SALOMON V SALOMON & CO LTD

Salomon v Salomon & Co Ltd

Salomon v Salomon & Co Ltd

Introduction

Salomon v Salomon & Co Ltd [1897] AC 22 is an interesting case of corporate law. The basis for the case of Salomon v Salomon & Co Ltd [1897] is very simple- an organization is an independent legal unit and therefore a juristic “individual” in terms of law. The case has got very simple things, however it is still critical case and has got several layers. In Victorian England, there was a Jewish merchant whose name was Aaron Salomon; he used to deal in leather. Aaron Salomon established an organization with the seven shareholders; these shareholders included his kids and his wife. He loaned the organization money and then he borrowed some amount of money that made him captured in a great trouble. He loaned as a tenable creditor. The law's question was that who must be paid firstly, those who were unsecured creditors (such as utility bills and employees) or Salmon as a secured creditor. The Court of Appeal of UK was anti-semetic, and court considered Salmon and his established company as fraud. However, it was stated by House of Lords court that the company was well-established, the company was not fraud, and therefore Mr. Salomon was a different individual from his organization, his stakeholders, his rights privileges as secured creditor, and his directorship. This principle has been used in various cases. This is a very interesting case for the newly entered law school students (Cassidy, 2006, p.60).

Facts of the Case

Aron Salomon was doing well in his business as merchant, he was dealing in leaher. For several years he ran his leather business as an individual proprietor. After the year 1892, his sons stated taking part in his business. Then, salmon decided to integrate his business like Limited Liability Company, with the name Salomon & Co. Ltd. In those times, it was required or was obligatory by the law that for a new business, it must have at least seven shareholders. The main share holders were included Mr. Salomon, his sons, daughters, and his wife. He made two of his sons director for the organization, whereas Mr. Salomon was the managing director of the organization. From the 20,007 company's shares, Mr. Salomon possessed 20,001, the remaining shareholders individually got the rest amount. Mr. Salomon sold his leather business to the new organization for about £39,000, from this amount; he was debtor for £10,000. Therefore, he was the main creditor as well as the main shareholder of the organization. When the organization went into phase of liquidation, it was argued by the liquidator that the debentures that Mr. Salomon used as a debt's security were not valid, on the basis of fraud. The argument was accepted by Vaughan Williams J., who was judge. The judge ruled that as Mr. Salomon was established the organization separately in order to transfer his business, the organization was in actual his agent and he as managing director ...