We are pleased to welcome again Mr Anis Waiz Solicitor of Ozon Solicitors Manchester as he considers the very important decision of the Inner House on Appeal in the above case. You may recall Anis blogged about the decision of the First instance decision of the Outer House in November 2011.
The background facts are set out in the judgment of both Houses. In brief the case concerned the attempted recovery by lenders of monies arising out of fraudulent mortgage applications. One of the key issues in the case was the principle of warranty of authority. The Lenders sued the respondents for loss which they aver they suffered through the respondents’ breaches of their warranty of authority.
A separate point as to the meaning and effect of a letter of obligation was also in issue between the parties (not dealt with in this note).
At First instance the Court held that it was, difficult to see any room for any implied representation by the solicitors as to the identity of the borrowers for whom they were acting, other than that they were acting for the people with whom the lenders were already engaged in a process of finalising a loan transaction. Relying on Collen v Wright (see below), the solicitors did not more than warrant that the authority which (they professed) to have, did in point exist.
The authority which they professed to have was that they were instructed by the borrowers who were already known to the lenders. There was no implied warranty going beyond this.
Breach of Warranty of Authority
By way of brief resume the English leading textbook Bowstead and Reynolds on Agency (19th Edition) defines Warranty of Authority as;
(1)” Where a person, by words or conduct, represents that he has actual authority to act on behalf of another, and a third party is induced by such representation to act in a manner in which he would not have acted if that representation had not been made, the first-mentioned person is deemed to warrant that the representation is true, and is liable for any loss caused to such third party by a breach of that implied warranty, even if he has acted in good faith, under a mistaken belief that he had such authority.
(2) Every person who purports to act as an agent is deemed by his conduct to represent that he has in fact been duly authorised so to act, except where the purported agent expressly disclaims authority or where the nature and extent of his authority, or the material facts from which its nature and extent may be inferred, are known to the other contracting party".
The position in Scotland is set out in the current edition of Gloag and Henderson the Law of Scotland (12th Edition) at para 19.26:
"If he (the agent) honestly thought he had the principal’s authority, as where an auctioneer, by mere mistake, sold a horse which was not for sale (Anderson v Croall (1903) 6F 153), or solicitors believed that they were representing a trust when in fact there were no trustees (Scott v J.B Livingston and Nicol 1990 SLT 305) the agent will incur liability on the theory that an agent impliedly warrants that he has the authority of the principal whom he names, and is liable in damages for breach of that warranty if it turns out that he has no authority. (Collen v Wright (1857) 8 EL and BL 647)".
Gloag and Henderson also notes the following
The Lenders sought to rely on the following;
1. The principle set out in the dictum of Willes J in Collen v Wright 1857 8E B 647 at 657:
“I am of opinion that a person, who induces another to contract with him as the agent of a third party by an unqualified assertion of his being authorised to act as such agent, is answerable to the person who so contracts for any damages which he may sustain by reason of the assertion of authority being untrue. This is not the case of a bare misstatement by a person not bound by any duty to give information. The fact that the professed agent honestly thinks that he has authority affects the moral character of his act; but his moral innocence, so far as the person whom he has induced to contract is concerned, in no way aids such person or alleviates the inconvenience and damage which he sustains.
The obligation arising in such a case is well expressed by saying that a person, professing to contract as agent for another, impliedly, if not expressly, undertakes to or promises the person who enters into such contract, upon the faith of the professed agent being duly authorised, that the authority which he professes to have does in point of fact exist. The fact of entering into the transaction with the professed agent, as such, is good consideration for the promise”
Attributes of clients
The Inner Court noted that a warranty may be given by a solicitor, or other agent, expressly to a third party as to a particular attribute or attributes of the solicitor’s or agent’s client. It was thus more appropriate in such discussions to talk of attributes of clients rather than the identity of a client. The identity of a person is made up from a bundle of qualities or attributes.
Whilst there is nothing in principle in the law of contract to prevent an agent from guaranteeing to a third party that he has a principal who is the same person as appears on property registers, for example, as the owner of a specific property it is unlikely that an agent would agree to this.
The lenders were unsuccessful in their Appeal. The Inner House held;
3. The submissions that were made failed completely to focus on the concept of authority and what was implied by that word. All that the agent is warranting is that he has a client and that client has given him authority to act. It would be quite unreasonable and inappropriate to extend this to an implied warranty that his client has a certain attribute or attributes.
The Inner house has clearly drawn a fine distinction by following the decision in Excel Securities v Masood  Lloyds Rep. P.N. 165. The point being made that the Solicitors warranted they acted for a client going by the name used and claiming to be an individual as the person of that name who appeared to be the registered proprietor of the property. The introduction of “attributes” is a further fine distinction being made. The Inner House noting that the identity of a person is made up from a bundle of qualities or attributes.
Lenders may now insist that borrower’s solicitors guarantee that they act for a client having the attributes of an honest registered proprietor.