Cheques and Balances: the Enforceability of Promises to Gift
In November 2017, my colleague, Sayuri Kagami, blogged about the Ontario Court of Appeal’s decision in Teixeira v Markgraf Estate, which considered the validity of a gift in the form of a cheque cashed after the death of the payor. Today’s blog discusses similar facts in the court’s decision in Rubner v Bistricer. That is, whether pre-signed blank cheques cashed after the payor is declared incapable of managing property constitute either an enforceable promise to gift or, in the alternative, a valid inter vivos gift.
In the late 1960s, the patriarch of the Rubner family, Karl, purchased a 10% stake in a real estate development in Oakville known as the Lower Fourth Joint Venture. Karl kept legal title to this interest in the name of his wife, Eda, with the intention that their three children, Marvin, Joseph, and Brenda, each receive beneficial ownership of a one-third share in the Lower Fourth interest.
Brenda subsequently renounced her share in the Lower Fourth interest to avoid triggering certain tax consequences. Accordingly, her share reverted back to Eda, who then set up an account into which the income generated by Brenda’s former share would be deposited. Notwithstanding that she had disclaimed her share, however, Brenda nonetheless wanted to retain the income that her share generated. In 2014, Eda agreed to sign several blank cheques for the benefit of Brenda and her husband, allowing them to collect the income from Brenda’s former share without incurring the tax liability.
In November 2016, Eda was assessed as being incapable of managing property. Shortly thereafter, Brenda’s husband filled in and deposited two of the blank cheques previously signed by Eda in order to prevent Brenda’s brothers from using those funds to pay for Eda’s expenses.
Brenda’s brothers subsequently commenced an application seeking, amongst other relief, a declaration that the funds withdrawn by Brenda after Eda became incapable were held on a resulting or constructive trust for Eda’s benefit. Brenda took the position that Eda had intended that these funds be considered gifts for Brenda’s benefit. She claimed that at a family meeting in 2012 or 2013, Eda had specifically agreed to gift to Brenda all future income generated by Brenda’s former share in Lower Fourth.
The court was tasked with considering whether a purported promise of future gifts could constitute valid inter vivos gifts. In order to establish a valid inter vivos gift, the recipient must show:
- An intention to make a gift on the part of the donor, without consideration or expectation of remuneration;
- An acceptance of the gift by the donee, and
- A sufficient act of delivery or transfer of the property to complete the transaction.
The court held that the first step and third steps in this analysis could not be satisfied once Eda had been declared incapable of managing her property. Eda was deemed to have been unable to formulate the necessary intention to make a gift with respect to the blank cheques. Moreover, the court held that the delivery of “signed, blank cheques cannot amount to a complete gift”, as the drawer retains an interest in the amount of the cheque until it is cashed. Once Eda became incapable of managing her property, the gift could no longer be perfected. The blank cheques that were cashed after Eda was assessed as incapable of managing her property were held to be invalid, and Brenda was ordered to repay the amounts withdrawn.
Thanks for reading.