Fraud and negligence in Cow Creek
Hypothetical with Manny Wood
FRED and Mary have operated a farming business for many years.
The farm is based on two large properties that are owned by Fred.
Mary owns a residential property in her sole name and has other substantial assets.
The couple have a son and four daughters and one day Fred makes a will with the intention of leaving one of the properties known as Cow Creek to his son and the other property to his daughters.
At the time of making his will, Fred executes a power of attorney in favour of Mary but a decade later he has sadly lost the mental ability to manage his affairs.
But Mary decides her daughters should become the owners of Cow Creek and using the power of attorney, enters into a contract whereby the $1 million property is transferred to them for one dollar.
When Fred dies his son becomes aware of the transfer and commences proceedings against his mother and his sisters.
The court rules Mary had no authority to enter into the contract and was in breach of her obligations to Fred,as it was not for his benefit.
The court also rules Mary had a personal liability to restore Fred's estate.
The fact the property was transferred to her daughters and not to her personally, did not circumvent her personal liability.
In circumstances where the daughters should have appreciated Mary had no authority, the court ultimately orders they hold the property on trust for Fred's estate.
Because of the circumstance in which Mary retained her lawyer in a representative capacity to transfer the property, the court also finds the lawyer was required to personally protect Fred's interests.
The lawyer was negligent because he had breached his duty of care to Fred as well as the son.
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