Salomon vs Salomon Essay

Words: 1530
Pages: 7

The main issue relates to corporate entity or personality, a company being a legal entity independent of its members, can enter into contracts and own property in its own right, can sue and be sued and also taxed in its own name. The principle of corporate entity was established in the case of Salomon v A. Salomon , now referred to as the ‘Salomon’ principle.

The facts of this case were that the owner of a business sold it to a company he had formed, in return for fully paid-up shares to himself and members of his family, and secured debentures. When the company went into liquidation, the owner, because of the ownership of the debentures, won his claim to be paid off in priority to other creditors, as the secured debt ranked at a
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It was held that that company was a sham used to try to evade the contractual obligations.

In Jones v Lipman in which a defendant decided not to sell some land to the claimants, but to a company in which he owned most of the shares, and it was held that that company was a façade, and specific performance of that contract was awarded in favour of the claimants. In Woolfson v Strathclyde DC the House of Lords reiterated that the corporate veil could only be lifted if the company was a ‘façade’, therefore compensation was not payable.

Also, in Creasey v Breachwood Motors Limited a company tried to evade a judgment for damages for wrongful dismissal by forming a new company, to which it transferred all its assets and liabilities but for that judgment debt. It was held that the new company was also bound by the judgement as the creation of it was purely an evasion attempt, though the principle was lifting the veil for the purpose of achieving justice, which is contrary to the principle of a façade being necessary.

However, the decision in Creasey was overruled in Ord v Belhaven Pubs Limited, in which the claimants in an action against a defendant company tried to substitute the defendant company in their claim for any other company in the group, but the