Redgrave v Hurd 28 Nov 1881 20 Ch D 1, CA

A solicitor misrepresented his practice's income to a buyer who declined an opportunity to verify the figures. Upon discovering the truth, the buyer sought to rescind the contract. The court held that a victim of misrepresentation can rescind, even if they negligently failed to check its truth.

Facts

The plaintiff, Redgrave, an elderly solicitor, advertised for a partner to join his practice and purchase his suburban residence. The defendant, Hurd, also a solicitor, entered into negotiations. During discussions, Redgrave stated that his business income was approximately £300 per annum. To support this, he produced summaries showing receipts of less than £200 per annum. When Hurd inquired about the discrepancy, Redgrave pointed to a bundle of papers, stating they represented the additional business. Hurd, taking Redgrave’s word, did not inspect these papers. Had he done so, he would have discovered they showed only a negligible amount of extra income. Relying on the representation, Hurd signed an agreement to purchase the house for £1600 and paid a £100 deposit. He later discovered the practice was ‘utterly worthless’ and refused to complete the purchase. Redgrave brought an action for specific performance, and Hurd counter-claimed for rescission of the contract and the return of his deposit on the ground of misrepresentation.

Issues

The primary legal issues before the Court of Appeal were:
1. Whether a contract can be rescinded based on a material misrepresentation that was made without fraudulent intent (i.e., an innocent misrepresentation).
2. Whether a party who was given the means to discover the falsity of a representation, but negligently failed to do so, is barred from obtaining rescission for that misrepresentation.

Judgment

The Court of Appeal, comprising Jessel MR, Baggallay LJ, and Lush LJ, unanimously reversed the decision of the lower court and found in favour of Hurd.

Reasoning of Sir George Jessel, MR

Jessel MR, delivering the leading judgment, established that the rules of equity regarding misrepresentation now prevailed following the Judicature Acts. A material misrepresentation, even if innocent, gives the aggrieved party the right to rescind the contract. The central point of the judgment addressed Hurd’s failure to verify Redgrave’s claims. Jessel MR forcefully rejected the argument that Hurd’s negligence in not checking the papers precluded him from relief. He stated:

If a man is induced to enter into a contract by a false representation it is not a sufficient answer to him to say, “If you had used due diligence you would have found out that the statement was untrue. You had the means afforded you of discovering its falsity, and did not choose to avail yourself of them.”

He reasoned that when a person makes a positive and material statement, they cannot fault the other party for believing it. The representation itself absolves the representee of the need to investigate.

The representation once made relieves the party from an investigation, even if the opportunity is afforded. … a man is not to be allowed to say, “You ought to have used due diligence,” if he has stated something which has caused the other party to relax his diligence.

The court held that for Redgrave to succeed, he would have had to show that Hurd either had actual knowledge of the true facts or had clearly indicated that he did not rely on the representation at all. Neither was established here; it was clear Hurd relied on the statement about the practice’s value, which induced him to enter the contract.

Implications

This case is a cornerstone of the law on misrepresentation in contract. Its primary significance is the principle that a representee is not under a duty to verify the truth of a statement. A party who makes a false statement cannot use the other party’s credulity or negligence as a defence. This protects parties from being misled and places the burden of truthfulness squarely on the person making the representation. The decision confirmed that the equitable remedy of rescission is available for all types of misrepresentation, including innocent misrepresentation, a principle that was later codified in the Misrepresentation Act 1967. It underscores that reliance on a statement is key, and once a material representation is made and relied upon, the path to rescission is open, provided the usual bars to rescission do not apply.

Verdict: The appeal was allowed. The contract was ordered to be rescinded, the defendant’s deposit returned with interest, and the plaintiff’s action for specific performance was dismissed.

Source: Redgrave v Hurd 28 Nov 1881 20 Ch D 1, CA