(1881) 20 ChD 1
Court of Appeal
Redgrave, an elderly solicitor, advertised for a partner 'who would not object to purchase advertiser's suburban residence, suitable for a family, value £1600'. Hurd answered the advertisement and enquired as to the income of the practice. Redgrave told him that the business brought in about £300 per year and showed him receipts amounting to about £200. When Hurd asked how the remaining £100 was made up Redgrave showed him a number of papers which he said related to other business not included in the summaries. These papers, which Hurd did not examine, showed only a most trifling amount of business. Hurd shortly afterwards signed an agreement to purchase the house for £1600, and paid a deposit. Hurd took possession, but finding that the business was worthless, refused to complete. Redgrave brought an action for specific performance against Hurd. Hurd put in a defence, in which he disputed the right to specific performance on the ground of misrepresentations as to the business, and by counter claim claimed on the same ground to have the contract rescinded, and to have damages on the ground of the expenses he had been put to and the loss incurred by giving up his own practice.
The issue before the court was whether Hurd could be said to have relied on Redgrave's representation as to the income of the practice since he had the means of discovering, and might, with reasonable diligence, have discovered, that Redgrave's representation was untrue.
Jessel MR
... As regards the rescission of a contract, there was no doubt a difference between the rules of Courts of Equity and the rules of Courts of Common Law - a difference which of course has now disappeared by the operation of the Judicature Act, which makes the rules of equity prevail. According to the decisions of Courts of Equity it was not necessary, in order to set aside a contract obtained by material false representation, to prove that the party who obtained it knew at the time when the representation was made that it was false. It was put in two ways, either of which was sufficient. One way of putting the case was, 'A man is not to be allowed to get a benefit from a statement which he now admits to be false. He is not to be allowed to say, for the purpose of civil jurisdiction, that when he made it he did not know it to be false; he ought to have found that out before he made it.' The other way of putting it was this: 'Even assuming that moral fraud must be shewn in order to set aside a contract, you have it where a man, having obtained a beneficial contract by a statement which he now knows to be false, insists upon keeping that contract. To do so is a moral delinquency: no man ought to seek to take advantage of his own false statements.' The rule in equity was settled, and it does not matter on which of the two grounds it was rested. As regards the rule of Common Law there is no doubt it was not quite so wide. There were, indeed, cases in which, even at Common Law, a contract could be rescinded for misrepresentation, although it could not be shewn that the person making it knew the representation to be false. They are variously stated, but I think, according to the later decisions, the statement must have been made recklessly and without care, whether it was true or false, and not with the belief that it was true. But, as I have said, the doctrine in equity was settled beyond controversy, and it is enough to refer to the judgement of Lord Cairns in the Reese River Silver Mining Company v Smith, in which he lays it down in the way which I have stated.
There is another proposition of law of very great importance which I think it is necessary for me to state, because, with great deference to the very learned Judge from whom this appeal comes, I think it is not quite accurately stated in his judgement. 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.' I take it to be a settled doctrine of equity, not only as regards specific performance but also as regards rescission, that this is not an answer unless there is such delay as constitutes a defence under the Statute of Limitations. That, of course, is quite a different thing. Under the statute delay deprives a man of his right to rescind on the ground of fraud, and the only question to be considered is from what time the delay is to be reckoned. It had been decided, and the rule was adopted by the statute, that the delay counts from the time when by due diligence the fraud might have been discovered. Nothing can be plainer, I take it, on the authorities in equity than that the effect of false representation is not got rid of on the ground that the person to whom it was made has been guilty of negligence. One of the most familiar instances in modern times is where men issue a prospectus in which they make false statements of the contracts made before the formation of a company, and then say that the contracts themselves may be inspected at the offices of the solicitors. It has always been held that those who accepted those false statements as true were not deprived of their remedy merely because they neglected to go and look at the contracts. Another instance with which we are familiar is where a vendor makes a false statement as to the contents of a lease, as for instance, that it contains no covenant preventing the carrying on of the trade which the purchaser is known by the vendor to be desirous of carrying on upon the property. Although the lease itself might be produced at the sale, or might have been open to the inspection of the purchaser long previously to the sale, it has been repeatedly held that the vendor cannot be allowed to say, 'You were not entitled to give credit to my statement.' It is not sufficient, therefore, to say that the purchaser had the opportunity of investigating the real state of the case, but did not avail himself of that opportunity. It has been apparently supposed by the learned Judge in the Court below that the case of Attwood v Small conflicts with that proposition. He says this: 'He inquired into it to a certain extent, and if he did that carelessly and inefficiently it is his own fault. As in Attwood v Small, those directors and agents of the company who made ineffectual inquiry into the business which was to be sold to the company were nevertheless held by their investigation to have bound the company, so here, I think, the Defendant who made a cursory investigation into the position of things on the 17th of February must be taken to have accepted the statements which were in those papers.' I think that those remarks are inaccurate in law, and are not borne out by the case to which the learned Judge referred...
