The Turquand Rule in Law

Company and business processes are complex - knowing what to do, how to apply and follow certain procedures and instructions adds on to the process of complexities. Business law serves as a bridge between business processes and their relationship to the people who enforce and apply them, and ensures that they are followed prudently. For the protection of parties who would be involved in them, internal processes are established in the likeness of ensuring that members of a company follow these processes when engaging with people existing outside the company. This essay explores and focuses on the scope and importance of the establishment of the Turquand rule, which was is a defense for contracting people from outside a company.
The history of how the Turquand rule emerged began with the case of Royal British Bank v Turquand, where the Bank contracted with Turquand on an issue of a bond, and upon issuing the bond, Turquand was reprimanded for issuing a £2000 bond without the consent of the shareholders. The Bank was then aware of this, and upon contracting, the dispute arose. It was said in the case that outsiders dealing with a company in good faith can assume that acts within the company’s constitution and powers have been properly and duly performed and are not bound to enquire whether acts of internal management have been regular. In this instance, the Bank was protected by the held conclusion. This case has since been authoritative in many similar cases.
The application of this case to any other case focuses on how internal processes are executed and whether stringent discipline was followed. The Turquand rule follows a more stringent ‘Doctrine of Constructive Notice’ which implicates that third parties seeking to contract with a company are aware and have notice of the public documents that a company filed with the Commission or that are available at the company’s premises. The Doctrine is however abolished by the new Companies Act.
The adoption of the...