Case Royal British Bank Vs Turquand

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I. RELEVANT FACTS: • Turquand was a company which had a particular clause in its Constitution. This clause allowed the company to borrow money on its approval and on the passing of a resolution by the shareholders at a general meeting. • Turquand then entered into a loan with the Royal British Bank. Two of the directors of the company signed and attached the company seal onto the loan agreement. • The company had also given a bond for 2000 Pounds to the bank which secured the Company’s drawings on its current account. • However, the loan had not been approved by the shareholders. • The company then defaulted on the repayments. This made the bank seek for restitution. • The company refused to repay on the occurrence of this situation. It claimed that the directors had no authority to enter into a loan agreement according to the Articles of Association of the company. The company claimed that the bank had constructive notice of the shareholder approval clause in their constitution, no resolution was passed and hence the company is not liable. • Directors only had the power to borrow up to an amount that was authorised by a company resolution being…show more content…
Turquand came up before the Court of Exchequer Chamber through an appeal filed by the defendant, Turquand. Turquand was the official manager of Cameron’s Coalbrook, Steam, Coal and Swansea and London Rail Company. He was sued by the Royal British Bank (plaintiff), for the non-payment of a sum of 2000 pounds. The plaintiffs argued that the company was bound to pay the above sum since a bond bearing the common seal of the company was given to the bank. This was also attested by two directors. The decision of the Court required Turquand to repay the loan to the bank. The bank was allowed to assume that the loan document was legitimate in nature. The parties dealing with companies have the right to presume that the internal processes of the company have been properly carried
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