Attwood v Small [1838] 6 Cl & Fin 232

KEY POINTS

• Misrepresentation can lead to contract rescission and damages. Proving misrepresentation's inducement and materiality affects the contract's validity.

• Plaintiff's adoption or waiver of misrepresentation can't be a defense. Plaintiff must possess factual knowledge, and reliance on external info impacts the case.

• Fraudulent contracts can lead to various damages. In false representation for criminal purposes, civil liabilities may arise. Weight of parol evidence vs. written document is determined in assessing contracts.

FACTS

• In 1825, a contract was formed between John Attwood, the appellant, and the respondents, who were directors of the British Iron Co., involving the sale of properties and mining facilities. They later supplemented this contract with another agreement.

• After six months of the British Iron Co.'s possession and operation of the property, the respondents filed a lawsuit in 1826, seeking to void the contract due to fraud, in the Court of Exchequer in Equity. LORD LYNDHURST, CB, ruled in favor of the respondents. Dissatisfied with the decision, John Attwood appealed to the House of Lords.

JUDGEMENT

• In contracts, if one party knowingly deceives the other with false information on a critical matter, and the deceived party can't verify it, they can usually sue for deceit-related damages and, in some cases, void the contract.

• This applies when the seller's dishonesty is clear, but the "caveat emptor" principle often holds parties responsible for their lack of caution.

• Courts step in to override "caveat emptor" when there's proof of a materially false statement, no means for the deceived party to discover the falsehood, the contract heavily relies on the false info, and the deceived party acted reasonably and with due care as expected by the law. Ultimately, it boils down. 

COMMENTARY

• In 1825, a contract was formed between John Attwood, the appellant, and the respondents, who were directors of the British Iron Co., involving property and mining facilities. They later supplemented this contract.

• After six months of the British Iron Co.'s possession, the respondents sought to void the contract for fraud in 1826 in the Court of Exchequer in Equity. LORD LYNDHURST, CB, favored the respondents. Dissatisfied, John Attwood appealed to the House of Lords.

• Regarding contract deceit, if one party knowingly deceives the other on a crucial matter, and the deceived party can't verify it, they can usually sue for damages and sometimes void the contract. The "caveat emptor" principle applies when the seller's dishonesty isn't clear. Courts override it when there's proof of a significant false statement, no means to uncover it, heavy reliance on the false info, and reasonable actions by the deceived party.

ORIGINAL ANALYSIS

• The purchasers of a mine were told exaggerated statements about its earning capacity by the vendors. 

• The purchasers had these statements checked by their own expert agents, who in error reported them as correct. 

• Six months after the sale was complete the plaintiffs found the defendant's statement had been inaccurate and they sought to rescind on the ground of misrepresentation. 

• Held: There was no misrepresentation because purchaser did not rely on the representations - they relied on that of their experts.