C. Non-disclosure as Misrepresentation

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 331-334

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The traditional doctrine concerning contract formation holds that a party negotiating an agreement is not subject to a duty to disclose material facts to the other party.³⁵Nonetheless, there are exceptional circumstances in which silence or non-disclosure is treated, in effect, as misrepresentation and provides a basis for rescission of the ultimate

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agreement.³⁶First, misrepresentation has been found in the context of half-truths, that is, partial disclosure of true facts that creates a misleading impression. In a leading case,³⁷the plaintiffs were purchasers of a property that they intended to use for a brickyard. The vendor himself had indicated to the purchaser that he thought there were restrictive covenants that might prevent the property’s use for that purpose. The plaintiffs asked the vendor’s solicitors if there were any restrictions on the use of the property. The solicitor replied that he was not aware of any. This was literally true. Unfortunately, however, the solicitor did not go on to explain that he had not checked to determine whether this was so. In fact, the land could not be used lawfully for these purposes. This half-truth made on the vendor’s behalf provided a basis for rescission.

A second exception to the traditional rule relates to conduct typically referred to as "active concealment" of the truth. In a Manitoba case,³⁸for example, the owner of a small apartment block who intended to put it up for sale noticed a crack in one wall that appeared to be rather serious. He sought advice from a structural engineer who recommended substantial and expensive repairs. Rather than repair the building, the owner concealed the crack by covering it over with matching bricks. The property was then placed on the market. The eventual sale was rescinded for misrepresentation. Similarly, it has been held that refusal to grant a purchaser of real estate access to the premises for fear that a visit would reveal a significant defect in the property constituted fraudulent concealment.³⁹A third exception imposes a duty to disclose where changing circumstances affect the truth of an earlier statement. In a leading case,⁴⁰

O’Flanagan, a medical doctor, accurately advised a prospective purchaser of his practice that it was bringing in £2,000 a year. Before the contract was entered into, however, O’Flanagan became ill and his prac-

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tice became worthless. Failure to disclose this fact provided a ground for rescission.

Apart from these...