Mortgage — Default on repayments — Property repossessed — Sale — Lender suffered loss and damage — Solicitors advice to lender — Action for damages — Breach of contractual duty — Lender’s claim failed
The plaintiffs were in the business of providing mortgages. On February 2 1989 B applied for a mortgage on a freehold property which he owned, known as the Mill, Felsted, Dunmow, Essex. The plaintiffs advanced £487,000, by way of a remortgage to B, secured on the property. The defendant acted for B in respect of the transaction. The advance was completed on April 6 1990. B subsequently defaulted on his repayments. The property was repossessed in 1991 and sold on December 13 1994 for £240,000. The plaintiffs suffered loss and damage.
The plaintiffs argued that the defendant was in breach of his contractual duty in failing to advise them on three matters. First, the borrower had mortgages over two other properties in Wales. According to the general and special conditions of the offer of advance: “The applicant’s existing mortgage(s), if any, must be redeemed on or before completion of this advance”. Second, there was a defect in the title to the property which ought to have been drawn to the attention of the plaintiff. On June 1 1988, B’s common-law wife had, by a deed of gift, transferred her interest in the property to B in consideration of her natural love and affection. The transfer, being in the five-year period following the deed of gift, could be displaced by a court order in the case of her bankruptcy. The defendant allegedly knew that her finances were precarious. Third, the defendant knew, or suspected, that B did not live at the property but at another property in Wales and, further, that B intended to convert the property into four flats and sell it at a profit. It was a general condition of the offer of advance that the borrower was to reside at the property within 30 days of completion.
Held Judgment for the defendant.
1. A solicitor acting for the mortgagee had to draw to the attention of the lender all matters which came to his attention which affected the lender’s decision to lend; subject to obtaining his client’s consent in the case of confidential information and his duty to withdraw if that consent was not given. But a solicitor was not required to investigate his client’s financial position otherwise than in relation to the mortgage. If a lender required mortgages, other than the mortgages on the property to be charged, to be discharged, he had to specify them and make it a requirement of the offer.
2. The claim that the deed of gift was vulnerable to attack by a trustee in bankruptcy was ill founded. The consideration received by her was not significantly less than the value of what she gave up. The consideration given on each side could not be precisely evaluated. The transaction was one which might have been entered into by persons at arm’s length neither of whom had any reason to incur advantage on the other.
3. It was impossible to say how much time the borrower spent at the property and there was nothing in the evidence to point to the conclusion that the borrower did intend not to use the property as an occasional residence.
Ian Gatt (instructed by Lewis Silkin) appeared for the plaintiffs; Elizabeth Weaver (instructed by Ince & Co) appeared for the defendant.
