Erlanger v New Sombrero Phosphate Co [1878]

Erlanger v New Sombrero Phosphate Co [1878]

Erlanger v New Sombrero Phosphate Co [1878] 3 App Cas 1218 is pivotal case concerning English contract law, restitution, and company law. The case revolves around rescission for misrepresentation and the potential bar due to the impossibility of counter-restitution. It also underscores the fiduciary relationship of promoters to subscribers in a company.

Frédéric Émile d'Erlanger, a Parisian banker, acquired the lease of Sombrero Island for £55,000, subsequently forming the New Sombrero Phosphate Co. Soon after incorporation, he sold the island to the company for £110,000 through a nominee. Key figures, including the Lord Mayor of London, had connections to Erlanger's syndicate, raising concerns about the fairness of the transaction. Public investors, attracted by Erlanger's promotion and advertising, later discovered the significant price difference.

The central legal issue involved the public investors' discovery that Erlanger had sold the island to the company at double the price he paid. The company sought rescission based on non-disclosure, aiming to return the mine and claim either an account of profits or the price difference.

The House of Lords unanimously established that promoters of a company owe a fiduciary duty to investors, necessitating a duty of disclosure. A majority held that rescission was permissible and not barred by laches. Lord Blackburn emphasised the importance of a restitutio in integrum as a condition for rescission, suggesting that compensation might suffice. The fiduciary relationship of promoters to the company obligated them to consider the company's interests during its formation.

This case established key legal principles, including the fiduciary duty of promoters to a company and the duty of disclosure. It clarified that rescission is not barred by laches if counter-restitution is not impossible. The burden of proof lies with fiduciary agents, who must demonstrate that purchasers were adequately protected or had sufficient reasons to believe in such protection.

This case remains influential in discussions of company law, particularly regarding the fiduciary responsibilities of those involved in forming and promoting companies. It serves as a reference point for understanding the delicate balance between the interests of promoters and those of the company, highlighting the need for transparency and fairness in such transactions.
Back to blog
UOL Case Bank

UOL Case Bank

Upon joining, you become a valuable UOL student and gain instant access to over 2,100 case summaries. UOL Case Bank is constantly expanding. Speed up your revision with us now.

Subscribe Now

Where are our students from?

Yale University
Council of Europe
Baker Mckenzie 
University of Chicago
Columbia University
New York University
University of Michigan 
INSEAD
University College London (UCL)
London School of Economics (LSE)
King’s College London (KCL)
University of London
University of Manchester
University of Zurich
University of York
Brandeis University
University of Exeter
University of Sheffield
Boston University
University of Washington
University of Leeds
University of Law
Royal Holloway, University of London 
Birkbeck, University of London
SOAS, University of London
University of Kent
University of Hull
Queen’s University Belfast
Toronto Metropolitan University
Hong Kong University of Science and Technology
University of Buckingham

  • Criminal Practice

    Diagrams and Charts

    Our carefully designed diagrams and charts will guide you through complex legal issues.

  • Criminal Law

    Clear and Succinct Definitions

    Key concepts are concisely defined to help you understand legal topics quickly.

  • Property Law

    Statutory Provisions

    Statutory provisions are provided side by side with legal concepts to help you swiftly locate the relevant legislation.

  • Public Law

    Case Summaries

    We have summarised important cases for you so that you don't need to read long and boring cases.

  • Evidence

    Rules and Exceptions

    Rules and exceptions are clearly listed so that you know when a rule applies and when it doesn't.

  • Company Law

    Terminology

    Legal terms and key concepts are explained at the beginning of each chapter to help you learn efficiently.

  • Case Law

    Case law is provided side by side with legal concepts so that you know how legal principles and precedents were established.

  • Law Exam Guide

    Law Essay Guide

    You will learn essential law exam skills and essay writing techniques that are not taught in class.

  • Law Exam Guide

    Problem Question Guide

    We will show you how to answer problem questions step by step to achieve first-class results.

  • Conflict of Laws

    Structured Explanations

    Complex legal concepts are broken down into concise and digestible bullet point explanations.

  • Legal System and Method

    Legal Research

    You will learn legal research techniques with our study guide and become a proficient legal researcher.

  • Jurisprudence and Legal Theory

    Exam-focused

    All essential concepts, principles, and case law are included so that you can answer exam questions quickly.