Salomon V. A. Salomon & Co. - House of Lords of the United Kingdom (1896)

SALOMON V. A. SALOMON & CO.

House of Lords of the United Kingdom (1896)

The Salomon Case is often considered to be the first case to recognize and consecrate a separate legal personality for corporations. Often, the term “The Corporate Veil” is used in more modern contexts to explain the separation and limit the liability between a corporation and its shareholders.

However, it is not uncommon for claimants or petitioners to attempt to “pierce” or “lift” the corporate veil and extend the liabilities directly to the shareholders. Many authors writing on corporate law highlight that the majority of contemporary corporate litigation involves “lifting” the corporate veil.

Most commentators agree that contemporary jurisprudence and dispute resolution debate the exceptions to the principle created by the Salomon Case.

I feel that the Salomon Case might be the best option to use in your class because the main decision is very short (almost like a contemporary decision from the Cour de cassation) and the legal reasoning does not rely heavily on established precedent. For jurists and other legal professionals, the constant references to binding precedent do not bother us, however, since the students are not destined to become attorneys, notaries, or judges, it would be better to not use a case without constant references.

However, this particular decision is somewhat odd when compared to more modern and contemporary court decisions. In this particular case, the decision was unanimous and from the law report I managed to find online it contains the judgement, followed by a summary of the speeches made by each Lord giving his reasons for finding in favor of Mr. Salomon.

        ➔I am not sure if you want to do a brief explanation of what the House of Lords was in this context (since 2005 the House of Lords is no longer the highest court in the UK, those powers were transferred to the Supreme Court of the United Kingdom). I will not go into further detail at this time, but if you would like more information, do not hesitate to ask.

The facts of the case involve Mr. Aron Salomon who was a boot maker in central London. Under the terms of the Companies Act of 1862, it was possible to incorporate into a company and limit liability.

Mr. Salomon created his company with the intention of it remaining privately held and attributed shares to each member of his family (1 share for his wife, 1 for his daughter, and 1 each for his 4 sons). Mr. Salomon then sold the company his boot making business in exchange for shares in the company and partly in debentures (most commonly referred to these days as bonds).

Mr. Salomon partly financed the company’s operation with a loan paid for in debentures to Mr. Broderip. However, the debts started to accumulate and the company was unable to meet all of its obligations. Mr. Broderip asked for and obtained the liquidation of the company.

After Mr. Broderip’s debts were settled, there were some remaining funds. Mr. Salomon, who still held some debentures in the company requested the remaining funds as a preferential investor.

The High Court and eventually the Court of Appeal refused to grant Mr. Salomon’s request and moreover held that he was personally responsible for the debts as the company was a mere agent of Mr. Salomon and that the company was fraudulently constituted in order to limit his liability.