Legal Principles and Key Points
- In the case of Attwood v Small  6 Cl & F 232, the courts held that it must be proven that the party was induced into entering the contract because of the alleged misstatement.
- This contract law case is about insurance fraud and misrepresentation.
- This case begs the question of what constitutes being induced into a contract.
Facts of the Case
- C and D agreed to a contract related to the purchase of a mine based on the size and value of a mineral ore.
- C made false statements on the mineral ore’s capacity. D however provided experts who mistakenly agreed with C’s statement on the mine’s capacity. D then purchased the mine.
- The evaluations conducted by both C and D’s experts were revealed as inaccurate 6 months late. D then pursued a claim of false representation and attempted to rescind the contract.
- Did C rely on the representation made or expert evidence?
- Did C act upon that reliance?
Held by House of Lords
- Judgment reversed – there was no evidence of fraud.
Reliance on the representation
- Reliance is enough for a successful claim of false representation to terminate a contract.
- C wilfully prevented papers from coming out to D and should not have done so.
- “But what is a reasonable time for the party to make his objection, is particularly a question of fact to be judged of properly by a jury on a due consideration of all the circumstances of the case, of the importance of the subject, the difficulties that a prudent man would find himself encumbered with when attempting to make up his mind whether it formed an objection to the contract or not”.
Acting upon the reliance
- ”Is there any such fraud as gave rise to the contract which ought to entitle the party to have that contract rescinded? Then would arise the question of legal and equitable fraud. It is sending an equitable question to be tried by a jury”.
- D does not have a duty to corroborate the representation relied upon. Typically there is a falsehood when the other party has no knowledge of the matters but here experts were considered before making a decision.
- “The agent must, in fulfilment of his directions, have made a representation; and moreover, the representation so made must have had the effect of deceiving the purchaser; and moreover, the purchaser must have trusted to that representation, and not to his own acumen, not to his own perspicacity, not to inquiries of his own”.
- “A Court of Equity will only interfere with this doctrine of the common law in those cases, in which it is proved that one party has made a representation of a material circumstance which he knows to be false, and the falsehood of which the other party has no means of knowing; and in which it can be further shown that the contract, which it is sought to set aside, was founded upon this misrepresentation so made, and in reliance of the facts so misrepresented”.
- The circumstances of C and D must be taken into account. The buyer did not knowingly rely on the statements made by the seller instead his judgment was influenced by his own experts who he sent to monitor the mine.