Case Management
Indoor Management Rule
1. Indoor management rule. Royal British Bank v Turquand; A rule was formulated to the effect that while a third party who dealt with the company was taken to be aware of the contents of that company’s public documents, they were not bound to ensure that the company’s internal proceedings were properly carried out. See Morris v Kanssen [1946]AC 459 at 474. “A person dealing with a company in good faith may assume that acts within its constitution have been duly performed and are not bound to inquire whether acts of internal management have been regular.”
2. Northside Developments Pty. Ltd v Registrar-General (1990) 170 CLR 146; Northside mortgaged its land to Barclays, the mortgage was executed under the company’s common seal, signed by a director and counter-signed by a company secretary. The articles were not complied with as the company secretary had not been properly appointed. The other directors also had no knowledge of the mortgage and had not authorised the director to affix the company seal. When Barclays exercised its power of sale as mortgagee, after the mortgagor defaulted, a company unrelated to Northside, Northside argued that it did not execute the mortgage. Northside sued the Registrar-General who attempted to rely on the in-door management rule to prevent Northside from denying execution of the mortgage. Issue: whether Northside was bound by the mortgage. Held: High Court held that Northside was not bound by the mortgage. The bank should have been put to inquiry and that it had failed to carry out inquiries. The nature of transaction was such as to put the bank to inquiry (that is, the purpose was unrelated to the company’s business)
3. Brick and Pipe Industries v Occidental Life Nominees(1991) 6 ACSR 464. A director and secretary of Brick and Pipe attested the execution of the deed of guarantee and indemnity. Both were directors but the secretary had never been formerly appointed. The
1. Indoor management rule. Royal British Bank v Turquand; A rule was formulated to the effect that while a third party who dealt with the company was taken to be aware of the contents of that company’s public documents, they were not bound to ensure that the company’s internal proceedings were properly carried out. See Morris v Kanssen [1946]AC 459 at 474. “A person dealing with a company in good faith may assume that acts within its constitution have been duly performed and are not bound to inquire whether acts of internal management have been regular.”
2. Northside Developments Pty. Ltd v Registrar-General (1990) 170 CLR 146; Northside mortgaged its land to Barclays, the mortgage was executed under the company’s common seal, signed by a director and counter-signed by a company secretary. The articles were not complied with as the company secretary had not been properly appointed. The other directors also had no knowledge of the mortgage and had not authorised the director to affix the company seal. When Barclays exercised its power of sale as mortgagee, after the mortgagor defaulted, a company unrelated to Northside, Northside argued that it did not execute the mortgage. Northside sued the Registrar-General who attempted to rely on the in-door management rule to prevent Northside from denying execution of the mortgage. Issue: whether Northside was bound by the mortgage. Held: High Court held that Northside was not bound by the mortgage. The bank should have been put to inquiry and that it had failed to carry out inquiries. The nature of transaction was such as to put the bank to inquiry (that is, the purpose was unrelated to the company’s business)
3. Brick and Pipe Industries v Occidental Life Nominees(1991) 6 ACSR 464. A director and secretary of Brick and Pipe attested the execution of the deed of guarantee and indemnity. Both were directors but the secretary had never been formerly appointed. The