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Determination of Enemy Character of Corporations

Published online by Cambridge University Press:  04 May 2017

Ralph A. Nohem
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Extract

Much controversy has raged for a long period of time over the precise nature of what Wormser refers to as the “anatomy” of a corporation. Wormser himself defines a corporation as a “group of one or more persons authorized by sovereign authority to act as a unit and a personality in the eye of the law.” The definition indicates, on the one hand, that the act of incorporation creates a new person or entity, on the other that this new entity is in fact composite, made up of one or more pre-existing entities. The question arises, at what times will the court regard the corporate entity, and at what times will it look to the real persons who compose it ? A key to the solution of the problem is offered by Lord Mansfield. “A fiction of law shall never be contradicted so as to defeat the end for which it was invented, but for every other purpose it may be contradicted.” By the separate entity theory is meant that a corporation is to be regarded as an entity separate and apart from its corporators and that it is to be treated like any other independent person. That this is the theory of corporations generally accepted by the courts need hardly be proved. It will only be noted that the ruling English case on the subject is that of Salomon and Co. v. Salomon. In his opinion in that case Lord Halsbury said: “Once the company is legally incorporated it must be treated like any other independent person.”

Type
Research Article
Information
American Journal of International Law , Volume 24 , Issue 2 , April 1930 , pp. 310 - 336
Copyright
Copyright © American Society of International Law 1930

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References

1 Wormser, , Maurice, I., Disregard of the Corporate Fiction and allied Corporate Problems, New York, 1927, p. 7.Google Scholar

2 On this point see 10 Minnesota Law Review, 598.

3 Mostyn v. Fabrigas, (1794) Cowper, 161,177. In Morris v. Pugh, (1790) 3 Burrow, 1241, 1243, Lord Mansfield also says: “ But fictions of law hold only in respect of the ends and purposes for which they were invented; when they are urged to an intent and purpose not within the reason and policy of the fiction, the other party may show the truth.” In Johnson v. Smith, (1790) 2 Burrow, 950, 962, he says: “ But the court would not endure that a mere form, or fiction of law, introduced for the sake of justice, should work a wrong, contrary to the real truth and substance of the thing.” See also Wormser, op. cit., p. 10.

4 (1897) A. C. 22; 66 L. J. Ch. Div. 35.

5 (1902) A. C. 484.

6 A gooddiscussion of these proclamations is to be found in Central India Mining Co. t. Soctété Coloniale Arwersoise, (1920) 1 K. B. 753.

7 The proclamation is to be found in Copies of Proclamations, Orders in Council and Documents Relating to the European War, Compiled by the Department of the Secretary of State of Canada, Ottawa, 1915, p. 88.

8 “ For the purposes of this Act a person shall be deemed to have traded with the enemy if he haa entered into any transaction or done any act which was, at the time of transaction or act, prohibited by or under any proclamation issued by His Majesty dealing with trading with the enemy for the time being in force, or which at common law or by statue constitutes an offense of trading with the enemy: “Provided that any transaction or act permitted by or under any such proclamation shall not be deemed trading with the enemy.” 4 & 5 George V, Ch. 87.

9 “ The word ‘ only’ is emphatic and exclusive.” Société Beige des Mines d’Aljustrel v. Anglo-Belgian Agency, (1915) 2 Ch. 409, 420.

10 (1915) 84 L. J. K. B. 586.

11 Copies of Proclamations, Orders in Council and Documents Relating to the European War, Second Supplement, p. 734.

12 “ The framers of the proclamation seem not to have thought out the bearing of this on incorporated companies. These are not incorporated in a particular place, but under the laws of a particular country; and if only part of a country is occupied by the enemy, it was argued that there was no reason to treat a company as incorporated in that part, or in the part free from enemy occupation. It was incorporated under the laws of the whole country, part of which was not occupied by the enemy.” Central India Mining Co. v. Société Coloniale Arwersoise, (1920) 1 K. B. 753, 769

13 Société Anonyme Beige des Mines d’Aljustrel v. Anglo-Belgian Agency,(1915) 2 Ch. 409.

14 “ It is, of course, not disputed that the city of Antwerp is in hostile occupation. The plaintiff company must, therefore, now, I think, for the purposes of the September Proclamation, be treated as being incorporated in an enemy country, and as being an enemy.” Younger, J., in Société Anonyme Beige des Mines d’Aljustrel v. Anglo-Belgian Agency, (1915) 2 Ch. 409, 415.

