The Salomon v Salomon case remains a fundamental formative case of British Common Law. In the case of Salomon, a stark difference was observed in the viewpoints, and accordingly, the judgments passed by the Court of Appeal and the House of Lords. In the most rudimentary sense, the Court of Appeal attached importance to “substance”, while the House of Lords attached it to “form”. Here substance implied the spirit of the legislation or its essence, while form implied the actual, literal sense of the law.
Delving directly into the arguments put forward by the Court of Law, we observe three primary arguments as perceived by Williams J, Lindley LJ, and Lopes LJ respectively. The first, was the conviction that a ‘principle- agent relation’ existed between Salomon and his company, leaving him liable for his company’s debts to the external creditors.
Ensuing this, was the belief that this was an “ingenious” scheme to incorporate a company for an illicit motive. Instead, he believed that this resembled a relation of trusteeship and that this was simply a “trap” for the trade creditors. Lastly, it was concluded by Lopes LJ that, what the law really required, was at least seven “bonafide” “independent” members, all of whom were capable of making their own decisions, so as to incorporate a company. He believed that Salomon’s company was a ‘nominis umbra’ or a “cover”. Kay L J also concluded that it was, in fact, Salomon’s business, carried on under the name of the company.
The judgments passed by the House of Lords took a fascinating turn of events. Refuting several arguments, Lord Halsbury LC went on to explain that the “sole guide was the statute itself” and that if it was not in the law, prohibition could not be assumed. He further elaborated that the statute did not have specifications for the number of members, but only needed them to be “living” members. He also eliminated the idea of there being any principle-agent relation as the company was a separate legal person, with its own legal identity. He strongly believed, that the judges of the Court of Appeal, never truly regarded the company as one with a separate legal identity.
Lord Macnaghten concurred and asserted that the creditors of the company were not in fact, creditors of Mr Salomon as they had full notice of his incorporation.
Thus, the House of Lords found Salomon not liable, and this became a fundamental case.
By- Farzeen Harver
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