### No. 13185 IN

### THE SUPREME COURT OF 

### THE STATE OF 

### MONTANA 1976

CHARLES M. 

### HAUPTMAN,Plaintiff and Appellant,

EDWARD, INC.

## , a corporation, KENNETH EDVARDS AND GARY 

### EDVARDS

# , Defendants and Respondents.

Appeal from: District Court of the Seventh Judicial District, Honorable 

### L. C. 

### Gulbrandson, Judge presiding. Counsel of Record: For Appellant: 

### Moulton, Bellingham, Longo and Mather, Billings,

Montana Bruce Ennis argued, Billings, Montana For Respondents: Gene Huntley argued, Baker, Montana R. W. 

### Heineman, Wibaux, Montana

Submitted: T"I?rEh:5, 1976 Decided: 

### AFK

## 28

## 1976
Filed: 

### kpb

## 2.8

## 1976

### Mr. Justice John Conway Harrison delivered the Opinion of the Court

# . This appeal 

### is from a partial summary judgment granted in the district court, Dawson County, in an action for specific performance of an option. Two issues are presented for this court's consideration: (1) Did the district court errby granting partial judgment in favor of Edwards, Inc., the corporate defendant,

on the theory that the corporate officerswere not authorized to execute an option on itsbehalf? (2) Did the districtcourt err inrefusing to grant plaintiff's motion forjudgment on the pleadings with regard to defendants' cross-complaint? Charles M. Hauptman, a geologist and leasebroker, was the plaintiff in this action in the district court. Defendants

were Edwards, Inc., a Montana farm corporation, and Kenneth Edwards and Gary Edwards, officers of the corporation. Plaintiff obtained an option to lease, signed by Kenneth Edwards and Gary Edwards, which was repudiated when plaintiff attempted to exercise it. Plaintiff then sued the corporation for specific performance of the option. In itsanswer the corporation alleged the option was not valid because it was not approved by the corporation's board of directors or stockholders asrequired by section 15-2272, R.C.M. 1947. Thereafter plaintiff amended his complaint tojoin as defendants Kenneth and Gary Edwards, officers of the corporation, who had executed the option on behalf of the corporation. Thereafter responsive pleadings by defendant corporation and defendants Kenneth and Gary Edwards brought about a second amended complaint, towhich a second amended answer and a crosscomplaint was filedby defendants. The second amended answer alleged the option was unenforceable because (1) it was subjecttoan unfulfilled condition precedent; 

### (2) it was not properly exercised; and 

### (3) it was obtained by fraud. The second amended answer also alleged, as a defense, that the option 

### was not validbecause the corporate officerswho executed the option were not authorized to do so and the corporation did not ratify their acts, The second amended answer in

a cross complaint requested damages for slander of titlebecause of the filingof a lis pendens by plaintiff. Both parties filed motions for summary judgment. The court on August 8, 1975, entered itsfindings of fact, conclusions of law and a partial summary judgment which dismissed plaintiff's claim against the corporation on the ground the corporate officers had not been authorized to act for the corporation when they executed the option. The district court denied plaintiff's motion for summary judgment on the pleadings, and denied summary judgment on the motion of Kenneth and Gary Edwards seeking relief individually. The facts, for the most part, arenot in dispute. On /' May 19, 1973, Kenneth Edwards and Gary Edwards signed an option

as president and secretaryrespectively of Edwards, Inc., to lease toplaintiff certain lands inDawson County, for the purpose of mining forcoal, described as: 

### ownsh ship 15North, Range 53"2 Fast M.P.M.

IISection 

### 9: All "Section 

### 11: All "section 

### 17: S-112." Such lands were owned and operated as a farmby Kenneth Edwards for some 25 years. Prior tothat they had been owned by his father and mother. He owned in excess of 7,000 acres of farm land. On January 

### 1, 1972, a corporation was formed with Kenneth

as president; Jeannie Edwards, hiswife, vice-president, and Gary, his son, as secretary. Of the 1,078 shares of stock issued for the corporation, Kenneth owns 932 shares, Gary 145 shares and

