With v O’Flanagan [1936] Ch 575
Facts
O’Flanagan was negotiating the sale of his medical practice to With. During the negotiations he gave information about the income generated by the practice, and that information was accurate when supplied. Before the sale contract was concluded, O’Flanagan became ill and the practice’s income fell substantially. He did not correct the earlier account of its earnings. With completed the purchase on the basis of the earlier representation and later sought to undo it. The dispute therefore concerned a change before formation of the contract, rather than an unexpected decline occurring only after the buyer had taken over.
Legal Issue
Could an initially true statement about a business become an actionable misrepresentation where circumstances changed before contract and the seller failed to update the buyer?
Held
The Court of Appeal allowed the buyer’s appeal and held that rescission was available. A representation intended to induce a contract could remain operative throughout the negotiations. The seller could not rely on its truth at the date it was first made when later events had materially altered the position before the bargain was concluded. Lord Wright MR explained the result both as a duty to communicate the change and as the consequence of treating the statement as a continuing representation. The earlier earnings information was no longer substantially accurate when it performed its inducing role. Failure to correct it therefore supported the buyer’s misrepresentation claim.
⭐ Legal Principle
A material representation made to induce a contract may continue until the contract is concluded. If circumstances change so that it becomes untrue, the representor must correct the position rather than allow the other party to contract on the outdated statement. Initial truth is not a complete answer to such a claim.
Significance
With v O’Flanagan gives a precise exception to the usual absence of a general disclosure obligation in ordinary negotiations. It explains why silence can become misleading after someone has chosen to provide material information. The timing is crucial: the relevant change occurred while the representation was still inducing the purchase. A later business downturn, without more, would not establish that the pre-contract statement was false or convert historical earnings into a promise of future profits.
Common exam questions about this case
Why was the statement actionable if it was true when made?
The earnings statement continued to influence the negotiations and the eventual decision to buy. Before the contract was made, illness had materially changed the practice’s performance. By failing to correct the position, the seller allowed an outdated representation to induce the bargain. The court assessed its continuing effect, rather than freezing the analysis at the first conversation.
Does the case impose a general duty to reveal every adverse fact?
No. The duty examined in With arose because the seller had already made a material representation which remained operative and then became inaccurate. That is more specific than a general obligation of disclosure. A problem answer should identify the earlier statement, the relevant change and its timing before invoking this authority.
Would a fall in income after the sale necessarily support rescission?
A decline occurring only after the sale would not, by itself, make the earlier representation false when the contract was concluded. Further facts might establish a separate misrepresentation or contractual warranty, but With concerned an undisclosed change during negotiations. The date of the change is therefore decisive to applying its reasoning.