Don’t Trust a Personal Cheque – A Precautionary Tale

Just last week, a law firm was acting for clients purchasing a large house in a new subdivision. The law firm accepted the clients’ personal cheque for over $500,000. The firm promptly issued a trust cheque to the seller’s lawyer, and title transferred to the purchasers.

The cheque bounced. So far, the purchaser-clients have not been able to come up with the money. The law firm’s trust account is short over $500,000. We hope this can be repaired but exactly how that will play out is not yet clear.

Some lawyers incorrectly assume that when they receive a cheque (including a personal cheque, a certified cheque, a bank draft or even a trust cheque from another law firm) and deposit that into their trust account, they can proceed immediately on the basis that the funds are guaranteed and the cash is in their account. Wrong! Until a cheque has “cleared”, those funds are not actually in the trust account.

The moral of the story is do not write a trust cheque unless or until you have confirmed that clients’ funds are actually in your trust account.

For more information, review this message from the Law Society’s Audit Department: Confirm Available Funds