McNamee v. McNamee
106 O.R. (3d) 401
2011 ONCA 533
Court of Appeal for Ontario,
Sharpe, Blair and Rouleau JJ.A.
July 26, 2011
Family law -- Property -- Gifts -- Husband's father transferring common shares in father's company to husband as part of estate freeze -- Husband unaware that father executed Declaration of Gift which stated that shares were not to form part of husband's net family property in event of marital breakdown -- Trial judge erring in finding that shares were not transferred by way of gift -- Intention of donor not required to be inspired by affection, respect, charity of similar impulse -- Fact that father could affect value of shares due to nature of estate freeze having no bearing on whether shares were gifted to husband -- Husband's mistake about relative strength of his shareholding position and lack of knowledge of terms and conditions attached to transfer not meaning that he did not accept transfer of shares.
Family law -- Property -- Ownership -- Husband claiming that shares in his father's company transferred to him by his father were gift and therefore excluded from his net family property under s. 4(2) of Family Law Act -- Wife advancing claim for beneficial ownership interest in shares on basis of unjust enrichment and constructive trust -- Trial judge erring in not determining claims of ownership of shares before dealing with exclusion under s. 4(2) of Act -- Family Law Act, R.S.O. 1990, c. F.3, s. 4(2).
Trusts and trustees -- Constructive trust -- Husband's father transferring shares in his company to husband in course of estate freeze -- Husband unaware that father had executed Declaration of Gift which stated that shares were not to form part of husband's net family property in event of marital breakdown -- Conditions in Declaration of Gift of no force or effect as husband was unaware of them and worked for company on understanding that shares were unconditionally his -- Trial judge erring in declining to deal with wife's claim to beneficial ownership interest in shares.
During their marriage, the parties shared everything equally. The husband's father transferred 500 common shares in his company to the husband as part of an estate freeze. Unknown to the husband, the father executed a Declaration of Gift which provided that neither the shares nor any increase in their value or income from them were to form part of the husband's net family property in the event of marital breakdown, and that the shares were to remain the husband's property, free from the control of the wife. The husband erroneously thought that he and his brother (who also received 500 common shares) had become equal one-third owners of the business with their father. In fact, his father retained overwhelming voting control. At trial, the husband claimed that the shares were a gift and were therefore excluded from his net family property under s. 4(2) of the Family Law Act. The wife advanced a claim for a beneficial ownership interest in the shares on the basis of unjust enrichment and constructive trust. The trial judge found that the transfer of shares to the husband was not a gift because (1) the transfer was for consideration; (2) the father did not intend to gift the shares; (3) the father did not divest himself of all power or control over the shares; and (4) the husband did not accept the gift. He did not deal with the constructive [page402] trust claim because he believed his finding that the shares were subject to equalization was dispositive of that issue. The husband appealed.
Held, the appeal should be allowed.
The trial judge erred in finding that the transfer of shares was not a gift. The fact that the father accomplished his corporate planning goals did not amount to consideration flowing from the husband to him. Nor did the husband's continued employment with the company constitute consideration for the transfer of the shares in the circumstances. In finding that the father did not intend to gift the shares, but rather intended to complete the estate freeze, the trial judge erroneously conflated intention with underlying motivation or purpose. The father's intention was to transfer the shares gratuitously; the estate freeze was the ultimate motivation or purpose. A donor's intention does not have to be inspired by affection, respect, charity or similar impulses. The fact that the father could affect the value of the shares due to the nature of the estate freeze had no bearing on whether the shares were transferred as a gift. Nor did the fact that there were unknown strings attached to the transfer invalidate the gift in these circumstances. The fact that the husband was mistaken about the relative strength of his shareholding position did not mean that he did not accept the transfer of the shares. He understood the essential nature of the transaction and he willingly accepted title to the shares.
The trial judge should have determined claims of ownership, including beneficial ownership, of all assets prior to dealing with exclusions under s. 4(2) of the Family Law Act. The conditions in the Declaration of Gift were of no force or effect, as the father did not disclose those conditions to the husband when he gave him the shares. The husband worked for the company for several years after receipt of the shares on the understanding that the shares were unconditionally his. It was not until the parties separated that the Declaration of Gift was shown to the husband. By that date, if the shares were impressed with a constructive trust, the conditions would not operate so as to invalidate such a trust or the gift. The trial judge should have assessed the wife's claim of a beneficial ownership interest in the shares pursuant to s. 10 of the Family Law Act before engaging with the equalization scheme. A new trial on the issue of the wife's entitlement to a constructive trust was required.
APPEAL by the husband from the judgment of Tranmer J., 2010 ONSC 674, [2010] O.J. No. 6032, 89 R.F.L. (6th) 314 (S.C.J.) in matrimonial proceedings.
