A sum of 5 lakhs was advanced to the defendant company by a bank. The company executed a promissory note in favor of the bank. It renewed promissory note from time to time and made a payment towards the amount advanced to it. In June of 1959, a promissory note was renewed by the managing director of the company. The loan amount, however, was not paid, and the bank ultimately filed a money suit.
The defense of the company was that the managing director, in absence of a resolution adopted by the board, MD had no authority to execute a promissory note. Therefore, the loan was not binding on the company.
The court held: If the loan amount, even taken without its authorization, had been used for the benefit of the company, then the company cannot repudiate its liability to repay.
When an agent borrows money for a principal without the authority of the principal, but if the principal takes benefit of the money so borrowed or when the money so borrowed have gone into the coffers of the principal, the law implies a promise to repay.
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