HM Journal

Derry v Peek

Case nameDerry v Peek
CourtHouse of Lords
BenchLord Halsbury L.C. , Lord Watson,Lord Bramwel,Lord FitzGerald and Lord Herschell
Decided on01 July 1889
Relevant statuteIndian Contract Act 1872
Citation(1889) LR 14 App Cas 337,, UKHL 1

Facts Of The Case

Plaintiff received a prospectus regarding the incorporation of Defendant’s company, which highlighted that the company would have the right to use steam or mechanical power. After receiving the prospectus, Plaintiff bought shares of the company, relying on the allegations of the prospectus, and believing that the company had the absolute right to use steam or mechanical power. The board of trade refused to allow steam or mechanical power, and the company was wound up, unable to complete its work. Thereafter, Plaintiff brought suit against Defendant for fraudulent misrepresentations. The trial judge dismissed the action, after coming to the conclusion that the directors knew that the use of steam or mechanical power was contingent on the board of trade and it was not unreasonable or deceitful for them to rely on the board..

Issue raised in the case

Whether it is deceit when a company forms a prospectus to solicit investors, which later proves to be wrong?

Contentions by Appellant

Appellant contended that it was fraud done to them by the respondents.

Contentions by Respondent

Respondent contended that they were sure that they would get registered so it was not the case of fraud but a mere case of misrepresentation.

Held

The House of Lords reversed the judgment of the court of appeals, and reinstated the judgment of the lower court. The court found this to be an action of deceit, under which the establishment of misrepresentation alone is not enough to prove liability. In this case, Plaintiff relied on the prospectus, which may have been misrepresentation, but Defendants reasonably believed they could glean approval of the board of trade and should not be held liable for their later failure to do so.

Ratio decendi

An action of deceit will only stand in a court when a plaintiff can show not only misrepresentation, but also that defendants knew they would be unable to follow through with their representations.

Dissected by Suyash Tripathi

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