Nov 2017 Charity & NFP Law Update
On October 26, 2017, the Court of Appeal for Ontario (the “Court of Appeal”) released its decision in Teixeira v Markgraf Estate, upholding the trial court’s decision previously reported in the September 2017 Charity & NFP Law Update concerning an unfunded cheque. The trial court had held that a gift by means of a $100,000 cheque from Maria Markgraf (“Markgraf”) to Arlindo Teixeira (“Teixeira”) was unenforceable when the cheque could not be cashed due to insufficient funds in Markgraf’s chequing account, as it could not be properly delivered to the intended recipient, Teixeira. On appeal, Teixeira advanced four separate arguments, two of which included that the gift by cheque was perfected by delivery, and the principle from the English trusts law case Pennington v Waine that “equity will not strive officiously to defeat a gift.”
Concerning the argument that the gift by cheque was perfected by delivery, the Court of Appeal upheld the trial court’s holding that the cheque was an inter vivos gift, and that the three elements of a gift outlined by the trial court were required for the gift to be valid. As the third element of a gift requires a sufficient act of delivery or transfer of the property, the Court of Appeal considered whether the delivery of the cheque into Teixeira’s hands could be a sufficient act of delivery despite insufficient funds in Markgraf’s account.
The Court of Appeal stated that cheques are directions by the drawer to the bank to pay money to a payee and can be revoked by the drawer before the cheque is cashed. As such, it stated that a gift by cheque is not complete until the cheque has been cashed or has cleared. Additionally, it stated that the death of a cheque drawer prior to the cheque being cashed would subsequently revoke the bank’s authority to pay funds to the payee. The Court of Appeal therefore upheld the trial court’s decision that the inter vivos gift failed because it was not delivered before the bank had received notice of Markgraf’s death.
Concerning the principle that equity will not strive officiously to defeat a gift, Teixeira argued that “an imperfect gift, which is not perfected by a transfer of possession to the donee, may nevertheless be effective where the donor retains possession of the gift but makes a declaration evidencing an intention to hold the property in trust for the donee.” However, the Court of Appeal stated that there must be a “clearly ascertainable point in time at which it can be said that the gift was completed, and this point in time must be arrived at on a principled basis.” Given the extensive law concerning delivery of gifts by way of cheque, the Court of Appeal found no basis for the application of this principle.
As all three elements of a gift are required to create a valid gift, this case is a reminder to charities that the receipt of a physical cheque is insufficient to satisfy the delivery element of a gift, and that the cheque must be cashed before the gift is considered to be made. Further, inter vivos gifts given via cheque should be cashed soon after they are received to avoid the loss of a potential gift due to unforeseen circumstances, including cancelled cheques or the death of a donor, as was the case here.