The Deposit Cheque in the Desk Drawer
Aaron is a salesperson with Prairie Oak Realty in Saskatoon. On Friday at 4:30 p.m., buyer Lena gives him a $25,000 deposit cheque for a $475,000 acreage purchase. The cheque is payable to 'Prairie Oak Realty in trust.' The offer is conditional on Lena obtaining financing until 5 p.m. the following Wednesday. Aaron puts the cheque in his desk drawer and plans to deposit it after the condition is waived. On Tuesday, Lena's lender declines financing. Lena asks for the deposit back. The seller, who has not signed a release, says the deposit is forfeited because Lena failed to complete. The brokerage's trust account has not received the funds. Aaron's broker asks him to write a cheque to the seller from the operating account to 'settle it quickly' and then recover the money from Lena. The brokerage also has a monthly trust reconciliation due.
1. What should Aaron have done when he received the cheque on Friday?
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Conclusion: Aaron should have delivered the cheque to the brokerage for prompt deposit into the trust account and issued a receipt, not left it in his desk.
Reasoning: The cheque is trust money because it is a deposit related to a trade and is payable to the brokerage in trust. The fact that the offer is conditional does not make the funds operating money or the salesperson's money. Saskatchewan's trust-account rules require trust money to be deposited into the brokerage's trust account without delay, kept separate from operating funds, and recorded accurately. A Friday afternoon receipt may mean the deposit is made on the next banking day, but the cheque must be safeguarded and turned over to the broker or trust clerk immediately. Leaving it in a desk drawer creates a risk of loss, misappropriation, and inaccurate records.
Correct handling: Give the cheque to the brokerage, record the receipt date, payer, amount, and property, and deposit it into the trust account. Enter the deposit in the trust ledger for Lena's transaction. The conditional nature of the offer should be tracked, but the money remains in trust until the brokerage is entitled to release it.
2. Can the brokerage pay the seller now or return the deposit to Lena?
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Conclusion: No. The brokerage should hold the deposit in trust until entitlement is resolved.
Reasoning: The seller says the deposit is forfeited, but the seller's assertion is not a release. Lena says financing failed and wants the money back. There is a genuine dispute over entitlement. Paying the seller from the operating account would be worse: it would commingle or misapply funds, create a negative operating balance, and ignore the trust obligation. Returning the money to Lena without the seller's written release could expose the brokerage to a claim from the seller.
Proper steps: Keep the $25,000 in the trust account. Ask both parties to provide written directions or a signed mutual release. If they cannot agree, the brokerage should seek legal advice, which may include interpleading the funds or holding them until a court order or written settlement. The broker should document the dispute and ensure no one writes cheques against the deposit. The brokerage should not use operating funds to 'settle it quickly' and then chase Lena for reimbursement.
3. What records and supervision issues arise from the monthly reconciliation?
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Conclusion: The reconciliation should reveal the missing deposit and trigger an immediate broker-level review.
Reasoning: A proper trust reconciliation compares the trust bank balance to the trust ledger and to individual client balances. If the $25,000 cheque was never deposited or recorded, the Lena transaction will be missing from the trust records even though a deposit was received. That is a record-keeping failure and a supervision failure. The broker is responsible for ensuring trust records are maintained, reconciled monthly, and reviewed. Aaron's desk-drawer practice suggests the brokerage's procedures for cheque handling are not being followed.
Required action: The broker should investigate the missing cheque, correct the trust records, and ensure the funds are deposited or accounted for. The brokerage should review who receives deposits, when receipts are issued, how after-hours cheques are safeguarded, and who performs and reviews the reconciliation. The broker should document the corrective steps and consider whether the matter must be reported to the regulator. If funds were misapplied, the broker should not try to hide the error; early correction and disclosure are safer than an unreconciled trust shortage.