Northside Developments Pty Ltd v Registrar-General

[1990] HCA 32

HIGH COURT OF AUSTRALIA

Mason C.J., Brennan, Dawson, Toohey and Gaudron JJ.

NORTHSIDE DEVELOPMENTS PTY. LTD. v. REGISTRAR-GENERAL

(1990) 170 CLR 146

28 June 1990

Companies—Real Property (N.S.W.)

Companies—Indoor management rule—Forged instrument—Mortgage of company's property—Seal not affixed in accordance with articles—Validity—Mortgage for benefit of director—Whether mortgagee put on inquiry. Real Property (N.S.W.)—Torrens system—Compensation for loss sustained by registration of another person as proprietor—Mortgage of company's property—Seal not affixed in accordance with articles—Registration—Whether loss sustained by registration or execution of mortgage—Registrar-General entitled to assume that common seal affixed and attested with company's authority—Whether defence to claim for compensation—Real Property Act 1900 (N.S.W.), ss. 106, 127.

Decisions

MASON C.J. The appellant is a company which was incorporated in 1965 for the purpose of holding certain land at Frenchs Forest near Sydney under the Real Property Act 1900 (N.S.W.). The appellant was at the relevant time the registered proprietor of that land. The first respondent is the Registrar-General. The second respondents, Robert Sturgess and Gerard Sturgess, were not represented at the hearing of the appeal.

2. The appeal concerns an instrument purporting to be a mortgage of the land executed on 24 December 1979 by the appellant, under its common seal, in favour of Barclays Credit Corporation Holdings Pty. Limited ("Barclays"), to secure the payment of principal and interest under a loan amounting to approximately $1,400,000 made by Barclays to one or more companies owned and controlled by Robert Sturgess, a director of the appellant. The appellant had no interest of any kind in those companies. The mortgage was registered on 20 May 1980. Following default, Barclays sold the land by auction under the power of sale conferred by the instrument to a third party who became the registered proprietor of the land. The appellant sued the Registrar-General for damages under s.127 of the Act by way of compensation for the loss of its estate or interest in the land on the ground that it did not execute the mortgage instrument. Section 127 permits a person who has sustained loss or damages by the registration of any other person as the proprietor of land, and who is prevented by the Act from bringing proceedings for possession or recovery of the land, to bring an action against the Registrar-General as nominal defendant for recovery of damages.

3. At all material times, the directors of the appellant were Robert Sturgess, John Lees and Robert Ellis. The shareholders were John Lees, Robert Ellis and Rogard Pty. Limited which was controlled by Robert Sturgess. None of the money lent by Barclays in consideration of the execution of the mortgage was received by the appellant. The instrument of mortgage was executed under the common seal of the appellant by Mr Sturgess, who also attested the affixing of the seal. The document also bore the signature of his son, Gerard Sturgess, who purported to sign as "company secretary".

4. Article 56 of the articles of association of the appellant provided:

"Subject to the power to delegate conferred by Article 47 the Directors shall provide for the safe custody of the Seal and the Seal shall never be used except by the authority of the Directors and in the presence of one Director at the least who shall sign every instrument to which the Seal is affixed and every such instrument shall be countersigned by the Secretary or by a second Director or some other person appointed by the Directors for the purpose."

Article 47 allowed the directors to delegate any of their powers to committees of directors.

5. In two important respects Art.56 was not complied with when Robert and Gerard Sturgess signed the mortgage document and affixed the common seal. In the first place, the directors had not by resolution at a meeting authorized the affixing of the seal to the instrument of mortgage or delegated power to Robert Sturgess; nor had the directors other than Robert Sturgess approved or assented to the execution of the mortgage. The company seal had been sent by the former secretary to solicitors acting for Robert Sturgess and companies under his control. The certificate of title to the relevant land was obtained by Robert Sturgess from the company's former solicitors. Secondly, Gerard Sturgess was not in fact the company secretary. Upon the resignation of the previous secretary on 14 November 1979, Gerard Sturgess signed a letter consenting to act as secretary, and a statutory return recording his purported appointment was signed by Robert Sturgess and filed with the Corporate Affairs Commission on 22 November 1979. However, neither of the other directors knew of or approved the supposed appointment.

6. At first instance, Young J. found that the practice of the corporators and the appellant until 1980 had been to leave the administration of its affairs to Robert Sturgess and his accountants. The previous secretary had been a partner of the firm of accountants. Their only activity had been to pay the rates, to place in a book minutes of meetings, which were not actually held, and to file statutory returns. The resignation of the accountant as secretary followed a decision by his firm not to allow partners to act as officers of client companies.

7. Young J. concluded that the mortgage could not be said to have been executed by the appellant. His Honour then turned to consider whether the mortgage nonetheless took effect, in which case the appellant would fail. After examining the rule in The Royal British Bank v. Turquand (1856) 6 El. and Bl. 327 (119 ER 886), often called the "indoor management rule", his Honour stated that the nature of the mortgage transaction was such as to require the lender to make inquiries as to the authority of Robert and Gerard Sturgess to enter into the mortgage on behalf of the company and to affix the common seal. No evidence was put before his Honour as to what, if any, inquiries Barclays had made. This was insufficient to allow Barclays to rely on the rule in Turquand's Case so as to assert that all matters of internal management had been duly complied with and therefore take the benefit of the mortgage. Since Barclays had been put upon inquiry in this way, the improperly executed mortgage was of no effect and Young J. awarded damages in favour of the appellant.

8. The Court of Appeal allowed an appeal by the Registrar-General. Kirby P. was of the view that the indoor management rule was a special rule relating to companies rather than an instance of the general law of agency. Applying the rule to the present case, his Honour concluded that Barclays had not been put upon inquiry by the circumstances of the transaction and was entitled to rely on the rule in Turquand's Case. McHugh J.A. (with whom Samuels J.A. agreed) held that the rule was a rule of company law relating to the use of the company seal. His Honour considered that the cases in which the rule had been explained as a principle of the law of agency had blurred the distinction between contracts entered into by the company itself under its common seal and those entered into on its behalf by its agents. His Honour, after emphasizing the fact that the appellant had failed to prevent Gerard Sturgess from purporting to act as company secretary, concluded that Barclays had not been put upon inquiry by the circumstances of the transaction.

9. The Court of Appeal rejected an argument put on behalf of the appellant that, even if it had not been put upon inquiry, Barclays could not rely on the indoor management rule because the mortgage document was a forgery to which the rule had no application. Their Honours did not find it necessary to consider whether a "forgery exception" to the rule exists, because they held that, to the extent that it does exist, it does not apply to a case where a signature is genuine but unauthorized.

10. In this Court the appellant submitted that Barclays had been put upon inquiry and, secondly, that the forgery exception is part of the law and that it is applicable in the present case. The respondent Registrar-General argued that Barclays was entitled to assume that the entering into of the mortgage and the affixing of the seal were authorized by the appellant, that there were no facts shown which put Barclays on notice of any irregularity, and that any "forgery exception" to the indoor management rule was inapplicable.

11. The provisions of s.68A of the Companies Code, introduced in 1984, are directed to the issues which arise for decision in this appeal. However, as the mortgage was executed in 1979, s.68A has no application and the case must be determined by reference to the pre-existing law.

12. According to the rule in Turquand's Case, persons dealing with a company in good faith may assume that acts within its constitution and powers have been duly performed and are not bound to inquire whether acts of internal management have been regular: Morris v. Kanssen (1946) AC 459, at pp 474-475. There Lord Simonds observed (at p 475):

"It is a rule designed for the protection of those who are entitled to assume, just because they cannot know, that the person with whom they deal has the authority which he claims. This is clearly shown by the fact that the rule cannot be invoked if the condition is no longer satisfied, that is, if he who would invoke it is put upon his inquiry. He cannot presume in his own favour that things are rightly done if inquiry that he ought to make would tell him that they were wrongly done."

A person, even one who has no special relationship with the company concerned, may be put upon inquiry by the very nature of the transaction: see E.B.M. Co. Ltd. v. Dominion Bank (1937) 3 All ER 555; A.L. Underwood Ltd. v. Bank of Liverpool (1924) 1 KB 775; Rolled Steel Ltd. v. British Steel Corporation (1986) Ch 246, at pp 284-285, 295. As will appear, the application of this proposition to the facts of the present case is critical to its outcome.

13. As the content of the principle has become a matter of controversy, it is instructive to recall what Turquand's Case decided. The company was held to be liable on a bond, bearing the company's seal, whereby the company borrowed money from the bank, notwithstanding the absence of any resolution by the company in general meeting as required by the company's registered deed of settlement which empowered the directors to borrow on bond such sums as should be authorized by resolution in general meeting. The plea seems to have averred that no resolution in general meeting authorized the giving of the bond and that it was given without the consent and authority of the shareholders; see the report of the proceedings in the Court of Queen's Bench: (1855) 5 El. and Bl. 248, at pp 251-252 (119 ER 474, at pp 475-476). There Lord Campbell C.J., speaking for the Court, pointed out (at pp 259-260 (pp 478-479 of ER)) that, as it was conceded that the bond was executed under seal and was the deed of the company, there being no defence of non est factum, the onus rested with the defendants of showing that the bond was "unlawful and void". His Lordship went on to say (at pp 260-261 (p 479 of ER)):

"(The plea) alleges that, as between the directors and the shareholders, the directors exceeded their authority in executing the bond, but without adding that this was known to the plaintiffs, or that it was to the prejudice of the shareholders. Looking to the business to be carried on by this Company, it might well be presumed that opening such an account and carrying on such dealings with a banking house as are described in the condition would be within the authority of the directors, and would be for the benefit of the shareholders. A mere excess of authority by the directors, we think, of itself would not amount to a defence. The bond being under the seal of the Company, the gist of the defence must be illegality." (emphasis added)

Lord Campbell made the point that there was nothing to show that the directors might not have had authority to execute the bond.

14. In dismissing the appeal Jervis C.J., in the Court of Exchequer Chamber, after observing that parties dealing with companies are bound to read the statute and the deed of settlement, said (at p 332 (p 888 of ER)):

"But (persons dealing with companies) are not bound to do more. And the party here, on reading the deed of settlement, would find, not a prohibition from borrowing, but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the document appeared to be legitimately done."

15. The issue raised in Turquand's Case was that the common seal had been affixed without authority. Accordingly, it would have been possible to confine the authority of the decision to that issue and some of the comments made by Lord Campbell might appear to lend support to that view of the case. However, Lord Campbell's judgment and certainly that of Jervis C.J. were capable of being understood as relating to the exercise of delegated powers generally. That is how the rule in Turquand's Case came to be applied in the later cases and, as will appear later, in that area the rule came to be seen as a particular exemplification of the principles of the law of agency.

