MLL221 Study Guide - Final Guide: Royal British Bank, Twycross, Apparent Authority
24 May 2018
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CORPORATE LAW TOPIC THREE
• Explain and apply the organic theory
A company is comprised of two organs:
• the general meeting of shareholders
• the board of directors
The organic theory holds that the acts of these organs that are authorised by the companys
constitution or applicable replaceable rules are acts of the company itself.
Individuals who are the directing mind and will of the company are the brains of the company.
• They have the power to act independently with full discretion to make decisions without
relying on instructions from superiors.
• The acts, knowledge or intentions of persons who represent the directing mind and will of the
company are attributed to the company itself.
• Know how a company signs a contract and what the statutory assumptions are
• Principal gives authority to agent.
• Agent concludes contract with 3rd party.
• Who is bound by the contract?
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Royal British Bank v Turquand (1856)
➢ Also known as Indoor Management Rule
- Verbally or in writing
• May arise from: s 126 (implied also)
– Authority delegated by the
board to an agent
– Authority arising from a
provision of the Corporations
Act or Company constitution
• Arises where Principal give the impression to Outsider that
an Agent has authority to at on Prinipals ehalf
➢ Can arise even where the company has not in any way
agreed that the agent can act on behalf of the company
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964]
• Requirements:
₋ Representation (words or conduct) to the contracting party
that the Agent has authority to enter contract on behalf of
the Company
₋ Representation must be made by Company (or someone
with actual authority)
₋ Contracting party must rely on the representation to enter
into the contract
₋ Apart from s 126 (actual authority!) –
common law principle of apparent or
ostensible authority an also assist a third
party in holding a company bound to a
contract
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find more resources at oneclass.com
Rule: Bona fide third parties may validly assume that any internal company proceedings were
properly carried out (even though they were not), e.g.:
• No procedural defects in appointment of directors
• Board meeting properly called and held
• Board or general meeting required under Constitution have been obtained
➢ Only applies to internal (private) proceedings/actions
➢ EXCEPTIONS:
➢ Actual knowledge exception applies (Third Party cannot argue good faith
anymore)
➢ Third Party actually knows that the Agent had insufficient authority or the
contract was defective, TP can not rely on IMR
➢ Exception also applies if the TP deliberately kept his eyes shut in order not
to discover the problem
➢ Put on inquiry exception applies
➢ TP failed to make inquires that would usually be made by someone in that
position; or
➢ A reasonable person in TPs position would have been put on inquiry and
investigated
ROYAL BRITISH BANK V TURQUAND
FACTS
• Company constitution empowered Board
to borrow money when authorised by a
resolution of the general meeting of
shareholders
• Company borrowed money from Bank
⁻ Signed by 2 directors under
company seal
• But there was no authority
⁻ No shareholders resolution
• Company refused to repay the loan
HELD
• The passing of the shareholders resolution
was an internal matter
• An outsider can assume that the internal
proceedings of a company have been
properly carried out
• Company bound to repay the Bank
s.129(1) Can assume that Companys constitution (and replaceable rules) have been
complied with (Similar to common law indoor management rule)
s.129(2) Can assume that if ASIC records show that a person is a director or secretary of a
company, that the director/secretary is Duly appointed; and Authorised to exercise powers and
perform duties customarily exercised by person in that position (Similar to common law implied
actual authority)
People dealing with companies are entitled to make
assumptions set out in s.128 and s.129
• Section 129 sets out the assumptions
• Section 128 sets out when the assumptions apply
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Corporate law topic three: explain and apply the organic theory. A company is comprised of two organs: the general meeting of shareholders the board of directors. The organic theory holds that the acts of these organs that are authorised by the company(cid:1685)s constitution or applicable replaceable rules are acts of the company itself. Verbally or in writing: may arise from: s 126 (implied also) Arises where principal give the impression to outsider that an agent has authority to a(cid:272)t on prin(cid:272)ipal(cid:859)s (cid:271)ehalf. Can arise even where the company has not in any way agreed that the agent can act on behalf of the company. Freeman and lockyer v buckhurst park properties (mangal) ltd [1964] Representation (words or conduct) to the contracting party that the agent has authority to enter contract on behalf of the company. Representation must be made by company (or someone with actual authority) Contracting party must rely on the representation to enter into the contract.
