## Facts

- Drive-In Development Corp. was a subsidiary within a group controlled by Tastee Freez Industries, Inc., a holding company.
- National Boulevard Bank of Chicago loaned money to Tastee Freez Industries.
- As part of the lending transaction, Drive-In executed a written guaranty of the parent’s indebtedness to the Bank.
- The guaranty was signed for Drive-In by its chairman, Leo Maranz.
- Drive-In’s secretary, George Dick, attested the guaranty and delivered to the Bank a secretary’s certificate stating that Drive-In’s board had adopted a resolution authorizing Maranz to execute guaranties on Drive-In’s behalf.
- Drive-In’s internal records did not contain minutes or a recorded resolution reflecting board adoption of the authorization described in the secretary’s certificate.
- Drive-In later entered a Chapter XI proceeding, and the Bank filed a claim against Drive-In based on the guaranty.
- The referee in bankruptcy disallowed the Bank’s claim, concluding Maranz lacked authority to bind Drive-In; the district court affirmed.

## Issues

1. Whether a corporation may avoid a guaranty by asserting the signing officer lacked authority when the corporation’s secretary certified a board resolution authorizing the officer and a lender relied on that certification.
2. Whether an internal failure to record corporate action in minutes defeats a third party’s good-faith reliance on a secretary-certified corporate resolution.

## Decision

- The Seventh Circuit reversed the order disallowing the Bank’s claim.
- The court held Drive-In was estopped to deny Maranz’s authority to execute the guaranty.
- The court directed that the Bank’s claim based on the guaranty be allowed in the Chapter XI proceeding.

## Legal Principles

- A corporate secretary’s certificate, issued in the secretary’s official capacity and representing that directors adopted a resolution, is a corporate representation on which third parties may rely in good faith.
- A corporation may be estopped from denying an officer’s authority where the corporation, through responsible officers and formal documentation, held the officer out as authorized and a third party relied to its detriment.
- Internal irregularities in maintaining corporate records (including omissions from minutes) generally do not defeat a creditor’s reliance on formally certified indicia of authority.
- As between an innocent lender and the corporation responsible for defective internal formalities, the resulting loss is allocated to the corporation when the lender reasonably relied on the corporation’s certification of authority.

## Conclusion

The court held that a subsidiary that provided a guaranty supported by a secretary-certified board authorization could not later defeat the guaranty by pointing to missing or incomplete internal minutes; the corporation’s certification bound it and estopped it from denying the officer’s authority, requiring allowance of the creditor’s claim in bankruptcy.


In re Drive-In Dev. Corp., 371 F.2d 215 (7th Cir. 1966)