Marisa was the Secretary-Treasurer of HotShot Enterprises Inc., a tea and coffee importer. She contacted Wes, who carried on business as a wholesaler, to determine if Wes might be interested in the purchase of the corporation's coffee import business. Wes expressed an interest in the purchase, and Marisa advised Wes that she would arrange to have the sale of the coffee business approved by the shareholders, as required by the corporation's bylaws. Marisa eventually produced a shareholders' resolution authorizing the sale. Later, it was discovered that proper notice of the shareholders' meeting had not been given, and no quorum of shareholders was present at the meeting. Wes may enforce the contract notwithstanding the mistake, on the basis of the "indoor management rule."

Question

Quizplus · Accepted Answer

The "indoor management rule" allows third parties to assume that internal company rules and procedures have been followed correctly, as long as there is no obvious reason to believe otherwise. Wes, having no knowledge of the procedural mistakes, can rely on this rule to enforce the contract.

Marisa Was the Secretary-Treasurer of HotShot Enterprises Inc