Attwood v Small (1838) 6 Cl & F 232

Facts

• The case concerned a transaction involving the sale of mines and steelworks.
• The vendor (D) made representations to the purchaser (C) regarding the capacity and capabilities of these properties.
• These representations were significant to C’s decision to purchase.
• Before completing the transaction, C commissioned agents to independently investigate and verify the representations made by D.
• The agents reported that D’s statements were accurate, leading C to proceed with the purchase in reliance on the agents’ findings.
• After completion, it was discovered that D’s original representations were in fact untrue.
• C sought to rescind the contract on grounds of misrepresentation.

Issues

1. Whether C’s independent verification of D’s statements negated reliance on those misrepresentations for the purposes of rescinding the contract.
2. Whether misrepresentation may still be actionable where the representee had an opportunity to discover the truth but did not do so.
3. The relevance of the materiality of a misrepresentation in the context of actual reliance.

Decision

• The House of Lords denied rescission, holding that C had not relied on D's misrepresentations but had instead relied on their own agents' verification.
• The Court determined that because C chose to act on the advice of independent investigators, D’s original statement was not causative in C's decision to contract.
• The presence of an independent investigation severed the causal link between D’s misrepresentation and C’s entry into the contract.
• The Court upheld that a purchaser who conducts and relies upon independent verification cannot later claim rescission based on the initial misrepresentation.

Legal Principles

• For misrepresentation to be actionable, reliance by the representee on the false statement is required.
• A purchaser who relies on independent verification, even if flawed, cannot claim to have been induced by the original misrepresentation.
• The presence of material misrepresentation is not alone sufficient; there must also be reliance.
• This case is contrasted with Redgrave v Hurd (1881) 20 Ch D 1, where the court held that mere negligence in not investigating does not prevent a claim for misrepresentation if reliance on the false statement is present.
• Materiality of a statement only supports a claim if the false statement actually induced the contractual commitment, as affirmed in Museprime Properties v Adhill Properties [1990] 36 EG 114 and Horsfall v Thomas [1862] 1 H&C 90.

Conclusion

Attwood v Small established that where a party undertakes and relies upon independent verification of another party’s representations, the original misrepresentation does not found a claim for rescission. The case highlights the central role of reliance in actionable misrepresentation claims, distinguishing situations where reliance on the representation is replaced by reliance on independent advice or verification.