This section contains the nature of the case and procedural background.

Derry (D) and four other directors represented in a prospectus that their company was authorized by the Board of Trade to use steam or other mechanical power instead of animal power. Peek (P) purchased shares in the company upon the reliance of the prospectus that there would be considerable savings from the use of nonanimal power. The company proceeded to make tramways, but the Board of Trade refused to consent to the use of steam or mechanical power except on certain portions of the tramways. In the result, the company was wound up, and the P brought an action of deceit against the Ds claiming damages for the fraudulent misrepresentations of D whereby P was induced to take shares in the company. The trial court concluded that the directors had all believed that the company had the authorization as stated in the prospectus and that their belief was not unreasonable. P appealed, and the judgment was reversed; The director’s beliefs were without any reasonable grounds. D appealed to the House of Lords.

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