IN RE DRIVE IN DEVELOPMENT CORP
371 F.2d 215 (1967)
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Rule of Law:
A corporation is estopped from denying an officer's authority to execute an agreement when the corporate secretary provides a certified copy of a board resolution purporting to grant such authority, and a third party reasonably relies upon that certification.
Facts:
- Tastee Freez Industries, Inc. was a holding company for four subsidiaries, including Drive-In Development Corp. (Drive In) and Allied Business Credit Corp. (Allied Business), which operated as an integrated business.
- Leo S. Maranz was president of the parent company, Tastee Freez, and an officer or director of each subsidiary, including serving as Drive In's vice president.
- In early 1962, the enterprise sought significant financing from National Boulevard Bank of Chicago (National Boulevard).
- On April 9, 1962, Allied Business contracted with National Boulevard to sell it conditional sales contracts, agreeing to repurchase any contracts that defaulted.
- On April 11, 1962, Maranz signed a guaranty on behalf of Drive In, making it liable for Allied Business's repurchase obligations to National Boulevard.
- National Boulevard requested a corporate resolution authorizing this guaranty.
- In response, George M. Dick, Drive In's secretary, provided National Boulevard with a document certified with the corporate seal, stating that Drive In's board of directors had passed a resolution authorizing Maranz to execute the guaranty.
- In fact, no such resolution was ever formally adopted by Drive In's board or recorded in its corporate minute book.
Procedural Posture:
- Drive In Development Corp. filed a voluntary petition for an arrangement under Chapter XI of the Bankruptcy Act.
- National Boulevard Bank of Chicago filed a claim in the bankruptcy proceeding against Drive In, based on a guaranty agreement.
- A creditors' committee and other creditors objected to the bank's claim, arguing the officer who signed the guaranty lacked authority.
- The bankruptcy referee disallowed National Boulevard's claim in its entirety.
- On review, the United States District Court entered an order confirming the referee's decision.
- National Boulevard Bank of Chicago, as claimant-appellant, appealed the district court's order to the United States Court of Appeals for the Seventh Circuit.
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Issue:
Is a corporation estopped from denying its officer's authority to execute a guaranty when the corporate secretary furnishes a certified copy of a board resolution purporting to grant that authority to a third party who relies on it, even if the resolution was never formally adopted?
Opinions:
Majority - Swygert, Circuit Judge
Yes, a corporation is estopped from denying its officer's authority under these circumstances. When a corporate secretary, whose duties include keeping corporate records and certifying board actions, furnishes a third party with a certified copy of a board resolution, the corporation is bound by that representation. The third party is justified in relying upon the certification without investigating the corporation's internal records. Because providing such a certificate falls within the scope of the secretary's authority, the corporation is estopped from later asserting that the resolution was not actually passed, especially when the third party had no actual or constructive knowledge that the representation was false.
Analysis:
This decision solidifies the doctrine of corporate estoppel and protects third parties in commercial transactions. It establishes that a third party can reasonably rely on the formal certification of a corporate secretary regarding an officer's authority, without needing to verify the authenticity of the underlying corporate action. This places the risk of an officer's misrepresentation on the corporation that appointed them, rather than on the innocent third party who relied on the officer's apparent authority. The ruling promotes efficiency and certainty in business dealings by affirming the legal power of official corporate acts and representations.
