The correct answer is: B. Indoor Management
Indoor management is a principle of corporate law that protects third parties who deal with a company in good faith. Under this principle, third parties are not required to inquire into the internal affairs of the company, and they can rely on the company’s outward appearance. This means that if a third party enters into a contract with a company, they can assume that the company has the authority to enter into the contract, even if the company did not follow all of the necessary formalities.
The doctrine of indoor management is based on the idea that it is unfair to third parties who deal with a company in good faith to be held responsible for the company’s internal problems. If third parties were required to inquire into the internal affairs of every company they deal with, it would be very difficult for them to do business. The doctrine of indoor management therefore helps to promote commercial certainty and efficiency.
The doctrine of indoor management is not absolute, however. If a third party knows or ought to know that the company does not have the authority to enter into a contract, they cannot rely on the doctrine. Additionally, the doctrine does not apply to contracts that are ultra vires, which means that they are beyond the company’s powers.
The doctrine of indoor management is an important principle of corporate law that protects third parties who deal with companies in good faith. It is based on the idea that it is unfair to hold third parties responsible for the company’s internal problems. The doctrine helps to promote commercial certainty and efficiency.
The other options are incorrect because they do not accurately describe the principle of indoor management.
- Option A, good faith, is a general principle of law that requires parties to act honestly and fairly in their dealings with each other. It is not a specific principle of corporate law.
- Option C, constructive notice, is a legal doctrine that means that a person is deemed to know something even if they do not actually know it. It is not a specific principle of corporate law.
- Option D, ultra vires, is a Latin term that means “beyond the powers.” It refers to a contract that is beyond the powers of the company to enter into.