In Premier Industrial Bank Ltd v Carlton Manufacturing Co Ltd Crabtree 1909 1

In premier industrial bank ltd v carlton

This preview shows page 43 - 45 out of 129 pages.

In Premier Industrial Bank Ltd . v . Carlton Manufacturing Co ., Ltd. & Crabtree, (1909) 1 KB 106 , it was stated that "if the directors have power and authority to bind the company, but certain preliminaries are required to be gone through on the part of the company before that power can be duly exercised, then the person contracting with the directors is not bound to the section, that all these preliminaries have been observed he is entitled to presume that the directors are acting lawfully in what they do". The rule is also held in Fountain v. Carmarthen Rail Co . (1868) L.R. 5 Esq. 316 . The general rule here is that persons dealing with limited liability are not bound to inquire into the regularity of the internal proceedings and will not be affected by irregularities of which they had no notice. 1. Exceptions to the Doctrine of indoor management The doctrine of indoor management will not apply in the following instances:
Image of page 43
4. Where the outsider has notice (actual or constructive) that the prescribed procedure has not been complied with by the company. In Howard v Patent Ivory Manufacture Co (1888) 38 Ch. D. 156 , the directors were empowered to borrow up to 1000 and such further sums as the company in the general meeting might authorize without such consent they issued to themselves debentures for sums in excess of £1000. it was held they had knowledge of irregularity in the internal proceedings of the company, the company would be liable for £1000 only. Sums borrowed in excess of this were held invalid. 5. A company cannot be held liable for forgeries committed by its officers. In Ruben v Great Fingall Consolidated Co. Ltd. [1906] AC 439 (HL) , the company secretary issued a share certificate by forging the signatures of the two directors under the seal of the company. The plaintiff contended that it was not his duty to verify the signatures. Whether signatures were genuine or not was part of internal management. It was held that the certificate was not binding on the company as the rule in Turquand's case does not protect forgery. Lord Loreburn observed in the case "it is quite true that persons dealing with limited liability companies are not bound to inquire into their indoor management and will not be affected by irregularities of which they have no notice. But this doctrine applies only to irregularities that otherwise might affect a genuine transaction, it cannot apply to forgery". 6. When the outsider is negligent. Any person entering into a contract with the company ought to make proper inquires, and in the absence of this he cannot claim benefit under the Turquand case. In Underwood (A.L.) v . Bank of Liverpool & Martins [1924] 1 K.B. 775, the sole director paid cheques drawn in the name of the company in his account. It was held that the bank was put upon inquiry before crediting the cheques drawn in favour of the company in the account of the director. The bank was not entitled to rely upon the unstable authority of the director.
Image of page 44
Image of page 45

You've reached the end of your free preview.

Want to read all 129 pages?

  • Fall '16
  • Mr.Oloo
  • Corporation, Share capital, Types of companies

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors