The management of a company was handed over to a committee by the board of directors. The committee entered into a contract with 'X' which was beyond the powers of the committee but within the powers

Satya · 27 Apr 2026

If you don't understand tell me

Satya · 27 Apr 2026

The Decision The company is liable, and 'X' will succeed in the suit for breach of contract. Legal Reasoning 1. The Doctrine of Indoor Management (Turquand’s Rule) This is the primary principle applicable here. It protects third parties (like 'X') who deal with a company in good faith. While outsiders are expected to be familiar with a company’s public documents (Memorandum and Articles of Association), they are not required to know whether internal procedures or "indoor" formalities have been followed. 2. Analysis of Authority Within Board Powers: The problem states the contract was within the powers of the Board. This means the contract was not Ultra Vires (beyond the legal capacity) of the company. Internal Delegation: Whether the Board properly delegated that specific power to the committee is a matter of internal administration. 'X' has the right to assume that the committee, having been handed the management, was acting with the necessary authority. 3. Protection of the Outsider Since 'X' acted in good faith and the contract was consistent with the powers granted to the Board in the company’s charter, the company cannot use its own internal irregularities (the committee exceeding its specific delegated power) as a defense to avoid the contract.