Mortgage fraud affecting house owned by married couple – Husband vendor forging wife’s signature – Solicitor believing that instructed by both parties – Solicitors for mortgagee of accomplice buyer similarly deceived – Mortgagee claiming breach by husband’s solicitor of implied warranty of authority – Immaterial that warranty not addressed to claimant – Immaterial that relevant transaction not concluded with supposed principal – Whether costs of opposing wife’s action recoverable on indemnity basis – Appeal dismissed
The appellant solicitor B and the respondent building society were defendants to an action brought by a wife following a mortgage fraud perpetrated, without her knowledge, by her husband and an accomplice, Wilson. The fraud concerned a house jointly acquired in 1987 by the spouses for £25,000. In 1990 the husband, giving B to understand that the wife had concurred, instructed B to attend to an agreed sale of the house for £80,000 to Wilson, whose solicitors, Gartons, would also act for the provider of any mortgage loan to Wilson. Unaware that the wife’s signature had been forged on material documents, B dealt with Gartons throughout on the basis that he was acting for the joint owners. Similarly deceived, Gartons arranged for the execution of the mortgage by Wilson purporting to secure a loan by the respondents of £75,000. Some £32,000 was paid to a prior mortgagee and the balance into the husband’s bank account, where it was used to discharge his business debts. During the subsequent proceedings brought by the wife, where both the conveyance to Wilson and his purported mortgage were held to be void, the respondents made a successful claim against B for breach of his implied warranty of authority and recovered, inter alia, a full indemnity in respect of legal costs incurred in defending the claim made by the wife. B appealed.
Held The appeal was dismissed as regards liability.
1. As correctly stated in Bowstead and Reynolds on Agency, (16th ed, para 9-061), claims for breach of implied warranty of authority extended to any damaging transaction which the claimant was induced to enter into, not just purported dealings with the supposed principal. The contrary suggestion in Chitty on Contracts, (27th ed, para 31-093) lacked judicial support: see Firbank’s Executors v Humphryes (1886) 18 QBD 54 and Starkey v Bank of England [1903] AC 114. It was accordingly no answer that the claim related to dealings with Wilson rather than the wife.
2. Since B was aware that Garton’s advice would be acted upon by a mortgagee, it was immaterial that the warranty had not been given for the specific benefit of the respondents: see V/O Rasnoimport, v Guthrie & Co Ltd [1996] I Lloyd’s Rep 1 on analagous warranties in mercantile transactions.
3. Varying the judge’s order: If separate proceedings had been taken, the respondents would have recovered as damages all expenditure incurred in opposing the wife’s claim. However, the combined actions were governed by RSC Ord 62 r 3(4), which required those costs to be taxed on a standard basis. That the award sounded in damages did not afford a sufficient reason for making it on an indemnity basis.
Rupert Jackson QC and Patrick Lawrence (instructed by Wansbroughs Willey Hargrave, of Leeds) appeared for the appellant; Nicholas Stewart QC and Daniel Worsley (instructed by Veale Wasbrough, of Bristol) appeared for the respondent
