Jones v. Lipman
Lipman agreed to sell a property to Jones, changed his mind, and transferred the property to a company he had acquired so that he could not be forced to complete the sale. The court ordered specific performance against both Lipman and the company, calling the company a device, a sham and a mask. The case shows that a company used to evade an existing legal obligation will be ignored, which is one of the grounds for lifting the corporate veil.
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Facts
Lipman agreed to sell a property to Jones. He then changed his mind.
To avoid being forced to complete the sale, Lipman acquired a company and transferred the property to it.
Jones sued Lipman for specific performance of the agreement to sell.
Issues
Whether Lipman could escape his contractual duty to sell the property to Jones by transferring it to a company he had acquired.
Whether the court should ignore the separate identity of the company and order specific performance against both Lipman and the company.
Arguments
Lipman's defence: when Jones sued for specific performance, Lipman said that he no longer owned the property, because it now belonged to the company.
It records only that Jones sued for specific performance.
Judgment
The court ordered specific performance against both Lipman and the company.
It described the company as a device and a sham, a mask which Lipman held before his face to avoid recognition by the eye of equity.
Legal principles
A company used to evade an existing legal obligation will be ignored. The court will lift the corporate veil and treat the company and the person behind it as one, so that the obligation can be enforced against both.
Importance
The case is a standard example of lifting the corporate veil where a company is used to evade an existing legal obligation. The lecture tells students to learn Gilford and Jones v. Lipman as a pair.
It also contains a well-known description of a sham company: "a device and a sham, a mask which he holds before his face to avoid recognition by the eye of equity". Students can quote this phrase in exam answers on lifting the veil.
Easy explanation
Lipman promised to sell his property to Jones. Later he did not want to sell. So he took over a company and put the property in the company's name. When Jones went to court, Lipman said, "I don't own the property any more, the company does."
The court did not accept this trick. It said the company was only a mask that Lipman was hiding behind. So the court ordered both Lipman and the company to complete the sale to Jones.
The lesson is simple: you cannot use a company to escape a promise you have already made.
Practical example
Hypothetical: Prince signs an agreement to sell his shop to Neha. Before the sale is completed, he gets a better offer, so he acquires a company and transfers the shop to it. When Neha sues for specific performance, Prince says he no longer owns the shop. Applying the principle in Jones v. Lipman, the court would treat the company as a sham set up to evade Prince's existing obligation. It would order both Prince and the company to complete the sale to Neha.
Key points
- Lipman agreed to sell property to Jones, changed his mind, and transferred it to a company he acquired.
- Jones sued for specific performance; Lipman said he no longer owned the property.
- The court ordered specific performance against both Lipman and the company.
- The company was called a device, a sham and a mask held before his face to avoid recognition by the eye of equity.
- Principle: a company used to evade an existing legal obligation will be ignored, so the veil is lifted.
- Learn it as a pair with Gilford.
Video explanation
Case explained
Jones v. Lipman
Practise Company Law (Corporate Law) MCQs
24 questions. Every answer comes with an explanation and the legal provision behind it.
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