A church member writes a check for $1,000 to the church, but he dies before the church is able to deposit the check in its bank account. Is the check legally enforceable, or does the donor’s death nullify it? As a church treasurer, you should be familiar with the answer to this question. An Iowa court addressed this question in a recent case. An elderly woman issued a check in the amount of $30,000 to another person (John). The check was intended to be a gift. The woman died before John was able to deposit the check. John petitioned a probate court for payment of the check. The court declined to do so, and John appealed.
A state appeals court agreed that the check was intended by the decedent to be a gift. It then concluded, “To be effective, a gift in the form of a bank check must be accepted and honored by the [donor’s] bank prior to the death of the donor. A donor’s check, prior to acceptance or payment by the bank, is not the subject of a valid gift …. A check does not of itself operate as an assignment of any funds in the hands of the [issuer’s bank] available for its payment, and the bank is not liable on the instrument until it accepts it.”
The court acknowledged that “holders in due course” generally take checks free of any claims, including the death of the issuer prior to the acceptance of the check by his or her bank. However the court concluded that John was not a holder in due course because the check issued to him was a gift, and therefore he did not acquire it check for “value” as is required to be a holder in due course. Because he was not a holder in due course, John held the check subject to all valid claims and defenses, including the death of the donor prior to her bank’s acceptance of the check.
This case suggests that checks received by a church as gifts may not be enforceable if they are not honored by the donor’s bank prior to his or her death. This is one of many reasons why churches should deposit checks as soon as possible. Estate of Michels v. Francis. 2002 WL 1766650 (Iowa App. 2002).
This article first appeared in Church Treasurer Alert, August 2003.