An interesting case recently appeared in the Ontario Reports that highlights a risk in making an inter vivos gift of cash using a cheque, particularly where the donor is near death.
In the case, Teixeria v. Estate of Markgraf et al., the donor, Mary Markgraf, was nearing her death. She continued to have capacity to make a will as well as inter vivos gifts. As part of her planning, Mary included a bequest of $100,000 in her will for her neighbour, Arlindo Teixeira, and she also executed a cheque in the amount of $100,000 in favour of Arlindo. Her stepson, Harry Markgraf, who is also the executor named in her will, assisted her with the preparation of the cheque for Arlindo. She gave specific instructions to Harry to deliver the cheque to Arlindo, and for Arlindo to present the cheque at Mary’s bank. Given the size of the cheque, Mary’s bank understandably investigated when Arlindo presented it, and discovered there were insufficient funds in the account on which the cheque was drawn to clear the cheque. The cheque was returned.
In the decision, Whitten J. reviewed the elements of a valid gift, citing Professor Ziff’s text, Principles of Property Law, 6th edition, which are: (1) an intention to donate; (2) an acceptance of the gift; and (3) a sufficient act of delivery. The evidence was clear that Mary intended to make a gift to Arlindo. It was also clear that Arlindo had accepted the gift. Acceptance does not mean receipt of the gifted property, but as Whitten J. notes, citing Ziff, “an understanding of the transaction and a desire to assume title”. The issue in the case was whether there had been a sufficient act of delivery.
Unfortunately for Arlindo, there was not. Again citing Ziff, Whitten J. notes that the delivery requirement is a check on impulse, as it requires steps to be taken to deliver property and relinquish control. The court concluded that a gift by cheque is not complete until it has cleared. A cheque is not money, nor is it a representation of money, Whitten J. notes, but rather a direction to the drawer’s bank which can be countermanded by the drawer until the cheque clears. At the end of the day, there were insufficient funds in the account to clear the cheque, it did not clear, and accordingly there act of delivery was not sufficient.
The court went on to note that although Mary had other funds from which she could make up the deficiency, the bank had no authority to access the other funds but only to attempt to clear the cheque from the account on which it was drawn. To access other accounts, it would require separate instructions from Mary. Unfortunately, Mary died before the problem was discovered. Once Mary had died, it also meant that Harry, as the executor of her estate, had no authority to simply pay out $100,000 to Arlindo to complete the inter vivos gift (as an aside, Arlindo did receive the $100,000 bequest in the will). The donee of an imperfect gift cannot enforce payment, unless an estoppel is made out, which was rejected on the facts in this case, or the gift is made pursuant to a Deed of Gift under seal, which it was not. Similarly, Whitten J. noted the long-standing principle that a court will not perfect an imperfect gift, rooted in the equitable maxim that “equity will not assist a volunteer”.
There was no suggestion of undue influence in this case. Mary wanted to benefit Arlindo in the total amount of $200,000. Everyone acted in good faith to carry out Mary’s instructions. She simply had insufficient funds in the bank account on which the cheque was drawn. It may have been possible to discover the problem before Mary’s death if the gift was effected using a bank draft or certified cheque, but that seems rather like a case of “hindsight is 20/20”. At the end of the day, the outcome for Arlindo is unfortunate, but it is the correct legal outcome. As Whitten J. writes in the decision, analyzing the estoppel claim: “Yes, it’s unlucky for Arlindo who appeared to be poised for an increase in his net worth by $100,000, but it’s not unfair; you cannot give away what you do not have to begin with. Nor can your intended beneficiary receive something out of nothing.”