Is the indoor management rule an agency rule?

The indoor management rule is an agency rule. Because a company is not a natural person, it can only conduct business through agents, usually its officers, directors and employees who, in turn, are authorized by other corporate agents to act on behalf of the corporation. The common law regarding the authority of these corporate agents is set out in Fridman’s Law of Agency, 7th ed. (Toronto: Butterworths, 1996) as follows at p. 357: The third party dealing with the company was, and is still, entitled to rely upon the fact that what has been done by the agent has been authorized by the company in accordance with the internal procedure of the company as required by the constitution. The party dealing with the company need not concern himself with “the indoor management” of the company. This is the effect of the famous rule in Royal British Bank v. Turquand, according to which: “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 rule allows the party dealing with the company to rely upon the agent’s authority to act, except in so far as the third party actually knows that the agent has no authority to act. . . . The party dealing with the company is entitled to assume that the company has acted in accordance with its internal rules of management in order to authorise, expressly or impliedly, the agent (citations omitted). (underlining added)