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Solomon Vs. Solomon & Co Ltd Facts of the Case Solomon carrying on the business of leather and shoe manufacturer as a sole proprietor sold the business to the newly created company Solomon & Co Ltd and received the consideration of 38,782 pounds in the form of 20,000 pounds as Shares and 10,000 pounds as Secured First Debentures and the balance in cash. Along with him, his wife, daughter and four sons become shareholders of Solomon & Co Ltd by taking a share of 1 pound. After a year, the company went into liquidation as its assets were 6,000 pounds and liabilities were 17,000 pounds. During the process of winding up, Solomon was settled on priority in full as he is the only person holding Secured Debentures. Contention: The case was filed by other creditors of the company (Solomon & Co Ltd) contending that Solomon was holding majority of the shares in the company and the company was functioning as per the desire of Solomon. Hence, Solomon should repay the unsecured creditors of the company out of his personal assets. Decision: The court held that the company being a Separate Legal Entity cannot be a trustee or agent of Solomon and hence the properties of Solomon cannot be used for the dues of the company. Possible Practical Questions: 1) Assets of Company to be used for liabilities of Shareholder Not Possible 2) All the 7 shareholders of the company have died in an accident. Will the company exists? Yes. (Company is a separate legal entity and having perpetual succession) 3) Will Private Limited Company responsible for the liabilities of a major shareholder Not Possible
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Daimler Co Ltd Vs. Continental Tyre & Rubber Co Ltd. Facts of the case Daimler Co Ltd (German Company) engaged in Tyre Industry created a New Company - Continental Tyre & Rubber Co Ltd in England for manufacturing of tyres from England and supply to Daimler Co Ltd. All the Shareholders, except one and Directors of Continental Tyre & Rubber Co Ltd (English Company) were German residents. During the time of First World War, the English Company asked for its dues from the German Company towards the supply of tyres. The German Company did not make the payment. Contention: The contention of the German Company for not making the payment was that all the shareholders except one are Germans and making the payment will amount to trading with an enemy. The English Company contended that as per Solomon Vs. Solomon, the company being a separate legal entity is separate from its owners. It cannot have the characters of its owners. Decision: The court held that though the company is a separate legal entity, the de facto control of the company is to be examined on deciding the legal entity. Hence, the Corporate veil segregating the owner and the company has to be lifted and based on control over the company, the owner and company is to be considered as one. The English Company (Continental Tyre & Rubber Co Ltd) was barred from getting its dues from German Company (Daimler Co Ltd) being an enemy. Possible Practical Questions: 1) Can trading with a company fully controlled by shareholders who are insolvent possible? No. (Contract with Insolvent, Insane person, Minor, Alien enemy not possible) Ramanujar Institutional Learning
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Royal British Bank Vs. Turquand Facts of the Case The Articles of Association of the Company empowered the Directors of the company to issue bond and borrow the required money as approved by the shareholders in a general meeting. The directors borrowed from Turquand under a Bond but failed to get the approval for the Bond amount from the shareholders. Contention: The contention of the case was that since the directors have not received the approval of the shareholders, it is an ultra-vires transaction and the company is not liable for the debt due amount under Bond to Turquand. The contention of Turquand was that the Directors of the Company are authorised by the Articles of Association to borrow under Bond. Getting approval of the shareholders is within the management affairs of the company, which he cannot insist for. Decision: It was held that the company is liable for the debt amount due under the Bond to Turquand since he believed on the authority being provided by the Articles of Association to the directors. Besides, it is reasonable for Turquand to believe that the company will pass appropriate resolution in the general meeting of the company and get their ratification for the borrowings under the Bond. Possible Practical Question: 1) Can the Authority given under Articles of Association to Directors to raise the required finance from any source as approved by Shareholders be used for giving Unsecured loan to the company by any Financing company Yes
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