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Is It a Loan or a Gift?

Grenier v Williams 2020 BCSC 462 dealt with the law relating to an ongoing theme in estate litigation, namely when one party claims that the advancement of monies were a loan and the other party maintains they were a gift.

This frequently occurs between the parents as ” bank of mom and dad”  advancing funds to their newlywed child and new marital partner. Invariably, the courts find such situations to be gifts and not loans, and the stakes can be very high in terms of the amount of funds advanced.

Loans

Alone is a specific form of contract requiring mutual concordance between the parties as to its existence, nature and scope of their respective rights and duties.

Like any contract, it may be evidenced orally, in writing, by conduct or by a combination thereof. Biehl v Strang 2011 BCSC 1373 at paras. 326-330

The essential elements of a loan are:

a) A principal sum;

b) Placed with the borrower;

c) On agreed terms for the payment of interest;

d) Liability on the bar was part for return of the principal, with accrued interest.

A  loan has also been defined as delivery by one party and receipt by another of money on agreement, express or implied, to repay the money with or without interest. Lee v 1137434 Alberta Ltd 2009 BCSC 284

Gifts

In contrast, the elements of the gift, were described in McNamee v McNamee 106 OR ( 3d) 401 CA:

A gift generally speaking, is a voluntary transfer of property to another without consideration. A transfer of property by contractual agreement involves a mutual exchange of obligations, but the transfer by way of gift involves a gratuitous, unilateral transaction.

The central element of the gift is the intentional giving to another without expectation of renumeration.

There must be:

a) an intention to make a gift on the part of the donor, without consideration, or expectation of renumeration

b) and acceptance of the gift by the donee;

c) A sufficient act of delivery or transfer the property to complete the transaction.

A further helpful explanation is found in Read v Rayner (1943) 2 DLR 225 at 231:

“ a gift is an act, whereby anything is voluntarily transferred from the true possessor to another person, with the full intention that the thing shall not return to the donor, and with the full intention. The part of the receiver to retain the thing entirely as his or her own without restoring it to the giver. For the gift cannot be properly made if the thing given does not so belong to the receiver, that the two rates of property and of possession, are united in his person, so that the gift cannot be revoked by the donor, or made void by another, and one the lawful property is vested.

A true and proper gift or grant is always accompanied with delivery of possession, and takes effect immediately.

In the leading case of Cochrane v Moore (1890) 25 QBD at page 76, the court made the following definition of a gift:

“ It is a transaction, consisting of two contemporaneous acts, which it. Once complete the transaction, so that there is nothing more to be done by either party. The act done by one, is that he gives, the act done by the other is that he accepts. These contemporaneous acts being done, neither party has anything more to do.“

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