Plaintiffs wishing to sell home and purchase new property to develop – Solicitors offering to lend conveyancing deposit pending completion – Plaintiffs entering contract to buy before finance for purchase raised – Plaintiffs charging investment properties to raise bridging loan – Plaintiffs unable to sell home or service repayments – Whether plaintiffs adequately advised
The plaintiffs owned Catchfield Manor, Saltash, Cornwall, which was mortgaged to Lloyd’s Bank for over £200,000. They ran a bed and breakfast business in part of the house and the remainder had been divided into flats which they let out. In July 1984 they contracted to buy Caradoc Court, Ross-on-Wye, Herefordshire, a Grade II listed manor with 52 acres, which they intended to develop and use as a leisure centre, for which they needed to borrow the 5% deposit. They contacted the first defendant who referred them to solicitors, the second defendants, who had a facility for lending conveyancing deposits to clients pending completion. A meeting took place between the parties. The plaintiffs did not have the money at the date of contract to finance the purchase. However, they subsequently received an offer to loan £384,500 from BMT and the vendor agreed to leave £135,000 outstanding until May 1985. The bridging loan was secured on three investment properties owned by the plaintiffs in Plymouth. The contract was completed in December 1984. However, the plaintiffs were unable to sell Catchfield Manor. Their borrowings exceeded £700,000 and they could not service the interest payments. Caradoc Court was sold in 1986 for £216,000. The Plymouth properties were sold by BMT. Catchfield Manor was sold by Lloyd’s Bank.
The plaintiffs issued proceedings against the first and second defendants claiming that they had not been adequately advised about the risks of exchanging contracts without finance being in place, and about the consequences of their default as purchasers, which had resulted in their exposure to a damages claim as well as the forfeiture of the deposit. The first plaintiff became bankrupt and thereafter the action between the first plaintiff and the first defendant was stayed. The question of the liability of the defendants was heard as a preliminary issue.
Held The plaintiffs’ claim was dismissed.
1. The mortgage deed which the plaintiffs had executed in support of the bridging loans had shown that the Plymouth properties had been charged, and the second defendant would have explained to the plaintiffs what had been charged. Therefore the plaintiffs had known the properties had been charged.
2. Solicitors were under a duty to advise about the dangers of entering into a contract to buy where finance had not been obtained. However, the plaintiffs were experienced in dealing in properties and had known the full extent of the risks they were running by exchanging without having the finance in place. They had been ambitious to purchase Carodoc Court and they had ignored the adequate advice which had been given to them.
The plaintiffs appeared in person; NicholasTerras (instructed by Curtis) appeared for the first defendant; Alastair Norris (instructed by Bond Pearce) appeared for the second defendant.
