Edgington v Fitzmaurice (1885) 24 Ch D 459
Contract law – False representation - Debentures
The directors of a business provided a prospectus which contained a range of debentures, in order to invite subscriptions. The directors stated that the debentures were in order to enable the business to complete alterations to the buildings of the company, to develop trade and to purchase vans and horses. However, it was later discovered that the real reason for issuing the debentures was for the directors to pay off other liabilities. The plaintiff forwarded money for the debentures that had been offered having relied upon the statements contained in the prospectus. However, he also was mistaken as he thought the debenture was to provide him a charge on the company’s property. The company later became insolvent and the plaintiff claimed for the money he believed he was owed.
The issue for the court was whether the statement that was made by the directors of the company would qualify as a false misrepresentation. If this was established by the court, it also had to be considered whether the reliance of the plaintiff on the statement would enable him to claim for the money, despite the fact that the plaintiff had also erroneously relied on the prospectus.
The court held that the misstatement of the reasoning behind issuing the debentures was a material misstatement of fact and that the plaintiff had been influenced by this statement. On this basis, the directors were found liable for an action of deceit, despite the fact that the plaintiff had also been influenced by his own mistake regarding the debentures.