National Boulevard Bank v. Drive-In Development Corp.
371 F.2d 215 (1966)
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Rule of Law:
A corporation is estopped from denying an officer's authority to execute a document when the corporation's secretary provides a certified copy of a board resolution purporting to grant that authority, and a third party relies on that certification in good faith without knowledge of its falsity.
Facts:
- Tastee Freez Industries, Inc. was a holding company controlling four subsidiaries in an integrated business, including Drive In Development Corporation and Allied Business Credit Corporation.
- Leo S. Maranz was president of the parent company, Tastee Freez, and vice president and a director of Drive In.
- In April 1962, Allied Business entered into a financing agreement with National Boulevard Bank of Chicago, which required guaranties from its sister corporations.
- On April 11, 1962, Maranz, as 'Chairman', executed an instrument on behalf of Drive In, guaranteeing Allied Business's obligations to the bank.
- George M. Dick, the secretary of Drive In, attested to Maranz's signature on the guaranty.
- At the bank's request, Dick furnished a certified copy of a resolution, bearing the corporate seal, which stated that Drive In's board of directors had authorized Maranz to execute the guaranty.
- In fact, no such resolution authorizing the guaranty was ever recorded in Drive In's corporate minute book.
Procedural Posture:
- Drive In Development Corporation filed a voluntary petition in an arrangement proceeding under Chapter XI of the Bankruptcy Act.
- National Boulevard Bank of Chicago filed a claim against Drive In's estate based on the guaranty.
- A creditors' committee and several individual creditors objected to the bank's claim, arguing that the officer who signed the guaranty lacked authority.
- The bankruptcy referee disallowed National Boulevard's claim in its entirety.
- National Boulevard sought review in the U.S. District Court, which confirmed the referee's order.
- National Boulevard Bank, as appellant, appealed the district court's decision to the United States Court of Appeals for the Seventh Circuit.
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Issue:
Is a corporation bound by a guaranty executed by an officer when the corporation's secretary provides a third party with a certified copy of a board resolution authorizing the guaranty, even if the resolution was never actually passed by the board of directors?
Opinions:
Majority - Swygert, J.
Yes, a corporation is bound by a guaranty under these circumstances. Drive In was estopped from denying Maranz's express authority to sign the guaranty because of the certified copy of the board resolution provided by its secretary, Dick. It is within the scope of a corporate secretary's authority to certify the actions and resolutions of the board of directors. A third party, like National Boulevard Bank, is entitled to rely on such certifications without needing to investigate their authenticity, so long as the third party has no actual or constructive knowledge that the representations are untrue. Therefore, the corporation is bound by the representations of its officer made within the scope of his authority.
Analysis:
This decision reinforces the principle of corporate estoppel and protects third parties who rely in good faith on official corporate certifications. It places the risk of an officer's misrepresentation on the corporation that empowered the officer, rather than on the innocent third party. The ruling solidifies the authority of a corporate secretary's certification, making it a reliable instrument in commercial transactions and discouraging corporations from using their own internal procedural defects as a defense to escape contractual obligations.