16. Whether the application of the rule to instruments bearing the common seal of a company is also to be treated as an instance of the application of the law of agency is an unresolved question to which I shall return. But it should be noted that, when the rule was first applied to the execution of instruments bearing the common seal of the company, the sealing of a document was treated as an act of the company itself, similar in effect to a signature by an individual (The Mayor of Ludlow v. Charlton (1840) 6 M. and W. 815, at p 823 (151 ER 642, at pp 645-646)), rather than an act done by agents on behalf of the company. It is therefore not surprising that some judges have thought that the rule has no operation in the case of a forgery. This proposition is based principally on the decision of the House of Lords in Ruben v. Great Fingall Consolidated (1906) AC 439 and the comment of Lord Loreburn L.C. (at p 443) that the doctrine

"applies only to irregularities that otherwise might affect a genuine transaction. It cannot apply to a forgery."

But, when properly understood, the case does not establish the proposition. The secretary of the company issued a share certificate to which he affixed the company's seal and forged the signatures of the directors in whose presence it was apparently affixed. It was held that the document was a forgery and could not bind the company in the absence of a warranty or representation given or made by an officer of the company having authority, or held out as having authority, to give such a warranty or make such a representation: see pp 443, 444. As the secretary had no actual or apparent authority to give such a warranty or make such a representation, the decision may be explained on the footing that the acts on which the plaintiff relied were outside the scope of authority of the secretary.

17. To the extent to which Lord Loreburn's comment reflected the view that an act could not be within the scope of the authority of a servant or agent if it was done fraudulently and for his own benefit and not for that of the employer or principal, that view was undermined by the later decision of the House of Lords in Lloyd v. Grace, Smith and Co. (1912) AC 716. Despite this, subsequent cases contain statements that forgery is an exception to the rule in Turquand's Case: Kreditbank Cassel G.m.b.H. v. Schenkers (1927) 1 KB 826, at pp 835, 839-840, 844; South London Greyhound Racecourses Ltd. v. Wake (1931) 1 Ch 496, at p 507. However, in Uxbridge Permanent Benefit Building Society v. Pickard (1939) 2 KB 248, the Court of Appeal held that a solicitor was liable for the fraud of his managing clerk even though the fraud of the managing clerk involved forgery. It may be, as Gower's Principles of Modern Company Law, 4th ed. (1979), suggests (at pp 204-205), that forgery is not a true exception to the rule in Turquand's Case and that the cases are capable of explanation on the footing either that the forged document was not put forward as genuine by an officer acting within the scope of his actual or apparent authority or that the third party was put upon inquiry: see Pickard's Case, per MacKinnon L.J. at p 258. For the purposes of the present case it is not necessary to resolve this question because it is possible to decide the case on the basis that forgery is not an exception to the rule. However, it will become apparent from what follows later in these reasons that, if there is a forgery exception, it has a limited area of operation.

18. The application of the rule was relatively straightforward in cases in which an officer of a company exercised a power or authority which was susceptible of delegation under the articles of association. Notwithstanding that the officer was in fact exceeding his authority, the company was bound by his act, unless the person dealing with the company knew that the officer lacked the requisite authority or the circumstances were such as to put that person upon inquiry: Houghton and Co. v. Nothard, Lowe and Wills (1927) 1 KB 246. But even in these cases the question arose whether the person dealing with a company could rely on a provision in the articles if he was unaware of the provision.

19. Another source of difficulty was the case where the person acting on behalf of the company had not been appointed to the office which he appeared to hold. In such a case the critical question was whether the company had held out or represented that the person occupied the office so as to have authority to bind the company. Thus, in Albert Gardens (Manly) Pty. Ltd. v. Mercantile Credits Ltd. (1973) 131 CLR 60, it was held that a third party dealing with the company was entitled to assume that acts had been taken by the company to have duly appointed the persons who signed securities as directors on behalf of the company: see at p 65. So, in the present case, there was material on which Barclays would have been justified in assuming Gerard Sturgess was the secretary of the appellant. The company appears to have held him out as such, and his signature on the instrument in the capacity of secretary accompanies that of Robert Sturgess who was a director.

20. The question whether a person dealing with a company could rely on a provision in the articles authorizing delegation of a power to the officer acting on behalf of the company, when the person dealing with the company was unaware of the provision, was a matter of controversy: see Houghton's Case, at pp 266-267 (per Sargant L.J., with whom Atkin L.J. concurred); Kreditbank Cassel, at pp 837-838 (per Scrutton L.J.), p 844 (per Atkin L.J.); British Thomson-Houston Co. v. Federated European Bank Ltd. (1932) 2 KB 176. Subsequently, in Rama Corporation Ltd. v. Proved Tin and General Investments Ltd. (1952) 2 QB 147, Slade J. held that a person who has no knowledge of the company's articles of association cannot rely on them as conferring ostensible or apparent authority on the agent of the company with whom he dealt. Later, however, in Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd. (1964) 2 QB 480, the Court of Appeal qualified this proposition, holding that it applies only in the case where the contract sought to be enforced is not a contract of a kind which a person occupying the position which the agent was permitted to occupy would normally be authorized to enter into on behalf of the company.

21. So, in Freeman and Lockyer it was held that a director, Kapoor, who had assumed the powers of managing director with the company's concurrence, though he had not been appointed to that office, bound the company by entering into a contract on its behalf with the plaintiff architects. The company was a property company and the act of engaging architects fell within the ordinary scope of the authority of such a managing director so that the plaintiffs were under no necessity of inquiring whether the person with whom they were dealing was properly appointed or was authorized to enter into the contract; it was enough that the directors had allowed him to act as managing director, there being power under the articles to appoint him to that position and power to delegate to a managing director all the powers of the board of directors. By permitting Kapoor to act as the managing director, the board had effectively represented that he had authority to enter into contracts of a kind which a managing director would in the normal course be authorized to enter into on behalf of the company. The company would not have been bound had the contract not been one of that kind. In that event there would not have been a representation by the company that Kapoor had authority to enter into the contract.

22. This Court has accepted that the judgments in Freeman and Lockyer correctly state the relevant principles of law: Crabtree-Vickers Pty. Ltd. v. Australian Direct Mail Advertising and Addressing Co. Pty. Ltd. (1975) 133 CLR 72, at p 78. The judgments in Freeman and Lockyer, especially that of Diplock L.J., indicate that the rule in Turquand's Case in its application to the acts of a company undertaken through its agents is an exemplification of the law of principal and agent and that the ambit of the operation of the rule is to be ascertained by reference to the actual or ostensible authority of the agent who purports to act on behalf of the company. Of course, in applying the rule, account must be taken of the doctrine of ultra vires and the constitution of the company and the contents of its public documents as they may affect the actual or ostensible authority of those who purport to act on behalf of the company. Thus, if, according to the constitution of the company, the agent cannot exercise the relevant authority, his act cannot bind the company.

23. But Freeman and Lockyer says nothing about instruments executed under the common seal of a company and it does not compel us to conclude that the rule in Turquand's Case, in its application to instruments so executed, is a principle of the law of agency rather than an organic principle of the law relating to corporations. The affixing of the seal to an instrument makes the instrument that of the company itself; the affixing of the seal is in that sense a corporate act, having effect similar to a signature by an individual, as I noted earlier. Thus, it may be said that a contract executed under the common seal evidences the assent of the corporation itself and such a contract is to be distinguished from one made by a director or officer on behalf of the company, that being a contract made by an agent on behalf of the company as principal.

24. Consequently, it has been held that, if the person dealing with the company receives a document to which the common seal has been affixed in the presence of individuals designated in the articles of association, he is entitled to rely on its formal validity: In re County Life Assurance Company (1870) LR 5 Ch App 288 (where a policy issued by the company was binding even though the persons in whose presence the seal was affixed and who signed the policy were de facto directors who were not duly appointed); County of Gloucester Bank v. Rudry Merthyr Steam and House Coal Colliery Company (1895) 1 Ch 629 (where a mortgage executed under seal was binding on the company despite the absence of a quorum at the meeting of directors authorizing execution of the instrument); Duck v. Tower Galvanizing Company (1901) 2 KB 314 (where debentures issued under seal were held to be binding though signed by persons who had not been appointed directors; indeed, no directors had been appointed). In some of the cases it is said that it is enough that the third party relies on the affixing of the seal and the instrument appears to be regularly signed: see, for example, Duck's Case, at p 318.

25. However, there is no reason why a third party should be entitled to rely on the formal validity of the instrument and to assume that the seal has been regularly affixed if the very nature of the transaction is such as to put him upon inquiry. If the nature of the transaction is such as to excite a reasonable apprehension that the transaction is entered into for purposes apparently unrelated to the company's business, it will put the person dealing with the company upon inquiry. It is one thing to assume that the common seal has been regularly affixed to an instrument apparently executed for the purposes of the company's business; it is quite another thing to assume that the seal has been regularly affixed when the transaction is apparently entered into otherwise than for those purposes.

26. The decision in E.B.M. Co. Ltd. v. Dominion Bank illustrates the point. The seal of the company had been affixed to a charge of certain of its property to secure an advance by the bank to three directors of the company. On the face of the charge the seal appeared to have been affixed in accordance with the articles of association as it bore the signatures of two of the borrowers as president and secretary respectively. However, no resolution had been passed authorizing the creation of the charge. The Judicial Committee held that the transaction was unenforceable on the ground that the bank had notice of an extraordinary dealing whereby directors were using their powers to cause the company to apply its property for their benefit, there being no indication that the company stood to gain from the transaction.

27. In Wake's Case it was held that the defendant was not entitled to rely on a share certificate issued under the seal of the plaintiff company in the presence of and bearing the signature of a director D and the secretary G, as required by the articles, the seal having been affixed without the authority of the board of directors. Clauson J. (at p 509) rejected the argument that the defendant could treat the seal as having been affixed by the plaintiff company, holding that the affixing of the seal is something with which the board deals and not a director. Whatever one may think of that reason, the decision may be supported by reference to the fact that the share certificate was issued to the defendant in payment of a debt owed to him by another company of which D and G were also a director and the secretary respectively. As the transaction was one in which the plaintiff company did not stand to benefit in any way, the defendant was put upon inquiry. Alternatively, the circumstances were such that neither D nor G had actual or ostensible authority to issue a share certificate to the defendant in payment of a debt owing by another company.

