Gift or Loan?

Gift or Loan?

It is often difficult for the court to determine if advancements of funds from one party to another done orally and without witnesses is a gift or loan.

Rosas v. Toca 2016 BCSC 1754 dealt with such a situation. The plaintiff won over $4 million in a lottery and advanced over $600,000 to the defendant to buy a house.

The plaintiff demanded repayment and the defendant asserted the funds were a gift. Alternatively the defendant asserted the claim was statute barred as out of time and succeeded on this point.

The court did however find that the funds were intended as a gift and not a loan largely relying on the corroboration of the bank manager who handled the bank draft.

It was not necessary to resort to the law of resulting trusts as the court determined that the intention of the plaintiff was to make a loan and not a gift.

The Court stated:

As set out in the case of Clifford v. Flores 2004 BCSC 358, the Court must decide whose version of events is most reliable in order to decide the issues.  Mr. Justice Cohen noted at paragraph 39 in that case:
[39]      The credibility of the witnesses must be tested against those facts that are not seriously in dispute, and the preponderance of the evidence and the probabilities surrounding the events.

[40]      Although this task is primarily one of fact finding, some legal principles submitted by defence counsel are of assistance:

a)         First, the plaintiff carries both the legal and evidentiary burden of proving on a balance of probabilities, that the alleged oral contract was made.
b)         Second, the basic contractual principles of offer and acceptance, and certainty of terms are applicable.  These principles are summarized in Friedman, The Law of Contract in Canada (4th ed.). at pp. 16-17, and 20, as follows:
Constantly reiterated in the judgments is the idea that the test of agreement for legal purposes is whether parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract. The law is concerned not with the party’s intentions but with their manifested intentions. It is not what an individual party believed or understood was the meaning of what the other parties said or did that is the criterion of agreement; it is whether a reasonable man in the situation of that party would have believed and understood that the other party was consenting to the identical terms.

Sometimes it is a simple matter to decide what the parties have manifested to each other, and consequently, whether they have agreed, and if so, upon what. This is especially true where a document containing their agreement has been prepared and signed by the parties. If the plain wording of the document reveals a clear and unambiguous intent, it is not necessary to go further.

It is different, however, where the language is not unambiguous but vague and uncertain. In the absence of the requisite certainty and clarity the courts will not declare that a contract exists.

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