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With v O’Flanagan [1936] Ch 575

Whether representations are ongoing

Facts

The claimant entered into negotiations with the defendant for the purchase of the defendant’s medical practice. During the negotiations, the defendant represented to the claimant that the practice took in around £2,000 per year. The defendant signed the contract for the purchase some five months later, but by this date, the practice had declined significantly as a result of the ill health of the defendant. When the claimant took possession of the practice, it was discovered that it was now almost non-existent. The claimant sought to rescind the contract on the basis that the representation as to the income had been a misrepresentation. At first instance, it was held that the representation was, at the time it was made, accurate and therefore, because this meant that the claimant could not demonstrate that the representation was untrue, the claim must fail. The defendant appealed.

Issue

The issue in this circumstance was whether there remained an obligation to inform a party to a contract when the circumstances material to a representation, which induced them to enter into the contract, had changed.

Held

The Court of Appeal reversed the decision at first instance. It was held that the representation made by the defendant was intended to induce the claimant to enter into the contract and therefore would be considered ongoing until the contract was signed. This meant that at the time that the contract was signed, the representation was untrue. The defendant ought to have told the claimant of the change of circumstances.


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