28. The authorities referred to in the four preceding paragraphs are consistent with the notion that the principle applicable to instruments executed under the common seal of a company is an organic principle of company law. Affixing the common seal to an instrument is the mode of execution appropriate to corporate assent stemming from a resolution of the board of directors, the determinative act then being that of the board which is the organ of the company which administers its affairs. And the traditional principle, as the authorities demonstrate, rests on the importance which is attached to the presence of the seal on the document as signifying corporate assent.

29. Although recent English decisions appear to treat the directors as having ostensible authority to bind the company to any transaction which falls within the powers conferred by its memorandum of association (see, for example, the Rolled Steel Case, esp at p 295), it is not easy to reconcile all the cases with agency principles, particularly those cases in which the third party succeeded, notwithstanding that he seems to have been unaware of the relevant article authorizing the use of the seal. Nor does an article in the form of Art.56 lend itself to a simple application of those principles. The article provides that the seal will not be used except with the authority of the directors and in the presence of one director at least and it then makes provision for signature and countersignature by that director and the secretary (or by a second director or other person appointed) respectively. In this way the article prescribes conditions according to which the seal is to be used. Although the giving of authority by the directors for the use of the seal is one such condition, directors do not, and are not required to, authorize particular persons to use the seal and to sign and countersign the instrument to which the seal is affixed. The article itself designates the persons who may perform the functions which are dealt with in the provision. As McHugh J.A. pointed out in his judgment in the Court of Appeal, it is the presence of the seal on the document that gives rise to the presumption that the seal has been affixed with the authority of the directors.

30. On the other hand, in the Rolled Steel Case the English Court of Appeal has accepted the view that because a company holds out its directors as having ostensible authority to bind the company to any transaction which falls within the powers conferred by the memorandum of association, a person dealing in good faith with the company carrying on an intra vires business is entitled to assume that the directors are properly exercising such powers for the purposes of the company as set out in the memorandum, unless he is put on notice to the contrary: see at pp 292-296, 304-307, 309. Browne-Wilkinson L.J. expressed his understanding of the relevant principles in the form of these propositions (at pp 306-307):

"If a company enters into a transaction which is intra vires (as being within its capacity) but in excess or abuse of its powers, such transaction will be set aside at the instance of the shareholders. ... A third party who has notice - actual or constructive - that a transaction, although intra vires the company, was entered into in excess or abuse of the powers of the company cannot enforce such transaction against the company and will be accountable as constructive trustee for any money or property of the company received by the third party. ... The fact that a power is expressly or impliedly limited so as to be exercisable only 'for the purposes of the company's business' (or other words to that effect) does not put a third party on inquiry as to whether the power is being so exercised, i.e., such provision does not give him constructive notice of excess or abuse of such power."

31. The Court of Appeal in that case drew a distinction between a transaction which is beyond the capacity of the company ("ultra vires" in the primary sense) and a transaction which is not beyond the capacity of the company but is beyond the authority of the directors or a majority of the shareholders; see also Re Halt Garage (1964) Ltd. (1982) 3 All ER 1016, per Oliver J. at pp 1029-1030. The propositions taken from the judgment of Browne-Wilkinson L.J. which I have quoted relate to transactions of the second class. The consequence of applying the propositions to a lender to a company which has power to borrow for the purposes of the company is that the lender is not put upon inquiry by the terms of the power as stated in the memorandum of association. The lender is protected unless he has knowledge that the borrowing is not for an authorized purpose (see In re David Payne and Co. Limited (1904) 2 Ch 608, at pp 613, 617-618, 619-620) or if the very nature of the transaction is such as to put the lender upon inquiry. Although it is not necessary to resolve the question for the purposes of this case, the reason why the lender should necessarily be relieved of the responsibility of turning his mind to the powers of the company is not altogether apparent to me.

32. The judgment of Harman L.J. in In re Introductions Ltd. (1970) Ch 199, where the validity of debentures granted by a company as security for a loan was in issue, appears at first sight to be even more favourable to the lender. Harman L.J. observed (at p 210):

"I would agree that, if the bank did not know what the purpose of the borrowing was, it need not inquire, but it did know ..." (emphasis added)

His Lordship went on to say (at p 211):

"This borrowing was not for a legitimate purpose of the company: the bank knew it, and, therefore, cannot rely on its debentures."

However, his Lordship's comment should be read as relating to the facts of the case rather than as a general proposition denying that a lender can be put upon inquiry in relation to an intra vires transaction.

33. Regardless of the answer to the question what significance should be accorded to the company's powers as expressed in its memorandum (where powers are so expressed), the result in England is that, although the rule has been treated as a principle of agency, even in its application to the exercise of powers by directors within the capacity of the company, the traditional notion, expressed by Lord Simonds in Morris v. Kanssen (at p 475), that the third party may be put upon inquiry by the nature of the transaction or the circumstances still stands. Consequently, at least so far as the present case is concerned, it makes little difference whether the rule is treated as a special rule or as a principle of the law of agency. Nonetheless, the role of the seal as the signature of the company suggests that to speak simply in terms of agency in cases involving its use may be insufficient in some situations. Further, use of agency principles overlooks the significance of the company seal and the reliance which may ordinarily be placed upon it.

34. What is important is that the principle and the criterion which the rule in Turquand's Case presents for application give sufficient protection to innocent lenders and other persons dealing with companies, thereby promoting business convenience and leading to just outcomes. The precise formulation and application of that rule call for a fine balance between competing interests. On the one hand, the rule has been developed to protect and promote business convenience which would be at hazard if persons dealing with companies were under the necessity of investigating their internal proceedings in order to satisfy themselves about the actual authority of officers and the validity of instruments. On the other hand, an overextensive application of the rule may facilitate the commission of fraud and unjustly favour those who deal with companies at the expense of innocent creditors and shareholders who are the victims of unscrupulous persons acting or purporting to act on behalf of companies. Agency principles aside, to hold that a person dealing with a company is put upon inquiry when that company enters into a transaction which appears to be unrelated to the purposes of its business and from which it appears to gain no benefit is, in my opinion, to strike a fair balance between the competing interests. Indeed, there is much to be said for the view that the adoption of such a principle will compel lending institutions to act prudently and by so doing enhance the integrity of commercial transactions and commercial morality.

35. It is not possible to give specific guidance as to the circumstances in which the nature of a transaction will be such as to put a person dealing with a company upon inquiry. So much depends upon the circumstances of the particular case, notably the powers of the company (if relevant), the nature of its business, the apparent relationship of the transaction to that business and the actual or apparent authority of those acting or purporting to act on behalf of the company. Much will also depend upon representations about the transaction made by such persons, for the party dealing with the company may often find protection in the principles of agency or the doctrine of estoppel. In this respect, I should indicate my general agreement with the comments made by Brennan J. in his judgment, which I have had the advantage of reading since preparing these reasons, concerning the position of a creditor who takes a company's guarantee for another's debt.

36. The course of events leading to the giving of the mortgage began in September 1979 with a request by Robert Sturgess to Barclays for financial accommodation for one or more of the Sturgess companies. The appellant had no association of any kind with these companies and there was no apparent connection between them and the appellant or between their respective businesses. The only links between them were that Robert Sturgess was a director of each, that Gerard Sturgess was secretary of each except the appellant and was acting as secretary of the appellant, and that the companies had their registered offices at the same address. In response to Barclays' demand for additional security over and above that initially offered, Robert Sturgess offered Barclays a mortgage over the property at Frenchs Forest.

37. The officers of Barclays presumed that all was in order. They may have assumed incorrectly that the appellant and the other companies were associated companies linked by shareholding by reason of their having a common registered office, director and secretary. They made no searches or inquiries and there was no evidence as to searches or inquiries made on their behalf by their solicitors. Had inquiries been made the records of the Corporate Affairs Commission would have disclosed that Robert Sturgess was a director, that Gerard Sturgess was shown as secretary of the appellant and that such a transaction was authorized by the articles. And, as I remarked earlier, there was nothing on the face of the mortgage to indicate that it was unauthorized, except that it was given to secure an advance to a third party without any indication that the giving of the mortgage or the procuring of the advance was for the purposes of the appellant's business or related in any way to that business. That, in my opinion, is the decisive consideration; it requires the conclusion that Barclays was put upon inquiry.

38. If this case were to be disposed of in terms of agency principles, the result would be the same. There was no representation by the directors that the seal was affixed with their authority or that they had approved the transaction which, on its face, appeared not to serve any interest of the appellant. There was no evidence that anyone having authority so to do from the appellant represented that the mortgage was valid. At best there was a representation by Robert or Gerard Sturgess, or both of them, but they were not authorized to make such a representation and, in any event, they were interested parties evidently deriving a benefit, even if only indirectly from the transaction. Moreover, there was no evidence which could justify a finding that Barclays relied on a representation that the seal was affixed with the authority of the directors or that the transaction was approved by them.

39. The result would have been different if Barclays had had a legitimate basis for thinking that the appellant had an interest in the borrowing companies and that they were associated with the appellant, one having an interest in the other: see In re Hapytoz Pty. Ltd. (in liquidation) (1937) VLR 40. The participation of the Sturgesses in the affairs of the companies and the common registered office was not an adequate foundation for that belief; nor did it amount to a representation by the appellant that it had an interest in any of the borrowing companies.

40. The first respondent submitted that third party lending is now such a common occurrence in the world of commerce that Barclays was justified in acting upon the footing that the instrument of mortgage had been regularly executed. I do not consider that such a wide-ranging proposition should be accepted or that the frequency of third party lending, if it be a fact, should be permitted to outweigh the particular factors which lead to the conclusion that Barclays was put upon inquiry.

41. The first respondent also submitted that s.51A(1) of the Conveyancing Act 1919 (N.S.W.) and s.106 of the Real Property Act were an answer to the appellant's case. Section 51A(1) provides:

"In favour of a purchaser in good faith - (a) a deed shall be deemed to have been duly executed by a corporation aggregate if its seal is affixed thereto in the presence of and attested by its clerk, secretary, or other permanent officer or his deputy, and a member of the board of directors, council, or other governing body of the corporation; and

(b) where a seal purporting to be the seal of a corporation has been affixed to a deed attested by persons purporting to be persons holding such offices as aforesaid, the deed shall be deemed to have been executed in accordance with the requirements of this section, and to have taken effect accordingly."

The first respondent conceded that s.51A(1) does not apply directly to the present case because the instrument of mortgage was not a deed prior to its registration under the Real Property Act. However, he submits that the sub-section throws light on the rule in Turquand's Case. The short answer is that the statutory provision cannot be used to interpret the principle of general law.

