Introduction
The principle of misrepresentation within contract law concerns statements made during negotiations that are subsequently discovered to be untrue. For a misrepresentation to be actionable, it must typically induce the other party to enter into the contract. The technical principles hinge on whether the representee relied on the false statement. Key requirements for a successful claim of misrepresentation usually include a false statement of fact, made by one contracting party to another, that induced the representee to agree to a contract. The legal question is then whether the representee placed their trust in the veracity of the representation. The case of Attwood v Small provides a significant examination of the reliance aspect of misrepresentation.
The Facts of Attwood v Small
The case of Attwood v Small, decided by the House of Lords in 1838 and officially cited as (1838) 6 Cl & F 232, involved a transaction concerning the sale of mines and steelworks. The vendor, identified as D, made certain representations about the capacity and capabilities of the properties to the purchaser, identified as C. Prior to the purchase, D represented the properties as having specific productive capabilities. These representations were critical to C’s decision to purchase. However, before completing the transaction, C decided to conduct independent investigations. C engaged agents to verify the statements made by D. C’s agents, after examination, confirmed the accuracy of D’s representations. Relying on their agents' verification, C completed the purchase of the mines and steelworks. Following the sale, it came to light that the original representations made by D about the property’s capabilities were not true. Consequently, C attempted to rescind the contract on the ground of misrepresentation.
The House of Lords Judgment
The House of Lords denied C's claim for rescission. Although the reasoning in the judgment is not entirely clear, the common interpretation is that the court found that C did not rely on D’s misrepresentations. Instead, the court inferred that C relied on the verification conducted by their agents. This crucial distinction altered the outcome significantly. The court held that because C chose to rely on its own agents’ findings, the original misrepresentation made by D was not a causative factor in C's decision to enter the contract.
The ruling in Attwood v Small illustrates a situation in which a misrepresentation, although present, did not invalidate a contract. The case established that if a purchaser independently investigates and verifies the representations of the seller, the purchaser cannot then claim misrepresentation as a basis for rescission if the verification proves incorrect. This principle underscores the importance of the concept of reliance. If reliance is not placed on the initial representation, the claim for misrepresentation is not likely to succeed.
Implications of Independent Verification
The decision in Attwood v Small demonstrates a clear legal principle: when a purchaser relies upon their independent verification, the effect of any prior misrepresentation is mitigated. The action of C commissioning an external assessment, which they then acted upon, effectively severed the chain of causation between D’s misrepresentations and C’s decision to enter the contract. This ruling serves as an important consideration for parties involved in transactions where representations are made concerning the assets being sold. The presence of an independent investigation, even if flawed, can nullify the claim that the contract was entered into based on the initial misrepresentation.
This legal principle has subsequently been discussed in various other misrepresentation cases, and it acts as a reminder that responsibility for due diligence can often reside with the purchaser. While misrepresentations are normally grounds for rescission, the presence of a subsequent independent assessment, if deemed relied upon by the purchaser, negates the claim. The court’s decision emphasizes the need for purchasers to be thorough in their assessment and to ensure that their decisions to enter into a contract are based on their own findings if they choose to conduct an investigation.
Contrast with Redgrave v Hurd
The principle set in Attwood v Small is further defined by contrast with the case of Redgrave v Hurd (1881) 20 Ch D 1. In Redgrave v Hurd, the court took a different stance regarding reliance and the extent to which a purchaser needs to investigate. The case of Redgrave v Hurd concerned a solicitor who misrepresented the value of his practice to a prospective purchaser. The purchaser was given access to business records that, if examined closely, would have revealed the misrepresentation. The purchaser, however, did not inspect the papers thoroughly. Despite the opportunity to uncover the misrepresentation, the court granted rescission in favor of the purchaser. The Court of Appeal held that negligence on the part of the representee does not prevent a rescission claim as long as there was some reliance on the misrepresentation. Redgrave v Hurd suggested that a representee should not be penalized for not discovering a misrepresentation, even where they had an opportunity to do so.
Sir Jessel MR, in his judgment in Redgrave v Hurd, directly addressed Attwood v Small. He clarified that Attwood v Small should not be interpreted as meaning that a representee loses their right to rescind due to their own negligence. He argued that a misrepresentation can provide grounds for rescission even if the representee could have discovered the truth. The main factor, according to Redgrave v Hurd, is whether the representee relied on the misrepresentation. The contrast between Attwood v Small and Redgrave v Hurd highlights the importance of analyzing the context and extent of reliance in cases of misrepresentation. While independent verification can negate reliance in some instances, the mere opportunity to verify, without actually undertaking it and relying on it, does not eliminate the effect of a misrepresentation.
The Concept of Materiality in Misrepresentation
The concept of materiality is also relevant to understanding misrepresentation cases. A material misrepresentation is generally one that would influence a reasonable person's decision to enter into a contract. The case of Museprime Properties v Adhill Properties [1990] 36 EG 114 reinforces this principle. In this case, the court noted that a misrepresentation is material if it induces the representee to act to their detriment. In Attwood v Small, the misrepresentations regarding the earning capacity of the mine would likely be deemed material in most contexts. However, the key element was the removal of reliance. The purchaser chose to trust their agents instead, regardless of the materiality of the vendor's statement.
Materiality is not sufficient on its own to establish misrepresentation. The representee must also show reliance. Horsfall v Thomas [1862] 1 H&C 90 is an example of this principle. In Horsfall, the court held that the concealment of a defect in a gun did not affect the buyer’s decision to purchase if the buyer was unaware of the misrepresentation, indicating a lack of reliance on the concealed defect. Similarly, in Attwood v Small, the court found that although a misrepresentation occurred, the purchaser did not depend on it because of their own independent verification. Therefore, the element of reliance must also be present in order for the misrepresentation to be actionable. The interaction between materiality and reliance helps determine whether a contract can be rescinded due to misrepresentation.
Conclusion
Attwood v Small is a significant case in the study of misrepresentation within contract law. Its principal contribution lies in its exploration of the reliance element necessary for a claim. The case established that where a representee undertakes independent verification of representations and subsequently relies upon that verification, the original misrepresentations do not form the basis for a rescission claim, even if the verification is incorrect. The judgment’s implications are further contextualized by comparison with cases like Redgrave v Hurd, which clarifies that the mere presence of an opportunity to uncover the falsity of a statement does not always eliminate a misrepresentation claim. The concept of materiality also underscores the need to show how the false statements affected the decision of the person induced to enter a contract. These cases together present a comprehensive framework for understanding the complexities of misrepresentation and the various circumstances in which a contract might be found voidable. The analysis of Attwood v Small, along with related cases, emphasizes the importance of careful consideration of individual circumstances and the need for a clear understanding of the requirements for actionable misrepresentation.
