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Doctrine of Indoor Management

The doctrine of indoor management imposes limitations on the doctrine of constructive notice. It provides that outsiders dealing with a company are not required to inquire into the internal proceedings and can assume they are valid as long as the company has the power to enter the transaction. If the contract is within the company's powers, it will be bound even if there are internal irregularities the outsider has no notice of. This was established in Royal British Bank v. Turquand, where the bank lent money to a company though proper internal authorization was not obtained but the directors had borrowing power. Similarly, in other cases, outsiders can presume directors are acting lawfully without investigating internal procedures.

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Senelwa Anaya
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1K views1 page

Doctrine of Indoor Management

The doctrine of indoor management imposes limitations on the doctrine of constructive notice. It provides that outsiders dealing with a company are not required to inquire into the internal proceedings and can assume they are valid as long as the company has the power to enter the transaction. If the contract is within the company's powers, it will be bound even if there are internal irregularities the outsider has no notice of. This was established in Royal British Bank v. Turquand, where the bank lent money to a company though proper internal authorization was not obtained but the directors had borrowing power. Similarly, in other cases, outsiders can presume directors are acting lawfully without investigating internal procedures.

Uploaded by

Senelwa Anaya
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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DOCTRINE OF INDOOR MANAGEMENT This doctrine imposes a limitation on the doctrine of constructive notice.

Persons dealing with the company once they are satisfied that the company has powers to enter the proposed transaction, they are not required enquire into the regularity of any internal proceedings they are entitled to assume that provisions of Articles have been complied with by the company in its internal working. If the proposed contract is within the powers of the company the company will be bound to the outsider and claims of the outsider will not be affected in any way by the internal irregularity of the company. This is the doctrine of indoor management or the rule in royal British Bank v. Turquand. In Royal British Bank vs. Turquand the articles empowered the directors to borrow money provided they were authorized by a resolution passed at a general meeting of the company. The directors borrowed money from T and issued a bond to him without the authority of resolution passed at the general meeting. It was held that the company was liable for the money to T because once the articles authorized directors to borrow subject to a resolution of the general meeting of the company T, was entitled to assume that the directors were borrowing on the authority of the resolution passed at a general meeting of the company, T was not required to enquire into the regularity of the companys internal proceedings. In Premier industrial Bank Ltd Vs. Calton Manufacturing company, it was stated that if the directors have power and authority to bind the company, but certain preliminaries are required to be gone through on the part of the company before that power can be duly exercised, then the person contracting with the directors is not bound to the section, that all these preliminaries have been observed he is entitled to presume that the directors are acting lawfully in what they do. The rule is also held in Fuontain vs. Carmarthen Rly co. (1868) LR5 ESQ 316. The general rule here is that persons dealing with limited liability are not bound to inquire into the regularity of the internal proceedings and will not be affected by irregularities of which they had no notice.

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