42. Section 106 stands in a different position. Sub-section (1) enables a corporation for the purpose of dealing with land under the Real Property Act to affix the common seal of the corporation. Sub-section (2) provides that:

"Where - (a) a seal purporting to be the seal of a corporation ... has been affixed to a ... dealing, caveat or other document; and

(b) the affixing of the seal purports to have been attested by a person or persons holding office in the corporation or by a person or persons authorised to attest the affixing of the seal,

the Registrar-General may assume - (c) that the seal and attestation are genuine and were lawfully affixed ...; and (d) that the person or persons purporting to have attested
the affixing of the seal had sufficient authority ..."

43. Here the requirements of (a) and (b) were satisfied. The signatures of Robert and Gerard Sturgess each appear below a statement that the seal was affixed in the presence of the signatory. Accordingly, they were persons who attested the affixing of the seal within the requirements of par.(b). The Registrar-General was therefore entitled to make the assumptions set out in pars (c) and (d) and to register the instrument.

44. The first respondent contended that this conclusion necessarily disentitles the appellant to relief by way of damages under s.127 of the Real Property Act. The argument is that, once the Registrar-General became entitled to make the assumptions mentioned in pars (c) and (d) of s.106(2), he was entitled to make those assumptions in defending an action under s.127(1). The point was not argued in the courts below but it is and was common ground that, by reason of the registration of the instrument of mortgage and subsequent transfer, the appellant sustained a loss within the meaning of the sub-section. The registration of the instruments conferred an indefeasible title on Barclays and the third party purchaser. In the circumstances of this case that registration deprived the appellant of its estate or interest in the land, thereby causing it to sustain loss or damages. In one sense the appellant lost its estate or interest in the land because the borrower failed to repay the loan, but in this case it is not disputed that, subject to the arguments already dealt with, the registration of the instruments was the cause of the appellant's loss for the purposes of s.127. A second answer to the first respondent's argument based on s.106 is that this provision is unrelated to ss.126 and 127. The latter provisions concern the Registrar-General in his capacity, not as statutory officer, but merely as nominal defendant. The apparent object of s.106 is to facilitate the prompt registration of dealings by avoiding the necessity for protracted inquiries by the Registrar-General. The object of the section is not to exclude claims for compensation under ss.126 and 127 in cases to which s.106 applies. Indeed, one consequence of providing for prompt registration by means of s.106 is that there is a need to allow for claims for compensation when loss is sustained by a registered proprietor by reason of the registration of an invalid instrument.

45. For the foregoing reasons I would allow the appeal with costs, set aside the orders made by the Court of Appeal and order that in lieu of those orders the appeal to that Court be dismissed with costs.

BRENNAN J. The issue on which the parties have litigated the claim by the appellant ("Northside") against the respondent, the Registrar-General, under s.127 of the Real Property Act 1900 (N.S.W.) is whether, as between Northside and Barclays Credit Corporation Holdings Pty. Limited ("Barclays"), Northside was bound by an instrument of mortgage in favour of Barclays bearing the imprint of Northside's common seal attested by the signature of Robert Sturgess, a director of Northside, and countersigned by his son, Gerard Sturgess, who was described therein as "company secretary". Gerard Sturgess had not been appointed to that office. Barclays took and, after a time, registered the instrument of mortgage as part of the security for a loan, or as security for a purported guarantee of a loan, of approximately $1,400,000 made by Barclays to companies which Robert Sturgess owned and controlled and in which Northside had no interest. The business of Northside was simply the holding of the land pending its resale at a suitable time. The circumstances in which Robert Sturgess was able to obtain possession of the seal and of the relevant certificate of title are set out by the Chief Justice and I need not repeat them. Northside acquired no benefit from the loan or from the giving of the mortgage. Robert Sturgess brought the instrument into existence and used it in fraud of Northside.

2. Northside is a company limited by shares, incorporated under the Companies Act 1961 (N.S.W.). Article 56 of its articles of association reads as follows:

"Subject to the power to delegate conferred by Article 47 the Directors shall provide for the safe custody of the Seal and the Seal shall never be used except by the authority of the Directors and in the presence of one Director at the least who shall sign every instrument to which the Seal is affixed and every such instrument shall be countersigned by the Secretary or by a second Director or some other person appointed by the Directors for the purpose."

The directors passed no resolution authorizing the affixing of the seal on the instrument of mortgage. Nor was the signature of Gerard Sturgess a countersignature "by the Secretary or by a second Director or some other person appointed by the Directors for the purpose." The purpose of requiring a countersignature is so that the signature of the director may be authenticated: Equity Nominees Ltd. v. Tucker (1967) 116 CLR 518, at p 523.

3. In Equity Nominees, where a creditor sought to recover against a subsidiary of a principal debtor under a purported deed of guarantee given by the subsidiary, disconformity between the mode of execution and the mode prescribed by the governing article of association was held fatal to the validity of the purported deed. There, while the article required the sealing to be attested by two directors countersigned by the secretary or a person appointed for the purpose, the purported deed bore only two signatures. Windeyer J. said, at pp 525-526:

"The question then is: Was the document on the face of it duly executed so as to be the company's deed? In my opinion it was not. Doubtless it is true that a company makes a deed when it executes under its common seal an instrument described as a deed. But when by the company's articles formalities and a procedure are prescribed for the authorization of the use of the seal and its authentication these must be complied with. Where they are apparently complied with the company will be bound as against a person dealing with the company in good faith. That rule has however no application here, because, apart from other considerations, the requirements of art. 31 were not complied with either apparently or in fact. As stated in Norton on Deeds, 2nd ed., p 24, 'Directors in whose presence the seal of a corporation is affixed, where the regulations of the corporation require the seal to be affixed in their presence, are not witnesses; they attest the sealing as part of the operation of sealing and not as witnesses'."

Compliance with the formalities prescribed by the articles of association was not regarded as a mere technicality, as his Honour observed (at pp 526-527):

" As the seal was never duly affixed, the deed was not the company's deed: cf. In re Efron's Tie and Knitting Mills Pty. Ltd. ((1932) VLR 8). I do not think we must look on this as the result of a mere legal technicality. ... it is surely more than a mere technicality to expect that a company's guarantee should be an engagement into which it enters by the decision of its own directors, at a meeting duly convened, and that effect be given to this decision in the manner required by law. All that can concern a court in these matters is of course that the law be observed."

A corporation's seal on an instrument has never been held to bind the corporation (except by estoppel) if it has been affixed without authority: Anon, Case 728, 12 Mod.423 (88 ER1425); Mayor, andc., of Merchants of the Staple of England v. Governor and Company of Bank of England (1887) 21 QBD 160.

4. In this case, the instrument of mortgage bears the imprint of Northside's seal, it bears the signature of a Northside director attesting the sealing and the countersignature of a person who is described as, but was not, Northside's secretary. Although no disconformity appears on the face of the instrument between the manner of its execution and the manner prescribed by Northside's articles, its execution without the authority of the board of directors and its countersignature by Gerard Sturgess, who was not the secretary, establish that it was not Northside's instrument of mortgage. If Northside was bound nevertheless by the instrument of mortgage, it must have been bound by estoppel. In Bank of Ireland v. Evans' Trustees (1855) 5 HLC 389 (10 ER 950) the fraudulent secretary of a corporation, by the negligence of the trustees of the corporation, was able to affix the corporate seal on certain powers of attorney on which the bank acted in registering transfers of stock. It was held that mere negligence in the keeping of the seal was not sufficient to absolve the bank. Lord Cranworth L.C. said (at p 413 (p 960)) "that there must be either something that amounts to an estoppel, or something that amounts to a ratification, in order to make the negligence a good answer." It must be so, for there are no other doctrines of the law which can give to an instrument sealed without authority the effect which it would have if the sealing were authorized. To found an estoppel, it was said that the negligence had to be "proximately connected" with the transfer itself: see p 410 (p 959) and Merchants of the Staple of England, at pp 172,174,176.

5. Northside's claim in this case is for the loss occasioned by registration of the instrument of mortgage and the estoppel on which the Registrar-General relies is an estoppel against denying that that instrument was binding on Northside or, to put it another way, an estoppel against denying that the instrument of mortgage was not executed by Northside. As the action is founded on the alleged binding effect of the instrument, it is the execution of the instrument to which attention must be directed. The respondent submits that Barclays was entitled to rely on the apparent regularity of the execution of the instrument of mortgage in accordance with the rule in The Royal British Bank v. Turquand (1856) 6 El. and Bl.327 (119 ER 886). That rule, known as the "indoor management" rule, was said by Lord Simonds in Morris v. Kanssen (1946) AC 459, at p 474, to be correctly stated in Halsbury's Laws of England as follows:

"But persons contracting with a company and dealing in good faith may assume that acts within its constitution and powers have been properly and duly performed and are not bound to inquire whether acts of internal management have been regular."

(See now 4th ed., vol.7(1), (1988), par.980.) Under the indoor management rule, so the argument runs, Barclays was entitled to assume that the directors of Northside had authorized the affixing of the seal to the instrument and had appointed Gerard Sturgess as the secretary. The scope of the indoor management rule is illuminated by a consideration of the nature of an incorporated company and the manner in which, by its officers and agents, it deals with others.

6. A company, being a corporation, is a legal fiction. Its existence, capacities and activities are only such as the law attributes to it. The acts and omissions attributed to a company are perforce the acts and omissions of natural persons. A company is bound by an act done when the person who does it purports thereby to bind the company and that person is authorized to do so or the doing of the act is subsequently ratified. (There is no question of ratification in this case.) Authority for the purpose is derived either directly from the constitution of the company or from some antecedent act (typically, a resolution of the governing body) which is itself binding on the company. As between a company and a party who deals with it, a company is bound by an act purporting to bind it not only when the person who does the act has the company's authority to bind it by that act but also when that person is held out by the company as having that authority and the party dealing with the company relies on that person's ostensible authority. Conversely, the company is not bound when the person who does the act has neither actual nor ostensible authority to bind the company by doing the act which the other party asserts to be binding on the company. The foundation of ostensible authority is estoppel, as Diplock L.J. pointed out in Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd. (1964) 2 QB 480, at p 503:

" An 'apparent' or 'ostensible' authority ... is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the 'apparent' authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract."

Although Diplock L.J. confined his observations to the ostensible authority of an agent to bind his principal to a contract, the principles he stated apply mutatis mutandis to authority to bind a company by other acts done purportedly on behalf of a company: see Armagas Ltd. v. Mundogas S.A. (1986) AC 717, at p 732.