### Jeannie 

### 1share. In addition tothe fact the corporation

owns inexcess of 7,000 acres of farm land, it 

### also leases in

excess of 6,000 acres. In late 1972 and early 1973, plaintiff Hauptman was attempting toput together options for a large area, covering ten square miles, fora coal lease. At

### the time he contacted the Edwards he had options on some 14,000 mineral acres. On March 14, 1973, Hauptman met with Kenneth and Gary Edwards 

### at the ranch house near Glendive, Montana. At

### that meeting the parties arrived atcertain agreements (the substance of which

are indispute), and a document entitled an option toleasewas executed. A 

### description of the lands and a copy of the proposed coal leasewere attached to the option. The land described totaled 

### lGOO acres. Kenneth and Gary Edwards initialed each page of the option to lease. Neither Kenneth nor Gary Edwards told Hauptman theywere actingwithout authority on behalf of the corporation at the time they executed the option. The board of directors never formally 

### met to consider whether the corporation should execute the option or for the purpose of ratifying. Hauptman notified the corporation by two letters, dated July 10, 1973 and September 

### 8, 1973, of his exercise of the option on 960 acres of the 1600 acres covered by it. 

### Hauptman had discovered the corporation did not own coalunder 640 acres of the lands described inthe option. Kenneth Edwards first informed Hauptman thereason the corporationwould not perform the option was that he did not likethe terms 

### of the transaction and he didnot want the surface tobe involved. The lack of corporate authority defense first appeared in the corporation's

answer. After the corporationrepudiated the option, Hauptman sued tocompel the corporation to issue a lease covering the 960

acres under which it 

### owned coal.Before considering the issues raised on appeal, we note that much of appellant's original brief was devoted to establishing that neither the corporate defendant nor the individual defendants could rely on Montana statutes section 15-2271 and section 15-2272, R.C.M. 1947, tojustify the corporation refusal toperform the option. The appellatebrief of the corporation and Kenneth and Gary Edwards refers to this statutory authority for support as a "red herring", and then states:"we have no quarrelwith the proposition that the disposition of thismatter is governed by statute and the consistent construction of controlling statutes placed upon them by this Court and courts 5enerally. 

### he statuteupon which we rely is 915-2233 R.C.M. (1947) which reads as follows: "'~oard of directors. The business and affairs 13ia corporation shallbe managed by a board of directors. Directors need not be residents of this stateor shareholders of the corporation unless the articles of incorporation orbylaws sorequire. The articles of incorporation orbylaws may prescribe other qualifications for directors. The board of directors shallhave authority to fix the compensation of directors dnless otherwise provided in the articles of incorporation.t "We consider this statute tobe dispositive of the issue 5efore the court. 

# * +c :k. I' ',dichthe considerations so focused,we discuss the issues. Issue (1). Did the district court errby granting partial sur1nlaz.y judgment in favor of the corporate defendant on the theory Lhe corporate officers were not authorized toexecute an option Cor the corporation? We find that it did. We have no argument with ~ontana's case and statutoryauth- ~i-ity chat 

### he business and affairs of a corporation shallbe alanaged by a board of directors.I' Pioneer Minerals Corp. v. krabie Bros. Rankers, Inc., 

### 99 Mont. 358, 

### 43 P.2d 884; Raish v. .kchard Canal Co., 67 Mont. 140, 218 P. 655. However, in the instant case, the corporate defendant 

### isbound by the acts of 

### its ~fficers for several reasons: (1) the officers of the corporationhad express or implied authority to exercise the option, (2) the corporate officers are estopped to deny the option, and 

### (3) the officers of the corporation arenot entitled to relief upon the corporation's separate existence inorder to avoid the corporation's obligations under the option. Defendant corporation citesnumerous Montana cases in support of itsposition that the officerswere without authority to act for the corporation. Major reliance isplaced on Hanrahan 

