Have you loaned money to a friend or relative who now refuses to repay you and alleges that the loan was actually a gift? Or are you on the other side of this problem wherein your friend or relative gifted you a sum of money a while ago but is now demanding repayment?
These issues come up most often in the private sphere where parties to a transaction do not habitually document all of their ventures. Nevertheless, verbal loan or gift agreements of this sort are still enforceable.
Litigation involving a disagreement about whether a transaction was a loan or a gift is typically commenced by the transferor (i.e. the person who has transferred the funds) who claims that the transfer was a loan and not a gift. If you require assistance in either commencing such a claim in the Superior Court of Justice or defending against same, we have the experience to assist you.
A gift is a transfer of funds/property in which there is no expectation of repayment by the transferor.
A loan typically involves a formal and recorded transfer of a principal sum to a borrower in which terms of repayment are set out, often including an agreement as to the liability of the borrower for repayment of both principal and interest.
What have Court’s considered as the Legal Test?
You may think that the distinction between a gift and a loan, at least as outlined above, is quite clear. However, in practice, there are many transactions that can be framed as either, depending on the evidence presented.
In Pecore v. Pecore, 2007 SCC 17 (CanLII), the Supreme Court of Canada opined that evidence in such cases must be relevant to the intention of the transferor at the time of the transfer (i.e. the question is: was the transferor’s intention when making the transfer to make a loan or a gift?).
This question may seem simple to answer at first glance. However, without a written agreement evidencing the intentions of the transferor, countervailing evidence from the other party to the transaction may make this question more convoluted than it may seem.
In determining whether a transaction is a loan or a gift, a court will look to all relevant and permissible sources of evidence, such as emails/texts and witnesses of fact. The court may also consider the actions of the parties to the transaction. What a party does (or does not do) after a transaction can speak volumes about his/her intentions in the original transaction. Sometimes, the absence of such evidence may sway a court one way or the other.
There are often objective indicators that will assist the court in determining whether a certain transaction is a gift or a loan. For an overview of the factors that courts will consider and some of the rebuttable presumptions that courts are obliged to contemplate when making such a determination, please visit our webpage on gift/loan law.
Gilbertson Davis LLP lawyers can represent you in your dispute as we have experience in Loan Litigation, Gift/Loan Law, Debtor and Creditor Litigation, Arbitration, Mediation and Civil Litigation matters and can assist you in resolving your legal issues in a timely and cost-effective manner. If you require legal advice and wish to retain a lawyer to assist you with your dispute please request an initial consultation with Gilbertson Davis LLP via one of the below referenced methods.
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