With v O'Flanagan
| Jurisdiction | England & Wales |
| Date | 1936 |
| Year | 1936 |
| Court | Court of Appeal |
Contract - Rescission - Representation by vendor true at commencement of negotiations - Change of circumstances before signature of contract - Continuing representation - Vendor's duty to disclose change of circumstances.
In January, 1934, negotiations were entered into for the sale of a medical practice, and the vendor then represented to the purchasers that the takings of the practice were at the rate of 2000 l. per annum. The contract was signed on May 1, 1934, but by that date the circumstances had changed, as the practice had fallen off owing to the illness of the vendor and the employment of several locum tenentes. The change of circumstances was not disclosed to the purchasers, and when they took possession on that date they found that the practice was almost non-existent. They thereupon commenced an action for rescission of the contract.
Bennett J. held that, as the contract was not a contract uberrimae fidei, the case was the ordinary one of parties to a contract having to prove, before they could obtain rescission, that the representations which induced them to act were in fact untrue at the time when they were made; that in this case the representation was true at the time when it was made, and the action failed.
On appeal:—
Held (reversing the decision of Bennett J.), that the representation was made with a view to induce the purchasers to enter into the contract and must be treated as continuing until the contract was signed, and that it was the duty of the vendor to communicate the change of circumstances to the purchasers.
APPEAL from a decision of Bennett J.
The action was brought by the plaintiffs for the rescission of a contract dated May 1, 1934, to purchase from the first defendant, Dr. O'Flanagan, his medical practice. The practice was introduced to the plaintiffs by a medical agency in January, 1934, and the agent then represented that the practice was for sale and that it was “doing at the rate of 2000 l. a year” and that Dr. O'Flanagan was asking 4000 l. for it, “that is to say, two years' purchase.” [There was also a representation with regard to the panel patients which is immaterial for the purposes of this report.] The plaintiffs thereupon saw Dr. O'Flanagan, who confirmed this statement. In the interval between January, 1934, and May 1, 1934, when the contract was signed, Dr. O'Flanagan was away seriously ill from time to time, and during his absence the practice was on each occasion looked after by a locum tenens. The result was that the receipts fell off considerably, and it appeared from the evidence that during the three weeks preceding May 1, 1934, the practice was not producing more than an average of 5 l. a week, and that of that total of 15 l., 10 l. came from the payments of a single patient.
In April, 1934, the plaintiffs were told that Dr. O'Flanagan was absent from the practice and that the practice was in the hands of a locum, and by a letter dated April 12, 1934, the plaintiffs' solicitors wrote to Dr. O'Flanagan's solicitors as follows: “We understand that a locum is looking after Dr. O'Flanagan's practice at the moment, and this, of course, is a matter of some concern to our clients. If the purchase is going through they feel very strongly that it should be completed at the earliest possible moment, possession being given of both consultation rooms as early as possible. It, however, will not be practicable to complete the purchase of the house before the 1st June.” On April 16, 1934, the plaintiffs' solicitors replied: “We beg to advise you that we saw Dr. O'Flanagan on Saturday evening last on your letter of the 12th instant …. We are …. advised that the present locum is quite efficient and is looking after the practice satisfactorily.” The plaintiffs did not know until after the date when the agreement was signed that there had been more than one locum tenens in charge of the practice.
On May 1, 1934, the agreement was signed, but when the plaintiffs took possession on the evening of that day they found that there was substantially no practice being carried on. They stayed during two or three days, but finding that no private patients came they wrote to Dr. O'Flanagan's solicitors on May 3, 1934, a letter in which they stated: “Instead of the average taking being on the basis of 2000 l. a year as represented by your client, it appears that the last three weeks have averaged about 5 l. a week ……” To that Dr. O'Flanagan's solicitors replied on May 4: “Our client states emphatically that he only represented the takings to be 2000 l. a year for the period of a little over two years ending at the end of last year, during which he was in control of the practice. No representations were made about the present state of the practice.”
On May 4, 1934, the plaintiffs issued their writ in the present action claiming rescission and repayment of the purchase money. It was admitted that the statement as to the practice producing 2000 l. a year was true at the time when it was made, and the question was whether the change in the circumstances ought to have been communicated to the plaintiffs by Dr. O'Flanagan before they were allowed to close the transaction.
On July 16, 1934, Dr. O'Flanagan died, and the action was by order of the Court continued against his personal representatives.
Bennett J., after considering Traill v. BaringF1, held that that case was confined to cases uberrimae fidei or to cases where there had been a statement of intention, and that the representations in the present case were representations of existing facts which were true at the time when they were made and which never, under any circumstances, could become untrue, and that the case was the ordinary case of parties to a contract having to prove before they could obtain rescission that the representations made to them and which induced them to act were representations of existing facts which were in fact untrue at the time when they were made; and he dismissed the action with costs.
The plaintiffs appealed. The appeal was heard on March 12, 13 and 16, 1936.
A. F. Topham K.C. and H. S. G. Buckmaster for the appellants. The circumstances with regard to the state of the practice having altered between January, 1934, when the representation was made to the plaintiffs, and May 1, 1934, when the contract was signed, it was the duty of the defendant to disclose that change to the plaintiffs before allowing them...
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