7. The principles governing ostensible authority find their usual application in cases of principal and agent. It may be thought that the ostensible authority of an agent is irrelevant to the execution of an instrument under seal purporting to be a company's instrument, for the sealing of an instrument can be seen as the act of the company itself rather than as the act of the company's agent. It is immaterial whether the acts of natural persons in executing an instrument which binds the company are invested with the character of acts of the company itself or with the character of acts done by an agent of the company. In determining whether an act which purports to bind a company does bind the company, it is not the character which would be attributed to an authorized act which matters. The material inquiry calls for identification of the particular act, the person who did it and the authority - actual or ostensible - of that person to bind the company by the doing of that act. When an action is brought on a contract contained in an instrument or is founded on an instrument which purports to bind a company but the company denies that the instrument is its instrument, the issue is whether the instrument was duly executed, whether in the affixing of the seal, the attesting of the sealing, the countersignature or in some other manner of purported authentication. Although, as we shall see, the transaction in which the instrument is used is material to the application of the indoor management rule in relation to the execution of the instrument, it is the acts done in executing the instrument which are the subject of inquiry in such a claim.

8. The application of the principles of ostensible authority to a company requires two further characteristics of a corporation to be borne in mind, as Diplock L.J. said in Freeman and Lockyer, at pp 504-505:

"The first is that the capacity of a corporation is limited by its constitution, that is, in the case of a company incorporated under the Companies Act, by its memorandum and articles of association; the second is that a corporation cannot do any act, and that includes making a representation, except through its agent. Under the doctrine of ultra vires the limitation of the capacity of a corporation by its constitution to do any acts is absolute. This affects the rules as to the 'apparent' authority of an agent of a corporation in two ways. First, no representation can operate to estop the corporation from denying the authority of the agent to do on behalf of the corporation an act which the corporation is not permitted by its constitution to do itself. Secondly, since the conferring of actual authority upon an agent is itself an act of the corporation, the capacity to do which is regulated by its constitution, the corporation cannot be estopped from denying that it has conferred upon a particular agent authority to do acts which by its constitution, it is incapable of delegating to that particular agent. ... The second characteristic of a corporation, namely, that unlike a natural person it can only make a representation through an agent, has the consequence that in order to create an estoppel between the corporation and the contractor, the representation as to the authority of the agent which creates his 'apparent' authority must be made by some person or persons who have 'actual' authority from the corporation to make the representation. Such 'actual' authority may be conferred by the constitution of the corporation itself, as, for example, in the case of a company, upon the board of directors, or it may be conferred by those who under its constitution have the powers of management upon some other person to whom the constitution permits them to delegate authority to make representations of this kind. It follows that where the agent upon whose 'apparent' authority the contractor relies has no 'actual' authority from the corporation to enter into a particular kind of contract with the contractor on behalf of the corporation, the contractor cannot rely upon the agent's own representation as to his actual authority. He can rely only upon a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates."

His Lordship's statements of principle were approved by this Court in Crabtree-Vickers Pty. Ltd. v. Australian Direct Mail Advertising and Addressing Co. Pty. Ltd. (1975) 133 CLR 72, at p 78. I have cited these passages at length because his Lordship's characteristically lucid exposition of the general principles of estoppel provides the framework within which the specifically "indoor management" cases are to be placed. There being no other framework of legal principle in which they can be placed, the indoor management cases must be analysed within that framework.

9. At the outset, it is necessary to state the relationship of the indoor management rule with a company's constitution. As a company's constitution defines the authority which the company can confer on its officers and agents, the constitution limits the authority which can be conferred on persons to execute binding instruments (or to engage in transactions) on the company's behalf. If the constitution of the company shows that the person or persons executing an instrument could not have been given authority to bind the company by their respective acts of execution, the company is not bound; if it shows that that person or those persons might have been given such authority, the question is whether that person or those persons had such authority or were held out by the company to have had it. The question whether the particular authority could have been given under the constitution is a question of law; the question whether the authority was given is a question of fact, the answer to which is affected by a presumption of regularity.

10. As the constitution of a company determines the authority which can be conferred on an officer or agent, the "indoor management" rule can operate only within the limits prescribed by the company's constitution. In Mahony v. East Holyford Mining Co. (1875) LR 7 H.L. 869, at pp 893-894, Lord Hatherley held it to be settled -

"that those who deal with joint stock companies are bound to take notice of that which I may call the external position of the company. Every joint stock company has its memorandum and articles of association ... Those articles of association ... are open to all who are minded to have any dealings whatsoever with the company, and those who so deal with them must be affected with notice of all that is contained in those two documents. After that, the company entering upon its business and dealing with persons external to it, is supposed on its part to have all those powers and authorities which, by its articles of association and by its deed, it appears to possess; and all that the directors do with reference to what I may call the indoor management of their own concern, is a thing known to them and known to them only; subject to this observation, that no person dealing with them has a right to suppose that anything has been or can be done that is not permitted by the articles of association or by the deed."

Again, Lord Halsbury explained in County of Gloucester Bank v. Rudry Merthyr Steam and House Coal Colliery Company (1895) 1 Ch 629, at p 633:

"Persons dealing with joint stock companies are bound to look at what one may call the outside position of the company - that is to say, they must see that the acts which the company is purporting to do are acts within the general authority of the company, and if those public documents, which everyone has a right to refer to, disclose an infirmity in their action, they take the consequences of dealing with a joint stock company which has apparently exceeded its authority. But the case here is exactly the other way. All the public documents with which an outside person would be acquainted in dealing with the company would only shew this, that by some regulations of their own, what Lord Hatherley described as their indoor management, they were capable if they had thought right of making any quorum they pleased; and an outside person knowing that, and not knowing the internal regulation, when he found a document sealed with the common seal of the company and attested and signed by two of the directors and the secretary, was entitled to assume that that was the mode in which the company was authorized to execute an instrument of that description."

And, in Uxbridge Permanent Benefit Building Society v. Pickard (1939) 2 KB 248, Sir Wilfrid Greene M.R. said (at p 257):

"In the case of limited companies special rules came into operation. In the case of a limited company the actual authority of an agent is of necessity limited by the constituent documents under which the company has its existence and from which it derives its power, which a person dealing with the company is assumed to know; but the internal management and everyday internal administration of the company is a thing which an outsider cannot be expected to know by the light of nature or by inspecting some file as he can with public documents like memoranda and articles of association. In order to ascertain things of that kind he would have to make detailed inquiries inside the company's office. It is quite obvious that the business of limited companies could never be carried on if everybody dealing with a company was at his peril bound to ascertain whether the internal administration of the company had been regularly conducted."

11. There are practical reasons why a party who relies on an instrument purporting to be the instrument of a company should be entitled to assume in the ordinary course of commerce that its execution has been authorized by the company, as Estey J. pointed out in Canadian Laboratory Supplies Ltd. v. Engelhard Industries of Canada Ltd. (1979) 97 DLR (3d) 1, at p 24:

"Modern commerce at practically all levels and sectors operates through the corporate vehicle. That vehicle itself, by conglomerate grouping and divisionalization, has become increasingly complex. Persons, including corporate persons, dealing with a corporation must for practical reasons be able to deal in the ordinary course of trade with the personnel of that corporation secure in the knowledge that the law will match these practicalities with binding consequences. The law has long so provided."

12. The indoor management rule is really a presumption of regularity. To use the Latin maxim, omnia praesumuntur rite esse acta: Morris v. Kanssen, at p 475. The presumption is no more than a presumption of fact. Whence does it arise? It arises from the likelihood that a company has given to its officers and agents the authority needed to carry on its business and to act for its benefit within the limits of the authority which officers and agents in their respective positions would ordinarily possess. The presumption might reasonably be made when the officers or agents of a company engage in a transaction for the purpose of a company's business or otherwise for the benefit of the company and the transaction is one that officers or agents in their respective positions would ordinarily be expected to have the company's authority to undertake. In that situation, a party dealing with the company in good faith is entitled to presume that the officers and agents had that authority: cf. Uxbridge Permanent Benefit Building Society v. Pickard, at p 258. Being a presumption of fact, the indoor management rule is displaced when the circumstances put on inquiry the party seeking to rely on the rule.

13. If the rule can found an estoppel against a company, in what does the necessary representation made by the company consist? Clearly enough, the representation required to support an estoppel depends upon the subject matter of the estoppel. An estoppel with respect to the appointment of de facto directors may be raised by subscribers to the memorandum and articles standing by while the de facto directors assume the control of the company's affairs; an estoppel as to the conferring of authority on an officer of the company may be raised by the directors permitting the officer to undertake a class of transactions on the company's behalf. Thus, in Smith v. The Hull Glass Company (1852) 11 CB 897 (138 ER 729) where a company was held liable for the price of goods supplied for the purpose of its business on the order of a manager to whom there was no express delegation of authority by the board, Maule J. said (at p 928 (pp 741-742)):

"the act of parliament and the deed of settlement enable the company to carry on their business through the agency of persons to be appointed by them. Whether or not the persons so appointed were regularly appointed, the plaintiffs, or any other persons dealing with them, could have no means of knowing: they have no power to inspect the minute-book. Here are persons found transacting business and receiving goods upon the company's premises, and using them for the purposes of the company; and all this with the knowledge of the company. ... This is the simple case of an individual, or a body corporate, carrying on business in the ordinary way, by the agency of persons apparently authorised by him or them, and acting with his or their knowledge. The case differs in no respect from the ordinary one of dealings at a shop or counting-house: the customer is not called upon to prove the character or the authority of the shopman or clerk with whom he deals; if he is acting without or contrary to the authority conferred upon him by his employers, it is their own fault. It seems to me, therefore, that these defendants are bound by the acts of the persons who have taken upon themselves, with their knowledge, to act for them in ordering the goods in question, and receiving them, and using them in their business."

To found an estoppel as to the authority of an officer or agent who is engaged in a transaction for the purposes of the company's business or otherwise for the company's benefit and who is purporting to exercise an authority which an officer or agent in that position would ordinarily be expected to have, the mere carrying on of the company's business with officers and agents performing particular functions on its behalf and in its interest is a sufficient representation by the company. Although such representations by the company seem a slender foundation on which to build an estoppel, the indoor management rule treats them as sufficient unless the party relying on the rule is put on notice to inquire into the authority of the officers or agents to do what they did in the transaction. The slenderness of the foundation enhances the importance of the qualification. In transactions other than those engaged in for the purposes of a company's business or otherwise for the benefit of the company, and in transactions where the officer or agent has purported to exercise an authority over and beyond the authority which an officer or agent in that position would ordinarily be expected to possess, a party seeking to bind the company by estoppel must rely on particular representations of authority made by the company - that is, by officers or agents of the company having actual or ostensible authority to make those representations.