15 “ The plaintiff is incorporated not in Antwerp but in Belgium.” Lord Cozens-Hardy,, M. R., in Société Anonyme Beige des Mines d’Aljustrel v. Anglo-Belgian Agency, (1915) 2 Ch. 409, 422.Google Scholar

16 “ It was no doubt in consequence of this decision that the Proclamation of September 14, 1915, further defining ‘ enemy’ in the Trading with the Enemy Proclamations was made.” Bankes,, L. J., in Central India Mining Co. v. Société Coloniale Anversoise, (1920) 1 K. B. 763, 765.Google Scholar

17 Copies of Proclamations, Orders in Council and Documents Relating to the European War, Second Supplement, p. 734. See also (1915) 2 Ch. 430, note 1.

18 “ An odd retrospective provision,” said Scrutton, L. J., in Central India Mining Co. v. SocUtt Coloniale Arwersoise, (1920) 1 K. B. 753, 770.

19 “ It must be noticed that the effect of this alteration is to get rid of one of the distinctions which was made in the definitive clause of the Proclamation of September, 1914 between an individual and an incorporated body. Both are now tainted with enemy character if they carry on business in an enemy country.” Central India Mining Co. v. Société Coloniale Anversoise, (1920) 1 K. B. 753, 765.

20 (1920) 1 K. B. 753.

21 In the Court of Appeal, (1915) 1K. B. 893. In the House of Lords, (1916) 2 A. C. 307.

22 On this point see Garner, , International Law and the World War, Vol. I, p. 220.Google Scholar

23 This seems always to have been the law in both England and the United States. The earliest case generally cited is Wells v. Williams, (1697) 1 Salkeld's Reports, 46. “ If an alien enemy comes hither sub salvo conductu, he may maintain an action; if an alien amy comes hither in time of peace, per licentiam domini Regis, as the French Protestants did, and lives here sub protectione, and a war afterwards begins between the two nations, he may maintain an action; for suing is but a consequential right of protection: and therefore an alien enemy, that is here in peace under protection, may sue a bond; aliter of one commorant in his own country.”

A good statemient of the law in a more recent case is that of Bankes, L. J., in Central India Mining Co. v. Société Coloniale Anversoise, (1920) 1 K. B. 753, 763. “ The fact that mere residence in an enemy country, unless involuntary, is of itself sufficient to constitute an individual an enemy is conclusive to show that what this branch of the law is considering is not the loyalty or disloyalty of the individual, or his capacity to do actual harm to this country, or to be of real advantage to the enemy, but the question whether his position is such that either he, or the actual enemy, has or may have the opportunity of using his position to the advantage of that enemy, or to the detriment of this country.” Other cases in point are The Venus, 8 Cranch, 253; Society v. Wheeler, 2 Gallison, 104; In re Gregg's Estjate, 109 A. 777; Kahn v. Garvan, 263 F. 909; Torotriello v. Leghorn, 103 A. 393; Juragua Iron Co. v. U. S., 212 U. S. 297.

24 “ He is totally ex lex.” (1801) 1 Ch. Rob. 196, 201.

25 The term “ trade” is to be broadly interpreted. That which is actually prohibited is all dealings of all kinds, commercial and otherwise. This is amply justified by court decisions. SirEvans, Samuelsaid in The Panariellos, (1915) 1 Lloyd’s Prize Cases, 364, 381;Google Scholar 138 L. T. Journal, 484; 59 S. J. 399; 31 L. T. R. 326: “ First, when war breaks out between states, all commercial intercourse between citizens of the belligerents ipso facto becomes illegal, except in so far as it may be expressly allowed or licensed by the head of the state. Where the intercourse is of a commercial nature, it is usually denominated ‘ trading with the enemy.’ This proposition is true also, I think, in all essentials with regard to intercourse which cannot fitly be described as commercial.” Sir William Scott said in The Cosmopolite, (1804) 4 Ch. Rob. 8, 10: “ It is perfectly well known, that by war, all communication between the subjects of the belligerent countries must be suspended, and that no intercourse can legally be carried on between the subjects of the hostile states, but by special license of their respective governments.” See also The Hoop, (1801) 1 Ch. Bob. 196; The Julia, 8 Cranch, 181; Fritz Schulz, Jr. Co. v. Raimes & Co., 166 N. Y. S. 567.

