The Saloman Principle
DRAFT
Chapter 2. The Salomon principle
Introduction In the previous chapter we considered how the modern company grew of out of the law on unincorporated associations, how it used ideas long identified with town corporations created by Royal Charter, how it evolved from the joint stock company, and how shareholders in companies were granted limited liability by statute. One key element of the modern company, however, remained outstanding: the principle of separate corporate personality which was created by the House of Lords in Salomon v A Salomon & Co Ltd (1897). We will refer to this principle as “the Salomon principle”. We will begin with a close reading of the Salomon litigation. The Salomon litigation The history of Aron Salomon Aron Salomon manufactured boots on Whitechapel High Street in London’s East End.
The decision at first instance: Broderip v Salomon
The decision of the Court of Appeal
The decision of the House of Lords: Salomon v A Salomon & Co Ltd
Conclusions on the Salomon litigation
In 1897, in a remarkable piece of judicial intervention in the economic life of the country, it was considered convenient to permit the company to have its own legal personality. 1
1
Saloman v. A. Saloman & Co. Ltd [1897] A.C. 22.
1
This was a development which was described by Prof. Kahn-Freund as being a “calamitous decision”.2
The effect of the Salomon litigation on company law
The central technical-legal question surrounding the modern nature of the company is this: how did the company come to possess the traits of distinct legal personality which it enjoys today? The answer to that question is simple at one level: the decision of the House of Lords in Saloman tells us that companies have such distinct personality. That answer is perfectly correct, so far as it goes. One thing that should strike any reader of that decision, however, is the evident certainty among the members of the House of Lords that they were right. Their
Chapter 2. The Salomon principle
Introduction In the previous chapter we considered how the modern company grew of out of the law on unincorporated associations, how it used ideas long identified with town corporations created by Royal Charter, how it evolved from the joint stock company, and how shareholders in companies were granted limited liability by statute. One key element of the modern company, however, remained outstanding: the principle of separate corporate personality which was created by the House of Lords in Salomon v A Salomon & Co Ltd (1897). We will refer to this principle as “the Salomon principle”. We will begin with a close reading of the Salomon litigation. The Salomon litigation The history of Aron Salomon Aron Salomon manufactured boots on Whitechapel High Street in London’s East End.
The decision at first instance: Broderip v Salomon
The decision of the Court of Appeal
The decision of the House of Lords: Salomon v A Salomon & Co Ltd
Conclusions on the Salomon litigation
In 1897, in a remarkable piece of judicial intervention in the economic life of the country, it was considered convenient to permit the company to have its own legal personality. 1
1
Saloman v. A. Saloman & Co. Ltd [1897] A.C. 22.
1
This was a development which was described by Prof. Kahn-Freund as being a “calamitous decision”.2
The effect of the Salomon litigation on company law
The central technical-legal question surrounding the modern nature of the company is this: how did the company come to possess the traits of distinct legal personality which it enjoys today? The answer to that question is simple at one level: the decision of the House of Lords in Saloman tells us that companies have such distinct personality. That answer is perfectly correct, so far as it goes. One thing that should strike any reader of that decision, however, is the evident certainty among the members of the House of Lords that they were right. Their