14. When the indoor management rule applies, it covers each of the links between the constitution of the company and the particular act (or omission) done (or omitted) by a purported officer or agent of the company in the transaction. It covers the due making of appointments of the original directors, of subsequent directors, of other officers and of agents; it covers the conferring of authority on officers and agents; and it covers the satisfaction of conditions governing their exercise of authority in the instant case. As the presumption of regularity covers each of these links, so may the circumstances of a particular case put a party dealing with the company on inquiry as to any one of them. The cases in which the indoor management rule has been applied can be placed within one or other of the three broad categories - appointments, conferring of authority and satisfaction of conditions - though the categories are not, of course, mutually exclusive.

15. The appointment category includes Mahony v. East Holyford Mining Co., at pp 888,892,897-898,901; In re County Life Assurance Company (1870) LR 5 Ch App 288; Duck v. Tower Galvanizing Company (1901) 2 KB 314; and Albert Gardens (Manly) Pty. Ltd. v. Mercantile Credits Ltd. (1973) 131 CLR 60, at p 65. In In re County Life Assurance Company, Giffard L.J. said (at p 293):

"The company is bound by what takes place in the usual course of business with a third party where that third party deals bon fide with persons who may be termed de facto directors, and who might, so far as he could tell, have been directors de jure."

16. An example of the rule's application to the conferring of authority on an officer can be found in British Thomson-Houston Co. v. Federated European Bank, Ld. (1932) 2 KB 176 where a company, whose business extended to the giving of guarantees, was sued on a guarantee signed by only one director. The articles conferred power on the board to delegate its powers to one director and the indoor management rule was held to cover the assumed authority of the one director to sign the guarantee. Scrutton L.J. said (at p 180):

"... Royal British Bank v. Turquand and Mahony v. East Holyford Mining Co. decide that if the articles of association give a power, persons dealing with the company, though they are deemed to have notice of the extent of the power, are not bound to inquire into what is called the 'indoor management' of the company to see whether the power has been properly and regularly exercised with all the prescribed formalities, and if they find an officer of the company openly exercising an authority which the directors have power to confer upon him, they are relieved from the duty of further inquiry and are entitled to assume that the power has been regularly and duly conferred."

17. The rule is most frequently invoked in connection with the execution of instruments which give a security when the point in issue is the satisfaction of a condition governing the authority to execute the instrument in the instant case. Where the rule applies, it covers the passing of any necessary resolution by the board authorizing the company's officers to affix the seal and attest the sealing. Thus in The Royal British Bank v. Turquand, the plaintiff sued on a deed which was alleged and admitted to be sealed with the company's common seal. The question was whether the seal had been affixed without authority, the want of authority consisting in a supposed absence of a resolution by the company in general meeting authorizing the execution of the deed. The deed was executed as security for the company's bankers who extended credit to the company in the carrying on of its business. The constitution of the company authorized the execution of such a deed for the purpose of borrowing. Jervis C.J., in the Exchequer Chamber, held that even if no resolution of the company in general meeting had been passed, the Bank "would have a right to infer the fact of a resolution authorizing that which on the face of the document appeared to be legitimately done": p 332 (p 888). Other cases in this category include County of Gloucester Bank v. Rudry Merthyr Steam and House Coal Colliery Company and Re Scottish Loan and Finance Co.Ltd. (1944) 44 SR(NSW) 461. In South London Greyhound Racecourses, Ld. v. Wake (1931) 1 Ch 496, Clauson J. held that the rule did not apply to a guarantee sealed without authority of the company's board, saying (at p 509) "that the affixing of the seal is a matter for which the authority of the board of directors and not of a single director is required." Although his Lordship correctly stated the condition governing the actual authority of directors to affix the seal, a person dealing with the company in good faith might have assumed that the board had given its authority to the fixing of the seal. However, there was a distinction between that case and Turquand's Case. In Turquand's Case, a security was given for the company's debt; in Wake's Case, a share certificate was issued and delivered to a creditor as security for the debt of a third party. In Turquand's Case, the security was given for the purposes of the company's business; in Wake's Case, the share certificate was not issued for the purposes of the company's business but for the benefit of an unrelated debtor company. Having regard to this ground of distinction, the decision in Wake's Case is supportable but, for reasons presently to be mentioned, I am respectfully unable to agree with his Lordship that, because a board resolution was lacking, the share certificate in Wake's Case was a forgery falling within the principles of Ruben v. Great Fingall Consolidated (1906) AC 439.

18. A party dealing with a company cannot assume that its officers or agents have a particular authority if the circumstances are such as to put that party on inquiry as to whether the authority exists and no inquiry is made or the company fails to satisfy the inquiry. Lord Simonds said in Morris v. Kanssen, at p 475:

"But the maxim has its proper limits. ... It is a rule designed for the protection of those who are entitled to assume, just because they cannot know, that the person with whom they deal has the authority which he claims. This is clearly shown by the fact that the rule cannot be invoked if the condition is no longer satisfied, that is, if he who would invoke it is put upon his inquiry. He cannot presume in his own favour that things are rightly done if inquiry that he ought to make would tell him that they were wrongly done."

This passage was quoted by Slade L.J. in Rolled Steel Ltd. v. British Steel Corpn. (1986) Ch 246, at p 284, where his Lordship said that the rule in Turquand's Case is not "an absolute and unqualified rule of law, applicable in all circumstances." He added:

"... even if persons contracting with a company do not have actual knowledge that an irregularity has occurred, they will be precluded from relying on the rule if the circumstances were such as to put them on inquiry which they failed duly to make."

In Houghton and Co. v. Nothard, Lowe and Wills (1927) 1 KB 246, at p 260, Bankes L.J. said that the authorities showed that -

"... in order to establish a case which falls within the rule it is essential that the person who claims the benefit of it must (a) prove that he relied upon the ostensible authority which he sets up, and (b) must not have been put upon inquiry as to whether the transaction was in order."

This passage was cited by Cussen A.C.J. in Efron's Tie and Knitting Mills Pty. Ltd. (in liq.) (1932) VLR 8 where the rule was held inapplicable to a guarantee proffered by a director to a bank to secure his personal liability. Cussen A.C.J. said (at p 29):

"From the guarantee the company directly gained nothing, but might make itself liable to the bank for the advances past and future to Efron in respect of his private account or accounts. It would seem from the evidence that the giving of the guarantee was not in fact in the interests of the company, but in the interests of the bank."

A similar case is E.B.M. Co., Ltd. v. Dominion Bank (1937) 3 All ER 555 where, although the security appeared regular in form, the circumstances were such as to put the bank on inquiry and to disentitle the bank from relying on a security purportedly given by the company and proffered by three directors in respect of their personal liabilities. Lord Russell of Killowen, delivering the judgment of the Privy Council, said (at p 569):

"For this, they have only to thank themselves, for taking as security for the personal indebtedness of three directors of a limited company a charge on property of that company, without any inquiry, and without satisfying themselves that the seal of the company had been affixed to the security in such circumstances as to make the security a charge binding on the company. This was not a case, as was suggested in argument, in which the bank had no notice of anything extraordinary being done. It was a plain case of directors using their powers as directors to cause a limited company to apply its property for the benefit of those directors as debtors to the bank. The language used by ATKIN, L.J., in Underwood (AL), Ltd. v. Bank of Liverpool ((1924) 1 KB 775), at pp 795 and 796, may well be cited in this connection: 'The first question is: Had Underwood actual authority to deal with the cheques as he did? ... He was using the proceeds of the cheques in question to pay his own private debts. Under ordinary circumstances actual authority appears to be clearly negatived. Nevertheless it was contended that the fact that Underwood was the sole director, and practically the sole shareholder, gave him, in pursuance of the articles, actual authority. He was entrusted with all the powers of the company, the company can only act through its directors, and the directors, or director if only one, could do what they willed with the company's assets. If this means anything it means that a board of directors acting as such have actual authority to defraud the company by using the company's assets to pay debts due to butchers or moneylenders by the individual directors. Such an act is quite outside the class of acts - management of the company's business - authorised to be done by the board. The directors, whether collectively or singly, have not actual authority to steal the company's goods.'"

See also Re Scottish Loan and Finance Co.Ltd., per Nicholas C.J. in Eq. at p 465. In these cases, it was the nature of the transaction which put the party purportedly dealing with the company on inquiry. Although the nature of the transaction is not the only factor which might put a party on inquiry, it is often, and importantly, the factor on which the application of the indoor management rule depends. In Rolled Steel Ltd. Slade L.J. said, at p 285:

34. The Registrar-General also made submissions based upon s.51A(1) of the Conveyancing Act 1919 (N.S.W.) and s.106 of the Real Property Act. I agree with the Chief Justice, for the reasons given by him, that those submissions must fail.

35. I would allow the appeal.

TOOHEY J. I would allow this appeal, for the reasons developed by Dawson J. in his judgment. What follows is not intended in any way to detract from my agreement with those reasons; it aims to do little more than place the rule in The Royal British Bank v. Turquand (1856) 6 El. and Bl. 327 (119 ER 886) in context.

2. The scope of the rule is identified by its other title, the "indoor management" rule, a description used by Lord Hatherley in Mahony v. East Holyford Mining Co. (1875) LR 7 HL 869, at p 894. In its early history, the rule may be seen as relieving those who dealt with companies of the obligation to ensure that there had been no irregularities in the internal management of the company in relation to such matters as the holding of meetings and the passing of resolutions. This might include elections and appointments to office, the presence of a quorum at meetings and the execution of documents. In such cases, "if nothing has occurred which is evidently contrary to the provisions of the registered documents, the outsider may assume the regularity of all matters internal to the company and its organisation": Sealy, Cases and Materials in Company Law, 2nd ed. (1978), p 209.

3. That, I think, is still the proper scope of the rule and it was so seen by Lord Simonds in Morris v. Kanssen (1946) AC 459, when he said, at p 474:
"The so-called rule in Turquand's case is, I think,
correctly stated in Halsbury's Laws of England, 2nd ed., vol. V, at p 423: 'But persons contracting with a company and dealing in good faith may assume that acts within its constitution and powers have been properly and duly performed and are not bound to inquire whether acts of internal management have been regular.'" This formulation of the rule, with some slight variation in language, appears in Halsbury's Laws of England, 4th ed., vol.7(1), (1988), par.980.

