of defective contract The prob is that sometimes there is something wrong with the contract. We talked about the finance mgmer having ability to incur debt of $100000. What happen if they incur a debt of $150000. Who take risk on that. Historically it was weighted very much as a protection for the company. In other words if you want to enter into a contract with a company then you need to investigate. You need to look at internal rules to ensure the contract is valid. That is not commercially efficient. What we need to do is balance the risk faced by diff parties and see what is most commercially expedient. Since the case royal british bank and turquoak we have establish what is known as indoor mgt rule. That means any outsider who is contracting with the company can assume everything is in order. ? there is ntg odd in the constitution. You need all directors to sign the contract or stg like that. You assume that everything is in order unless you know otherwise. We have that provision taken from the common law and is now in s18 of the company act