Cases referred toRawluk v. Rawluk, 1990 152 (SCC), [1990] 1 S.C.R. 70, [1990] S.C.J. No. 4, 65 D.L.R. (4th) 161, 103 N.R. 321, J.E. 90-299, 38 O.A.C. 81, 36 E.T.R. 1, 23 R.F.L. (3d) 337, 19 A.C.W.S. (3d) 260, apld Other cases referred to Birce v. Birce (2001), 2001 8607 (ON CA), 56 O.R. (3d) 226, [2001] O.J. No. 3910, 150 O.A.C. 319, 22 R.F.L. (5th) 6, 108 A.C.W.S. (3d) 673 (C.A.); Cochrane v. Moore (1890), 25 Q.B.D. 57 (C.A.); Hamilton v. Hamilton, 1996 599 (ON CA), [1996] O.J. No. 2634, 92 O.A.C. 103, 64 A.C.W.S. (3d) 828 (C.A.); In re Macklem and Niagara Falls Park Commissioners, [1887] O.J. No. 5, 14 O.A.R. 20 (C.A.); Peter v. Beblow, 1993 126 (SCC), [1993] 1 S.C.R. 980, [1993] S.C.J. No. 36, 101 D.L.R. (4th) 621, 150 N.R. 1, [1993] 3 W.W.R. 337, J.E. 93-660, 23 B.C.A.C. 81, 77 B.C.L.R. (2d) 1, [1993] R.D.F. 369, 48 E.T.R. 1, 44 R.F.L. (3d) 329, 39 A.C.W.S. (3d) 646, EYB 1993-67100; Roseneck v. Gowling (2002), 2002 45128 (ON CA), 62 O.R. (3d) 789, [2002] O.J. No. 4939, 167 O.A.C. 203, 35 R.F.L. (5th) 177, 119 A.C.W.S. (3d) 284 (C.A.); Traversy v. Glover, 2006 24130 (ON SC), [2006] O.J. No. 2908, 30 R.F.L. (6th) 372, 149 A.C.W.S. (3d) 1065 (S.C.J.); Wilson v. Hicks (1911), 23 O.L.R. 496, [1911] O.J. No. 151 (C.A.); Yates v. University College, London (1875), L.R. 7 H.L. 438 (H.L.) [page403] Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 134(6) [as am.] Family Law Act, R.S.O. 1990, c. F.3, ss. 4(2) [as am.], (3), 10, (1) Authorities referred to Mossman, Mary Jane, and William F. Flanagan, Property Law: Cases and Commentary, 2nd ed. (Toronto: Emond Montgomery Publications, 2004) Ziff, Bruce, Principles of Property Law, 5th ed. (Toronto: Carswell, 2010)
H. Hunter Phillips and James N. Eastwood, for appellant. Philip W. Augustine, for respondent.
1BLAIR and ROULEAU JJ.A. (SHARPE J.A. concurring): -- Connie and Clayton McNamee were married for 18[cents] years. By all accounts, their marriage was one that was conducted as an equal partnership, with the parties sharing their incomes and expenses and holding their assets and liabilities in their joint names.
2They separated on August 5, 2007. As was the case with their marriage, Mr. and Mrs. McNamee conducted the separation of their affairs in a commendably respectful, civil and accommodating fashion. They resolved issues surrounding the care of their children and other matters, but they needed a trial to settle two issues.
3The first was the amount of the appellant's income for purposes of child and spousal support. That issue is not the subject of appeal. The second issue -- which is the subject of appeal -- was whether Mr. McNamee's 500 common shares in his father's concrete trucking company had been received by way of gift (and were therefore exempt from inclusion in his net family property) or in some other fashion (and were therefore to be included in his net family property). The shares were transferred to Mr. McNamee in March 2003, as a result of an estate freeze undertaken by the father, and were valued at $418,200 as of the date of separation.
4The trial judge found that the shares had not been transferred by way of gift. Mrs. McNamee was therefore entitled to half of their value. Mr. McNamee seeks to set aside that decision.
5At trial, Mrs. McNamee sought a declaration that she was entitled to a beneficial ownership interest in the appellant's shares in the concrete trucking company by way of unjust enrichment and constructive trust. The trial judge did not deal [page404] with this claim because he believed his finding that the shares were subject to equalization was dispositive of the issue.
6For the reasons that follow, we would allow the appeal but order a new trial on the issue of unjust enrichment and constructive trust. Facts
The marriage
[7]
Facts
The McNamees had a long-term and relatively problem-free marriage. Their separation was apparently part of the fallout from the tragic drowning deaths of their best friend's 15-year- old child and another friend who tried to save the boy.
