A first mortgagee, Heard, had sold property under the power of sale and had retained a solicitor, Searle, to act in relation to the sale. Searle received the proceeds of sale, satisfied the first mortgage debt, but retained the balance, falsely representing to the first mortgagee that he had the authority of the second mortgagee, Thorne, to receive the balance. He paid interest to Thorne as if Thorne’s mortgage was still subsisting, thereby concealing his theft of the money. The truth came out when Searle became bankrupt. Thorne then sued Heard for the balance of the proceeds, asserting that Heard had acted in breach of trust in allowing Searle to retain the proceeds. That was a breach of trust, but it was innocent, not fraudulent, and had occurred much more than six years before the start of the proceedings. Accordingly Thorne relied on section 8(1), claiming that Heard was liable for the fraud of Searle, he having been Heard’s agent, and claiming that accordingly Heard was party or privy to Searle’s fraud as principal.
Lindley LJ asked when the right of action accrued. He said that the fraud first occurred when Searle misappropriated the money, and it was concealed by Searle continuing to pay Thorne the interest that would have been due to him. He held that the fraud and its concealment could not be treated as perpetrated or concealed by Heard. He distinguished both Blair v Bromley and Moore v Knight, where the fraud and its concealment, though committed by one partner (or, in Moore v Knight, by an employee), was imputable to the firm, so that the firm was held to have concealed the fraud, even though not guilty of it in the first place (p.604). He noted that the 1888 Act had not affected the principles on which the time when a cause of action accrues is to be determined. Accordingly, he held that the right of action accrued more than six years before the start of the proceedings, and he went on to consider the section.
On this he said: ‘Counsel for the Appellant contended that the facts of this case brought it within the first exception; but I am clearly of opinion that they do not. It is only by a misuse of language that a person who in fact knows absolutely nothing of the fraudulent conduct of another, and who in no way benefits by it or ratifies it, can be said to be party or privy to it. One person may be, and often is, liable in law for frauds which he has not committed; but to say that he is party or privy to them is quite another matter, and is only true when he has personally in some way participated in them. The Defendants were, in my judgment, in no sense whatever either fraudulent themselves or parties or privies to the fraud of Searle.’
Kay LJ dealt with the argument under the section first, on which he said this: ‘Of course the Defendants are liable unless the statute to which I have referred protects them. It has been argued that they were party or privy to Searle’s fraud. Even if it could be said that they were liable for his fraud, it is another thing to say that they were party or privy to it. I think that those words in the statute indicate moral complicity, which is not suggested in this case.’
Lindley LJ, Kay LJ
[1894] UKLawRpCh 12, (1894) 1 Ch 599
Commonlii
Trustee Act 1888 8
England and Wales
Citing:
Distinguished – Moore v Knight ChD 18-Dec-1890
The court considered the liability of partners in a solicitors’ firm for embezzlement of client money by an employee of the firm. Once the true position became known, after many years, the client sued the surviving partners, who relied on . .
Cited by:
Appeal from – Thorne v Heard HL 1895
Recovery was sought from the partners of a defaulting solicitor.
Lord Herschell LC disposed of the argument about concealment first, and then turned to section 8, saying: ‘My Lords, the only remaining question is, Did the statute apply? It is . .
Cited – Dixon Coles and Gill (A Former Firm) v Baines, Bishop of Leeds and Another CA 20-Jul-2021
Innocent co-trustee not liable for Default
Proceedings were brought by former clients against their former solicitors. One of the partners stole money held in the firm’s client account on behalf of the claimants. The other two partners were entirely innocent of, and in no way implicated in, . .
Lists of cited by and citing cases may be incomplete.
Updated: 22 July 2021; Ref: scu.666143
