Question:
Certain legal principles and specific factual situations are provided in each of the following questions. Apply the principles to the given facts and select the most appropriate answer.
LEGAL PRINCIPLE :
1. A deceit occurs when a misrepresentation is made with the express intention of defrauding a party, subsequently causing loss to that party.
2. “Misrepresentation” means and includes— the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; any breach of duty which, without an intent to deceive, gains an advantage of the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.
FACTUAL SITUATION : XY Company in its prospectus stated that the company was permitted to make engines that were powered by electricity, rather than by fuel. In reality, the company did not possess such a right as this had to be approved by the Government Board. Gaining the approval for such a claim from the Board was considered a formality in such circumstances and the claim was put forward in the prospectus with this information in mind. However, the claim of the company for this right was later refused by the Board. The individuals who had purchased a stake in the business, upon reliance on the statement, brought a claim for deceit against the defendant’s business. Decide.
Certain legal principles and specific factual situations are provided in each of the following questions. Apply the principles to the given facts and select the most appropriate answer.
LEGAL PRINCIPLE :
1. A deceit occurs when a misrepresentation is made with the express intention of defrauding a party, subsequently causing loss to that party.
2. “Misrepresentation” means and includes— the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; any breach of duty which, without an intent to deceive, gains an advantage of the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.
FACTUAL SITUATION : XY Company in its prospectus stated that the company was permitted to make engines that were powered by electricity, rather than by fuel. In reality, the company did not possess such a right as this had to be approved by the Government Board. Gaining the approval for such a claim from the Board was considered a formality in such circumstances and the claim was put forward in the prospectus with this information in mind. However, the claim of the company for this right was later refused by the Board. The individuals who had purchased a stake in the business, upon reliance on the statement, brought a claim for deceit against the defendant’s business. Decide.
LEGAL PRINCIPLE :
1. A deceit occurs when a misrepresentation is made with the express intention of defrauding a party, subsequently causing loss to that party.
2. “Misrepresentation” means and includes— the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; any breach of duty which, without an intent to deceive, gains an advantage of the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.
FACTUAL SITUATION : XY Company in its prospectus stated that the company was permitted to make engines that were powered by electricity, rather than by fuel. In reality, the company did not possess such a right as this had to be approved by the Government Board. Gaining the approval for such a claim from the Board was considered a formality in such circumstances and the claim was put forward in the prospectus with this information in mind. However, the claim of the company for this right was later refused by the Board. The individuals who had purchased a stake in the business, upon reliance on the statement, brought a claim for deceit against the defendant’s business. Decide.
Updated On: Aug 5, 2024
- The company is liable for false representation as their claims were eventually turned out to be false.
- The company is liable as their false statements have resulted in causing loss to the shareholders.
- The company is not liable as the statement in its prospectus was simply incorrect and not fraudulent.
- The shareholders should have collected as much information regarding the company as possible before purchasing a stake in it.
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The Correct Option is C
Solution and Explanation
The correct option is (C): The company is not liable as the statement in its prospectus was simply incorrect and not fraudulent.
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