Chapter 7 - Capacity and representation of a company

Question 1

What is Estoppel?

Answer 1

The legal principle that prevents someone who made a representation from subsequently denying the truth of such a representation if certain requirements are met. The representative is therefore estopped from denying the truth of the representation.

Question 2

What is the Turquand rule?

Answer 2

The rule established in Royal British Bank v Turquand in terms of which an outsider dealing in good faith with the company may assume that all aspects of the company’s internal management have been duly complied with. The company will be bound by the contract even if the internal formalities have not been complied with. the exception would be if the outsider was aware of the fact the internal formality had not been complied with or if the circumstances in which the contract was concluded were suspicious.

Question 3

What triggers the protection provided by the Turquand rule?

Answer 3

1. A company’s MoI determines who has authority to act on behalf of the company
2. The Turquand rule applies where the authority is subject to an internal requirement.

Question 4

What are the practical effects of the Turquand rule?

Answer 4

A company cannot escape liability under an authorised valid contract on the premise that some internal formality or procedure was not complied with.

The Turquand rule does not protect:
1. directors, prescribed officers, shareholders or anyone who should have been aware whether the internal requirements had been complied with

2. a third party who has relied on a forged document.

Question 5

What is the Ultra vires doctrine?

Answer 5

The rules pertaining to the consequences of a company acting outside the scope of its powers and competencies. The ultra vires doctrine is based on the understanding that a company exists in law for the purpose for which it was incorporated.

Question 6

What does representation relate to?

Answer 6

Representation relates to a person acting under the company’s authority. Authority can be given expressly or by implication.

Question 7

What are sources of actual authority?

Answer 7

1. Memorandum of Incorporation
2. Rules
3. Express Mandate

Question 8

What must the third party prove to have the company estopped from denying liability?

Answer 8

1. The company misinterpreted, intentionally or negligently, that the agent concerned had the necessary authority to represent the company.
2. The misrepresentation was made by the company.
3. The third party was induced to deal with the agent because of the misrepresentation.
4. The third party was prejudiced by the misrepresentation.