The FICA knock-on effect.

[Dave A]

I've just got a call from a bank manager trying to clean up after a FICA disaster. The downstream consequences can be quite unexpected.

In this instance, an attorney's trust cheque has been unpaid because of the latest clamp-down on non-FICA'd accounts by banks. I'm assured it was a bank error - the account was indeed FICA compliant and the account was indeed in order. There are rather severe consequences for attorneys when their trust cheques aren't met.

I can just imaging the relevant attorney's ire as this all unravelled. But I was thinking - there are downstream consequences for my account too.

Not a matter of sufficient funds - I don't rely on cheques deposited until they're cleared anyway - even "good as gold" attorney trust cheques. I think it helps with my account scoring. And that's where my thought turned to.

This unpaid cheque is going to affect my scoring... I haven't deposited an unpaid cheque for probably more than 5 years.

[Eugene]

Wypkema v Lubbe [2007] Supreme Court of Appeal CA 36 (RSA) 28 Mar 2007

Subject: Attorney – drawing of cheque on trust account – acts as principal and not in a representative capacity

Summary: The SCA delivered judgment against an attorney on a cheque that he drew on his trust account that was dishonoured. The respondent negotiated a loan with the appellant as bridging finance on behalf of one of his clients. The client was in the process of acquiring an immovable property and needed the money prior to the proceeds of a mortgage bond, which was to be registered over the property, becoming available. The respondent was instructed to effect registration of the mortgage bond and the proceeds of the bond would have been paid into his trust account according to the instructions of his client. The appellant agreed to extend a loan at an agreed fee against receipt of a trust cheque from the respondent for the full amount of the loan and the fee, which cheque was to be presented for payment after the date on which the proceeds of the mortgage bond was to be received in the respondent’s trust account. The respondent sent his trust cheque to the appellant under cover of a letter in which he assured him of the imminent registration of the mortgage bond and receipt of the proceeds thereof in his trust account. The appellant presented the cheque for payment as per their agreement, but the cheque was dishonoured. The mortgage bond was never registered. The SCA overturned the decision of the Pretoria High Court that the attorney was not personally liable and found that when an attorney draws a cheque on his trust account, he acts as a principal and not in a representative capacity and is therefor personally liable on such a cheque to the payee thereof. The judgment in the matter was referred to the Law Society of the Northern Provinces.

[Sieg]

Dishounered attorney's trust account cheque

The Wypkema decision by our SCA raises some interesting questions.

For the full decision, see the very helpful website of the University of the Free State: http://www.uovs.ac.za/apps/law/appea.../1/Wypkema.doc

The amount of the cheque was R2,200,000.00 (Two million two hundred thousand Rand) which is quite a significant amount for the attorney to have to repay! (Plus legal costs and interest, off course).

The lender was to have advanced an amount of R1,850,000.00 as bridging finance and R350,000.00 was the lender's fee! Now, if the loan agreement had been concluded after 1st June this year, would it have been a credit agreement within the ambit of the NCA? If so, would it have been an unlawful agreement thereby entitling the hapless attorney to escape liability?

There is nothing to suggest that the lender actually advanced the funds. If the lender did in fact advance the funds, who were such funds paid to and why were the funds not recovered from the recipient when the deal collapsed?

I am amazed that the attorney actually issued the cheque in the first place. He must have been under immense pressure to have the deal finalized. There seems to be no logical explanation as to why the guarantee from the bank was not made payable to the lender.

The attorney's "impropriety", as the judge says in the ultimate paragraph, appears to have been that he issued what was in effect a "post-dated" cheque on a trust banking account. Trust banking account = OPM (Other Peoples Money).

And for Dave: do insist that the attorneys pay you by EFT instead of cheque!

Sieg

[Dave A]

I am amazed that the attorney actually issued the cheque in the first place. He must have been under immense pressure to have the deal finalized.

It's horrid how big that squeeze can be sometimes. But the job is to resist. I've lost count of the number of times I've been told "You will lose all our business if you don't (lie/cheat/unfairly prejudice yourself or someone else/add your own here)"

And for Dave: do insist that the attorneys pay you by EFT instead of cheque!

95%+ of them do, Sieg
Much better all round. And saves the blushes for those that can't understand why we haven't deposited the cheque when it's still in their file!

Oh boy. I could tell you stories... but it would just get your blood pressure up. I'm afraid not all of your colleagues are quite as "diligent" as they should be. Sometimes with reason. Sometimes not.

I thought this one was particularly interesting and worth sharing, though.