With v O'Flanagan [1936] Ch 575

Facts

  • Dr. O’Flanagan, intending to sell his medical practice to Dr. With, represented in January 1934 that the practice made £2,000 per year.
  • This statement was true when made.
  • Subsequently, Dr. O’Flanagan became ill and the practice's income dropped substantially.
  • By May 1934, when the sale contract was signed, the practice's earnings were significantly lower.
  • Dr. O’Flanagan did not disclose the change in income to Dr. With before the contract was concluded.

Issues

  1. Whether a person who has made a statement of fact during contractual negotiations is under a duty to inform the other party if circumstances change, rendering the statement incorrect before the contract is signed.
  2. Whether silence, in the context of a change to the truth of an initial representation, can constitute a misrepresentation actionable under contract law.

Decision

  • The Court of Appeal held that Dr. O’Flanagan was obliged to disclose the change in the practice's income.
  • The court found that the original statement, though true at the time made, became false by the time of contract and continued to operate as a misrepresentation if not corrected.
  • Lord Wright MR explained that failure to update the other party about a material change was equivalent to making a false claim.
  • The decision confirmed that fairness in contract negotiations requires disclosure when facts behind a previous representation have materially changed.

Legal Principles

  • A party who makes a factual statement during contract negotiations has a continuing duty to correct that statement if it becomes untrue before contract formation.
  • Silence is not ordinarily a misrepresentation, but when a previous true statement becomes false, remaining silent can amount to an actionable misrepresentation.
  • The principle applies broadly to factual representations and to stated intentions or plans if those intentions change prior to contracting.
  • Later cases, such as Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15, have used similar reasoning, treating unspoken or continuing representations as actionable if rendered false by subsequent events.

Conclusion

With v O’Flanagan [1936] Ch 575 established that parties must update or correct statements that become untrue during contractual negotiations, making it a foundational authority for the duty of honest disclosure and fair dealing in contract law.

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