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Skinning the Pantomime Horse: Two Early Cases on Limited Liability

Published online by Cambridge University Press:  16 January 2009

Dafydd Jenkins
Dafydd Jenkins
Affiliation:
Reader in Law, University College of Wales, Aberystwyth.
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Extract

The practice of “lifting the veil” from the modern company seems at times to be regarded as a sign that corporate personality is a ficition. This view is hardly logical: if the personality of the company were a ficition, there would be no veil to lift, the liability of the company must be the liability of the members, and limited liability must be an illusion. It is precisely because the legal personality of the company is real that special arrangements must be made for lifting the veil of this personality when it conceals the wrongdoing of a member or director. To use a more florid metaphor, when the powerful hoofs of the pantomime horse are used for improper kicking. Back Legs will be stripped of his protective covering, and made to account for his use of an engine of destruction more powerful than his own boots—on exactly the same principle as if he were made to account for his use of a natural horse's to cause damage. It makes no difference whether he sits on the horse's back or stands inside its skin; and it makes no difference to the man's liability for wrongful use of the horse whether the horse has a legal personality or not. (It may of course make a difference to what the victim does about it, since he may have good reasons for choosing to sue the horse rather than the man.)

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Articles
Information
The Cambridge Law Journal , Volume 34 , Issue 2 , November 1975 , pp. 308 - 321
Copyright
Copyright © Cambridge Law Journal and Contributors 1975

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References

1 (1961) 1 Ch.Cas. 204.

2 It will be convenient to use the familiar name Nottingham, though the case was disposed of in 1676 and Heneage Finch (Lord Keeper from 9 November 1673 and Lord Chancellor from 19 December 1975) became Lord Finch of Daventry on 10 January 1673/4 and Earl of Nottingham only on 12 May 1681; he died on 18 December 1682: Yale, D. E. C., Lord Nottingham's Chancery Cases Vol. I, (1954/1957) 73 SS xxv, xxxiv.Google Scholar

3 (1673) Rep. t. Finch 83.

4 Ed. D. E. C. Yale, 73 SS 55 (Naylor v. Godfrey), 419 (Brown v. Naylor).

5 Williston, Samuel, “The History of the Law of Business Corporations before 1800” in Anglo-American Essays in Legal History (1909), Vol. III, p. 231Google Scholar: (after dealing with Salmon's Case) “In another early case creditors who were members of the indebted company were postponed to the other creditors.” The paper first appeared in (1888) 2 H.L.R.

6 Cooke, C. A., Corporation Trust and Company (Manchester, 1950), p. 78Google Scholar: “Salmon's case reveals an indirect liability which… amounts to more than the actual subscription of a stockholder. In another case creditors of an indebted company who were also members of the company were postponed to the other creditors.”

7 (1668) 1 Lev. 237.

8 Bl. Comm. i. 484.

9 73 ss 56.

10 Ibid.

11 Rep. t. Finch 84.

12 Brown v. Naylor 73 SS 419.

13 73 SS 56.

14 73 SS 419.

15 Gower, L. C. B., Modern Company Law, 3rd ed. (London 1969), p. 26.Google Scholar Gower cites DuBois, A. B., The English Business Company after the Bubble Act (New York, 1938), p. 98Google Scholaret seq., in support of the view that there was perhaps a call-making power in the absence of any specific provision, but DuBois is in fact much more cautious: after discussing many corporations, he sums the position up thus: “The call-making power of each business corporation was thus a factor which must be analyzed carefully before a generalization in regard to a proprietor's financial obligations may be ventured. We have seen how much depended in the eighteenth century upon the particular clauses of the charter or act of incorporation when this aspect of a proprietor's liability was being considered. Great hesitation indeed was shown in finding an implication of a power to make calls” (op. cit. p. 103; at p. 99 DuBois seems to be interpreting Salmon's Case as deciding that the courts would not compel a corporation to make a call for the satisfaction of creditors, but his language is not quite clear). Whether a corporation had implied power to make leviations may depend on the proper interpretation of the word leviation: see below, p. 316. Carr, C. T. interpretation of the word, in Select Charters of Trading Companies (1913) 28 SS xviiiGoogle Scholar n. 1 is similar to Gower's.

16 The Company's concentration of its trade on Hamburg (Hamborough and Hamburgh side-by-side in some Lords Journals entries) had more serious consequences than the generation of a popular name: it meant that the company's officers were likely to be outside the jurisdiction of the English courts.

17 L.J. XII, 198.

18 L.J. XII, 214.

19 LJ. XII, 394 (statement of Thomas Harris, quoted below, p. 314); Historical MSS Commission, 9th Report, Appendix, Part 2, p. 47.

20 1 Ch.Cas. 205.

21 H.M.C., 8th Report, Appendix, Part 1, p. 147.

22 LJ. XII, 348.

23 1 Ch.Cas. 205.

24 Printed case of 7 November 1670: H.M.C., 8th Report, Appendix, Part 1, p. 147.

25 L.J. XII, 379.

26 L.J. XII, 382–383. The “court” is the governing body, not the general meeting of members.

27 L.J. XII, 386–387.

28 See p. 313 above.

29 L.J. XII, 394–395.

30 L.J. XII, 396; all except one of the committee were among the 62 peers present in the House that day.

31 L.J. XII, 403–404.

32 L.J. XII, 409.

33 H.M.C., 8th Report, Appendix, Part 1, p. 147.

34 1 Ch.Cas. 207–208.

