Solicitors acting for both parties — Parties related by blood — Money raised by son on security of mother’s house — Initial transaction for amount of money owing on mortgage — Solicitors receiving fresh instructions from son to raise much larger sum than was owing — Money since lost and mother evicted — Whether solicitors should have kept her better informed — Whether solicitors negligent — Judgment for the plaintiff mother
The plaintiff, Mrs A, had lived in a council house at 29 Westbourne Road, Chatteris, since 1947. An opportunity arose to buy the house under the Housing Act 1985 and she was persuaded to purchase by one of her sons (P1), who was then living at home. As she had been a tenant for 40 years, she obtained a substantial discount and received 100% mortgage for the sum of £9,800. Her son was joint purchaser, but was unable to keep up the mortgage repayments and the council threaten possession proceedings.
The first defendant, another son, (P2), was ready to step into his brother’s shoes. P2 was living in Cambridgeshire, and was in employment. The agreement was that he would have the expectation on his mother’s death of the property, but that she would have the right to live there during her lifetime. P1 would keep the property in repair.
The second defendants, a firm of solicitors, were instructed to carry that transaction through, and were to represent the plaintiff and both her sons. However, in the event, P2 raised £30,000 mortgage on the house which was much higher than the purchase price of £9,800. He intended to leave his employment and to buy a public house with the proceeds in the North of England. He also arranged a sale of his own house in Cambridgeshire and instructed the same firm of solicitors to act for him. With regard to the transaction for his mother’s house, it was to be a new purchase, with the plaintiff and P1 as vendors, and the plaintiff and P2 as purchasers.
The plaintiff signed the documents at the solicitors’ offices, but she was not informed of the amount raised for which she had entered into a covenant to repay under the mortgage deed. The solicitors assumed that she knew of her son’s intentions and had discussed them with him. The money which P2 raised had since been lost. The following year the plaintiff received a possession summons from the building society and, unable to meet the arrears owing, she was evicted.
Held Judgment for the plaintiff.
1. The question at issue was that one of two innocent parties had to suffer for the wrong doing of a third.
2. With regard to the solicitors, no attack had been made on their good faith and integrity. Further, under the Solicitors Practice Rules, they could act for all three parties where there was no conflict of interest and the parties were related by blood.
3. However, the situation had changed dramatically from their original instructions to release a mortgage of £9,800. They were then instructed in a transaction involving £30,000 on the security of the plaintiff’s house for the purchase of a business for P2. There was a clear conflict of interest in such a situation. There was no need for the plaintiff to raise such a loan and nor could she have serviced it.
4. The solicitors assumed that she knew the state of affairs but they did not discharge their duty to her and should have explained the financial consequences of the transaction which she had entered into.
5. Damages were to be assessed by the true loss of her net equity in the house.
Geraint Jones (instructed by Battersby & Co, of Chatteris) appeared for the plaintiff; Michael Patchett-Joyce (instructed by Mills & Reeve, of Norwich) appeared for the defendants.