### v. Andersen, 108 Mont. 218, 90 P.2d 494. Hanrahan is not factually similar tothe instant situation. There a general manager who was a director and also treasurer, operated farbeyond his authority, nearly destroying the corporation, and

a stockholder instituted the suit toundo a series of questionable transactions. That 

### isnot the fact situation in the instant

case. Other cases cited arenot factually inpoint with the instant case. However, the most recent case of this Court considering a corporate officer's actual and implied authority, was not cited nor discussedby the corporate defendant in itsbrief on appeal. That case, Bentall v. Koenig Brothers, Inc., 140Mont. 339, 372 P.2d 91, is factually similar to the instant case and it 

### is controlling. In Bentall, plaintiff Bentall sued defendant Koenig Brothers, Inc. on a promissory note executed by Arne Poulsen

as ~oenig's president. Poulsen had power toexercise full management and controlof thecorporation's affairs. The proceeds of the loan were used forcorporate purposes. Koenig had three directors: R. W. Brenneke, Alvin F. Koenig and Arne Poulsen. No regular meeting of Koenig's board of directorswas held to give formal authority for execution of the note, but rather Alvin F. Koenig and Poulsen decided toexecute the note. In an effort to avoid itsobligations under thenote, the corporation argued,

as inthe instant case, that the note inquestion

### was executed and

### deliveredby the president Poulsen, without direct authorizationby any order orresolution of the corporation's board of directors. This Court held that Poulsen had both express and implied authority toexecute the note. The facts inBentall

are similar tothose now in question in the instant case. We findno distinctionbetween signing a promissory noteby Poulsen and the signingof an option by Kenneth Edwards. In the instant case, the optionwas granted Hauptman who had no privity tothe internal affairs of the corporation. The facts, as disclosedby depositions, reveal that Kenneth Edwards had controlled the land for over 25 years prior toincorporation and was the controlling factor since its 

### corporation. The corporation defendant gives much emphasis that Hauptman knew the land was owned by a corporation. He did, and responded reasonably that he held an option executedby two offi-cersof that corporationwho held themselves out to act on behalf of the corporation. We findAlley v. Butte & 

### Western Mining Co., 77 Mont. 477, 251 P. 517, is controlling as toa corporate president's specialauthority. See also: Yucca Mining & 

### Petroleum Co. v. Howard C. 

### Phillips Oil

### Co., 69 N.M. 

### 281, 365 P.2d 925, 929; Phillips Petroleum Co. v. Roclc Creek Mining Co., 449-F.2d 664, In addition, in the instant case, the corporation is estopped todeny the effect of the option under therecent holding inHoweth v. D. A. 

### Davidson & 

### Co., 163Mont. 

### 355, 365, 517 P.2d 722. There this Court said:

f 1+< -1- 8b 

### the stockholders or directors and corporation may be estopped todeny the validity of 

### their action where it 

### is the custom orusage of the directors to act separately orwhere benefits have been received or the actions subsequently acquiesced in orratifiedby the directors. I I 

### Clearly, we 

### have here a case for estoppel, because a refusal toenforce the option could sanction a fraud and result inan injustice. Here, as inBentall, where the corporation receives thebenefits it 

### is estopped from asserting the alleged defensesIssue (2). The trialcourt tired in refusing 

### plaintiff's ?ioiloii for summary judgment on the corporation

## 's cross complaint. 9nJer the facts of this case the plaintiff's publication of a !-ispendens was privileged and not subject to a slander of title

action. Defendants citeand relyupon West Investment Co. v. ,morhead, 120 Cal.App.2d 837, 262 P.2d 322. The holding there was overruledby a later California case, Albertson v. Xaboff, 46 Cal.2d 375, 295 P.2d 405. In AIbertson the court 

### - held a 

### lis pendens filedunder a California statutenearly identical to~ontana's section 93-3005, R.C.M. 1947, was absolutely privileged without reference to themerits of,the ?[+

### (,Fyg~ ,&1) underlying action. See: Kropp 

### v. Prather (Texas 1975), 526 S.W.2d 283, 287; Stewart v. Fahey, 14 Ariz.App. 149, 481 P.2d 519; Zamarello 

### v. Yale, (Alaska 1973), 514 P.2d 228. For the foregoing reasons, we reverse the districtcourt's partialjudgment in favor of the corporation and direct that court togrant plaintiff's motion for summary judgment on the corporation's cross complaint.

