Case Brief - Royal British Bank v Turquand (1856) 6 E&B 327 PDF

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Case Brief Case No.: Royal British Bank v Turquand Citation: (1856) 6 E&B 327 Court: Court of Appeal Coram: Lord Jervis CJ, Pollock CB, Alderson B, Cresswell J, Crowder J and Bramwell B Facts: Mr Turquand was the official manager (liquidator) of the insolvent Cameron's Coalbrook Steam, Coal and Swansea and Loughor Railway Company. It was incorporated under the Joint Stock Companies Act 1844. The company had given a bond for £2,000 to the Royal British Bank, which secured the company's drawings on its current account. The bond was under the company's seal, signed by two directors and the secretary. When the company was sued, it alleged that under its registered deed of settlement (the articles of association), directors only had power to borrow up to an amount authorised by a company resolution. A resolution had been passed but not specifying how much the directors could borrow. As such, the company claimed that there was no valid resolution authorizing the issue of the bond and hence the company was not liable. At the Court of Exchequer Chamber, the trial judge gave judgment in favour of the bank. The liquidator on behalf of the company appealed. Result: The decision at the CFI was affirmed. In the leading judgment given by Lord Jervis CJ gave, among other things, the following speech: I am of opinion that the judgment of the Court of Queen's Bench ought to be affirmed. I incline to think that the question which has been principally argued both here and in that Court does not necessarily arise, and need not be determined. My impression is (though I will not state it as a fixed opinion) that the resolution set forth in the replication goes far enough to satisfy the requisites of the deed of settlement.

The deed allows the directors to borrow on bond such sum or sums of money as shall from time to time, by a resolution passed at a general meeting of the Company, be authorized to be borrowed: and the replication shews a resolution, passed at a general meeting, authorizing the directors to borrow on bond such sums for such periods and at such rates of interest as they might deem expedient, in accordance with the deed of settlement and the Act of Parliament; but the resolution does not otherwise define the amount to be borrowed. That seems to me enough. If that be so, the other question does not arise. But whether it be so or not we need not decide; for it seems to us that the plea, whether we consider it as a confession and avoidance or a special Non est factum, does not raise any objection to this advance as against the Company. We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and that the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here, on reading the deed of settlement, would find, not a prohibition from borrowing, but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the document appeared to be legitimately done. The implications of the Turquand Rule: (1). According to the Turquand rule, each outsider contracting with a company in good faith is entitled to assume that the internal requirements and procedures have been complied with. The company will consequently be bound by the contract even if the internal requirements and procedures have not been (2)

complied with. The exceptions here are: if the outsider was aware of the fact that the internal requirements and procedures have not been complied with (acted in bad faith); or if the circumstances under which the contract was concluded on behalf of the company were suspicious.

(3)

However, it is sometimes possible for an outsider to ascertain whether an internal requirement or procedure has been complied with. If it is possible to ascertain this fact from the company's public documents, the doctrine of disclosure and the doctrine of constructive notice will apply and not the Turquand rule.

(4)

The Turquand rule was formulated to keep an outsider's duty to inquire into the affairs of a company within reasonable bounds, but if the compliance or non-compliance with an internal requirement can be ascertained from the

company's public documents, the doctrine of disclosure and the doctrine of (5)

constructive notice will apply. In the context of the Company Act 2006, if it is an internal requirement that a certain act should be approved by special resolution, the Turquand rule will therefore not apply in relation to that specific act, since a special resolution is registered with Companies House (in the United Kingdom), and is deemed to be public information....