The application of the rule in Turquand's case in present day company law
Schärges, Lawrence Walter de Villiers
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A third party, in his dealing with a company, is protected in the following three manners: 1. By the protection afforded by Section 69 of the Companies Act, Act 46 of 1926; 2. By the rule formulated in the case Royal British Bank vs. Turquand; 3. By the personal liability of directors. Directors or not, as a general rule, incur personal liability as against third parties on contracts entered into by them in the name and on behalf of their companies. What is of importance for the subject of this dissertation is the precept contained in the second basis of protection enumerated above, namely, the Rule formulated in the case of Royal British Bank vs. Turquand. Being a person, a company's liabilities are not the liabilities of the members of the company, but its own. Being a persona ficta, however, the company's acts can only be performed by natural persons. These are the directors of the company. Their capacities are determined by the Articles of Association. The Articles of Association govern the domestic affairs of the company. Together with the Memorandum of Association, the Articles, when registered, form the public documents of the company. These public documents, on registration, create an objective right for a defined community, that is, the company and all the shareholders. Persons dealing with a director have these "public documents" to guide them as to whether the directors are acting within their granted powers, or not. If an outsider, therefore, deals with a director, who in terms of the Articles is empowered to perform the particular act, the outsider has no way of knowing whether the internal arrangements necessary for the authorisation of that director's act have actually taken place. As far as he is concerned, the act is intra vires the Articles of Association. If, however, the director has not in fact the necessary authority, and the outsider's act would be to his detriment if the ordinary principles of ultra vires acts applied, the company may nevertheless be bound as a result of the rule formulated in Turquand's case. The purpose of this dissertation then, is not to deal in particular with the common principles of agency, or with the vicarious liability of a company for the acts of its officials, agents or servants, but to outline and illustrate the present day application of this rule. In what follows, therefore, we shall deal with the following aspects: a short history of the rule, the actual, usual and ostensible authority of directors and agents of the company, the difference which exists between estoppel and the Turquand Rule, the recommendations contained in the Cohen and Jenkins Committee's company law commissions, and a review of cases in which the rule has been applied or discussed. Finally we shall submit certain conclusions to which we have come with regard to the rule and its future in this branch of our law.