Boris Ignachkov Legal Principles and Key Points
- In the case of Edgington v Fitzmaurice [1885] 29 Ch D 459, the courts came to a ruling on the issue of debentures and whether three professed false statements were made in a prospectus issued by D.
- This company law case involves loans and misrepresentation.
- This case begs the question of whether there’s been an action of deceit.
Facts of the Case
- D issued a prospectus containing the representation made to gain loan subscribers.
- C contends he believed from the statements made that the mortgage on leasehold property would secure these advances. C claims they were misled into believing the company’s property wasn’t impacted by any other mortgages and to take certain debentures leading to his loss.
- C clamed that the statements made by D were false; he acted in honest belief of the representations therefore D is liable.
Issues
- Did D intend that people would act on the representatons made?
- Were these statements in fact false?
- Did D have the knowledge that these representations were false? Under the circumstances, was D careless as to whether the statements made were true or false?
Held by Court of Appeal
- Appeal dismissed – the professed misrepresentation did not influence C.
Cotton LJ
Knowledge of false representation
- Cotton LJ held the representations made in the prospectus could not have led C to the conclusion that he did since the debentures were simply bond. C did not initially protest against the form of the bonds.
- D had reasonable grounds for the representation made. D is not liable simply for not mentining the second mortgage in the prospectus due to financial hardships.
- “I cannot doubt that the real object of the issue of debentures was to meet the pressing liabilities of the company and not to improve the property or develope the business of the company. I cannot but come to the conclusion that however hopeful the directors may have been of the ultimate success of the company, this statement was such as ought not to have been made”.
- Lenders are more likely to loan money to those who know the reason for its request and they are more likely to advance it if they know the funds won’t be used to pay off debts already incurred.
- C relied upon the prospectus’ representation as to the objects of the issue of the debentures which was untrue in fact.
Bowen LJ
Whether alleged false statements were made
- D did not mislead C by claiming the mortgage for £21,500 could be repaid via instalments.
- D was not dishonest about the other mortgage even though the prospectus stated otherwise. D was unaware this statement was untrue.
- The misstatement did not induce C to advance his money. C made a mistake.
- “The real question is, what was the state of the Plaintiff’s mind, and if his mind was disturbed by the misstatement of the Defendants, and such disturbance was in part the cause of what he did, the mere fact of his also making a mistake himself could make no difference. It resolves itself into a mere question of fact”.
