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gift or loan

Gift or Loan? A case review of Greco v. Frano

A recent article in the financial post cited a CIBC Poll of 3,021 randomly selected Canadian Adults, which found that 76% of Canadian parents with a child 18 years or older would give their kids a financial boost to help them move out, get married, or move in with a partner 1.

However, whether that financial boost is intended as a gift or a loan can sometimes become unclear and what started as a well-intentioned, kind gesture can become a source of conflict and resentment.

Greco v. Frano2 illustrates the importance of making your intentions clear and the value in formalizing your arrangement – even with your closest family members.

In 2003, the Grecos sold their home and moved in with their daughter Giuseppa and son-in-law, Felice. Soon after, their daughter asked them for a “financial boost”. They agreed and on May 4, 2003 advanced $90,000.

Unfortunately, Giuseppa passed away in 2009 and the Grecos decided to move into their own house. After giving Felice a few months to grieve, they asked that he return the $90,000 they had loaned him. Felice refused, claiming that the $90,000 had been a gift.

Justice Hood determined that the $90,000 is presumed to have been advanced as a loan and explained that, when as in this instance, money is advanced to the defendant, the onus is upon the defendant to rebut the presumption that this advance was a loan. Hood J. continues,

“Mr. Greco does not have to prove the advance was a loan. Felice has to prove the advance was a gift from Mr. Greco. It is not enough for Felice to say that he intended to receive the $90,000 as a gift. He must prove that both he and Mr. Greco knew and intended the $90,000 to be a gift rather than a loan.”3

However, even though Felice was unable to rebut the presumption that the funds were advanced as a loan, the Court still ultimately dismissed the Greco’s claim.

The Court held that, because the loan did not have any terms and no date for repayment, it was a demand obligation and therefore the limitation period started running from the date of advancement in 20034. In reaching this conclusion, the Court found that because the loan agreement was created prior to January 1, 2004 the old Limitations Act applied resulting in their claim being statute barred.5

Assuming that the funds had, in fact, been advanced as a gift, the Greco decision illustrates the need to document the parties’ intentions contemporaneously with the gift.

Something as simple as sending an email to the donor explicitly referring to the funds as a gift is a polite and effective way of confirming the parties’ intentions.

Alternatively, if parents advance funds as a loan, they should consult a lawyer to ensure the terms of the loan are properly structured so that their claim for repayment does not become statute barred.

 

 

Footnotes
  1.   Drew Hasselback, Financial Post, July 27, 2017, The cost to get adult kids out of the house? We’ll pay $24,000, finds bank poll. This is available on line at http://business.financialpost.com/news/the-cost-to-get-adult-kids-out-of-the-house-well-pay-24000-says-bank-poll
     
  2.   Greco v. Frano, 2015 ONSC 7217 (CanLII), http://canlii.ca/t/gm7g4
     
  3.   Greco v. Frano, 2015 ONSC 7217 (CanLII) at para. 28
     
  4.   Generally, a limitation period sets a red line which a claimant can no longer advance a claim. Under the “new” Limitations Act, 2002 there is a two year limitation period from discovery of the cause of action and an ultimate limitation period of 15 years from the date the cause of action arose even if the cause of action was not discovered. With respect to loans, the start date of the limitation period depends on the terms of the loan. If the loan is due on a specified date the start date for calculating the limitation period is that specified date when the loan becomes due and payable.
     
  5.   Had the loan funds been advanced after January 1, 2004 the outcome of this case would have been different. Under the old Limitations Act (and the common law), the start date for a limitation period for a demand loan began from when the demand could be made – which was the date the funds were first advanced.   However, in November 2008 the Limitations Act, 2002 was amended to deal specially with the commencement of the limitation period for demand obligations. Under the “new” section 5(3) of the Act, for a demand obligation the limitation period now begins to run only once a demand is made. In other words, had the loan been advanced after January 1, 2004, the limitation period argument would not have succeeded as the limitation period would have only begun to run from the date the Grecos first asked for their money back — which was less than two years before they started their claim. See Skuy v. Geernough Harbour Corp. 2012 ONSC 6998 and Peca v. Peca, 2011 ONSC 770.
     

Brad Phillips and David Wagner

The authors of this blog are Bradley Phillips and David Wagner. Brad is a partner at Wagner Sidlofsky LLP. David is a member of the firm’s Estate and Commercial Litigation Groups. He received his TEP designation from STEP and he deals with will challenges, dependants support, guardianship and applications to compel an accounting.

This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
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