26 It is everywhere recognized that trade with the enemy can legally be carried on under the license of the sovereign. The reason for this is explained by Sir William Scott in The Hoop, (1801) 1 Ch. Rob. 196, 199: “ By the law and constitution of this country, the sovereign alone has the power of declaring war and peace. He alone therefore who has the power of entirely removing the state of war, has the power of removing it in part, by permitting, where he sees proper, that commercial intercourse, which is a partial suspension of the war.”

27 It is everywhere recognized that the reason for prohibiting intercourse with the enemy is to prevent giving aid to the enemy and thus enable him to prolong the war. Lord Atkinson said in Ertel Bieber & Co. v. Bio Tinto Co., (1918) A. C. 260, 277: “the illegality of any transaction as amounting to trading with the enemy does not at all depend upon whether it is profitable, either to the British citizen or to the enemy subject who engages in it, or the contrary. Trading with the subject of an enemy state, or with a person resident in that state, is assumed to be beneficial to the enemy state. It helps the enemy's trade and commerce, and so far defeats one of the objects of this country in going to war, which is to cripple that commerce, in order to force the enemy to come to peace.” See also Central India Mining Co. v. Sociitt Coloniale Amersoise, (1920) 1 K. B. 753; Gebruder Van Uden v. Burrell, (1916) S. L. R. 400; The Julia, 8 Cranch, 181; Esposito v. Bowden, (1858) 7 E. & B. 763; Hyde, International Law Chiefly as Interpreted and Applied by the United States, Vol. II, 606.

28 Fritz Schulz, Jr. Co. v. Raimes & Co., 166 N. Y. S. 567; The Hoop, (1901) 1 Ch. Rob. 186; Gebruder Van Uden v. Burrell, (1916) 53 S. L. R. 400; The Julia, 8 Cranch, 181.

29 “ The reason for this is that if the alien enemy through the action should recover property it might add to the resources of the power of which he is a subject, then at war with this country, in whose court he seeks redress.” Hirlinger v. Zander, (1921) 11 O. A. R. 207. See also Society v. Wheeler, 2 Gallison, 104; M'Connell v. Hector, 3 Bos. & P. 112.

30 An edrly case on this point is Ex parte Bousmaker, (1809) 13 Vesey, 71. In that case it was decided that the right to recover dividends was suspended for the period of the war, and not entirely abrogated. The Lord Chancellor said: “ If this had been a debt arising from a contract with an alien enemy, it could not possibly stand; for the contract would be void. But, if the two nations were at peace at the date of the contract, from the time of war taking place the creditor could not sue: but, the contract being originally good, upon the return of peace the right would survive. It would be contrary to justice, therefore, to confiscate this dividend. Though the right to recover is suspended, that is no reason why the fund should be divided among the other creditors.”

Nowhere is the point better recognized than in the Daimler case itself. Daimler v. Continental Tyre & Rubber Co., (1916) 2 A. C. 307. Speaking of the corporators, the Earl of Halsbury said: “ They can neither meet here, nor can they authorize any agent to meet on any company business. They can neither trade with us nor can any British subject trade with them. Nor can they comply with the provisions for the government of the company whicji they are bound by their incorporated character to observe.” Lord Shaw said: “ Since the outbreak of war it is not, according to my opinion, competent for enemy directors or shareholders to have anything to do with the management of this company's affairs in England.” Even Lord Parker himself said: ‘ ‘ When the action was instituted all the directors of the plaintiff company were Germans resident in Germany. In other words, they were the King's enemies, and as such incapable of exercising any of the powers vested in them as directors of a company incorporated in the United Kingdom.” Lord Parmoor said: “ The effect of the outbreak of war is to suspend, as from that date and during the war, all rights of the enemy directors or corporators to take any part in the management and direction or control of a British company carrying on business in this country.”

31 (1916) 113 L. T. R. 523.

