Lloyd v Grace, Smith and Co

Facts

• The appellant, a widow, consulted the respondent firm of solicitors about her property.
• She was attended by the firm's managing clerk, who conducted conveyancing work without supervision.
• The clerk advised her to sell certain properties and induced her to sign documents which in fact transferred them to him.
• He then disposed of the properties and misappropriated the proceeds for his own benefit.
• The sole principal of the firm was unaware of the fraud and derived no benefit from it.
• The client sued the firm for her loss.

Issue

1. Whether a principal is liable for the fraud of an agent where the fraud was committed for the agent's own benefit and the principal neither knew of nor profited from it.

Held

• The House of Lords held the firm liable. The clerk had been placed in a position where he dealt with clients and their property on the firm's behalf, and the fraud was committed in the course of doing the very class of work he was employed to do. Liability does not depend on the principal having benefited. What matters is whether the agent was acting within the apparent scope of the authority entrusted to him, such that the client was induced to deal with him as the firm's representative.

Ratio Decidendi

A principal who holds out an agent as authorised to transact a class of business must answer to those who deal with the agent in that business, including for the agent's frauds committed in the course of it. The principal's innocence and absence of benefit are irrelevant, because the loss is properly borne by the party who selected the agent and created the appearance of authority rather than by the innocent outsider.