Attwood v Small [1838] 6 Cl & Fin 232

Court: House of Lords

Citation: [1838] 6 Cl & Fin 232

Country: United Kingdom

Attwood v Small is a landmark case in UK contract law, particularly concerning the principles of misrepresentation. It sets important precedents regarding reliance on representations and the concept of “caveat emptor” (buyer beware). The case examines whether a misrepresentation is actionable when the representee independently verifies the accuracy of the representation but fails to uncover the falsehood.

This case brief explores the key facts, issues, judgement, legal principles, and implications for modern contract law.

Key Facts of Attwood v Small

  • Parties Involved:
    • Appellant: John Attwood, the seller of the property and mining facilities.
    • Respondents: Directors of the British Iron Company, the buyers.
  • Nature of the Contract: In 1825, a sale agreement was formed between Attwood and the British Iron Company for properties, including mines and steelworks. A supplementary agreement was later added to the contract.
  • Representations Made: Attwood made representations regarding the capabilities and profitability of the mines and steelworks. These representations were critical in persuading the British Iron Company to proceed with the purchase.
  • Verification Process: Before finalising the sale, the British Iron Company engaged agents to verify the representations made by Attwood. The agents affirmed the accuracy of the statements. Despite this verification, the representations were later found to be false.
  • Legal Dispute: After operating the properties for six months, the British Iron Company discovered the falsity of the representations. In 1826, they filed a lawsuit in the Court of Exchequer in Equity, seeking to rescind the contract on grounds of fraud. The Court of Exchequer ruled in favour of the respondents, prompting Attwood to appeal to the House of Lords.

Issues

The central legal issues in Attwood v Small were:

  • Reliance on Representations: Did the buyers rely on the representations made by the seller (Attwood), or did their independent verification sever the chain of reliance?
  • Misrepresentation and Fraud: Can a party claim rescission when false representations are independently verified but remain undiscovered as false at the time of verification?
  • Application of Caveat Emptor: To what extent does the principle of “buyer beware” apply when a buyer conducts due diligence but fails to uncover fraudulent statements?

Attwood v Small Judgement

  • Decision of the House of Lords: The appeal by John Attwood was successful, and the request for rescission by the British Iron Company was denied.
  • Reasoning: The court in Attwood v Small held that the British Iron Company’s reliance on their agents for verification meant there was no direct reliance on Attwood’s original representations. As the agents confirmed the accuracy of the representations, any claim of misrepresentation could not be attributed directly to the seller. The judgement reinforced the principle that reliance is a critical element of actionable misrepresentation. If the buyer chooses to verify claims independently, the responsibility for any errors in verification lies with the buyer.
  • Principle of Caveat Emptor: The court in Attwood versus Small emphasised the importance of the “buyer beware” doctrine. Buyers are expected to exercise due diligence and caution in their transactions. However, the doctrine is not absolute and does not protect fraudulent conduct by the seller. In this case, the independent verification negated reliance on the seller’s statements, aligning with caveat emptor.

Conclusion

Attwood v Small is a seminal case in UK contract law, shaping the doctrine of misrepresentation and the principle of caveat emptor. The decision underscores the importance of reliance and due diligence in contractual relationships. While it protects sellers from unwarranted liability, it places a significant burden on buyers to ensure the accuracy of representations through robust verification.

The case remains a cornerstone for legal practitioners and scholars, offering valuable insights into the interplay between fraud, reliance, and buyer responsibility. As commercial transactions evolve, the principles established in Attwood v Small continue to provide a critical framework for resolving disputes and ensuring fairness in contractual dealings.

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