The articles of Zenith Ltd require that any borrowing above a stated limit be approved by an ordinary resolution of members. The directors borrowed above the limit without a resolution. A lender who had no knowledge of the omission wishes to enforce the loan. Which doctrine protects the lender?

Correct answer: A) The doctrine of indoor management

Explanation

The doctrine of indoor management, from Royal British Bank v. Turquand, lets an outsider dealing in good faith assume that internal procedures such as passing a members' resolution have been followed. Constructive notice works against outsiders, but only for the contents of public documents, not whether internal steps were taken. Protection is lost where the outsider knew of the irregularity, was negligent, or the act was a forgery.