and the executive committee on November 30, 1970, in discharging Howeth as officer and director of the corporation, effectiveSeptember 30, 1970. From the foregoing findingsof fact thedistrict court concluded that the option for repurchasewas timely exercised by Davidson Company,resulting in a contract by the terms of which Howeth is required to sell DavidsonCompany,certificate #16 for $43,473.30. And further that Howeth,by his actions, is estopped to deny that Davidsonproperly exercised the option. Howeth appeals from this judgment. The fundamental issue in this appeal is the sufficiency of the evidence to support the judgment. Three issues underlie this determination: (1) Whether the option of the Davidson Company to purchase Howeth's stock was properly exercised within the time specified in the option? (2) Whether the district court's judgment of specific performance constitutes a harsh forfeiture which equity ought not to enforce? (3) Whether the telephone conversations during the month of December, 1970,and all other alleged verbal communications between Ian Davidson and Howethviolate the par01 evidence rule? At the outset,we observe that plaintiff lists numerous findingsof the district court that he contends are not supported by the evidence. We have examined these findings and the evidence supporting each and conclude that with one exception thematerial findingsare supportedby substantial, credible evidence. This exception relates to the finding that Howeth resigned as officer and director of the Davidson Company on September 30; this finding is notmaterial, however, in view of the application of the doctrines of ratification,waiver and estoppel discussed later 

### in this opinion. Howeth'sprimary contention on the first issue is that asa director of the DavidsonCompany hewas entitled to notice of the board of directors'meeting of November 30, 1970. It

was at that special meeting that the corporation passed a resolution to exercise its option to repurchasehis stock. Howeth claims that the actions at said meeting were void because notice was not given. The Davidson Companytonthe other hand, contends that

even if notice was not properly given the action of the directors' meeting to repurchase the stock was merely voidable and that Howeth's subsequent actions constitute a ratification of the corporate resolution. By encumbering the stock,by requesting payment on different terms than contained in the agreement,by never objecting to the tender, and by never objecting to not receiving notice he led the corporation to believe that it had properly exercised its option. Therefore, Howeth should be estopped to deny the validity of the corporate resolution. In the alternative the DavidsonCompany claims that Howethwas disqualified fromvoting by his personal interest. Thus the directors' meeting is not illegalbecause no notice to an interested director is required. As a general rule notice of specialmeetingsmust be given the directors, so that each onemay be afforded an opportunity to participate and vote. Section 15-2239,R.C.M. 1947. Under this rule, such notice to all directors is essential to the power of the board to do any deliberate act which shall bind the corporation. When a number of directors are elected to manage the affairs of the corporation, it is contemplated that the corporation shallhave the benefit of the judgment, counsel and influence of all. In the absence of special circumstances or express provisions to the contrary, every one of them should have anopportunity to be present and takepart in the deliberations of the board and attempt to convince the other members even if he represents aminority view. The great weight of authority, therefore, is to the effect that notice of a special meeting must be given to every director, unless there is some express provision in the charter or bylaws or established usage to the contrary. 2 Fletcher Cyc. Corp. 8406. There is also authority to the effect that such action by the board of directors isvalid, although proper notice not given, if all directors are present or the absent directorswaive notice, or if the acts done at themeeting are ratified by the absent directors, or at a subsequentmeeting atwhich alldirectorshave legal notice. 19 C.J.S. Corporations 8747,p. 88, 89. Also a directors1meeting is not illegal, or the action thereat invalid,because of failure to give notice to a directorwho would have been disqualified from taking part by reason of personal interest. 19Am Jur 2d,Corporations 81133; 2 Fletcher Cyc. Corp,

