In an Ontario Court of Appeal decision, a gift of $100,000 made by the deceased to her neighbour failed because it was not properly delivered.
The deceased had a neighbour, who had helped her with household maintenance, had driven her about, and had assisted with chores like groceries and banking for 15 years.
Shortly before her death, the deceased made a will. She made a bequest to the neighbour of $100,000. She also wrote out a cheque to him for $100,000. She asked her stepson to give the cheque to the neighbour with instructions that he should take it to her bank the next day.
Cheque in hand, the neighbour went to the deceased’s bank the next day. After inspecting the cheque and making some inquiries, the bank employee told him that they would have to investigate and returned the cheque to him.
In fact, what the bank employee did not tell the neighbour was that the deceased had insufficient funds in her account to cover the cheque. The balance in her account was only $81,732, even though the deceased did have over $200,000 in other funds on deposit at the branch. Without her specific instructions, however, the bank could not transfer money to her chequing account to make up the shortfall.
The deceased died six days later. The bank was notified of her death the following day and froze her accounts. The neighbour then attempted to deposit the cheque at his own bank, but it was returned, marked “funds frozen”.
The deceased’s stepson, her estate trustee, told the neighbour that he would be receiving $100,000 from the estate and another $100,000 to cover the cheque. However, after obtaining legal advice, the estate trustee ultimately took the position that the cheque was an imperfect gift that was not legally enforceable. The neighbour only received the deceased’s $100,000 bequest under the will.
The neighbour sued the deceased’s estate for the value of the cheque.
Lower Court Judgment
The application judge dismissed the neighbour’s claim, finding that the gift failed for lack of delivery.
The application judge identified the essential elements of a gift as being:
(a) the donor’s intention to make a gift;
(b) acceptance of the gift by the donee; and
(c) delivery of the gift to the donee.
In this case, the application judge found the first two requirements had been met: the deceased had intended to make a gift of $100,000 and the neighbour had accepted the gift.
However, the application judge held that the third requirement – delivery – had not been established, finding that the gift had not been perfected by delivery because the deceased did not have sufficient funds in her account. The judge found that she could not give what she did not have. While she did have sufficient funds in other accounts, the bank could not have transferred those funds without direction from her.
Consequently, the application judge held that the gift of $100,000 by cheque was not enforceable. He dismissed the neighbour’s application, with costs of $14,000.
Court of Appeal Decision
The court began by stating that 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 court stated that the application judge correctly identified the three elements of a valid gift and that, on appeal, only the third element was at issue: whether the delivery of the cheque for $100,000 into the hands of the neighbour could be a sufficient act of delivery of the gift, even though there were insufficient funds in deceased’s account.
On the issue of delivery, the court explained:
“The most obvious form of delivery is the actual physical transfer of the subject matter of the gift from the donor to the donee such that the gift is literally given away […].
However, in certain circumstances, such as where the item is unwieldy, courts have acknowledged that constructive delivery will suffice. In these cases, the critical questions have been whether or not the donor retained the means of control and whether all that could be done had been done to divest title in favour of the donee […].
Ultimately, 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.”
The court then explained that a gift of money by cheque can be problematic, due to the nature of a cheque, as a cheque is not money nor is it a transfer of property. Rather, it is a direction by the drawer (the bank’s customer) to the drawer’s bank to pay a sum of money to the payee.
For these reasons, the court stated that 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.
As a result, the court concluded that the application judge was correct: the purported gift of $100,000 by way of cheque failed because it was not delivered (cashed/cleared) before the bank received notice of the deceased’s death.
The court dismissed the neighbour’s appeal.
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