Cheque in Payment of a Gift (The Rules)
When is the cheque good? What does it mean? If it goes “NSF” can you get it replaced? What if it’s just a gift, does that make any difference?
The Ontario Court of Appeal recently considered these questions in Teixeira v. Markgraf Estate, 2017 ONCA 819.
· Arlindo, was a good neighbour and long-time friend to Maryoften providing her assistance with household maintenance.
· Shortly before her death, Mary made a will. She made a bequest to Arlindo of $100,000.
· She also wrote out a cheque to him for $100,000.
· She asked her stepson to give it to Arlindo with instructions that he should take it to her bank the next day.
· Arlindo attempted to deposit the cheque at the bank the following day.
· However, Mary had insufficient funds in her account at that time.
· Mary died soon after, and her son held the position that the cheque was an imperfect gift that was not legally enforceable.
· Arlindo therefore only received Mary's $100,000 bequest under the will.
· Arlindo sued Mary's estate for the value of the cheque.
· The application judge dismissed his claim, finding that the gift failed for lack of delivery.
Various Issues under appeal:
(1) Did Arlindo's good deeds provide contractual consideration for the cheque?
No. The claim based on contract fails because of the application judge's findings that there was no contract between the parties and that Arlindo's assistance to the deceased were gratuitous.
(2) Was the cheque enforceable by virtue of the Bill of Exchange Act? Was the cheque dishonoured when it was taken to Mary's bank?
No. The application judge's findings of fact that there was no consideration or contract are also determinative of the appellant's arguments under the Bill of Exchange Act (BEA).
It is settled law that, as between the immediate parties, the failure or absence of consideration is a complete defence to an action on a bill of exchange.
This is a case of complete absence of consideration.
Further, there was insufficient evidence in the record to permit the Court to make a determination with respect to the appellant's alternative submission that the cheque was dishonoured when he presented it to Mary's bank before her death.
Assuming for the purposes of argument that the cheque was dishonoured, the reason was evidently that there were insufficient funds in the account.
Despite her good intentions, Mary could not give what she did not have and the appellant had no cause of action on the cheque.
(3) Was the gift by cheque perfected by delivery?
No. The application judge was correct in holding that the cheque was a gift inter vivos and that the law of gifts applied to the facts of this case.
The absence of consideration is one of the central indicia of a gift at law.
By its very nature, a gift is a voluntary transfer of property to another without consideration.
The three elements of a legally valid gift identified by the application judge are well established:
(1) an intention to make a gift on the part of the donor, without consideration or expectation of remuneration;
(2) an acceptance of the gift by the donee; and
(3) a sufficient act of delivery or transfer of the property to complete the transaction.
The central issue in this case is whether the delivery of the cheque for $100,000 into the hands of the appellant could be a sufficient act of delivery of the gift, given that the funds were unavailable in Mary's account.
The delivery requirement is an important distinguishing feature of gifts as compared to other methods of transferring property, such as by contract.
In order for a gift to be valid and enforceable, the donor must have done everything necessary and in his or her power to effect the transfer of the property.
A gift of money by cheque can be problematic, due to the nature of a cheque.
A cheque is not money nor is it a transfer of property.
It is a direction by the drawer to the drawer's bank to pay a sum of money to the payee. The direction can be revoked by the drawer at any time.
For these reasons, a gift by cheque is not complete when the cheque is given to the donee.
It is only complete when the cheque has been cashed or has cleared.
The purported gift of $100,000 by way of cheque failed because the funds were not delivered to the appellant before the bank received notice of Mary's death.
(4) Can estoppel be invoked in these circumstances according to the principle that "equity will not strive officiously to defeat a gift"?
No. Estoppel by convention is an equitable doctrine that holds parties to the facts or law or other assumption they have agreed to as the basis for a transaction to which they are parties.
The doctrine consists of the following criteria:
(i) the parties' dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence;
(ii) a party must have conducted itself, i.e. acted in reliance on such shared assumption, its actions resulting in a change of its legal position;
(iii) it must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position.
He found that the appellant did not meet the test because he did not act in reliance on an assumption that Mary's cheque would be honoured.
There was nothing unfair in the outcome because Mary could not give him what she did not have.
The assumption was made after Mary's cheque was delivered to Arlindo. Everyone assumed that the cheque was good.
Arlindo did not change his legal position as a result of that assumption.
He simply hoped that he would receive Mary's gift.
Therefore, the Court concluded that the doctrine of estoppel by convention does not assist the appellant.
If it’s truly a gift then it’s very difficult to turn things around and claim that it was a payment made as a result of a contract. Similarly, this does work under the Bills of Exchange Act either.
An argument to the effect that the gift had indeed already been made, that is, the delivery of the cheque was “delivery” of the gift; also failed. The flow of money would have worked, but, of course, had that happened then there would be no claim. Estoppel didn’t work because there was no detrimental reliance.
So, if this were to happen again, then the best advice to give to Arlindo would be: rely on it, buy something with the money. Now, you’re stuck because the money didn’t flow. This would have been an excellent time to have ordered that Lamborghini.
Brian Madigan LL.B., Broker