32 Lord Shaw said in Daimler v. Continental Tyre & Rubber Co., (1916) 2 A. C. 307, 330: “ As to shareholders and directors who are not alien enemies, they stand pendente hello legally bereft of all their coadjutors who are. And, if the company be a company registered in Great Britain, they must face the situation thus created by adopting the courses suitable either under the Companies Acts or the recent legislation. In this way, while no payments of assets, dividends or profits can be made to alien enemy shareholders, yet the property and business of the company may be conserved. There may be loss consequent on commercial dislocation, but neither loss nor forfeiture is imposed by the law.”

33 Lehman,, J., said in Fritz Schulz Jr. Co. v. Raimes & Co., (1917) 166 N. Y. S. 567, 573: “Google Scholar So long as a corporation created by any state still has legal existence, and officers or agents with authority to do business or to bring actions, it cannot be deprived of access to the courts for the protection of its legal rights.”

34 Lord Shaw in Daimler v. Continental Tyre & Rubber Co., (1916) 2 A. C. 307, 330, said: “ All British trading by the company is still permitted if there are British shareholders who can carry it on.”

35 See also Fritz Schulz, Jr. Co. v. Raimes & Co., (1917) 166 N. Y. S. 567. Lehman, J., at p. 573 said: “ It may be that, where a corporation is composed entirely of alien enemies residing in an enemy country, a situation will arise requiring the interposition of a receiver or conservator to take charge of the corporate affairs, because none of the members can legally deal with the corporation or actually manage its affairs.”

36 (1917) 1 K. B. 48

37 (1921) 2 Ch. 331.

38 84 L. J. K. B. 686.

39 39 (1921) 7 Lloyd's Prize Cases, 54, 62; 87 L. J. P. 64; 118 L. T. 316; 14 Asp. M. C. 204; 34 T. L. R. 145; 3 Brit. & Col. Prize Cases, 80; (1918) P. 19.

40 (1916) L. J. (P.) 241.

41 (1915) 84 L. J. (P.) 35.

42 (1915) P. 26; 84 L. J. (P.) 65; 138 L. T. Journal, 147; 59 S. J, 206; 31 T. L. R. I l l ; 1 Lloyd's Prize Cases, 191.

43 (1917) 2 Lloyd’s Prize Cases, 291; 84 L. J. (P.) 150; 112 L. T. 782; 59 S. J. 511; 1 Trehero, 275; 31 T. L. R. 411.

44 Op. tit.

45 Op. tit.

46 On the authority of the Roumanian, see Hogg, “ Companies with Enemy Shareholders,” 31 Law Quarterly Review, 170,172.

47 Op. cit.

48 (1916) P. 291; 86 L. J. (P.) 1; 13 Asp. M. C. 516; 115 L. T. 634; 2 Brit. & Col. Prize Cases, 272; 5 Lloyd’s Prize Cases, 198.

49 In the Prize Court: (1918) P. 19; 87 L. J. (P.) 64; 118 L. T. 316; 14 Asp. M. C. 204; 34 T. L. R. 145; 3 Brit. & Col. Prize Cases, 80; 7 Lloyd's Prize Cases, 54. In the Privy Council: (1919) A. C. 993; 88 L. J. (P.) 174; 14 Asp. M. C. 461; 121 L. T. 463; 35 L. T. R. 726; 3 Brit. & Col. Prize Cases, 379; 7 Lloyd’s Prize Cases, 68.

50 Sir Samuel Evans quotes this from Sir William Scott in the Fortuna, (1811)1 Dodson,81.

51 In the Prize Court: (1922) 8 Lloyd's Prize Cases, 74. In the House of Lords: (1922) 8 Lloyd’s Prize Cases, 111.

52 For early American cases on the subject see 1 Minnesota Law Review, 89.

53 40 United States Statutes at Large, Part I, p. 411.

54 (1925) 266 TJ. S. 457, 472.

55 (1928) 48 Sup. a 470.

56 (1917) 166 N. Y. S. 567.

57 (1917) 166 N. Y. S. 567, 573.

58 (1925) 266 U. S. 457.

59 (1925) 267 U. S. 42.

60 (1928) 48 Sup. Ct. 470; 277 U. S. 138.

61 283 F. 746.

62 33 Opinions of Attorneys General, 469, 471.