... In no way, as it appears to me, does the decision, or any of the grounds of decision, in Attwood v Small, support the proposition that it is a good defence to an action for rescission of a contract on the ground of fraud that the man who comes to set aside the contract inquired to a certain extent, but did it carelessly and inefficiently, and would, if he had used reasonable diligence, have discovered the fraud.
... Then the common case of the Plaintiff and the Defendant is that in answer to an inquiry from the Defendant, the Plaintiff said there was other business which was not entered upon those papers.' Now that inquiry as I understand it was this, 'You were doing £300 a year, you shew in those papers only £200 a year, where is the rest?' And the answer was, 'Oh, there is a lot of papers here containing business which will account for the rest.' Well, it appears to me, that that being the common case of both parties, it shews that Hurd, though still relying on the representation that the business was at least £300 a year, when he found that the papers shewed only a gross £200 a year, wanted to know where the business was that made up the £300 a year, and he is told, 'Oh there are a lot of papers there; I have not made out my bills of costs fully, but you will find the business if you look through those papers;' but he did not look through them. The learned Judge continues: 'I cannot attribute much weight to that other business, and for this reason, that in my judgement if the Defendant had meant to rely upon this extraneous business, which was not mentioned in the papers, he would have made some inquiry about it.' I am sorry to say I differ from every word of that. The Defendant did make an inquiry. All that the Plaintiff had prepared for him were these summaries. He says, 'Where is the rest of the business?' 'Oh it is in that parcel of papers.' How could the Defendant make out bills of costs from the parcel of papers? he could do nothing but rely on the Plaintiff's statement that the parcel of papers did contain the business. Then the learned Judge goes on to say: 'According to the conclusion which I come to upon the evidence, the books were there before the Defendant, and although he did not trouble to look into them he had the opportunity of doing so. In my judgement if he had intended to rely upon that parol representation of business beyond that which appeared in the papers, having the materials before him, he would have made some inquiry into it. But he did nothing of the sort.' Now in that respect I am sorry to say that the learned Judge was not correct. There were no books which shewed the business done. The Plaintiff did not keep any such books, and had nothing but his diaries, and some letter books; and therefore, it is a mistake to suppose that there were any books before the Defendant which he could look into to ascertain the correctness of the statements made by the Plaintiff; and the whole foundation of the judgement on this part of the case, even if it had been well founded in law, fails in fact, because the Defendant was not guilty of negligence in not doing that which it was impossible to do, no books being in existence which would shew the amount of business done. Then the learned Judge continues: 'He did nothing of the sort: I think the true result of the evidence is this, that the Defendant thought that if he could have even such a nucleus of business as these papers disclosed, he could by the energy and skill which he possessed make himself good business in Birmingham.' Then that being so the learned Judge came to the conclusion either that the Defendant did not on the statement, or that if he did rely upon it he had shewn such negligence as to deprive him of his title to relief from this Court. I have already said, the latter proposition is in my opinion not founded in law, and the former part is not founded in fact; I think also it is not founded in law, for when a person makes a material representation to another to induce him to enter into a contract, and the other enters into that contract, it is not sufficient to say that the party to whom the representation is made does not prove that he entered into the contract, relying upon the representation. If it is a material representation calculated to induce him to enter into the contract, it is an inference of law that he was induced by the representation to enter into it, and in order to take away his title to be relieved from the contract on the ground that the representation was untrue, it must be shewn either that he had knowledge of the facts contrary to the representation, or that he stated in terms, or shewed clearly by his conduct, that he did not rely on the representation. If you tell a man, 'You may enter into partnership with me, my business is bringing in between £300 and £400 a year,' the man who makes that representation must know that it is a material inducement to the other to enter into the partnership, and you cannot investigate as to whether it was more or less probable that the inducement would operate on the mind of the party to whom the representation was made. Where you have neither evidence that he knew facts to shew that the statement was untrue, or that he said or did anything to shew that he did not actually rely upon the statement, the inference remains that he did so rely, and the statement being a material statement, its being untrue is a sufficient ground for rescinding the contract. For these reasons I am of opinion that the judgement of the learned Judge must be reversed and the appeal allowed.
As regards the form of the judgement, as the appellant succeeds on the counter-claim, I think it would be safer to make an order both in the action and the counter-claim, rescinding the contract and ordering the deposit to be returned. As I have already said, it is not a case in which damages should be given.