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Alex carried on a relatively successful business as a manufacturer of a cleaning product that was well received by the users. After several years of

Alex carried on a relatively successful business as a manufacturer of a cleaning product that was well received by the users. After several years of slow but steady growth in sales, his accountant suggested that he expand the business by the incorporation of a company. This would permit the sale of shares to acquire the capital necessary for a new plant and equipment. A company was eventually incorporated, but instead of selling shares to acquire the necessary capital to expand the business, Alex decided to arrange a $200,000 loan from his banker. To do so, however, Alex needed the accountant to prepare financial statements for the company to deliver to the bank. Preparing the financial statements, the accountant failed to notice that the existing land and plant building were not acquired by the corporation, but retained by Alex, and simply leased to the company on an annual basis. The accountant had included the land and building (which had a value of $250,000) as an asset of the corporation on the financial statements, without checking with Alex to determine if the property had been transferred. When the error was discovered later during negotiations with the bank, the bank insisted that Alex guarantee the loan as a principal debtor, and use the land and building as additional security for the loan. A few weeks later, Alex decided that it would be necessary to acquire additional capital to complete the expansion program. He contacted a private investor with a view to selling her a block of shares in the corporation. The investor was interested in the financial status of the corporation, and Alex informed her that the corporation had borrowed $200,000 from the bank for the purpose of expanding the business. He also suggested that the investor contact either his accountant or the bank for information on the corporations assets and financial position. The investor contacted the bank and requested copies of the financial statements that the accountant had prepared. A bank employee, who was unaware that the statements were in error, gave them to the investor without comment. On the strength of the financial statements, the investor invested $50,000 in shares of the corporation. Some months later, she discovered that the corporation did not own the land or buildings, and that the financial statements were in error. Advise the investor of her legal position, and her rights (if any) against Alex, the accountant, and the bank.

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