CONTRACT LAW

Contract Law

Contract Law

Introduction

Salomon v Salomon assisted to establish the principle of corporate character that 'forms the cornerstone of company law. This 'cornerstone' has not been eroded, rather, it types the very bases of up to date company law. Salomon v Salomon was and still is a breakthrough case. By confirming the legitimacy of Mr Salomon's business the House of Lords put ahead the notion of distinct corporate personality and restricted liability.

Background

Inextricably connected with this ratio is an acknowledgement of the significance of certainty inside the law, therefore separate corporate personality becomes a solid principle to which the regulation should adhere. Unquestionably the limited liability company has been a major instrument in making possible the industrial and commercial developments which have occurred throughout the world." Essentially this is due to the insistence of Lord Halsbury and his colleagues that such a company has an identity wholly separate from that of its members. The resulting potential for attracting and amassing the contributions of relatively small investors is obvious. The family or one-man company, as in Salomon itself, has achieved immense popularity and respectability, even though its advantages are diminished by the practice of major lenders, such as banks, insisting on personal guarantees Salomon v Salomon is followed in subsequent cases, notably Macaura v Northern Assurance Co. and Lee v Lee's Air agriculture Ltd. These cases highlight the reality of the separate corporate identity and take it a step further in stressing the distinction between a company's identity and that of its shareholders. In effect Salomon's standard as confirmed by Macaura v Northern promise Co. and Lee v Lee's Air Farming Ltd. helps form an image of a corporation as a 'depersonalised conception', an object that is 'cleansed and emptied of its shareholders. Yet the notion of an incorporated business as a separate legal individual causes some adversities, for surely all 'legal individualality is in a sense fiction'. Lord Halsbury's "real thing" is of course often regarded as a misnomer. Incorporated companies are seen as notional constructs, abstractions, existing in minds and on paper.

They are easily created. Questions shortly arise as to the accurate nature of this lawful character, and consequently assesses are taken to mitigate its effects. Although a corporation is, as per Lord Halsbury, to 'be treated like any other person with its rights and liabilities appropriate to itself' this is surely impossible. The idea of a separate legal person has been pushed to its limits, and despite a corporation being capable of some crime - whereby the mental state of a person who is 'the directing mind and will' of a corporation is attached to the corporation itself - it cannot logically be capable of committing personal offences such as rape nor can it be imprisoned. Thus there remain notable differences between corporate personality and independent personality in the human sense of the word as we know it. The difference forms one of the main reasons why exceptions to the separate entity principle ...