Case Study Issues 2022

Running Head: CASE STUDY
CASE STUDY
Name of the Student
Name of the University
Author’s Note

CASE STUDY1
Issue:
The issue in the case is whether:
(a) The Bank would be entitled for the remedy in the case.
(b) The Bank would ideally be entitled for the remedy in the case.
(c) The outcome would have been different if:
i. The loan was for refurbishment of two of Sparkling’ clothing shops.
ii. The bank’s loan officer knew Sarah had fallen out of favour with the Board and was
negotiating a new job.
Rules:
The doctrine of indoor management refers to the issues and circumstances, which are the
company’s indoor affairs meaning that such affairs are company’s internal matters and hence,
belong to the governance issues of the company1. There is no third party interest involved in such
affairs. Such management is important because the company is run by its directors and other
members and hence it is important for them the manage such affairs to ensure the smooth
functioning of the office and maintaining healthy relationships between the employers and
employees and among the employees. This concept is an exception to the general rule of
constructive notice which states that it is the duty of the person or party to have the knowledge of
the legal notice or an action that has been taken even if the person does not possess the actual
knowledge of the same2.
1 Seely, Tania Mila. "The protection afforded to third parties when contracting with companies: An analysis of the
Turquand Rule and the Doctrine of Constructive Notice." PhD diss., University of Pretoria, 2018.of the Turquand
Rule and the Doctrine of Constructive Notice." PhD diss., University of Pretoria, 2018.

CASE STUDY2
By applying such exception, the sternness of the construction notice is reduced. This
concept was first introduced in the decision of Royal British Bank vs. Turquand3, and hence, it is
also called the Turquand rule. The same rule was further applied to decide that the persons who
are involved with the affairs of the company are in constant touch with its articles of association
and hence, the third parties who are not concerned with the articles of association may not be
affected by its irregularities and other internal matters of the company4.
Section 125 of the Corporation Act 2001 states that firstly, if a company has a formal set
of codified constitution of its own, then such constitution may have a provision for the express
restrictions on the members or directors of the company with respect to the usage of their
powers. However, such restriction is subjective in nature and any right exercised or acted upon
shall not become contrary merely on the ground of constitutional restriction. Secondly, it can be
stated that the constitution of the company lays down certain objectives of the company.
However, the objectives can be diversified by various contracts and acts of the company.
Therefore, any act of the company which is beyond the objectives as laid down by the
constitution shall not be held contrary merely based on its objectives.
Section 126 of the Corporation Act 2001, it has been explained that the power of the
directors as imbibed in the articles of the company and its constitution may vary, ratify or
discharge and terms of a contract in part or as whole. And such an act may be done by the
director by the express or implied authority to such individual to exercising such powers.
2 Maloka, Tumo Charles. "The Turquand rule, irregular appointments and bypassing the disciplinary process." SA
Mercantile Law Journal 29, no. 3, 2017: 527-542.
3 (1856) 6 E&B 327
4 Mahony vs. East Holyford Mining Co. (1875) LR 7 HL 869