Mbegu Nzuri Ltd. is in the business of importing seeds. The company is about to make a new issue of 800,000
shares of Sh.20 each. The prospectus has stated that the seeds produced by the company yield 20 bags per acre
"even on arid land" and that the company was the only one with such kind of seeds. There was also a publication in
the local newspaper about the shares.
Additional information:
- Saulo Mpoa did not read the prospectus but applied for the company's shares and was allocated 4,000
shares at Sh.40 per share.
- Baraka Mwanzi read the prospectus and was not allocated the company's shares. She bought 6,000 of the
company's shares at the securities exchange at Sh.50 per share.
- Sadiki Mulwa read the publication in the local newspaper about the company's shares and bought 10,000
shares at the securities exchange at Sh.55 per share.
- An actual analysis of the seeds was done and it was discovered that the seeds were not as productive, only
yielding 5 bags per acre and could only thrive in wet land. The shares of Mbegu Nzuri Ltd. thereafter dropped in value to Sh.5 per share.
With reference to the above scenario:
(i) Explain three types of misrepresentation.
(ii) Explain five elements of misrepresentation.
(iii) Advise Saulo, Baraka and Sadiki on possible action against the company.
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