!de Concur:



### -- Hon. ~~be?-t Keller

## , ~is trict-- Judge, sitting for Chief Justice James T. Harrison.Hon. Peter G. Meloy,District Judge, sitting inplace of Mr. JusticeFrank I. Haswell, and Mr. Justice Gene B. Daly, dissenting inpart and concurring inpart: The majority opinion grounds the result therein reached

on the case of Bentall v. Koenig Brothers, Inc., which approves

a clear rule that the officershave no power toactunilaterally except ininstanceswhere management authority isplaced in such officer and his acts areinthe ordinary course of thecorporate business. The opinion inthe Bentall case specifically holds the note therein involved was inthe usual and ordinary course of the corporate business. Inthe case under consideration here themajority opinion finds no distinction between the note in the Bentall case and the option here. With thisconclusionwe disagree. The ordinary course of the business of Edwards, Inc., is that of agriculture and inno sense can we understand that the granting of a lease of acreage to "look for, test, work, mine, excavate, raise, clean, carry away and sell coal", is in the usual course of the corporate business. We are mindful of the factthat inthe case under consideration the corporate officers signing the leaseowned almost all of the corporate stock but they chose toact ina corporate form which would require, inour opinion under the facts of this case,
a corporate authoritywhich isnot present. To hold otherwise thwarts the legislative intent of the statuteand isnot consistent with the rule of this Court in such instance. The majority opinion, inour view, adopts a rule that the officer orofficers holding a majority of the stock in a corporation can act for the corporation in any instancewithout action by the Board of Directors. Wedo not concur with the majority opinion's application of the doctrine of estoppel.We concur in the majority opinion's conclusion that the publication of a lis pendens was privileged and not subject to

a slander of title action.



## ..................................... Hon. Peter G. Meloy, district judge, sitting in place of Mr. Justice Frank I. Haswell

Justice

### #13,185 Hauptman v. Edwards, Inc. I 

### concur inthe results, but solely on the basis of estoppel, and a different estoppel than that relied upon inthe majority opinion. When Kenneth and Gary Edwards, as owners of 99.9 per cent of the stock of the corporation, and constituting two-thirds of the board of directors, entered intoa contract for the corporation, they are bound under principles of estoppel to affirm the contract, 19C.J.S. 485, $1012. This court held similarly, without referring to estoppel, inBentall v. Koenig Brothers, Inc., (1962), 140M 

### 339, 372 P2d 91, 94: "In the instant case, the defendant corporation's Articles of Incorporation provided for three members toactasdirectors of the corporation. At

### the time of the execution of the note inquestion, R.W. 

### Brenneke, Alvin F. 

### Koenig, and Arne Poulsenwere itsdirectors. It is

### undisputed that AlvinKoenig and Arne Poulsen authorized the execution of the note inquestion. They constituted a quorum and their action, which was not contrary to law nor contrary to the articles of incorporation orby-laws of the defendant corporation, was binding on the defendant corporation." The point of the dissent iswellmade, and for that reason, I 

### am not willing torelyupon apparent or ostensible authority (which, inturn, isdependent upon the instant transaction being inthe usual or ordinary course of business). At

### the same time, 

### I am not satisfied that corporate officers are liable individually for actsdone ascorporate officers, even though without authority, absent fraud, i.e., touphold the trial courtwould be todismiss the corporation from this action, leaving the two defendants individually, and they may well not be liable, having acted as corporate officers. I 

### concur inthe majority opinion's conclusion that the publicationof the lis

### pendens was privileged and not subject toa slander of titleaction. 

# UL!.LHon. Robert S. Keller, District Judge, sittingforchief Justice James T. 

### Harrison