Royal British Bank v Turquand

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Royal British Bank v Turquand (1856) 6 E&B 327, and the eponymous "Rule in Turquand's Case" refer to the rule of English law that a third party dealing with a company is entitled to presume that a person held out by the company has the necessary authority to act on behalf of the company.

The common law rule mitigated the perceived harshness of the doctrine of constructive notice with respect to the "public documents" of a company (including its Memorandum of Association and Articles of Association).

In Turquand the articles provided that the company could borrow on bonds such sums as from time to time authorised by a resolution passed in general meeting. The court held that a third party bondholder "finding that the authority might be made complete by a resolution ... would have a right to infer the fact of a resolution authorising that which on the face of the document appeared to be legitimately done."

In fact, the rule was not accepted as being firmly entrenched in law until it was endorsed by the House of Lords in Mahoney v East Holyford Mining Co. (1875) LR 7 HL 869.

In Mahoney Lord Hatherly phrased the law thus:

"When there are persons conducting the affairs of the company in a manner which appears to be perfectly consonant with the articles of association, those so dealing with them externally are not to be affected by irregularities which may take place in the internal management of the company.

So, in Mahoney, where the company's articles provided that cheques should be signed by any two of the three named directors and by the secretary, the fact that the directors who had signed the cheques had never been properly appointed was held to be a matter of internal management, and the third parties who received those cheques were entitled to presume that the directors had been properly appointed, and cash the cheques.

The position in English law is now superseded by section 35A of the Companies Act 1986, but the Rule in Turquand's Case is still applied throughout many common law jurisdictions in the Commonwealth.

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