4. But where the question is whether an officer of the company has authority to bind the company by his actions, the context moves from one of indoor management to one of agency and the ordinary rules of agency then come into play. The indoor management rule is in effect a concession to the outsider in dealing with a company; it does not confer authority on an officer of the company to enter into a contract where that authority does not otherwise exist. Authority must actually exist to enter into the transaction in question or it must be found in principles of agency, as in the concept of ostensible authority. This place for the operation of agency principles in the affairs of companies was made clear by Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd. (1964) 2 QB 480, a decision which was applied by this Court in Crabtree-Vickers Pty. Ltd. v. Australian Direct Mail Advertising and Addressing Co. Pty. Ltd. (1975) 133 CLR 72.

5. I agree with the distinction drawn by Dawson J. between forgery which involves a counterfeit signature or seal and that which does not, and the consequences flowing from that distinction. The former is in truth a nullity, to which the indoor management rule does not speak. The latter, to which the term "forgery" is only loosely applied although it is used in some of the cases (Kreditbank Cassel G.m.b.H. v. Schenkers (1927) 1 KB 826 and South London Greyhound Racecourses Ltd. v. Wake (1931) 1 Ch 496 for example), turns upon the authority of those who purport to act on behalf of the company, an authority which may be inferred if the company holds out the person as authorized to act on its behalf or allows him to act as if he were so authorized. Where a person affixes the seal of a company to a document, without actual authority to do so, the consequences for the company will depend on its own conduct in relation to that person - what it has held that person as having authority to do or what it has allowed him to do without demur. In a particular case, the consequences might well be the same if the indoor management rule were applied, but it is the principles of agency which operate in this area. The application of those principles to the present case leads to the conclusion that there was nothing in the conduct of the appellant which would hold it to the actions of Robert Sturgess in mortgaging its land.

6. While, on the approach taken by Dawson J., it is unnecessary to determine whether Barclays Credit Corporation Holdings Pty. Limited ("Barclays") was put upon inquiry, I agree that Barclays was, in the circumstances of this transaction, put upon inquiry. But the evidence did not disclose that it made any. Indeed, it should be noted that at the trial Mr Clare, a former manager of one of the Barclays' companies, gave evidence that no enquiries had been made by Barclays into the nature and extent of Mr Sturgess' interest in the land at Frenchs Forest, beyond what he was told by Sturgess. Likewise, Mr Duncan, the former assistant general manager of Barclays Australia (Finance) Limited, admitted that he probably had made no enquiries of Mr Sturgess or anyone else to ascertain what was Sturgess' relationship with the appellant.

7. In the circumstances the appellant was not bound by the mortgage to Barclays.

GAUDRON J. The appellant, Northside Developments Pty. Limited ("Northside"), seeks to establish liability on the part of the Registrar-General pursuant to s.127 of the Real Property Act 1900 (N.S.W.) ("the Act") in respect of the registration of a mortgage in favour of Barclays Credit Corporation Holdings Pty. Limited ("Barclays") over land of which Northside was then the registered proprietor. The land was subsequently sold by Barclays as mortgagee in possession. The facts are set out in the judgment of Mason C.J. and, save to the extent that they are later specifically adverted to, they need not be repeated.

2. Section 127(1) of the Act relevantly provides:

"Any person sustaining loss or damages ... by the registration otherwise than under section 45E of any other person as proprietor of land ..., and who by the provisions of this Act is barred from bringing proceedings ... for possession of that land, or other proceedings or action for the recovery of such land, estate, or interest or to whose claim every such proceedings or action would be inapplicable may, in any case in which the remedy by action for recovery of damages as hereinbefore provided is inapplicable, bring an action against the Registrar-General as nominal defendant for recovery of damages."

3. The issue in the present case is whether the loss or damage suffered by Northside was sustained by registration or by execution of the mortgage. It is common ground that, if the loss or damage was sustained by registration, the further requirements of s.127 of the Act are satisfied.

4. As appears from the judgment of Mason C.J. the mortgage was not authorized by Northside. Its execution was effected by the affixation of Northside's seal and by signing by Mr Robert Sturgess, a director, and by Mr Gerard Sturgess who, although not appointed as secretary, was shown in the records of the Corporate Affairs Commission as appointed to that office. To an outsider possessed only of the information contained in the memorandum and articles of association and the returns filed with the Corporate Affairs Commission the affixation of the seal would appear to conform with the requirements of the articles relating to its use. And there is no suggestion but that the transaction was of a type that Northside was empowered to undertake.

5. The mortgage was part of a transaction by which Mr Robert Sturgess financed a business enterprise conducted by Farola Pty. Limited ("Farola"). Neither Northside nor any of its directors or shareholders, other than Mr Robert Sturgess, had any interest in or was otherwise associated with Farola. Nor were they aware of the transaction. The moneys secured by the transaction were advanced to Farola or at its direction. The execution of the mortgage was, quite simply, a fraud on Northside.

6. The question whether the loss suffered by Northside was sustained by registration or by execution of the mortgage depends upon whether the mortgage was, on execution in the manner described, binding on it. If not, the loss was sustained by registration which vested an indefeasible title in Barclays, Barclays not having been party to the fraud.

7. It was argued that Northside became bound by the mortgage by operation of the rule in The Royal British Bank v. Turquand (1856) 6 El. and Bl. 327 (119 ER 886). The rule derives from a statement by Jervis C.J. (at p 332 (p 888 of ER)) in these terms:

"We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and that the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here, on reading the deed of settlement, would find, not a prohibition from borrowing, but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the document appeared to be legitimately done." (Emphasis added)

The final sentence of this passage suggests that the rule was grounded in notions akin to those which underlie estoppel, but no passage in the relatively brief judgment expressly so states. Nor is the legal foundation of the rule made explicit in subsequent cases, such as Mahony v. East Holyford Mining Co. (1875) LR 7 HL 869, County of Gloucester Bank v. Rudry Merthyr Steam and House Coal Colliery Company (1895) 1 Ch 629 and Duck v. Tower Galvanizing Company (1901) 2 KB 314, in which the rule was considered and applied.

8. Recently, particularly since the decision in Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd. (1964) 2 QB 480, there has been debate as to whether the rule in Turquand's Case is a special rule of company law based upon considerations relating to the use of the company seal or is an illustration of what are said to be agency principles underlying the notion of "apparent" or "ostensible" authority. See, for example, Lindgren, "History of the Rule in Royal British Bank v. Turquand", (1975) 2 Monash University Law Review 13 and "The Positive Corporate Seal Rule and Exceptions Thereto and the Rule in Turquand's Case", (1973) 9 Melbourne University Law Review 192, where it is argued that the rule is a manifestation of what is referred to as "the positive corporate seal rule". See, too, Bowstead on Agency, 15th ed. (1985), at pp 293-297, where the rule is dealt with as an aspect of "apparent" or "ostensible" authority and Gower's Principles of Modern Company Law, 4th ed. (1979), at pp 203-204, where the rule is said to have "always been expressed as an agency principle". It has also been suggested that the rule is an application of the maxim omnia praesumuntur rite esse acta. See Morris v. Kanssen (1946) AC 459, at p 475.

9. The debate as to the legal foundation of the rule in Turquand's Case bears on the present case in so far as the parties sought to argue by reference to its supposed foundation the question of its application or non-application to a transaction involving the fraudulent affixation of a company seal. In this respect it was argued on behalf of the Registrar-General that the rule, being a special rule of company law, renders binding an instrument to which a company's seal has been affixed and which has been signed by persons apparently authorized to so sign (the seal and signatures being genuine), notwithstanding that the transaction is a fraud on the company. Cases supporting the proposition that the rule in Turquand's Case has no application to fraudulent transactions said to be or to be the same as forgeries, such as Ruben v. Great Fingall Consolidated (1904) 2 KB 712, at pp 729-730, (1906) AC 439, at p 444, Kreditbank Cassel G.m.b.H. v. Schenkers (1927) 1 KB 826 and South London Greyhound Racecourses Ltd. v. Wake (1931) 1 Ch 496, were said to be based on the misconception that the rule is grounded in agency principles. On the other hand, it was argued on behalf of Northside that the fraudulent affixation of a seal amounts to a forgery to which the rule has no application, a forgery being binding only by operation of an estoppel. It was further argued that, in the circumstances of the present case, such an estoppel could only arise if Robert and Gerard Sturgess had "apparent" or "ostensible" authority to bind Northside in the transaction with Barclays. Additionally, it was argued on behalf of Northside that the rule did not apply in the present case because: (a) Mr Gerard Sturgess was not, in fact, a person in whose presence the seal might properly be affixed, and (b) the circumstances attending the transaction were such as ought to have put Barclays to further inquiry.

10. Merely identifying the rule in Turquand's Case as a special rule of company law or as an illustration of agency principles provides no sure guide to its application in any particular case. Moreover, in so far as the arguments of the parties made reference to the doctrine of "apparent" or "ostensible" authority, it is pertinent to note that the latter is no more than a familiar example of an estoppel which operates within the framework of agency principles. So much may be seen from the decision of Diplock L.J. in Freeman and Lockyer (at p 503) where "apparent" or "ostensible" authority was identified as a legal relationship between the principal and the contractor created by a representation which, "when acted upon by the contractor ..., operates as an estoppel, preventing the principal from asserting that he is not bound by the contract".

11. One aspect of the rule - and one upon which Northside relies - is not in issue, namely, that it does not apply to validate a transaction if a person dealing with a company has notice of facts which ought put him or her to further inquiry. See AL Underwood Ltd. v. Bank of Liverpool (1924) 1 KB 775; Morris v. Kanssen, at p 475; Rolled Steel Ltd. v. British Steel Corporation (1986) Ch 246, at pp 284-285. That aspect suggests that, like the doctrine of "apparent" or "ostensible" authority, the rule in Turquand's Case may have its genesis in estoppel or in notions very similar to those that underlie that doctrine. The gist of an estoppel is "an assumption adopted by (a person) as the basis of some act or omission which, unless the assumption be adhered to, would operate to (that person's) detriment": Thompson v. Palmer (1933) 49 CLR 507, per Dixon J. at p 547. See also Grundt v. Great Boulder Pty. Gold Mines Ltd. (1937) 59 CLR 641, per Dixon J. at p 675; Waltons Stores (Interstate) Ltd. v. Maher (1988) 164 CLR 387, at pp 404, 413-414, 458; Foran v. Wight (1989) 64 ALJR 1, at p 12; 88 ALR 413, at p 431. Whether or not a person will be allowed to depart from such an assumption depends upon the part played in the adoption of it by the other. See Grundt, at p 675. If the latter has knowledge of facts or ought to have knowledge of facts putting him or her to further inquiry, that is a matter which tells against the former having played such a part in the adoption of the assumption that he or she should be held to it.

