Company law revision question and answer

(i) Explain the Rule in Royal British Bank V. Turquand.
(ii) Enumerate the various exceptions to the rule in (i) above.

ANSWER

The rule in Royal British Bank V. Turquand often referred to as the “indoor management rule” is to the effect that a 3rd party dealing with a company in good faith is entitled to assume that it is acting within its constitutional powers.
• He is not bound to satisfy himself that all rules of internal management have been complied with.
• He is entitled to assume that what appears regular is indeed regular (Mahony V. EastHoly Food Mining Co.)
• He is entitled to assume that officers of the company who purport to exercise certain powers ordinarily exercised those sort of officers, are the officers concerned. (Freemans case).
• This rule protects 3rd parties against the company in cases of internal irregularities.
• It is based on the principles of equity and is intended to give business efficacy.
(ii)
• Public documents of the company.
• Knowledge of the irregularity or lack of authority.
• Suspicion i.e. 3rd part is put on inquiry.
• Excess of power the officer dealt with
• Insiders e.g. directors in certain circumstances.
• Forged documents.

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