Cheshire Mortgage Corporation Ltd v Grandison & Ors: Breach of Warranty of Authority in Scots Law

by ScotsLawBlog on September 25, 2012

The following is a guest Scots law blog post as first published to leading case law resource, CaseCheck, regarding the recent Inner House decision in Cheshire Mortgage Corporation Ltd v Grandison and Blemain Finance Ltd v Balfour & Manson LLP [2012] CSIH 66 (5th September 2012)


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 and CaseCheck’s editor Kate Manning has already reported on this recent judgment here.


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

“But where a plumber had done work on the instructions of an agent who, as it turned out, had no authority, but the principal named was a company which was insolvent and had no assets, it was held that as the obligation of the company was valueless, the plumber had lost nothing by the want of it, and therefore could recover no damages from the agent for breach of his implied warranty. (Irving v Burns 1915 SC 260).”

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”

  1. Penn v Bristol and West Building Society and others [1997] 1 WLR 1356. A case in which a solicitor warranted that he acted for both a husband and wife in the granting of a security over a home jointly owned by them. He was instructed by the husband, but not the wife. It was held that it was not necessary for the building society who had lent on reliance of the security given, and to whom the representation of authority had not been directly made by the solicitor, to establish that they had been induced to enter into some form of dealing with the supposed principal in that case the wife. 

The Lenders argued that this decision supported their plea that the nature and effect of any warranty of authority is fact sensitive. At page 1361 Waller LJ giving the judgment of the court cited from the English leading textbook Chitty on Contracts: “One who expressly or impliedly warrants that he has the authority of another is liable in contract for breach of warranty of authority to any person to whom the warranty is made and who suffers damage by acting in the faith of it, if in fact he had no such authority. This is a specific type, in fact probably the original type, of collateral contract: the agent offers to warrant his authority in return for the third party’s dealing with his principal.”

On Appeal the Inner House went on to consider a number of English authorities;

1. In SEB Trygg Liv Holding AB v Manches (2006) 1 WLR 2276  Here the Court Of Appeal noted the limited nature of the implied warranty of authority . The case concerned solicitors who commenced arbitration proceedings in the name of a company which was no longer in existence. The court held that the warranty given by a solicitor, when conducting proceedings, was that he had a client who had instructed him to assert or deny the claims made against the opposing party. The warranty did not extend to warranting that the client had title to sue, was solvent, had a good cause of action or defence or had any other attribute asserted on his behalf.

Moreover the solicitor did not warrant that the client had the name by which he appeared in the proceedings. The court held that as a matter of principle it would be wrong to impose strict liability on a solicitor for incorrectly naming his client.

2. In Excel Securities v Masood [2010] Lloyds Rep. P.N. 165 a decision of the Queen’s Bench Division Mercantile Court in which the lenders were seeking to recover from a firm of solicitors their losses resulting from identity fraud by borrowers for whom the solicitors had acted in preparing security documents over property of which the borrowers claimed they were the true owners. The factual matrix in that case was similar to the present case.

The lenders sued the solicitors for their loss on the grounds, of breach of warranty authority “as to the identity” of their clients.

HHJ Hegarty QC, noted that an agent acting on behalf of an identified principal will not normally incur any personal, contractual liability so long as he acts within the scope of his authority.  The agent will normally be regarded as giving an implied warranty as to his authority. If, therefore, he never had authority to act on behalf of the principal or if his authority has terminated or if he exceeds the scope of his authority, he will be in breach of the implied warranty and will be liable in damages to any person to whom the warranty was given.

However it did not follow that, in every case, an agent must be regarded as warranting the identity of his client and not merely the fact that he has authority to act on the client’s behalf.

HHJ Hegarty then drew a fine distinction and held that he was not persuaded that the solicitors impliedly warranted either the identity of their client or his title to the property. They warranted that they had authority to act on behalf of their client. That was a person identifying himself by the name used and claiming to be the registered proprietor of the property. Furthermore, he was almost certainly the person with whom Excel itself had been dealing on the basis of the same misapprehension as to his name and identity. The implied warranty of authority given by the solicitors in this case would simply be that they had authority to act on behalf of a person going by the name used  and claiming to be the same individual as the person of that name who appeared to be the registered proprietor of the property .

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 Inner House noted no such express warranty of the solicitor was asked for, or given, and thus matters rested on the implied, warranty of authority to be implied as a matter of law the extent and nature of which was defined correctly in the Excel case.  


The lenders were unsuccessful in their Appeal. The Inner House held;

  1. It was impossible to point to any material difference between the facts and circumstances of the Excel case and the present cases. The Court was satisfied that the reasoning applied equally well to the present case.
  2. There were no reasons in principle or practice, for extending the limited scope and nature of the implied warranty of agents in the way in which the Lenders contended for.
  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 [2010] 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.

It will be interesting to see if the English Courts follow this decision as to attributes.

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