Royal British Bank v. Turquand (1856) 6 E & B 327

Quick Summary

This case sets the Indoor Management Rule (also called the Turquand Rule). Outsiders can trust a company’s public documents. They need not check if the company actually followed every internal step (like passing a resolution) before borrowing. If the articles allow borrowing, outsiders may assume the internal approval exists—unless they know about an irregularity.

Citation

Royal British Bank v. Turquand (1856) 6 E & B 327

Court

Exchequer Chamber / Queen’s Bench

Keywords

Indoor Management Rule, outsider protection, borrowing powers

Issues

• Is the company liable on a bond given to a bank for borrowing?
• Must outsiders verify whether the required internal resolution was actually passed?

Rules

• Public documents: Statute, Memorandum, and Articles are open to all. Outsiders should read them.
• Indoor Management Rule: If the Articles permit an act subject to internal steps, outsiders may assume those steps were properly done.
• Limits: No protection if the outsider knows of the irregularity or if the situation is suspicious.

Facts (Timeline)

Arguments

Judgment

• Held for the Bank: The company was liable on the bond.
• Reason: Outsiders may assume that internal conditions (like a resolution) were properly fulfilled when the Articles allow borrowing.
• Jervis CJ’s approach: Read public documents; if they permit borrowing, one can infer a proper resolution unless there is notice of irregularity.

Ratio

The Indoor Management Rule protects outsiders. They can rely on a company’s public authority without investigating internal compliance, unless they know of an irregularity or circumstances are suspicious.

Why It Matters

• Makes business easier: outsiders do not chase minutes and resolutions.
• Balances transparency (public documents) with practicality (no deep internal checks).
• Still warns outsiders: no protection if you smell irregularity.

Key Takeaways

1. Read the public documents (Memorandum & Articles).
2. If they allow an act, you may assume the inside steps were done.
3. Protection ends where knowledge of irregularity begins.
4. Company seals and officer signatures matter for outsiders’ reliance.

Mnemonic + 3-Step Hook

Mnemonic: I-N-D-O-O-R — Inspect public docs, No need to probe inside, Do not ignore suspicion, Outsider protected, Only if no notice, Reliance allowed.

1. Check the Articles for the power.
2. Assume internal steps are done (if nothing suspicious).
3. Proceed on the company’s seal and officer authority.

IRAC Outline

Issue: Is the company bound on a bond where internal approval is alleged to be missing?

Rule: Indoor Management Rule: outsiders may rely on public authority without probing internal compliance.

Application: Articles permitted borrowing; sealed bond was signed by proper officers; no proven notice of irregularity to the bank.

Conclusion: Company liable; outsiders protected in absence of known irregularities.

Glossary

Indoor Management Rule

Doctrine letting outsiders assume internal formalities are properly done.

Articles of Association

Public rules for company’s internal governance and powers.

Non est factum

A plea that a deed is not the party’s act; rarely succeeds where authority exists.

Student FAQs

Related Cases

• Cases refining limits of the Turquand Rule (knowledge/suspicion exceptions).
• Decisions on apparent authority and company seals.