No. 13185 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1976 

CHARLES M. HAUPTMAN, 

Plaintiff and Appellant, 

EDWARD, INC. , a corpora tion, 

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 2 8 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 err by granting partial 

judgment in favor of Edwards, Inc., the corporate defendant, 

on the theory that the corporate officers were not authorized 

to execute an option on its behalf? 

(2) Did the district court err in refusing to grant 

plaintiff's motion for judgment on the pleadings with regard to 

defendants' cross-complaint? 

Charles M. Hauptman, a geologist and lease broker, 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 its answer the corporation 

alleged the option was not valid because it was not approved by 

the corporation's board of directors or stockholders as required 

by section 15-2272, R.C.M. 1947. Thereafter plaintiff amended 

his complaint to join 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, to which a second amended answer and a crosscomplaint was filed by defendants. The second amended answer 

alleged the option was unenforceable because (1) it was subject 
to an 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 valid because the corporate officers who 

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 title because 

of the filing of a lis pendens by plaintiff. Both parties filed 

motions for summary judgment. 

The court on August 8, 1975, entered its findings 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, are not in dispute. On 

/' May 19, 1973, Kenneth Edwards and Gary Edwards signed an option 

as president and secretary respectively of Edwards, Inc., to 

lease to plaintiff certain lands in Dawson County, for the purpose 

of mining for coal, described as: 

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

I I Section 9: All 

"Section 11: All 

"section 17: S-112." 

Such lands were owned and operated as a farm by Kenneth 

Edwards for some 25 years. Prior to that 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, his wife, 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 1 share. In addition to the fact the corporation 

owns in excess 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 to put together options for a large area, covering 

ten square miles, for a 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 at certain agreements (the substance of which 

are in dispute), and a document entitled an option to lease was 

executed. 

A description of the lands and a copy of the proposed coal 

lease were 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 they were acting without 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 coal under 640 acres 

of the lands described in the option. Kenneth Edwards first 

informed Hauptman the reason the corporation would not perform the 

option was that he did not like the terms of the transaction and 

he did not want the surface to be involved. The lack of 

corporate authority defense first appeared in the corporation's 

answer. After the corporation repudiated the option, Hauptman 

sued to compel 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, to justify the 

corporation refusal to perform the option. The appellate brief 

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 quarrel with the proposition that the 

disposition of this matter is governed by statute 

and the consistent construction of controlling 

statutes placed upon them by this Court and courts 

5enerally. 

 he statute upon which we rely is 915-2233 R.C.M. (1947) 

which reads as follows: 

"'~oard of directors. The business and affairs 

13i a corporation shall be managed by a board of 

directors. Directors need not be residents of this 

state or shareholders of the corporation unless the 

articles of incorporation or bylaws so require. The 

articles of incorporation or bylaws may prescribe other 

qualifications for directors. The board of directors 

shall have authority to fix the compensation of directors 

dnless otherwise provided in the articles of incorporation. t 

"We consider this statute to be dispositive of the issue 

5efore the court. * +c :k. I' 

',dich the considerations so focused,we discuss the issues. 

Issue (1). Did the district court err by granting partial 

sur1nlaz.y judgment in favor of the corporate defendant on the theory 

Lhe corporate officers were not authorized to execute an option 

Cor the corporation? We find that it did. 

We have no argument with ~ontana's case and statutory auth- 

~i-ity chat he business and affairs of a corporation shall be 

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 is bound by the acts of its 

~fficers for several reasons: (1) the officers of the corporation 
had 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 are not entitled to relief upon 

the corporation's separate existence in order to avoid the corporation's obligations under the option. 

Defendant corporation cites numerous Montana cases in 

support of its position that the officers were without authority 

to act for the corporation. Major reliance is placed on 

Hanrahan v. Andersen, 108 Mont. 218, 90 P.2d 494. Hanrahan is 

not factually similar to the instant situation. There a 

general manager who was a director and also treasurer, operated 

far beyond his authority, nearly destroying the corporation, and 

a stockholder instituted the suit to undo a series of questionable 

transactions. That is not the fact situation in the instant 

case. Other cases cited are not factually in point 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 discussed by the corporate defendant in its brief on appeal. 

That case, Bentall v. Koenig Brothers, Inc., 140 Mont. 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 to exercise full 

management and control of the corporation's affairs. The proceeds 

of the loan were used for corporate purposes. Koenig had three 

directors: R. W. Brenneke, Alvin F. Koenig and Arne Poulsen. 

