Edgington v. Fitzmaurice In the Court of Appeal, March 7, 1885. Reported in Law Reports, 29 Chancery Division, 459

Action against Fitzmaurice et als., directors of the Army and Navy Provision Market (Limited), and against Hunt, the secretary, and Hanley, the manager, asking for the repayment by them of a sum of £1500 advanced by the plaintiff on debentures of the company, on the ground that he was induced to advance the money by the fraudulent misrepresentations of the defendants.

Plaintiff, who was a shareholder in the company, received a prospectus issued by order of the directors, inviting subscription for debenture bonds. This prospectus contained the following statement as to the objects for which the issue of debentures was made:—

“1. To enable the society to complete the present alterations and additions to the buildings, and to purchase their own horses and vans, whereby a large saving will be effected in the cost of transport.

“2. To further develop the arrangements at present existing for the direct supply of cheap fish from the coast, which are still in their infancy.”

Plaintiff took debenture bonds to the amount of £1500; and testified that he relied, as one inducement, on the fact that the company wanted the money for the objects stated in the prospectus.

At the hearing before Denman, J., the plaintiff contended and offered evidence tending to show that the real object of the directors in issuing the debentures was to pay off pressing liabilities of the company, and not to complete the buildings or to purchase horses and vans, or to develop the business of the company.

Davey, Q. C., W. W. Karslake, Q. C., and J. Kaye, for Fitzmaurice.

There was no misrepresentation of any fact, and the directors merely stated their intention as to the money, which of course they might alter. There is every difference between the two: Maddison v. Alderson, 8 App. Cases, 467. Unless it amounts to a contract, a mere statement that you will do something is of no effect: Jordan v. Money, 5 H. L. C. 185; and if it was a contract then it was with the company, and the directors cannot be sued: Ferguson v. Wilson, L. R. 2 Chan. 77.

Sir F. Herschell, in reply. An allegation of intention may be fraudulent: Ex parte Whittaker, L. R. 10 Chan. 446.

[Denman, J., delivered an elaborate opinion, substantially sustaining the plaintiff’s contention. He gave judgment against the directors.]

From this judgment, Fitzmaurice and the four other directors appealed.

Bowen, L. J. [After stating the requisites of an action for deceit, and commenting upon other alleged misrepresentations.] But when we come to the third alleged misstatement I feel that the plaintiff’s case is made out. I mean the statement of the objects for which the money was to be raised. These were stated to be to complete the alterations and additions to the buildings, to purchase horses and vans, and to develop the supply of fish. A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action of deceit. There must be a misstatement of an existing fact; but the state of a man’s mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact. Having applied as careful consideration to the evidence as I could, I have reluctantly come to the conclusion that the true objects of the defendants in raising the money were not those stated in the circular. I will not go through the evidence, but looking only to the cross-examination of the defendants, I am satisfied that the objects for which the loan was wanted were misstated by the defendants, I will not say knowingly, but so recklessly as to be fraudulent in the eye of the law.

Then the question remains: Did this misstatement contribute to induce the plaintiff to advance his money. Mr. Davey’s argument has not convinced me that they did not. He contended that the plaintiff admits that he would not have taken the debentures unless he had thought they would give him a charge on the property, and therefore he was induced to take them by his own mistake, and the misstatement in the circular was not material. But such misstatement was material if it was actively present to his mind when he decided to advance his money. 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. I have felt some difficulty about the pleadings, because in the statement of claim this point is not clearly put forward, and I had some doubt whether this contention as to the third misstatement was not an afterthought. But the balance of my judgment is weighed down by the probability of the case. What is the first question which a man asks when he advances money? It is, what is it wanted for? Therefore I think that the statement is material, and that the plaintiff would be unlike the rest of his race if he was not influenced by the statement of the objects for which the loan was required. The learned judge in the Court below came to the conclusion that the misstatement did influence him, and I think he came to a right conclusion.

Appeal dismissed.