Originally published in our February 2017 Newsletter
Can You Give a Gift Which You Do Not Have?: Teixeira v. Estate of Maria Markgraf ; 2017 CanLII 2295 (ON SC)
What happens when someone gives you a monetary gift in the form of a cheque, but then dies before you discover that there are insufficient funds to cover the cheque? Does that person’s estate have to honour the cheque? Justice Whitten of the Ontario Superior Court of Justice looked at this issue in the decision of, Teixeira v. Estate of Maria Markgraf specifically asking: “Can you give a gift that which you do not have?”
When Mary was aware that she was ill and facing death she wanted to repay the kindness and courtesies of her long time neighbour. She attempted to do this in two ways. She executed a Will (after being assessed for testamentary capacity) in which she bequeathed $100,000.00 to her neighbour and she executed a cheque (also in the amount of $100,000.00) payable to her neighbour. She asked her stepson (and executor) to give her neighbour the cheque, and he did, days before she passed away.
The reasons for decision are not clear on what happened next, but Justice Whitten states: “Not surprisingly [Mary’s bank], given the amount, wanted to investigate. Ultimately, the cheque was returned to [the neighbour] who, within days of Mary’s demise presented the cheque at his own bank.” Although the cheque was not formally returned NSF, it appeared that Mary’s account only had $81,732.75 in funds. Mary had a RIF and a GIC at the same financial institution which could cover the remaining amount owing. The executor initially took the position (relying on Mary’s instructions and his belief that there were funds in the account) that the cheque would be honoured. However, after legal advice and the reality that the funds were not in the account, the executor changed his mind.
The neighbour brought an application seeking an order requiring the estate to realize the $100,000.00 cheque (the testamentary gift of $100,000.00 had already been paid to the neighbour).
Was it a Valid Gift?
Three criteria need to be met for a valid inter vivos gift, namely 1) an intention to donate; 2) an acceptance; and 3) a sufficient act of delivery.
There was no doubt that Mary “voluntarily intended to divest” herself of the $100,000.00 that she believed was in her account. It was her idea, and she had the necessary mental capacity to gift.
The neighbour knew what he had to do with the cheque and took steps to realize the sum (attending the financial institutions to cash the cheque), so “acceptance” was made out as well.
“Delivery” of the gift was the problem. The Court referred to Professor Ziff’s text (Property Law) and noted:
a cheque is neither money nor representation of money, it is only a direction to the drawer’s bank which can be countermanded (by the drawer) before it clears. Therefore, a gift by cheque is not complete until it has cleared and the intervening death of the donor could ruin the gift, at that point it can no longer be a simple and inter vivos transaction.
Despite Mary’s belief to the contrary, she did not have the necessary funds in her account. Yes, there were funds in her RIF and GIC, but Justice Whitten concluded that “the bank cannot “will, nilly” transfer from those products – that would take positive steps and the written direction by Mary”. Simply put “she did not have what she sought to give” therefore she could not deliver the gift.
As the gift was not perfected, it was not a valid inter vivos gift. Justice Whitten succinctly concluded: “This Court, like other Courts, does not have the power to be a financial deity who magically transfers funds to make everything good”.
ESTOPPEL BY CONVENTION
The decision also briefly touched on “estoppel by convention”. In order for estoppel by convention to be applicable three criteria must be met:
- the parties must have a mutual understanding or acceptance of a certain set of facts or law;
- one party must have acted in reliance on this shared assumption (resulting in a change in their legal position); and
- it would be unfair or unjust to have the other party resile from the initial mutual assumption.
In this matter the parties (including Mary) thought Mary had funds to satisfy the gift. However, the neighbour did not take any steps on this mistaken belief that changed his legal position. He was in the same position he was in before he received the cheque: “There’s no evidence that [the neighbour] acted to his detriment in anticipation of receiving this $100,000.00 via the cheque. No extravagant purchases, no commitment to others, no investments.” The neighbour had “done nothing as a consequence of learning about the cheque, he was still a neighbour but he was a neighbour with an unenforceable cheque”.
Justice Whitten also did not think the situation amounted to “unfairness”:
Yes, it’s unlucky for [the neighbour] who appeared to be poised for an increase in his net worth by $100,000.00, 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.[emphasis added]
It is both fortunate and unfortunate that the neighbour had not made an extravagant or grand purchase upon being given the cheque. It appears that if he had, perhaps Justice Whitten would have decided differently. Or perhaps not, and he would have been burdened with a purchase he could not afford. We recently wrote about a similar case Mowry v. Groome where an executor attempted to cash a cheque the deceased had given him before he died. While the deceased had enough money in other accounts to cover the cheque, he did not have enough in that particular account. The Court in that case also concluded that the gift was invalid, noting that an incomplete gift was nothing more than an intention to gift and that the money that was said to be the subject of the gift “simply didn’t exist”. The lesson being, if you intend to make a gift, make sure you have enough money in the same account that the cheque is drawn on, it is not enough to have the funds in other investment products.
 2017 CanLII 2295 (ON SC) at para. 7
 At para. 13
 At para. 14
 At para. 18
 At para. 11
 At para. 23
 At para. 24
 Mowry v. Groome 2016 ONSC 7850 (CanLII)