Plaintiff instructing defendant solicitors to advise on property offered as mortgage security – Solicitors advising security sufficient – Plaintiff suffering loss after realising security and alleging negligence – Whether second defendant a partner – Whether second defendant estopped from denying responsibility – Preliminary issues
In June 1990 the first defendant was a sole principal practising under the name “Brian Lewis & Co” (the firm). He invited the second defendant to join him as a “salaried partner” at a salary of £18,000 pa and July 1990 the second defendant accepted. The second defendant was not entitled to a share of the profits although there was some possibility of him becoming an equity partner in the future. He was described as a salaried partner to the firm’s bank and he became a signatory on the firm’s bank accounts on the basis that he was not liable for the firm’s overdraft. In May 1991 the firm was instructed by the plaintiff to advise on the title of a property and to see whether the offered mortgage security was sufficient. The firm was also instructed by the proposed mortgagor. Subsequent to the firm’s advice the transaction was completed on July 4 1991. However the mortgagor fell into arrears and the plaintiff, on realising its security, faced a large loss. The plaintiff issued proceedings against the defendants and claimed that they had been negligent for not informing the plaintiff that the vendor had purchased the property for a substantially lower price on the same day that he had sold it to the mortgagor. Subsequently the first defendant was adjudged bankrupt and was removed for the roll of solicitors. The Solicitors Indemnity Fund refused to indemnifying him against the claim. The plaintiff looked to the second defendant as a partner in the firm at a material time and therefore liable for any negligence on the part of the first defendant. The second defendant claimed that he had not been a partner and had not so held himself out. A hearing of preliminary issues was ordered to decide (1) whether the second defendant was liable on the basis that he was a partner and (2) whether he was liable on the basis that he had held himself out as a partner.
Held The first issue was decided in favour of the second defendant; the second issue was decided in favour of the plaintiff.
1. Although a salaried partner could be a partner if his relationship with his firm was that of a true partner, the relationship between the first and second defendant was that of master and servant not that of partnership, and the presence of the second defendant’s name on the firm’s notepaper did not make him a partner: see Stekel v Ellice [1973] 1 WLR 191.
2. However, although the date when the plaintiff had instructed the firm was an important date, it was not the only date since it had only been the start of the relationship between the parties. The firm’s advice had come back in a letter which had been on notepaper which had showed the firm’s name and the name of the first and second defendant alongside it, and therefore the plaintiff had been entitled to presume from it that the second defendant was partner. Accordingly the second defendant had held himself out as a partner and was estopped from denying responsibility.
Timothy Higginson (instructed by the solicitor to the Nationwide Building Society) appeared for the plaintiff; Paul Parker (instructed by Reynolds Porter Chamberlain) appeared for the second defendant.