Edgington v Fitzmaurice [1885]
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Edgington v Fitzmaurice [1885] 29 Ch D 459 involved a misrepresentation in a prospectus sent by company directors to shareholders, inviting subscriptions for debenture bonds.
The prospectus stated that the funds would be used to alter buildings, purchase horses and vans, and expand into the fish supply business. However, the actual purpose was to pay off company liabilities due to financial difficulties. Mr Edgington, mistakenly believing he would have a first charge on company property, purchased the bonds. He sought to recover money for deceit.
The Court of Appeal, upholding the decision of Denman J at first instance, held that the directors were liable for deceit. Cotton LJ emphasised that the statement of purpose in the prospectus amounted to a fraudulent misrepresentation. Despite Mr Edgington's admission of a mistake regarding charges, he had relied on the misstatement.
Cotton LJ stated that it was not necessary to prove that the misstatement was the sole cause of Mr Edgington's actions; if he acted on the misstatement, even if influenced by another erroneous supposition, the directors would still be liable.
Bowen LJ asserted that the state of a person's mind is a factual matter, and a misrepresentation about the state of someone's mind is a misstatement of fact. He emphasised that a misstatement about the state of a person's mind is material if it was actively present in their mind when making a decision.
Fry LJ highlighted that the inquiry was whether the statement materially affected Mr Edgington's conduct in advancing his money. He underscored that the prospectus was intended to influence the reader's mind.
In summary, the court held that a statement of present intentions could be considered an actionable misrepresentation. It was established that a misrepresentation need not be the sole cause of entering a contract; as long as it is an influence, the party making the misrepresentation may be held liable.
The prospectus stated that the funds would be used to alter buildings, purchase horses and vans, and expand into the fish supply business. However, the actual purpose was to pay off company liabilities due to financial difficulties. Mr Edgington, mistakenly believing he would have a first charge on company property, purchased the bonds. He sought to recover money for deceit.
The Court of Appeal, upholding the decision of Denman J at first instance, held that the directors were liable for deceit. Cotton LJ emphasised that the statement of purpose in the prospectus amounted to a fraudulent misrepresentation. Despite Mr Edgington's admission of a mistake regarding charges, he had relied on the misstatement.
Cotton LJ stated that it was not necessary to prove that the misstatement was the sole cause of Mr Edgington's actions; if he acted on the misstatement, even if influenced by another erroneous supposition, the directors would still be liable.
Bowen LJ asserted that the state of a person's mind is a factual matter, and a misrepresentation about the state of someone's mind is a misstatement of fact. He emphasised that a misstatement about the state of a person's mind is material if it was actively present in their mind when making a decision.
Fry LJ highlighted that the inquiry was whether the statement materially affected Mr Edgington's conduct in advancing his money. He underscored that the prospectus was intended to influence the reader's mind.
In summary, the court held that a statement of present intentions could be considered an actionable misrepresentation. It was established that a misrepresentation need not be the sole cause of entering a contract; as long as it is an influence, the party making the misrepresentation may be held liable.