(Perm.Ed.) S413. See alsoAlward v. Broadway Gold Min. Co., 94 Mont. 45, 53-54, 20 P.2d 647. The requirement for directors to act as a board rather than individually isbased upon the ground that they are not authorized to act in any other way than by meeting and conferring and not on the ground that they cannot act in any otherway. Therefore the stockholders or directors and corporationmay be estopped to deny thevalidity of their actionwhere it is the custom or usage of the directors to act separately or where benefits have been received or the actions subsequently acquiesced in or ratified by thedirectors. 2 Fletcher Cyc. Corp.S394, $429 et seq.; 19 C.J.S. Corporations 81016 et seq., p. 1015;American B. & T. Co. v. Farmers' E. & M. Co., 63 Mont. 612, 208 P. 594. During the course of the 90day option period Howethlsconduct is indicative of an acquiescence thatmay well constitute a ratification of the resolutionpassed at theNovember 30 meeting. IanDavidson testified that several times during this 90day period Howeth was advised of the resolution to repurchase his stock for $43,743.30. At no time during this period did Howeth ever object to not receiving notice. Twice during themonth of December the Davidson Company caused its attorneys to prepare a written consent to the payment terms and a promissory note, and mailed these to Howeth. Each time Howeth acknowledged receipt but failed to sign the consent formsor object to the payment. Instead Howeth requested the splitting of payment terms to limit his personal taxes and to permit the saleproceeds to pay off the debts in order to allow the release of the stock certificate from the bank. Such requests justifiably led the Davidson Company to believe that Howeth would accept repurchasepursuant to the repurchase agreement and the directors'action. Affirmance of the district court's judgment can also be founded upon the general principles of contract law. Howeth was required by sections 58-424 and 93-2201-3,R.C.M. 1947, to state his objections to the December 2 and December 15 tenders. Section 58-424,R.C.M. 1947 provides: "Objectionsto mode of offer. All objections to themode of an offer of performance, which the creditor has an opportunity to state at the time to theperson making the offer, and which could be then obviated by him, are waived by the creditor, if not then stated." Section 93-2201-3,R.C.M. 1947 provides: "Objectionsto tender must be specified. The person to whom a tender ismademust, at the time, specify any objectionhe may have to the money, instrument, or property, or he must be deemed to have waived it; and if the objectionsbe to the amount of money, the terms of the instrument, or the amount or kind of property, he must specify the amount, terms, or kind which herequires,or be precluded from objecting afterward." Not only did Howeth not object to the terms and the sufficiency of those tenders, but thedistrict court found that he specifically requested them and agreed to accept them. Thus the objections he now raises were waived. Schultz

### v. Campbell, 147 Mont. 439, 413 P.2d 879; Sherlock v. Greaves, 106 Mont. 206,

The estoppel and waiver contention is grounded upon the equitable principle of estoppel. That doctrine is set out in section 93-1301-6(3), R.C.M. 1947, which provides: "Whenever a party has, by his own declaration, act,or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such .belief,he cannot, in any litigation arising out of such declaration,act, or omission,be permitted to falsify it." This Court has further defined estoppel and its essential elements in Hustad v. Reed, 133Mont. 211, 223, 321 P.2d 1083: "Indefining this doctrine this court in Mundt vs. Mallon, 106 Mont. 242, 249, 76 P.2d 326, 329, and reiterated in City of ~illings v. Pierce Packing Co., supra, said: "'"Generallyspeaking estoppel ariseswhen a party by his acts, conduct, or acquiescence has caused another in good faith to changehis position for the worse. [Citingcases.] The following six essential elements have been held necessary to constitutean equitable estoppel: '1. Theremust be conduct--acts, language,or silence-- amounting to a representation or a concealment of material facts. 2. These facts must be known to the party estopped at the time of his said conduct, or at least the circumstances must be such that knowledge of then is necessarily imputed to him. 3. The truth concerning these facts must be unknown to the other party claiming the benefit of the estoppel,at the time itwas acted upon by him. 4. The conduct must be done with the intent.ion,or at leastwith the expectation, that itwill be acted upon by the other party, or under such circumstances that it is both natural and probable that itwill be so acted upon. 5. The conduct must be relied upon by the other party, and thus relying,he must be led to act upon it. 6. Hemust in fact act upon it in such a manner as to change his position for the worse; in otherwords, he must so act that hewould suffer a loss if he were compelled to surrenderor forego or alter what he has doneby reason of the first party being permitted to repudiate his conduct and to assert his rights inconsistentwith it.'"' 1117 Mont. 255, 161 P.2d 640.1" The six essential elements aremet in this case. First, Howeth's response to the phone calls indicated his willingness to sell, i.e. requesting payments to be made to banks and the remaining balance which hewould receive be deferred to 1971 for tax purposes. Ian Davidson and MacFadden testified that Howeth promised to sell. Second,Howeth knew of the resolutionpassed at themeeting of November 30. And yet he testified that he

never intended to sell his stock at 50% 

### 02 book value. He never objected during this time to not receiving notice. Third,Howeth's conduct led the Davidson Company to believe the consent to purchasewould be signed. They had no reason to believe that Howeth would object to the repurchase or object to not receiving notice. Fourth, based on the circumstances Howeth knew that his failure to objectwould be relied upon by the Davidson Company and that a meeting with notice to all directors would not be had within the 90day period unless he objected. Fifth,although a formal meeting could have been called had Howeth objected, the corporation held no such meeting because it relied upon Howeth's failure to object and his promise to sign the consent papers. Sixth, by relying on Howeth's representations the Davidson Company failed to call anothermeeting of the board with the requisitenotice. By so doing the option period expired during which time the corporation's right to repurchasecould be exercised. The above facts estop Howeth from asserting that the tenderswere not timely. Theprinciples of waiver and estoppel are especially applicable to an option contract such as the one before us. Although time is of the essence in an option contract, the rule is well established that an optionor who has given a right to anoptioneemay not do any act, or omit to perform any duty, calculated to cause the optionee to delay in exercising the right. If he does the optioneemay be excused from exercising his option within the stated time. This principal has been succinctly summarized in 17 Am Jur 2d,Contracts S61,p. 399,

as follows: 

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## * 

## * * Thus, in this respect, the optionormay notmake statements or representationscalculated to causedelay

## * * 

## *. Nor may the optionor,by his absence or evasive conduct, cause the optionee to delay in exercising his right to purchase 

## * * * within the specified time. It has been held that if an optionor has prevented the exercise of the option within the stipulatedperiod, the optionee is entitled to a reasonable time for action after the conditionwhich necessitated the delay has ceased.

