The solicitor defendants (and others) had acted for both the lender and the borrower. Under their retainer they were required to notify the lender of any matters which might prejudice its security. The solicitors failed in one case to report that they did not have an official search certificate, in another case to report circumstances that suggested that the true price was lower than the basis on which the advance was made, and in a third case to report circumstances which might have suggested the need for a further valuation.
Held: in three of the eight cases the lender would have refused to proceed if the solicitor had complied with its duty to report some relevant fact. These were accordingly ‘no transaction’ cases. In the second case (Steggles Palmer) the solicitor was responsible for all the consequences of the borrower entering the transaction, because the lender, if it had known what it should have known, would have been unwilling to lend to that borrower at all; and in the third case (Colin Bishop), the solicitor should be liable only for what any further valuation would have shown was the extent of the overvaluation concerned, a matter yet to be adjudicated.
Chadwick J said: ‘In circumstances where the lender and the borrower instruct separate solicitors, I am not persuaded that a competent solicitor, acting for the lender, would be acting unreasonably if he accepted from the borrower’s solicitor a mortgage deed which appeared on its face to have been executed by the mortgagors and witnessed. If there was nothing irregular on the face of the document the lenders’ solicitor would be entitled to accept it without question. He would not be required to enquire into the circumstances in which it was executed. But – and this is, of course, an important safeguard – the lender would have the benefit of the implied warranty of authority given by the borrowers’ solicitor that he has the authority of the borrowers to complete the mortgage by delivering the mortgage deed – see the judgments of the Court of Appeal in Penn v Bristol and West . . I can see no reason why the position should be different in the circumstances that the same solicitor acts for both the lender and the borrowers. I do not hold that the duty of the solicitor, as solicitor for the lender, is increased by the fact that he acts also for the borrowers: but, equally, I can see no reason why, as solicitor for the borrowers, he should not be taken to warrant to the lender that he is acting for them in the transaction with their authority. That does not, necessarily, mean that that he is warranting that the signature on the mortgage deed is authentic; but it has much the same effect.’
and: ‘The fundamental reason why a person, purporting to act as agent for another would normally be deemed to have warranted his authority so to act is to ensure that any person dealing with the supposed agent is protected against the risk that he does not have the authority which he claims. The supposed agent will normally know whether he has the authority which he claims, or the ability to determine whether he has such authority; whereas any party dealing with him will not. So it is only right that the risk of lack of authority should be borne by the agent by way of an implied warranty. That risk normally manifests itself in the fact that, if the agent does not, in truth, have the authority which he claims, the other party will be deprived of any effective redress against the assumed principal. In such circumstances, the warranty of authority will give equivalent redress against the agent. This appears to have been a major consideration in the emergence and development of the doctrine. But its application is not limited to cases where a transaction entered into in reliance on the supposed authority of the agent was with the alleged principal himself. That is demonstrated by a number of reported cases, most recently Penn . . But I nonetheless agree with Mr Berkley that the core problem sought to be addressed by the imposition of a warranty of authority is whether the person acting as agent did or did not have authority so to act.’
However: ‘On the other hand, a person acting on behalf of another will not normally be deemed to warrant any particular attributes of his principal or any other aspects of the transaction in which he claims to be acting on his behalf’
Judges:
Chadwick J
Citations:
[1997] 4 All ER 582
Jurisdiction:
England and Wales
Cited by:
Cited – BPE Solicitors and Another v Hughes-Holland (In Substitution for Gabriel) SC 22-Mar-2017
The court was asked what damages are recoverable in a case where (i) but for the negligence of a professional adviser his client would not have embarked on some course of action, but (ii) part or all of the loss which he suffered by doing so arose . .
Lists of cited by and citing cases may be incomplete.
Agency, Legal Professions
Updated: 23 July 2022; Ref: scu.569932
