Royal British Bank v. Turquand (1856) 119 ER 886 : (1843-60) All ER Rep. 435 130

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Royal British Bank v. Turquand (1856) 119 ER 886 : (1843-60) All ER Rep. 435 130

FACTS OF THE CASE

In the case of Royal British Bank v. Turquand, the relevant facts are as follows: The managing director of The Royal British Bank, Turquand, entered into a loan agreement with a bank. The company’s articles of association provided that directors have the power to borrow money on behalf of the company, subject to certain conditions. The bank relied on the belief that Turquand had the apparent authority to borrow on behalf of the company. However, it later came to light that the board resolution authorizing the borrowing was not recorded in the company’s minute book. As a result, the company refused to repay the loan, arguing that the borrowing was not properly authorized. The central issue brought before the court was whether, despite the irregularity in the board resolution, the bank could still recover the loan from the company.

ISSUES

The primary issue of this case was whether the bank, despite of the irregularity of the board resolution, could recover the loan from the company.

ARGUMENTS 

Given that the case of Royal British Bank v. Turquand is an English case dating back to 1856, we unfortunately do not have access to the specific arguments presented by both the appellant and the respondent. Nevertheless, based on the factual context of the case and established legal principles, we can construct hypothetical arguments that could have been made by each party:

Argument of the Appellant (Royal British Bank):

1. The managing director, Turquand, possessed apparent authority to borrow funds on behalf of the company, as explicitly stated in the company’s articles of association.

2. The bank acted in good faith, relying on Turquand’s apparent authority, and entered into a valid loan agreement with the company.

3. It would be unjust to hold the bank accountable for the company’s failure to accurately record the board resolution, as the indoor management rule dictates that third parties should be safeguarded when transacting with a company.

Argument of the Respondent (Turquand / The Royal British Bank):

1. The board resolution authorizing the loan was not correctly documented in the company’s minute book, which is a requirement stipulated within the company’s articles of association.

2. Due to the absence of proper record-keeping, the borrowing was not lawfully authorized, and therefore the company cannot be held liable to repay the loan.

3. The bank had an obligation to inquire into any irregularities concerning the company’s internal procedures, thereby implying that the bank should have been aware of the invalid authorization for the borrowing.

JUDGEMENT

The judgment in the case of Royal British Bank v. Turquand holds significant importance as it introduced the doctrine of indoor management rule. The court, ruling in favor of the appellant, the Royal British Bank, determined that the bank had the right to recover the loan from the company despite the irregularity in the board resolution. In rendering its decision, the court applied the indoor management rule, which establishes that individuals dealing with a company can reasonably assume that all internal company regulations have been followed, even if there are deviations. This rule serves as a shield to protect innocent third parties who rely on the apparent authority of company officers. In this particular case, the bank acted in good faith and relied upon the apparent authority of Turquand, the managing director, to borrow funds on behalf of the company. The court concluded that since the bank had no knowledge of the irregularity in the board resolution, it should not be penalized for the company’s failure to accurately record it. This judgment established the principle that, unless exceptional circumstances exist, third parties engaging with a company are not obliged to investigate or question the regularity of the company’s internal proceedings. The decision has had a significant impact on company law, providing protection to individuals who engage in transactions with companies in good faith. Please note that while I have strived to provide an accurate and coherent summary of the judgment, for a comprehensive understanding, it is advisable to refer to the original case report.

REFERENCES

https://en.m.wikipedia.org/wiki/Royal_British_Bank_v_Turquand

http://notesforfree.com/2018/01/24/corporate-law-case-brief-royal-british-bank-v-turquand/ 

This Article is written by Raktim Singha Roy of Techno India University, Intern at Legal Vidhiya.

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