Royal British Bank v. Turquand
Turquand, a company, had a clause in its constitution that allowed the company to borrow money once it had been approved and passed by resolution (decision)of the shareholders at a general meeting. Turquand entered into a loan with the Royal British Bank and two of the co-directors signed and attached the company seal to the loan agreement. Loan had not been approved by the shareholders. Company defaulted on their payments and the bank sought restitution. Company refused to repay claiming that the directors had no right to enter into such an arrangement It was held that – the Turquand was entitled to assume that the resolution was passed.
The Company was therefore bound by the rule.
in this case the director of a banking company were the authorised by the articles to borrow on the bond such sums of money as should from time to time by resolution of company in general meeting be authorised to borrow. the director gave a bond to Turquand without the authority of any such resolution it was held that Turquand could sue the company on the strength of the bond as he was entitled to assume that the necessary resolution had been passed .Lord hatherly observed- outsider are bound to know the external position of the company but are not bound to know its Indoor managment the Doctrine is the great importance in the world of Commerce because in it absence the general plight Further of the person dealing with the company would have been miserable because the company very often could have escaped liability by the denying(reject) the authority of the officials to act of its behalf