Outstanding Debt or Gift?
The Difference Between A Gift And A Loan
The purpose and intent of the advancement of money within the family context can become unclear very quickly when expectations are not defined. There are several factors for the court to consider in determining whether a sum of money is to be characterized as a gift or loan. Evidence of partial repayment, the expectation or likelihood of repayment, and whether the manner of repayment is specified are some of the factors to consider in making this determination. If it is found that the funds are characterized as a loan, the court may need to consult applicable statutes to determine if the cause of action is statute barred and if the debt is extinguished at law.
Zellweger v Zellweger, 2018 BCSC 1227
In this case, the claimant, Jacqueline Zellweger and the defendant, Bryan Zellweger had been in a relationship for 21 years and between them they had five children; 3 biological children and 1 child each from a previous relationship. The parties had engaged in collaborative law process in an attempt to resolve their family law dispute. Unfortunately the process was unsuccessful and the parties were granted a divorce.
One of the issues in dispute was regarding a sum of money Mr. Zellweger received from his mother in 1996 amounting to $350,000. Mr. Zellweger claims that these funds were used towards a down payment and to pay off a portion of the mortgage of one of the couple’s properties (namely the “Tamboline Property”). Between 1996 and 2005, Mr. Zellweger made monthly interest payments to his mother. His mother advised him that interest payments were no longer necessary after 2005, therefore Mr. Zellweger’s last payment was January 1, 2005.
When the Tamboline Property was sold, $500,000 from the proceeds of the sale were deposited into a TD Canada Trust account in Mr. Zellweger’s name. Mr. Zellweger claims that funds held in this account are held in trust for his mother, and therefore excluded from family property.
At issue was whether these funds were to be characterized as a loan or a gift. If it was determined to be a loan, did a family debt to pay back the loan exist?
Loan or Gift?
 Ms. Zellweger cites Byrne v. Byrne, 2015 BCSC 318 at para. 43, in which the court sets out the relevant factors for determining whether funds advanced in a family law context are loan or gifts:
… These were addressed in Kuo v. Chu, 2009 BCCA 405 at para. 9 where the Court of Appeal adopted the factors described in Locke v. Locke, 2000 BCSC 1300 as applicable to the question of whether a loan or gift was intended:
(a) Whether there were any contemporaneous documents evidencing a loan;
(b) Whether the manner for repayment is specified;
(c) Whether there is security held for the loan;
(d) Whether there are advances to one child and not others, or advances of unequal amounts to various children;
(e) Whether there has been any demand for payment before the separation of the parties;
(f) Whether there has been any partial repayment; and
(g) Whether there was any expectation, or likelihood, of repayment.
In support of Mr. Zellweger’s position that the funds were a loan from his mother, the court considered a handwritten note by Mr. Zellweger’s mother, demonstrating her intention for the funds to be repaid at a later date and with interest. Furthermore, Mr. Zellweger presented a declaration of trust signed by himself and his mother on December 1, 2015, affirming the advancement of funds in 1996 and that Mr. Zellweger deposited the remaining principal and interest payments into the TD Trust account for his mother, the beneficiary of the account. As a result, the court found that the funds were properly characterized as loans and that Mr. Zellweger’s mother did not forgive the loans in 2005 when she waived her right to interest.
Is There a Family Debt?
The court considered Gavriel v Gavriel, 2017 BCSC 1653, a similar case in which the husband’s parents had loaned him $60,000 in 1993, and the wife claimed that the cause of action to sue for repayment was statute barred. In that case the court set out the relevant case law.
 In Berry v. Page (1989), 60 D.L.R. (4th) 289, 38 B.C.L.R. (2d) 244 (C.A.), our Court of Appeal discussed the importance of properly characterizing the nature of a loan in order to determine when the limitation period under the previous Limitation Act begins to run. At page 247 (B.C.L.R.), Mr. Justice Wallace held:
The characterization of the loan as either a contingent loan or a demand loan determines whether or not the action is statute barred under the Limitation Act. It is well established that the cause of action accrues, and the Statute of Limitation runs, from the earliest time at which repayment can be required. For a demand loan, the Statute of Limitations runs as of the date of the advancement of the funds, and not from the date of the demand. No demand is necessary in order for the cause of action to arise.
The court determined that the loan was a demand loan. This finding was based on the lack of evidence that the loan was payable on a future date or on the occurrence of a specific
event, such as the sale of the property. The fact that Mr. Zellweger did not repay the loan after the Tamboline Property was sold confirms this lack of a future date or specific event. The court also reasoned that Mr. Zelleger’s mother’s postscript in the 1996 note – “Just look after me in my old age” – was too vague to constitute a contingent event and instead suggested she intended to demand repayment when she needed it.
After consulting the applicable provisions of the previous Limitation Act which was in force during the period of time at issue in this case, the court determined that the loan expired six years after the date of the last interest payment made on January 1, 2005. Therefore the debt was extinguished at law on January 1, 2011 before the coming-into force of the Limitation Act, SBC 2012, c 13, and before the sale of the Tamboline Property. As a result, no family debt existed at separation in respect of the loan, and the court was of the view that Ms. Zellweger should not be required to compensate Mr. Zellweger for debts that he has not paid and is under no legal duty to pay.