No. 12386 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

19 73 

STATE ex re1 JAMES R. HOWETH, 

plaintiff and Appellant, 

D. A. DAVIDSON & CO. , a Montana 

Corporation; and IAN B. DAVIDSON and 

LEON WEAR; 

Defendants and Respondents. 

Appeal from: District Court of the Eighth Judicial District, 

Honorable R. J. Nelson, Judge presiding. 

Counsel of Record: 

For Appellant : 

Loble, Picotte and 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 : DEC 8 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 for writ was filed in 

Lewis and Clark County against D. 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 

counterclaim and 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 Davidsonls Helena 

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 corporation retained an option to 

repurchase the stock within 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 shall 
be fifty percent (50%) of the book value, or the cost basis of 

the SECOND PARTY in the stock, whichever is greater (this price 

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 Howeth pursuant to this agreement. At the 

time of issuance the stock certificate contained the following 

language written on the reverse side: 

"The holder of this certificate has a written 

agreement with the Pacific Coast Stock Exchange, 

dated January 22, 1965, which states 'that so 

long as the corporation is a member of the exchange no stock in the corporation shall be 

transferred, sold, assigned, pledged or otherwise 

encumbered or disposed of without the prior 

written consent of such exchange.'" 

On September 30, 1970, Ian Davidson, president of the 

Davidson Companyrpersonally delivered a letter written by himself to Howeth. The letter informed Howeth that as of this day 

his employment with the Davidson Company was terminated. 

Over the course of the next three months the Davidson 

Company was conducting negotiations with Howeth for the repurchase 

of his stock. On December 2, 1970, Ian Davidson wrote Howeth to 

advise him: 

" * * * 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 corporation has elected 

to exercise its option to pu;chase your stock 

in the corporation. It 

Upon unanimous vote of the board of directors present, Ian B. 

Davidson, David S. Davidson, and William S. MacFadden, (representing 335 of the 440 shares outstanding) it was decided to purchase 

the stock at 50% of book value as provided in the agreement discussed above. 

The repurchase price of Howethts stock was set at $43,473.30. 
This amount was computed by Howard Gaare, a certified public 

accountant. 

The district court found that when Davidson Company 

initiated the repurchase of Howeth's stock, it was discovered 

that Howeth had borrowed monies from the Union Bank and Trust 

Company, Helena, Montana, had delivered certificate #16 to 

said bank, had executed a stock power to said bank, and that the 

Union Bank claimed a security interest in certificate #16 as 

collateral for the loan to Howeth. This was done without the 

knowledge or consent of either the Davidson Company or the Pacific Coast Stock Exchange in violation of his agreement with the 

Davidson Company, and in violation of exchange rules. 

Howeth had also borrowed monies from the First National 

Bank, Helena, Montana and had given written instructions to the 

Davidson Company in a letter of May 1, 1967, to pay 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 sell his stock to the Davidson Company and that the $12,800 he 

owed to First National Bank would be paid by the Davidson Company 

from the sale proceeds. Burke confirmed this understanding 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 to prepare a written consent to the 

payment terms with 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, to Union Bank and Trust 

Zompany . 

(b) $12,800.00, plus interest, to First National Bank. 
(c) The difference between the total of (a) and (b) 

above and $23,473.30 to Howeth, on or before December 31, 1970. 

(d) Remainder of $20,000.00 by Davidsonls promissory 

note payable to Howeth, on or before January 15, 1971. 

Howeth did receive the December 2, 1970 letter but did 

not sign and return the consent. He did, however, keep and retain the $20,000 promissory note dated November 30, 1970, executed by Ian Davidson, and said note is still in Howeth's possession. 

Ian Davidson called Howeth on or about December 10, 1970, 

to inquire why 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 to minimize Howethls income taxes on the $28,473.30 

capital gain the payment terms were revised as follows: 

(a) $8,357.00, plus interest, to the Union Bank and 

Trust Company. 

(b) The difference between (a) above and $13,000.00 to 

Howeth on or before December 31, 1970. 

(c) $12,800 principal and $531.20 interest (total of 

$13,331.20) to the First National Bank on January 5, 1971. 

(d) The remaining balance of $17,142.10 to Howeth on 

January 15, 1972. 

Davidson again caused its attorneys to prepare a written 

consent to the above payment terms and a promissory note, and 

mailed these to Howeth with its letter of December 15, 1970. 

Howeth received the letter and enclosures but did not sign and 

return the consent. Howeth did, however, keep and retain the 

$17,142.10 promissory note dated 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 that Howeth reaffirmed his agreement to accept payment 

and again promised to sign and mail the consent to Davidson. 

At the time of that telephone conversation, Ian Davidson made 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 consent papers. 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 "somewhat maddening" because 

they seemed to assume that he had agreed to Davidson's propositions 

when in fact he had not. 

Ian Davidson realizing that Howeth's written consent was 

not forthcoming and the 90 day option period at its end, sent 

Howeth another check. The check was in the amount of $12,500 representing the minimum payment the corporation was required to 

tender as a down payment to exercise its option. This letter and 

tender of payment for the repurchase of the stock was dated December 30, 1970, 91 days 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 that meeting. Howeth 

was not re-elected as a director. At that meeting all the acts 

of the officers and directors of the corporation were 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, effective 
September 30, 1970. 

From the foregoing findings of fact the district court 

concluded that the option for repurchase was timely exercised 

by Davidson Company, resulting in a contract by the terms of 

which Howeth is required to sell Davidson Company, certificate 

#16 for $43,473.30. And further that Howeth, by his actions, 

is estopped to deny that Davidson properly 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 Howeth violate the par01 evidence rule? 

At the outset, we observe that plaintiff lists numerous 

findings of 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 the material 

findings are supported by 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 not material, however, in view of the application of the 

doctrines of ratification, waiver and estoppel discussed later 

in this opinion. 

