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Indoor Management Rules - Essay Example

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Under the English common laws, except for specific statutory repudiations, an individual cannot initiate litigation or in turn be prosecuted upon (as regards a contract), except when the individual is also a party to the contract…
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Indoor Management Rules
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Download file to see previous pages In the UK, most commercial transactions are carried out under the statutory exception, which is the doctrine of agency. The agency of doctrine rule is based on the theory that if an agent signs a contract within his jurisdiction as by the principal, then all obligations and rights as acquired by the agent are passed on to the principal whereupon the latter can litigate and or be prosecuted upon, by on the terms as set within the contract. However, certain reservations within this doctrine brought the Turquand rule into existence, which helped in defining contractual alliances with third parties. The significance of Turquand rule was that this provision gave the third party a right to assume (while signing cheques) that the company directors with whom the contract is signed, has been rightfully appointed and they have the right to en-cash the cheque (matters of internal management). Turquand rule thus stated that a third party signing a contract with a company could view only the external position of the latter without going into issues of indoor management. However, on close analysis it reveals that the rule does not provide any mechanism or route for the third party to bypass ‘privity of contract rule’ and prosecute the company. ...
the derivations that the Turquand rule does not add anything to concept of agency.  In cases of an internal obligation (in a situation where a ‘stranger’ or the third party is aware of the firm’s indoor management) where a given operation is permitted by a special declaration, the Turquand rule consequently becomes inapplicable. Currently the Companies Act 2006 (section 40)4 has now replaced Turquand rule in English law, where the general aim is to restrict the third party from being negatively affected owing to restrictions on authority as set within a company’s constitution. A closer look at section 40 reveals that the ?eld still remains complicated (the section being inadequately worded leaving scope for misinterpretation). The basic flaw is the wording, where it is seen that in section 40 (1) it is unclear as whether the third person or P is ‘a person dealing with a company’? It is evident that this individual is a ‘person,’ but it remains unclear whether he is ‘dealing with a company.’ There is delineation to this effect in section 40 (2), where it states that a person clearly ‘deals with’ a firm when he is part of any transaction or any other activity, where the firm ‘is a party’. Again the wording here is unclear, as the term ‘party’ is liable to be construed as a situation where the firm has signed a legal deal with the person. Here the primary difficulty is from the perspective of the person or individual (with whom the firm signs the deal). Unless the person can present as evidence that this section or another one is applicable that can remove the corollary of ‘constructive notice doctrine,’ it will be impossible with facts at hand to prove that the firm is a ‘party’ and hence can be prosecuted. Thus, the basic ...Download file to see next pagesRead More
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