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Is this a gift? A lesson in the law of gifts with respect to Estates

A recent Ontario Superior Court decision, Mowry v. Groome (2016 ONSC 7850 (CanLII) provides an interesting look at the law applicable to gifts.

The estate trustee, Mr. Mowry, claimed that the deceased, Mr. Groome, had left him a cheque in the amount of $70,000.00. The cheque was apparently discovered by Mr. Mowry sometime after Mr. Groome died.  The cheque notes “early inheritance gift” on the reference line.

The estate trustee attempted to claim the cheque as a gift from the late Mr. Groome.

However, at no time between the date of the cheque and the date of death were there sufficient funds in Mr. Groome’s bank account to cover the cheque. On the date of Mr. Gromme’s death, the balance in his account was $24,936.96, clearly less than the amount that was apparently gifted to Mr. Mowry.

The remainder of Mr. Groome’s investments, being held in a life income fund, were “locked in.”

In July 2011, Mr. Mowry borrowed $165,000 from the Raymond James margin account, from which he paid himself $70,000.

The question for the court was whether Mr. Mowry was entitled to effect the gift that Mr. Groome apparently intended.

The court found that for a gift to be valid and enforceable, it must be perfected. In other words, in order for there to be a gift the donor must have done everything in his power to transfer the property.  Failing such a transfer, the “gift” is not really a gift but rather, a non-enforceable intention to gift.  According to the court, such was the situation in this case, since the money said to be the subject of the gift simply didn’t exist.

In the words of the court,

“Strong v. Bird (1874), L.R. 18 Eq. 315 (Eng. Ch.) is cited for the principle that where a gift is complete in equity prior to the date of death, it may become perfected after the date of death where the donee is appointed estate trustee, and thereby obtains legal title to the property. However the principle is not applicable in this case. The money borrowed by Mr. Mowry to pay himself was not the money which the deceased intended to gift him with the original cheque (if there was in fact such an intention).”

Had the deceased left enough money in his bank account to honour the cheque, the gift would have been completed. However, in this case, Mr. Mowry was not permitted to pay himself from another source to cover the lack of funds in the deceased’s chequing account.  The cheque itself is not the same as the delivery of money.  Rather, the cheque is a direction to the bank to transfer funds from the account the cheque is drawn upon.  Since there was no delivery of funds in this case, there was a failure of the gift.

Thanks for reading,

Jason

Jason Allan