Attwood v Small [1838] UKHL J60 (March 1838)

Facts

The appellant, Mr. Attwood, agreed to sell his extensive ironworks and coal mines at Corngreaves, Staffordshire, to the respondents, John Small and others, for the sum of £600,000. During the negotiations, Attwood made various statements and representations concerning the property’s costs, output, and earning capacity. The prospective purchasers (the respondents), being cautious, did not rely solely on these statements. Instead, they appointed their own team of experienced agents, surveyors, and accountants to conduct a thorough investigation and verification of Attwood’s claims. These agents spent several months on-site, examining the accounts, inspecting the mines and machinery, and interrogating the workforce. They subsequently produced a report for the respondents which largely confirmed the substance of Attwood’s representations. Based on this independent verification, the respondents proceeded with the purchase. Several months after taking possession, they discovered that the earning capacity of the works had been grossly exaggerated by Attwood and that their own agents’ investigation had been deficient. The respondents sought to rescind the contract in the Court of Exchequer, alleging fraudulent misrepresentation by Attwood.

Issues

The central legal issue before the House of Lords was whether a contract for sale could be rescinded on the grounds of the seller’s fraudulent misrepresentation when the purchasers had not relied upon those representations, but had instead chosen to conduct their own extensive, independent investigation through their appointed agents, and had entered into the contract based on the results of that investigation.

Judgment

The House of Lords, overturning the decree of the Court of Exchequer, held that the contract could not be rescinded. The judgment unequivocally established that for a misrepresentation to be actionable, it must have been the inducement for entering into the contract; that is, the representee must have relied upon it.

The Principle of Reliance

The Court found that the respondents had explicitly decided not to trust Attwood’s statements and had instead reposed their trust and confidence in their own expert agents. By undertaking their own ‘due diligence’, they had demonstrated that their decision to purchase was based on their own judgment, as informed by their agents, and not on the vendor’s assertions. Lord Cottenham, the Lord Chancellor, articulated the core legal principle:

Now, my Lords, what is the meaning of a representation? A representation, to be of any avail, must be a representation of a fact which the party does not know; but if the party to whom the representation is made, himself resorts to the proper means of verification before he enters into the contract, it may appear that he relied on the result of his own investigation and inquiry, and not upon the representation made to him by the other party; and if the Court is satisfied that such was the case, the representation is not material, and cannot be a ground for impeaching the contract.

The Role of Independent Verification

The fact that the respondents’ agents had performed their task incompetently or had failed to uncover the truth was deemed irrelevant to the claim against Attwood. The purchasers had substituted their own inquiry for reliance on the vendor. The chain of causation between Attwood’s misrepresentation and the respondents’ decision to contract was broken by the intervening investigation. Lord Brougham forcefully stated that the purchasers had made their choice:

They did not rely upon the representations of Mr. Attwood, but upon the information which they had received from their own agents … They say, ‘We will not trust you, we will not believe you, we will not take your representation; we will go and see ourselves, we will appoint our own persons to inquire, we will have our own agents, our own viewers, our own accountants, our own engineers, our own miners to survey, and we will be guided by their report, and not by your statement.’ Their report is favourable, and upon that report they act. It turns out that their report is different from the fact, and that Mr. Attwood’s statement was more correct… but they cannot, against Mr. Attwood and the other party now, be heard to say we were deceived by his representation.

Therefore, because the purchasers had not been induced by the seller’s statements but by their own inquiries, they had no grounds to rescind the contract, even if the seller’s statements were proven to be fraudulent.

Implications

This case is a foundational authority in English contract law on the element of ‘inducement’ or ‘reliance’ in misrepresentation. It establishes that a misrepresentation, however false or fraudulent, will not give rise to a remedy if the representee did not in fact rely on it. It underscores the principle that if a party undertakes its own investigation and relies on its own judgment or that of its agents, it cannot later claim to have been misled by the other party’s initial statements. The decision draws a clear line: a party is either relying on the vendor’s word or on their own verification. This promotes commercial certainty and places a significant onus on parties who conduct their own due diligence, as they are deemed to have trusted its outcome over any prior representations made to them. The case remains a critical precedent for assessing materiality and reliance in all claims of misrepresentation.

Verdict: The appeal was allowed. The decree of the court below (Court of Exchequer) was reversed, and the respondents’ bill to rescind the contract was dismissed.