Edgington v Fitzmaurice [1885]

Court: Court of Appeal

Facts: Directors of a company released a fraudulent prospectus for a bond issue, stating that the proceeds would be used for building alterations, purchasing horses and vans, and expanding into the fish supply business. In reality, the funds were intended to pay off company liabilities due to financial difficulties. Mr. Edgington, under the mistaken belief that he would have a first charge on company property, purchased the bonds and sought to recover damages for deceit when the company went into liquidation.

Issue: Whether the directors were liable for deceit based on the fraudulent misrepresentation in the prospectus and whether a misstatement of intention can be actionable.

Held: The Court of Appeal upheld the decision that the directors were liable for deceit. The court found that the prospectus constituted a fraudulent misrepresentation. Mr. Edgington was entitled to damages even though he relied on both the misrepresentation and his own mistaken belief about the charges.

Key Judicial Statements: Bowen LJ: "[T]he state of a man’s mind is as much a fact as the state of his digestion… A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact." Cotton LJ noted that it is not necessary to show that the misstatement was the sole cause of purchasing the bonds as long as Mr. Edgington acted on it.

💡 Leveluplaw: clarifies that a statement of intention can be treated as a statement of fact and thus be actionable if it influences the decision to enter into a contract. A misstatement does not need to be the sole cause of the contract; it must simply be a significant factor in the decision.