Corporate signing formalities: failure to obtain the Managing Director's signature invalidates a mortgage bond when articles require it.
A mortgage bond signed only by the Secretary and Working Director failed the company's article requiring signatures of the Managing Director, Secretary and Working Director; statutory default vesting of execution in the board meant the articles' signing prescription governed, so two signatures did not satisfy it. The indoor management rule could not protect the mortgagee because the bond and available information put her on constructive notice of the articles' requirement. Consequently the bond was held invalid and not binding on the company; alternative grounds of ratification or equitable charge were not adjudicated on appeal and were not considered.
Issues: Whether a mortgage bond signed only by the Secretary and the Working Director, but not by the Managing Director as required by the company's articles, was valid and enforceable against the company.
Analysis: Article 15 of the company's articles required deeds to be signed by the Managing Director, the Secretary and the Working Director. In the absence of a specific provision conferring power elsewhere, Section 67 of the Companies Act, 1882 and the default Rule 55 vested execution power in the board of directors collectively; therefore signatures by only two of the three named officers did not satisfy the articles' requirement. The principle protecting persons dealing with a company from undisclosed internal limitations (indoor management/turquand rule) applies where no illegality appears on the face of the document and the person dealing had no constructive notice of such limitation. Here the mortgage bond itself, and available information, would have put the mortgagee on notice of the articles' signing requirement; accordingly she could not rely on apparent authority to validate the bond. Alternative contentions of subsequent ratification or equitable charge were not the subject of trial issues and could not be entertained in second appeal.
Conclusion: The mortgage bond was invalid and not binding on the company; the plaintiff cannot recover on the bond and the suit is dismissed.
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