Gratuitous Gifts – Was It a Gift? – Part 2 of 2

By of Merovitz Potechin LLP on Friday May 3, 2024.

In my previous post I wrote about gratuitous gifts and how the Pecore principle has been expanded by the Courts to include transfer between unrelated parties. Today’s post will delve deeper into the intricacies of a recent decision from the Ontario Court of Appeal, Falsetto v Falsetto, 2023 ONCA 469. The heart of the matter revolved around the question of whether the substantial financial transfers and property acquisitions between father and son were genuine gifts or something more complex.

In the Falsetto case, the father (the appellant) and son (the respondent) reconciled after several years of estrangement. The son began assisting the father in maintaining rental properties and learning the business in renovation and development. Their relationship was marked by the father’s words that hinted at a future gratuitous gift: “What I worked for, I’m going to give it to you one day.”

As the years passed, numerous financial transfers and property acquisitions occurred between the father and son. The father’s claim later arose from these transactions, asserting that the transfers were meant to be held in trust for him and that the son had wrongfully misappropriated the funds. The father sought substantial damages and other remedies for breach of fiduciary duty, breach of trust, and unjust enrichment.

The son defended against the father’s claims, arguing that most of the transfers were gifts intended for him to acquire properties and further his real estate ventures. For each and every transfer, the son confirmed with his father that the transfer was to be a gift for the son. The exception was the transfer of funds from the father’s lines of credit, which the son acknowledged as loans and subsequently repaid with interest.

The Lower Court’s decision
The son’s defence hinged on the principle established by the Supreme Court of Canada’s decision in Pecore v Pecore, where it was held that when a parent gratuitously transfers property to their adult child, the law presumes that the child holds the property on resulting trust for the parent. To rebut the presumption, the adult child must proffer clear, convincing, and cogent evidence that:
(1) the parent intended to make a gift of the property to the child,
(2) the child accepted the gift, and
(3) a sufficient act of delivery or transfer of the property occurred to complete the transaction.

After an intense trial spanning six weeks and involving testimony from 17 witnesses, the trial judge ruled in favour of the son. The judge found that the evidence overwhelmingly supported the son’s claim that his father intended to gift him the funds and properties. Several independent witnesses testified and corroborated the son’s assertion that the father had openly expressed his intention to give money and properties to the son’s real estate endeavors or that he had already done so. The judge held that the father was fully aware of the transfers he was making and intended them to be gratuitous gifts.

In terms of the acceptance requirement, the judge also found overwhelming evidence that the son knowingly received and accepted the transferred monies and properties.

In terms of the delivery requirement, the judge found that the transfer of titles to the properties to the son was tangible proof of delivery.

Decision of the Court of Appeal
The Court of Appeal agreed with the decision of the trial judge and held that the son’s evidence at trial satisfied the three elements to rebut the presumption of resulting trust. Accordingly, the Court of Appeal affirmed that the transfers from the father to the son were a series of gratuitous gifts.

Donative Intent
In this case, the principle of donative intent took centre stage. Donative intent refers to the genuine intention of a person to make a gift, which is a critical factor in determining whether a transfer is a gift or something else, i.e. a loan or trust arrangement. The court’s findings underscore the importance of clear and convincing evidence that supports the intent behind financial transactions, especially in cases involving family. Establishing actual intention of the gratuitous transferor requires a case-by-case evaluation on a balance of probabilities.

The Falsetto case highlights the importance of proper documentation when dealing with financial transactions, even within a family context, to ensure clarity and prevent disputes down the road.

How Can We Help?
If you find yourself facing complex legal matters like those discussed in this case, seeking professional legal guidance is crucial. Navigating issues related to property transfers, fiduciary duties, gratuitous gifts, and family dynamics requires a deep understanding of the law and its implications. Our team at Merovitz Potechin is here to assist you in understanding the nuances of your situation, provide tailored advice, and guide you through the legal process. Contact us today for a consultation and let us help you find the best path forward.