12. It appears to have been recognized from very early times that an estoppel may operate by reference to the fraudulent affixation of a seal (whether that of an individual or a corporation), although the question of liability on a fraudulently sealed instrument may not always have been expressed precisely in terms relevant to estoppel. Certainly it was so expressed in Bank of Ireland v. Evans' Trustees (1855) 5 HLC 389, at pp 409-410 (10 ER 950, at p 959), where Parke B. expressed the test whether trustees who had been incorporated by statute were bound by instruments to which the corporate seal had been fraudulently affixed as being whether the "supposed negligent custody" of the seal was "of that species of negligence which alone would warrant a jury in finding that the Plaintiffs were disentitled to insist on the transfer being void". See also Mayor, Etc., of Merchants of the Staple of England v. Governor and Company of Bank of England (1887) 21 QBD 160, at pp 172, 174-175 and 176.

13. The concluding words from the passage above cited from Turquand's Case, the non-application of the rule if circumstances exist warranting further inquiry, and the significance of estoppel in relation to the use of a seal (expressly recognized in Bank of Ireland the year before Turquand's Case was decided in the Exchequer Chamber) combine to suggest that the rule in Turquand's Case ought now to be seen as grounded in notions akin to those which underpin the law of estoppel. When the rule is approached from that perspective, the affixation of the seal is readily seen as being taken to have given rise to an assumption which was acted upon by acceptance of the instrument to which the seal was affixed and which, clearly enough, would result in detriment if adherence to the assumption were not compelled. On this basis, there are two critical considerations in determining whether the rule operates so as to render a company bound by a transaction involving the fraudulent affixation of its seal. The first is the identification of the underlying assumption taken to have been made by reason of the affixation of the seal. The second is the identification of those circumstances which would indicate that the part, if any, played by the company was not such as would require it to be held to the assumption or, more precisely, will be taken as sufficient reason for not holding the company to the assumption taken to have been made.

14. The conclusion in Turquand's Case rested on the entitlement of the plaintiffs to infer "a resolution authorizing that which on the face of the document appeared to be legitimately done". Turquand's Case was decided on demurrer and it is therefore necessary to have regard to the pleadings upon which it was decided. The plaintiffs had declared that "the Company, ... by their writing obligatory, sealed with their common seal, acknowledged themselves to be held and firmly bound to the plaintiffs". In answer to that declaration it was pleaded by way of averment, inter alia, that "no resolution of any general meeting of the ... Company was at any time passed authorizing the making of the ... writing obligatory; and that the same was given and made without the authority or consent of the shareholders of the ... Company". See The Royal British Bank v. Turquand (1855) 5 El. and Bl. 248 (119 ER 474). To that plea the plaintiffs demurred. The decision on demurrer was strictly no more than that lack of authority by reason of non-compliance with procedural preconditions was no answer to the plaintiffs' contention that the company had bound itself by the instrument to which its seal was affixed. However, it being no answer, it necessarily follows that the affixation of a company's seal to an instrument is taken to give rise to an assumption that the company has bound itself to the transaction therein embodied.

15. The matters providing sufficient answer to an assertion that a company has bound itself by virtue of the affixation of its seal to an instrument which embodies a transaction are, to some extent, made explicit in Turquand's Case. The judgment of Jervis C.J. allows that an absolute prohibition on the transaction, which prohibition might be ascertained from the public documents of the company, is sufficient answer. And at first instance Lord Campbell C.J. (5 El. and Bl. 248, at pp 260-261 (p 479 of ER)) suggested that an assertion that the company was bound might be answered by a plea of non est factum or by showing that the transaction was unlawful and void, his Lordship adding that illegality would be shown "(i)f the directors had exceeded their authority to the prejudice of the shareholders ... and this had been known to the obligees".

16. It needs to be borne in mind that ordinarily the delivery of an instrument bearing a company's seal is the culmination of a transaction which will have been preceded by negotiations and dealings conducted by the company's directors or agents. Clearly enough, if those directors or agents, in their negotiations and dealings on behalf of the company, fail to advert to an outstanding requirement that a condition precedent be satisfied before the transaction is brought to completion, they thereby encourage an assumption that, when the company's seal is affixed to the instrument in question, the company is thereby bound. And, because they are acting on behalf of the company, the company has also encouraged that assumption. But the position is not the same when a director or agent is transacting business in fraud upon the company. In such a case the director or agent is not acting on behalf of the company and, ex hypothesi, the company has not itself done anything to foster any assumption, unless some additional factor can be identified as bearing on the transaction or the affixation of the seal. Some additional factor, such as the adoption of the transaction or some act or omission founding an assumption that the director or agent was acting on behalf of the company, might well emerge. But in that event the issue becomes one of estoppel proper rather than the application of the rule in Turquand's Case. Accordingly, in my view, a company may answer an assertion that it has bound itself to a transaction embodied in an instrument to which its seal is affixed by establishing that the seal was fraudulently affixed, or, in other words, that the transaction was not entered on behalf of the company but with intent to defraud. Of course, it follows from what has been said earlier that that answer will not avail if the company is otherwise estopped from denying that the transaction was entered on its behalf.

17. In the present case both parties approached the question whether Northside was otherwise estopped in relation to the transaction with Barclays on the basis of "apparent" or "ostensible" authority. On behalf of the Registrar-General, it was argued that such authority could be found in the manner in which Northside had allowed its affairs to be controlled by Mr Robert Sturgess and his firm of accountants; on behalf of Northside, it was argued that it was necessary to find "apparent" or "ostensible" authority to enter into the impugned transaction. Although there will often be a coincidence of "apparent" or "ostensible" authority and an estoppel binding a company to a transaction involving the fraudulent affixation of its seal, the question of estoppel in relation to the transaction is, in essence, separate from that of "apparent" or "ostensible" authority. In a case involving forgery or the fraudulent affixation of a company's seal it may be taken that an assumption has been made by the person accepting the forged or fraudulent instrument that the transaction in question is the transaction of the company and that detriment will be sustained if adherence to that assumption is not compelled. The critical question is whether the company has played such a part in the adoption of that assumption that it should be held to it. See Grundt, at p 675; Waltons Stores, per Mason C.J. and Wilson J. at p 404. The company may have played such a part in the adoption of that assumption by refraining from correcting a mistake that the other was known to be labouring under; by acting imprudently, when care was required, which imprudence was a proximate cause of the other party's adopting and acting on the faith of the assumption; or by making a representation which founded the assumption. See Thompson, at p 547. See also Grundt, at p 676; Waltons Stores, at pp 444, 461.

18. The arguments made by reference to "ostensible" or "apparent" authority were not expressly limited to the situation in which such authority derives from a representation, whether made expressly or by conduct. And, the argument on behalf of the Registrar-General, made by reference to the manner in which the company was allowed to be controlled, exhibits certain features of estoppel by imprudence. The fundamental difference between the arguments was as to the required degree of proximity between the conduct said to give rise to the "ostensible" or "apparent" authority and the transaction itself.

19. In Bank of Ireland and in Mayor, Etc., of Merchants of the Staple it was held that imprudence (or negligence) would give rise to an estoppel in relation to a transaction embodied in an instrument to which a corporation's seal had been fraudulently affixed only if there was negligence in relation to the impugned transaction itself. Although imprudence must be "a proximate cause" of the adoption of an assumption as the basis of action or inaction, it is questionable whether the requirement of proximity is satisfied only by imprudence or negligence in the transaction itself, particularly in cases involving the fraudulent affixation of a seal. If, in terms used by Wills J. at first instance in Mayor, Etc., of Merchants of the Staple (at p 169), "the mode of keeping the seal was ... calculated to facilitate, if not to invite, the commission of forgery", it is difficult to see that that is not a proximate cause of the adoption of an assumption that, the seal having been affixed to an instrument, the transaction therein embodied is that of the company. After all, again in terms used by Wills J., in that situation all that remains "for a dishonest man to do (is) the physical act of affixing the seal, which is a much easier operation than that of imitating handwriting". And the same observations appear to have equal force if the company is controlled in a manner calculated to invite the commission of fraud. However, this matter was not fully explored in argument and is not a matter that needs to be determined in the present case.

20. As earlier pointed out, the existence of facts which ought to put a person to further inquiry will tell against another having so contributed to the adoption of an assumption that adherence to the assumption should be compelled. In the present case the transaction with Barclays was, on its face, a transaction for the benefit, not of Northside, but of Farola. Were the rule in Turquand's Case otherwise applicable, the fact that the transaction was for the benefit of Farola and not for the benefit of Northside ought to have put Barclays upon further inquiry for the reasons given by Mason C.J. In the circumstances of this case, there being no representation (actual or otherwise) by Northside as to the authority of Robert or Gerard Sturgess and no basis for any assumption that Farola was associated with Northside, that fact is also sufficient answer to any argument that Northside was otherwise bound, by the operation of an estoppel, by the transaction embodied in the mortgage instrument to which its seal was fraudently affixed. Accordingly, Northside sustained loss by registration of the mortgage and not by its execution. For the reasons given by Mason C.J. the liability of the Registrar-General under s.127 of the Act is not in any way affected by s.51A(1) of the Conveyancing Act 1919 (N.S.W.) or by s.106 of the Act.

21. It is unnecessary to deal with the argument made on behalf of Northside that because Gerard Sturgess had not in fact been appointed secretary it was not bound by the mortgage, whether by operation of the rule in Turquand's Case or otherwise. However, I would wish to observe that, in my view, a return filed with the Corporate Affairs Commission will ground an assumption as to the truth of the matters therein stated, and, if a company allows its affairs to be so conducted that inaccurate returns are filed, it thereby so contributes to that assumption that it is estopped from asserting otherwise.

22. The appeal should be allowed. The orders of the Court of Appeal of the Supreme Court of New South Wales should be set aside and in lieu thereof it should be ordered that the appeal to that court be dismissed with costs.

Orders

Appeal allowed.

Set aside the orders of the Court of Appeal in so far as they apply to the appellant and in lieu thereof order that the appeal to that Court against the orders of Young J. in favour of the appellant be dismissed with costs.

The first respondent to pay the appellant's costs of the appeal.