No regular meeting of Koenig's board of directors was held to 

give formal authority for execution of the note, but rather Alvin 

F. Koenig and Poulsen decided to execute the note. In an effort 

to avoid its obligations under the note, the corporation argued, 

as in the instant case, that the note in question was executed and 
delivered by the president Poulsen, without direct authorization by any order or resolution of the corporation's board 

of directors. This Court held that Poulsen had both express 

and implied authority to execute the note. The facts in Bentall 

are similar to those now in question in the instant case. We 

find no distinction between signing a promissory note by Poulsen 

and the signing of an option by Kenneth Edwards. 

In the instant case, the option was granted Hauptman who 

had no privity to the internal affairs of the corporation. The 

facts, as disclosed by depositions, reveal that Kenneth Edwards 

had controlled the land for over 25 years prior to incorporation 

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 executed by two offi-cers of 

that corporation who held themselves out to act on behalf of the 

corporation. We find Alley v. Butte & Western Mining Co., 77 

Mont. 477, 251 P. 517, is controlling as to a corporate president's 

special authority. 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 to deny the effect of the option under the recent holding 

in Howeth v. D. A. Davidson & Co., 163 Mont. 355, 365, 517 P.2d 

722. There this Court said: 

f 1 +< -1- 8b 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. I I 

Clearly, we have here a case for estoppel, because a 

refusal to enforce the option could sanction a fraud and result 

in an injustice. Here, as in Bentall, where the corporation receives 

the benefits it is estopped from asserting the alleged defenses 
Issue (2). The trial court 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 

!-is pendens was privileged and not subject to a slander of title 

ac tion. 

Defendants cite and rely upon West Investment Co. v. 

,morhead, 120 Cal.App.2d 837, 262 P.2d 322. The holding 

there was overruled by a later California case, Albertson v. 

Xaboff, 46 Cal.2d 375, 295 P.2d 405. In - AIbertson the court 

held a lis pendens filed under a California statute nearly 

identical to ~ontana's section 93-3005, R.C.M. 1947, was 

absolutely privileged without reference to the merits 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 district court's 

partial judgment in favor of the corporation and direct that 

court to grant 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 in place of Mr. 

Justice Frank I. Haswell, and Mr. Justice Gene B. Daly, 

dissenting in part and concurring in part: 

The majority opinion grounds the result therein reached 

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

a clear rule that the officers have no power to act unilaterally 

except in instances where management authority is placed in such 

officer and his acts are in the ordinary course of the corporate 

business. The opinion in the Bentall case specifically holds 

the note therein involved was in the usual and ordinary course 

of the corporate business. In the case under consideration here 

the majority opinion finds no distinction between the note in 

the Bentall case and the option here. With this conclusion we 

disagree. 

The ordinary course of the business of Edwards, Inc., is 

that of agriculture and in no 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 fact that in the case under consideration the corporate officers signing the lease owned almost all 

of the corporate stock but they chose to act in a corporate form 

which would require, in our opinion under the facts of this case, 

a corporate authority which is not present. To hold otherwise 

thwarts the legislative intent of the statute and is not consistent with the rule of this Court in such instance. The majority 

opinion, in our view, adopts a rule that the officer or officers 

holding a majority of the stock in a corporation can act for the 

corporation in any instance without action by the Board of Directors. 

We do 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 in the results, but solely on the basis of estoppel, 

and a different estoppel than that relied upon in the 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 into a contract for the corporation, they are bound under principles of estoppel to affirm the 

contract, 19 C.J.S. 485, $1012. This court held similarly, without referring to estoppel, in Bentall v. Koenig Brothers, Inc., 

(1962), 140 M 339, 372 P2d 91, 94: "In the instant case, the 

defendant corporation's Articles of Incorporation provided for 

three members to act as directors of the corporation. At the time 

of the execution of the note in question, R.W. Brenneke, Alvin F. 

Koenig, and Arne Poulsen were its directors. It is undisputed 

that Alvin Koenig and Arne Poulsen authorized the execution of the 

note in question. They constituted a quorum and their action, 

which was not contrary to law nor contrary to the articles of 

incorporation or by-laws of the defendant corporation, was binding 

on the defendant corporation." 

The point of the dissent is well made, and for that reason, 

I am not willing to rely upon apparent or ostensible authority 

(which, in turn, is dependent upon the instant transaction being 

in the usual or ordinary course of business). 

At the same time, I am not satisfied that corporate officers 

are liable individually for acts done as corporate officers, even 

though without authority, absent fraud, i.e., to uphold the trial 

court would be to dismiss the corporation from this action, leaving the two defendants individually, and they may well not be 

liable, having acted as corporate officers. 

I concur in the majority opinion's conclusion that the publication of the lis pendens was privileged and not subject to a 

slander of title action. 

Hon. 

UL!. 

Robert S. 

LKeller, District 

Judge, sitting for chief Justice 

James T. Harrison