Howeth's primary contention on the first issue is that as 
a director of the Davidson Company he was 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 repurchase his stock. 

Howeth claims that the actions at said meeting were void because 

notice was not given. 

The Davidson Companyton the 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 Davidson Company claims that Howeth was disqualified 

from voting by his personal interest. Thus the directors' meeting is not illegal because no notice to an interested director 

is required. 

As a general rule notice of special meetings must be 

given the directors, so that each one may 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 shall have 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 an 
opportunity to be present and take part in the deliberations 

of the board and attempt to convince the other members even if 

he represents a minority 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 is valid, although proper notice not 

given, if all directors are present or the absent directors waive 

notice, or if the acts done at the meeting are ratified by the 

absent directors, or at a subsequent meeting at which all directors have legal notice. 19 C.J.S. Corporations 8747, p. 88, 89. 

Also a directors1 meeting is not illegal, or the action thereat 

invalid, because of failure to give notice to a director who would 

have been disqualified from taking part by reason of personal 

interest. 19 Am Jur 2d, Corporations 81133; 2 Fletcher Cyc. Corp, 

(Perm. Ed.) S413. See also Alward 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 is based 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 other way. 

Therefore the stockholders or directors and corporation may be 

estopped to deny the validity of their action where 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 the directors. 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 90 day option period Howethls 
conduct is indicative of an acquiescence that may well constitute a ratification of the resolution passed at the November 30 

meeting. Ian Davidson testified that several times during this 

90 day 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 the month 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 

forms or object to the payment. Instead Howeth requested the 

splitting of payment terms to limit his personal taxes and to 

permit the sale proceeds 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 repurchase pursuant 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: 

"Objections to mode of offer. All objections 

to the mode of an offer of performance, which 

the creditor has an opportunity to state at the 

time to the person 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: 

"Objections to tender must be specified. The person to whom a tender is made must, at the time, 

specify any objection he may have to the money, 

instrument, or property, or he must be deemed 

to have waived it; and if the objections be 

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 he 
requires, or be precluded from objecting 

afterward." 

Not only did Howeth not object to the terms and the sufficiency 

of those tenders, but the district 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, 133 Mont. 211, 223, 321 P.2d 1083: 

"In defining 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: 

"'"Generally speaking estoppel arises when a 

party by his acts, conduct, or acquiescence has 

caused another in good faith to change his position for the worse. [Citing cases.] The following six essential elements have been held necessary to constitute an equitable estoppel: '1. 

There must 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 it was acted 

upon by him. 4. The conduct must be done with the 

intent.ion, or at least with the expectation, that 

it will be acted upon by the other party, or under 

such circumstances that it is both natural and 

probable that it will 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. He must in fact act upon it in such a manner 

as to change his position for the worse; in other 
words, he must so act that he would suffer a 

loss if he were compelled to surrender or forego 

or alter what he has done by reason of the first 

party being permitted to repudiate his conduct 

and to assert his rights inconsistent with it.'"' 

1117 Mont. 255, 161 P.2d 640.1" 

The six essential elements are met 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 he would receive be deferred to 1971 for 

tax purposes. Ian Davidson and MacFadden testified that Howeth 

promised to sell. Second, Howeth knew of the resolution passed 

at the meeting 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 purchase would 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 object would be relied upon by the Davidson Company and that 

a meeting with notice to all directors would not be had within 

the 90 day 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 another meeting of the board with the requisite notice. 

By so doing the option period expired during which time the corporation's right to repurchase could be exercised. The above facts 

estop Howeth from asserting that the tenders were not timely. 

The principles 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 an 
optionee may 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 optionee may 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: 

" * * * Thus, in this respect, the optionor may 

not make statements or representations calculated 

to cause delay * * *. 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 stipulated period, the optionee 

is entitled to a reasonable time for action after 

the condition which necessitated the delay has 

ceased. " 

Contracts making time of the essence, and providing 

for termination on default, will be enforced unless provisions 

are waived, or the party is estopped from asserting them. Huffine 

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

or by voluntary acts or conduct, waive a requirement of a contract 

of option to purchase, that exercise of the option shall be made 

within a limited time, thereby excusing, under the general principles relating to waiver, a delay of the optionee in that regard. 

17 Am Jur 2d, Contracts 861. 

Estoppel does apply when as in this case, it was 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 that he would not sell 

his stock, he requested that the banks be paid, he requested terms 
of 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 timeliness of the tender. 

The second issue involves the contention by Howeth that 

forced sale of his stock at 50% of book value is a harsh forfeiture from which 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 can make 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; Shuey v. Hamilton, 142 Mont. 83, 381 P.2d 482. 

Howeth was allowed to buy stock in 1965 as a fringe benefit 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 (or up 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 increase of $28,473.30 over what he paid for it. 

Howeth's forfeiture argument is premised upon his assertion 
that his efforts greatly contributed to the increase in the 

book value of the Davidson Company stock. The record indicates 

that over the years Howeth was well compensated for his efforts. 

Often times this was 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 is whether 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 is not admissible to vary and contradict 

the terms of a written contract. 1st Nat. Bank v. Soil Cons. 

Dis., 130 Mont. 1, 293 P.2d 289. But parol or other extrinsic 

evidence not showing a modification or change in the terms of 

the original writing 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; Flint v. 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 agreement had in fact 

been made. Accordingly, there is no violation of the parol evidence rule. 

Me have examined all other contentions raised by plaintiff and find them to be without merit and requiring no further 

discussion herein. 

The judgment of the district court is affirmed. 
/'" Chief, Justice ,> 

f 

H0n.h. James Sorte, District 

Judge, sitting in place of Mr. 

Justice John C. Harrison.