### " Contracts making time of the essence,and providing for termination on default,will be enforced unless provisions

arewaived, or the party is estopped from asserting them. Huffine

v. Lincoln, 87Mont. 267, 287 P. 629. An optionormay expressly

or by voluntary acts or conduct,waive a requirementof a contract of option to purchase, that exercise of the option shall be made within a limited time, thereby excusing,under the generalprinciples relating towaiver, a delay of the optionee in that regard. 17 Am Jur 2d,Contracts 861. Estoppel does apply when as in this case, itwas intended that the promise should be relied upon and a refusal to enforce it would sanction a fraud or would result in injustice,especially, if the promise or representation concerns the intended abandonment of existing rights. See Fiers

### v. Jackson, 123 Mont. 242, 211 P.2d 968. In this case failure to exercise the option would result in the abandonment of the right to purchase Howeth's stock certificate. Instead of telling Ian Davidson thathe would not sell his stock,he requested that the banks be paid, he requested termsof payment which would give him favorable tax results, and he promised and agreed to return the consents embodying those terms. Howeth's conduct evidencing his willingness to sell and his requesting the change in payment terms caused the Davidson Company's delay in exercising its option. Accordingly, Howeth is now estopped to object to the timelinessof the tender. The second issue involves the contentionby Howeth that forced sale of his stock at 50% of book value is a harsh forfeiture fromwhich this Court should grant him relief in accordance with the provisions of section 17-102,R.C.M. 1947. The

cases decided under that section almost all involve the rights of a defaulting purchaser in a purchase contract. Equity will intercede in cases where forfeiture of the purchaser's equitable title is provided by the purchase contract in the event of his default. If the defaulting purchaser canmake a showing that he is equitably entitled to such relief and that his breach of duty was not grossly negligent,willful or fraudulent, the courts will, in proper cases, relieve the defaulting purchaser from the forfeiture. See Kovacich v. Metals Bank & Trust Co., 139 Mont. 449, 365 P.2d 639; Shueyv. Hamilton, 142Mont. 83, 381 P.2d 482. Howeth was allowed to buy stock in 1965 as a fringebenefit to encourage participation in the corporate affairs. He paid less than one-half of book value for that stock, a total of $15,000.00. At that time Howeth signed the repurchase agreement whereby the corporation could buy back the stock at 50% of book value (orup to 100% if the corporation so approved) in the event of termination of his employment. Five years later the corporation exercised its option upon Howeth's termination as an employee at one-half of book value,which is $43,473.30. That is

an increaseof $28,473.30 over what he paid for it. Howeth's forfeiture argument ispremised upon his assertionthat his efforts greatly contributed to the increase in the book value of the Davidson Company stock. The record indicates that over theyears Howeth was well compensated for his efforts. Often times thiswas in the form of commissions directly resulting from a percentage of his sales in addition to his regular salary. Additionally the substantial gain in the book value of his stock under the repurchase agreement rewarded his efforts. Under such circumstances no harsh forfeiture is involved. The final issue presented for review iswhether Ian Davidson's testimony concerning Howeth's promises and agreements by oral telephone conversations violate the parol evidence rule. See section 13-907,R.C.M. 1947. Parol evidence isnot admissible to vary and contradict the terms of a written contract. 1stNat. Bank v. Soil Cons. Dis., 130Mont. 1, 293 P.2d 289. But parol or other extrinsic evidence not showing amodification or change in the terms of the originalwriting may be admitted to show that a party to a contract has waived the benefit of, or become estopped to assert, his rights under some or all of the provisions in his favor in the agreement. 32A C.J.S., Evidence 5966;Flintv. Mincoff, 137 Mont. 549, 353 P.2d 340. The oral conversations were not introduced to vary the terms of the contract but rather to demonstrate that the tender and acceptance under the stock repurchase agreementhad in fact been made. Accordingly, there is no violation of the parol evidence rule. Me have examined all other contentionsraised by plaintiff and find them to be without merit and requiring no further discussionherein. The judgment of the district court is affirmed./'"Chief,Justice ,> f

H0n.h. James Sorte, District Judge, sitting inplace of Mr. Justice John C. Harrison.