This Div is a JS Trigger
Issue 76 | July 2022


This newsletter includes information to help lawyers reduce the likelihood of being sued for malpractice. The material presented is not intended to establish, report, or create the standard of care for lawyers. The articles do not represent a complete analysis of the topics presented, and readers should conduct their own appropriate legal research.
FRAUD ALERT: Lawyers Everywhere are the Victims of Cheque Frauds

This one is from Pennsylvania but could just as well have happened (and has happened) here.

This scammed law firm is out $200,000. The firm was scammed after it agreed to collect a $199,550 debt for what it thought was a tool company in Florida. After the lawyer demanded payment from a person purporting to represent the debtor, the firm received a cheque for the full amount of the debt owed.

At this point there should have been red flags. First, the firm was in Pennsylvania so even if the debtor was in that state, of all the law firms there, why did this company in Florida retain us? It is fair to ask how a client previously unknown to you was referred to you. Second, how often does a debtor facing a demand for that kind of money just write the cheque? Sure it can happen. But what are the odds that they just agree to the amount after receiving a demand letter?

When they received the cheque, the lawyer deposited it through an ATM (as the branch was closed due to COVID). The next day the firm’s online bank account said the full amount of the deposit was available. Using wiring instructions received from the purported client, the lawyer wired the money to what turned out to be a bank in another country.

The lawyer did not know that the cheque received was forged before depositing it and wiring the funds to the purported client.

When the deposited cheque was determined to be a forgery, the full amount was deducted from the law firm’s operating account making the financial institution whole, the bank holding the law firm responsible for the loss. The law firm sued the bank.

The court agreed with the bank stating that the bank was protected by its deposit agreement which stated that its duty to exercise ordinary care did not require it to examine deposits processed by automated means. The agreement also said that the depositor is responsible when cheques are returned unpaid, even if the funds have been withdrawn. The bank was also protected by an agreement that says it is not liable for damages for processing wire transfers in good faith.

Granted this is from the U.S. but we would suspect that Canadian banking agreements have similar provisions. In other words, and we have talked about this on other occasions, simply because your bank says funds are available does not mean the source of those funds has cleared. In Canada, deposited funds are available under provisional credit. Which means those provisionally credited funds are used at the depositor’s peril.

Holding the law firm bound by its banking agreements and thus liable for the forged cheque, the Court stated:

“The situation in which [the law firm] find themselves is deeply regrettable, stemming from a confluence of unfortunate events…In a sad irony, the admirable efficiency with which they acted to distribute funds to their ‘client’ contributed to their being victimized. But they have not advanced a theory of recovery for which there is a remedy recognized by law…”

In other words, had the lawyer waited for the cheque provided by an unknown debtor for a debt owed to a previously unknown client to clear before sending funds to the client, this would not have happened.