Settlement Cheques sent to be Held as Undelivered (1998)
As part of their Review of Practice Guidelines, the Professional Practice Committee have considered Guidelines which were issued in 1992 and 1994, and have agreed that there should be no change to the most recent Guideline, which was published in 1994. The Committee reaffirmed that such matters should be agreed in advance if at all possible, and that it is improper professional practice to impose unilaterally a condition that a cheque in settlement of a transaction be held as undelivered pending confirmation that the sender is in funds. The Committee accepted, however, that while as a matter of law the seller's solicitor may be entitled to encash the cheque and ignore the condition, such action would not be good professional practice as it would destroy the professional trust between agents. The text of the Guideline is as follows:
In the 1992 journal at page 323 a note was published after a purchaser's agent, without prior agreement or discussion, sent the selling agent a cheque for the purchase price to be held as undelivered until the purchaser's agent telephoned to say it could be cashed. The chief accountant's advice as contained in the note was that the selling agent should have ignored the unilaterally imposed condition relating to delivery of the cheque and should have cashed it.
Exception was taken to this view and the matter was extensively debated within the Society's Conveyancing Committee, the Professional Practice Committee and the Council. The considered view of the majority, approved by Council, contradicted important elements in the chief accountant's note.
It is not competent unilaterally to impose a condition, whether made verbally or in writing, in a contract such as for the sale of heritable property. In the absence of subsequent agreement, the missives prevail. It is professionally wrong for an agent to impose a unilateral condition, the first intimation of which to the other side is in a letter on the morning of settlement. Prior discussion and agreement is necessary. Professors Cusine and Rennie touch on this at para. 6.15 of their recent book, Missives, where they state: It is not open to the purchasing solicitor, at the time of dispatch of the cheque, to require the cheque to be held as undelivered where the seller's obligations under the contract are unimplemented, unless of course that has been agreed with the seller's solicitor.
It is acknowledged that a practice that has developed of sending cheques to be held as undelivered with both sides being agreeable to this. This practice avoids alternative courses of action such as bridging or effecting settlement in person, all of which can be viewed as adding expense, though agents should be aware of the benefits of electronic transfer of funds. Assuming trust between practitioners, arrangements which rely on mutual acceptance of an undertaking nor to cash the cheque can be made. It is analogous to the customary sending of the settlement cheque to be held as undelivered pending dispatch of a duly executed disposition, etc.
It is also important to bear in mind that the question of conditional delivery of a cheque is dealt with in s.21 of the Bills of Exchange Act 1882.
The Society's view is that it was wrong and improper professional practice for the purchasing agent to impose the unilateral condition which he did. However, that did not entitle the selling agent to cash the cheque, given that it was sent subject to the words to be held as undelivered. The Professional Practice Committee and the Council have confirmed that where money or deeds are sent to be held as undelivered pending purification of a condition, they should be so held if the condition is not purified. Settlement will not take place until they can be treated as delivered, with consequent penalty interest if provided in the missives. The matter is one of practice between agents rather than of law.
