With v O’Flanagan [1936]
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With v O’Flanagan [1936] Ch 575 dealt with the issue of misrepresentation in English contract law and established the principle that there is a duty to disclose material changes in circumstances that were previously represented as true during negotiations.
Dr O’Flanagan truthfully stated in January 1934 that his medical practice had annual takings of £2000. However, by May of the same year, the takings had significantly decreased to only £5 a week due to Dr O'Flanagan falling ill. Despite this change in circumstances, Dr O'Flanagan did not disclose the new information when entering into a contract to sell the medical practice to Mr With.
At trial, the judge held that because the contract was not made uberrimae fidei (utmost good faith), a duty to disclose material changes in circumstances existed. A failure to disclose such changes would result in an actionable misrepresentation.
Lord Wright MR, delivering the judgment, held that Mr With could rescind the contract either because there was a duty to point out the change in circumstance or because the representation continued until the contract was signed. Lord Wright referred to the principle stated by Fry J in Davies v London Provincial Marine Insurance [1878] that there is no duty to disclose unless there is a fiduciary relationship or a contract involving utmost good faith. However, in cases where a representation is made as an inducement to enter a contract, it is treated as a continuing representation.
Romer LJ concurred with the decision, stating that if a party makes a representation to induce another party to enter into a contract and later becomes aware that the representation is untrue due to a change in circumstances, and the other party enters into the contract in ignorance of the change, the first party cannot hold the other to the bargain.
The significance of this case lies in the affirmation of the general principle that any change to a fundamental reason for contracting, known as supervening falsification, must be communicated when known to one party. The duty to disclose exists regardless of the motive and does not require malicious or fraudulent intent; it is sufficient that the change is known to the representor.
Dr O’Flanagan truthfully stated in January 1934 that his medical practice had annual takings of £2000. However, by May of the same year, the takings had significantly decreased to only £5 a week due to Dr O'Flanagan falling ill. Despite this change in circumstances, Dr O'Flanagan did not disclose the new information when entering into a contract to sell the medical practice to Mr With.
At trial, the judge held that because the contract was not made uberrimae fidei (utmost good faith), a duty to disclose material changes in circumstances existed. A failure to disclose such changes would result in an actionable misrepresentation.
Lord Wright MR, delivering the judgment, held that Mr With could rescind the contract either because there was a duty to point out the change in circumstance or because the representation continued until the contract was signed. Lord Wright referred to the principle stated by Fry J in Davies v London Provincial Marine Insurance [1878] that there is no duty to disclose unless there is a fiduciary relationship or a contract involving utmost good faith. However, in cases where a representation is made as an inducement to enter a contract, it is treated as a continuing representation.
Romer LJ concurred with the decision, stating that if a party makes a representation to induce another party to enter into a contract and later becomes aware that the representation is untrue due to a change in circumstances, and the other party enters into the contract in ignorance of the change, the first party cannot hold the other to the bargain.
The significance of this case lies in the affirmation of the general principle that any change to a fundamental reason for contracting, known as supervening falsification, must be communicated when known to one party. The duty to disclose exists regardless of the motive and does not require malicious or fraudulent intent; it is sufficient that the change is known to the representor.
