Turquands Rule
The “Indoor Management Rule” apparently developed as a means of mitigating the harshness and burdens of the doctrine of constructive notice in relation to outsiders dealing with companies; the doctrine of constructive notice states that persons dealing with a company are deemed to have notice of the contents of its registered documents. The reason for this was stated by, Lord Wensleydale in Ernest v Nicholls to be the fact of the public nature of registration: All persons therefore, must take notice of the deed (of settlement) and the Provisions of the Act. If they do not choose to acquaint themselves with the powers of the directors, it is their own fault, and if they give credit to any unauthorized persons they must be contented to look to them only, and not to the company at large. The stipulations of the deed, which restrict and regulate their authority, are obligatory on those who deal with the company.
However, a qualification to the rule of constructive notice developed, which favoured third parties as against companies. This rule, known as the indoor management rule may be relied on by a third party where the company 's public documents contain nothing which indicates that the contract in question may not be made. If the documents confer power on the company 's officers to bind the company, but provide that certain preliminary conditions or formalities must be complied with before the power may be exercised, then the contractor or the third party is not obliged to ensure that those conditions or formalities have been fulfilled. He is entitled to assume that the company 's officers are acting lawfully. This means that, third parties or people dealing with a company are not supposed to found out if the directors of the company have the authority to perform, all procedures of the corporation have been complied with, and that all the terms and conditions in the company’s regulation have been fulfilled. To do so will not encourage smooth running of business.
However, a qualification to the rule of constructive notice developed, which favoured third parties as against companies. This rule, known as the indoor management rule may be relied on by a third party where the company 's public documents contain nothing which indicates that the contract in question may not be made. If the documents confer power on the company 's officers to bind the company, but provide that certain preliminary conditions or formalities must be complied with before the power may be exercised, then the contractor or the third party is not obliged to ensure that those conditions or formalities have been fulfilled. He is entitled to assume that the company 's officers are acting lawfully. This means that, third parties or people dealing with a company are not supposed to found out if the directors of the company have the authority to perform, all procedures of the corporation have been complied with, and that all the terms and conditions in the company’s regulation have been fulfilled. To do so will not encourage smooth running of business.
References: Company and partnership Law by Ebenezer Osei Darko (Esq) Modern Practice Journal of Finance and Investment Law, Vol. 9 nos. 1-2, p. 70-87 Final Report of the Commission of Enquiry into the Working and Administration of the present Company Law of Ghana, p. l I