Division C: Cheques and Electronic Funds to be Held as Undelivered
Where postal settlement of a transaction is envisaged, good practice is to agree in advance the arrangements for the sending of and intromission with funds and other settlement items.
It is recognised that in a postal settlement it is appropriate for the buyer's solicitor to send a cheque to be held as undelivered either pending fulfilment of conditions in the missives or pending confirmation that the solicitor is in funds and the cheque can be encashed. 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 consider the alternative of electronic transfer of funds (which may have certain advantages and disadvantages on which see below). Assuming trust between practitioners, arrangements which rely on mutual acceptance of an undertaking not to cash the cheque or intromit with funds sent electronically can be made. This 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.
Where loan papers are issued late in a transaction, there may be consequent urgency to deal with remaining practicalities before settlement. In these circumstances it is acceptable for a purchasing agent to seek to impose unilaterally a condition making delivery and encashment of a settlement cheque conditional upon the purchasing agent authorising that. Where this happens the selling agent is not entitled to cash the cheque in breach of such condition provided that it was sent subject to the words "to be held as undelivered". The Professional Practice Committee and the Council confirm 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 for in the missives. The matter is one of practice between agents rather than of law.
When sending funds by electronic transfer, it is good practice to agree in advance that those funds will be held as undelivered pending fulfilment of certain conditions.
In the case of either cheque settlement or settlement by electronic transfer, if the buyer's solicitor does not receive the titles, keys etc. in return for a client's account cheque or electronic settlement which has been sent to be held as undelivered he can either demand the return of a cheque or electronic settlement or stop the cheque (in extreme circumstances).. A seller's solicitor can also protect the seller by attaching conditions to deeds etc sent by post, including a condition about interest on the price if settlement has been delayed.
Traditionally, when a selling solicitor received and banked another solicitor's client account cheque, he could write his own client account cheques to redeem his client's loan or settle his client's purchase on the same day. Problems are encountered very occasionally if the solicitor receiving the cheque banks at the same branch of the same bank as the solicitor sending the cheque although that is rare.
Since the introduction of the cheque clearing process known as 2-4-6 there is a risk that the cheque sent out will be presented for payment at the sender's bank before the cheque paid in has cleared. The Professional Practice department at the Society has received a number of telephone calls from solicitors affected in this way.
These problems may be surmounted by either
(1) clients arranging short term bridging loans, or
(2) solicitors arranging a temporary facility with their own bank that would allow the bank to transfer sufficient funds into the client bank account to meet the presentation of an outgoing cheque where the incoming cheque has still to clear. Any interest payable could be charged to the client although that would have to be specified in the relevant Terms of Business.
If neither of these options is adopted, a third option namely
(3) settlement by electronic transfer is suggested to avoid the possibility of a shortfall in the client account that may in turn lead to a failure to comply with Rule B6 (the Accounts etc rules).
If a selling solicitor is also purchasing for his client on the same day and wishes the sale to be settled by electronic transfer the selling solicitor should put a clause in the missives requiring the sale to be settled electronically. That will be subject to agreement by the buyer, but it must be in the missives or it cannot be insisted upon.
Subject to these considerations the Professional Practice Committee remains of the view that settlement by cheque between solicitors is in both clients' interests as the cheque can be sent in advance to be held as undelivered pending delivery of relevant items and/or confirmation that the sender is in funds, and the disposition can be sent in advance subject to the seller's conditions.
LENDERS and CLIENTS
The Committee agreed however that so far as settlement with the client and the lender are concerned the seller's agent should ascertain in advance whether the seller would prefer to meet the cost of an electronic transfer of funds or opt for the issue of a cheque in relation to (a) redemption of the loan (if the method is not prescribed by the lender) and (b) remit of the free proceeds of sale to the seller. Such instructions will of course be subject to the solicitor ensuring that there are sufficient cleared funds to meet whatever method of payment is adopted.
ENGLAND and WALES
If a client is purchasing a property in England or Wales out of the proceeds of sale of a property in Scotland, it is important to ascertain the requirements for settling the purchase at the earliest possible stage. Purchase and sale transactions routinely settle by electronic transfer in England and Wales and the client's English or Welsh Solicitor will assume that he will receive funds by electronic transfer. If there will not be sufficient time for a cheque to clear before funds are required in England or Wales, the selling solicitor should explain that to the client and conclude the bargain for the sale on the basis that settlement will by electronic transfer or advise the client that he will need to arrange temporary bridging facilities to await cleared funds. Failure to address these issues at an early stage is likely to lead to a dissatisfied client and a possible complaint to the Scottish Legal Complaints Commission.