34a 1 Ch.Cas. 206–207.

35 Williston, op. cit. p. 230.

36 1 Ch.Cas. 205.

37 1 Ch.Cas. 204–205.

38 When the case of the nine creditors was to be argued by counsel on 17 March 1667/8, it was ordered that “the Patent of Confirmation of the several Charters of the… Hamborough Merchants, granted 12° Caroli Secundi,” and “ the Act of Parliament passed 8 Eliz. for incorporating the Muscovia Company” should be available for the information of the House. The committee which was to consider how to relieve those creditors was given power “to send for such Books, Papers, and Writings, as any way relate to the Leviations heretofore made by the Moscovy Company, in relation to the Satisfaction of Debts due to their Creditors”: L.J. XII, 206, 215. For the “Moscovy Company” case see below, n. 50.

39 I have not succeeded in finding a full printed text of the charter or charters. The substance is given in Prothero, G. W., Select Statutes and other Constitutional Documents illustrative of the reigns of Elizabeth and James I, 4th ed. (Oxford, 1913), pp. 461–464Google Scholar, and in Calendar of Patent Rolls (1563–66), p. 178, no 922 and much of it in Carr, op. cit., 28 SS 84–90, 97–98.

40 Printed from B.M.Add.MS. 18913 in Lingelbach, W. E., The Merchant Adventurers of England (Philadelphia, 1902), pp. 1–197.Google Scholar

41 Lingelbach, op. cit., pp. 178–181; in 1617 “It was agreed, That for the discharging of the great debtes of the ffellowshipp” the rates of contribution should be raised: Ibid. p. 188.

42 Cooke, op. cit., p. 77. His use of the word stock suggests a doubt whether he had realised that stock in a joint-stock company was stock-in-trade, not stocks-and-shares. There is nothing in the Hamborough charter to indicate that members were required to make capital contributions: and an entrance fee was payable by a member “at the makinge ffree either of his sonne or servant” only if the member had not “borne Charges to the house within four yeares before to the valew of eight and fourtie shillinges sterlinge”: Lingelbach, op. cit., p. 181.

43 (1700) 2 Vern. 396; the note does not appear in the report in Prec. Ch. 129.

44 Williston, op. cit., p. 230.

45 Cooke, op. cil., p. 77.

46 L.J. XII, 556.

47 H.M.C., 9th Rep. Appendix, Part 2, p. 29. On 29 March 1673 it was reported that “nobody appeared for the said Company… Mr. Harris (who was Solicitor for the said Company at their Hearing at the Bar of this House) alledging now ' That he is discharged by them, and not at all employed in their Service'”; the Lords' response was an order that “this House will take up the Consideration of the great Oppression of the poor Creditors of the said Hambrough [sic] Company by the said Company, and their high Contempt of this Court and of the Courts below” on a day which seems never to have dawned: L.J. XII, 583, and see n. 49 below.

48 L.J. XII, 563.

49 The last entry in the Lords Journal is that in Vol. XII, p. 630, for 7 February 1673–4, when it was resolved that the petition be considered on 16 February; there is no entry for the latter date. For the reorganisation proposals see H.M.C., 9th Report, Appendix, Part 2, no. 186, p. 47.

50 Gower, op. cit., p. 26. Subrogation would be an appropriate enough word for part of the order in the Muscovy Company case: L.J. III, 866 (19 June 1628); but the Hamborough Company's case “does not fully quadrate with that”: H.M.C., loc. cit., n. 49.

51 1 Ch.Cas. 207. This printed report is the authority cited by Gower; the slightly different wording in L.J. XII, 409 makes the point quite clear: “every Person of the said Company upon whom such a Leviation shall be made, shall be liable in the natural Capacity to pay.”

52 L.J. XII, 409. From the order as there printed, “such a Leviation is to be put into Writing, and signed with the Hand of the Governor, Deputy Governor, and Assistants, of the said Company for the Time being, or [so many of them as by the Constitution of the said Charters do make a Quorum, and filed in the Register's Office of the Court of Chancery; and if the said Governor, Deputy Governor, and Four and Twenty Assistants, or] so many of them as by the Constitution of the said Charters do make a Quorum, shall not make and return such Leviation as aforesaid, the Lord Chancellor or Lord Keeper may issue Process of Contempt,” the words here put between square brackets have dropped out in 1 Ch.Cas. 207, in the original as well as the English Reports reprint.

53 Cooke op. cit., p. 77.

54 (1852) 18 Q.B. 2, 35–36.

55 (1740) 2 Atk. 56: the words quoted make up the whole of the report on this point. For the York Buildings Company see Carr, op. cit., 28 SS cxxvi-cxxvii, cxxxi, 193–196. Williston (op. cit.. p. 231) cites a case of 1826 from South Carolina in which Salmon v. Hamborough Company was “followed to its fullest extent,” but I have not been able to see the periodicals in which the case was reported.