8It is clear on the record, as the trial judge found, that the appellant and the respondent agreed to and did conduct their marriage as an equal partnership. Their bank accounts were joint. Their earnings were shared. Their two homes were in their joint names. The appellant agreed in cross-examination that assets and liabilities during the marriage were to be shared equally, regardless of whose name they were in; the couple shared the benefits and the burdens of the marriage.
9The trial judge found as a fact that "[if] Clayton and Connie had been asked as to their intention with regard to the shares [prior to separation], they both would have readily confirmed their intention to share in that benefit equally". This finding is supported in the evidence. The legal effect of the transfer of the shares in the marital breakdown context is not that simple, however.
McNamee Concrete and the estate freeze
[10]
McNamee Concrete and the Estate Freeze
The appellant is the son of the founder of McNamee Concrete Ltd., John McNamee. Mr. McNamee Sr. established his company in 1977, with a single cement truck. In 1988, he invited his two sons, Clayton and Trevor, to join him in the business -- Clayton to establish a construction division, and Trevor to head up the company's sales division. Father and sons worked very hard and the business has grown dramatically and successfully. The company now has about 40 trucks, and the construction division itself now has 30 employees and annual sales exceeding $5 million. Mr. McNamee Sr. has always controlled the business and made all major financial and other decisions respecting it, and still does.
11In 2003, he reluctantly yielded to the advice of his accountant and lawyer to implement a corporate estate freeze in order to protect the business from creditors and as a means of [page405] limiting the impact of taxation in the event of his death. This was accomplished by folding the business into a holding company, 1518006 Ontario Limited ("Holdco"), and fixing the value of the business at $2 million for purposes of the freeze. That value was to accrue to Mr. McNamee Sr., but future growth in value would be reflected in common shares of Holdco to be issued to Clayton and his brother (subject to controls that Mr. McNamee Sr. was to retain). To give effect to the freeze, Mr. McNamee Sr. transferred his only two common shares in McNamee Concrete Ltd. to the newly created Holdco in exchange for 20,000 voting preference shares valued at $2 million. He then subscribed for 1,000 common shares for $1 and transferred 500 of those common shares to each of his sons.
12Whether these shares were transferred by way of gift is a principal issue on appeal.
13Mr. McNamee Sr. insisted that he was to retain control of the business -- he did not think his sons were "ready yet" to take over -- and he was adamant that no one would get the shares he had transferred to his sons without his approval. He had gone through a divorce himself and was determined that neither the shares nor any income from them were to become part of any community of property if his sons' marriages broke down. As a result of these concerns, there were some unusual features to the estate freeze. First, Mr. McNamee Sr. retained full control by ensuring that his preference shares be voting shares (in the normal estate freeze, the preference shares maintained by the former principal are non-voting). Secondly, his voting preference shares entitle him to take unlimited dividends from the company at any time, thus enabling him -- should he wish to do so -- to denude the company of any equity or retained earnings in the future (also an unusual feature).
The Declaration of Gift
[14]
The Declaration of Gift
As a result of these concerns, and as part of the estate freeze process, Mr. McNamee Sr. executed a Declaration of Gift at the time the common shares were issued to his sons. The Declaration attached two "strings" to the transferred shares: first, neither the shares, nor any increase in their value or income from them, were to form part of the net family property of the donee in the event of marital breakdown; and, secondly, the shares were to remain the donee's separate property, free from the control of his spouse. As these "strings" or conditions are of some importance on the appeal, we recite the Declaration of Gift in its entirety here: [page406] DECLARATION OF GIFT
I, John McNamee, of the Village of Jasper, in the Province of Ontario, am the owner of 1000 Common Shares in the capital of [Holdco] (the "Property")
I desire to gift the property to my sons, Trevor McNamee and Clay McNamee, (the "Donees") in equal proportion.
To carry out my intended purpose, I hereby deliver to each of the Donees a share certificate representing 500 Common Shares in the capital of [Holdco] registered in the name of the Donee.
I acknowledge that it is my intent to vest absolute ownership and title in the Property in the Donee from the date of this declaration.
I hereby direct that the whole of the Property gifted to each Donee, the income arising therefrom, any appreciation in the value thereof, and any property acquired in substitution therefor shall not fall into any community of property which may exist between the Donnee and his spouse, and shall not form part of the net family property of the Donee for any purpose or purposes under the Family Law Act, R.S.O. 1990, c. F.3 and any amendment thereto or any successor legislation thereto, and is given to the Donee on the condition that it shall remain his separate property, free from the control of his spouse. This direction shall apply not only to the Family Law Act, but also to the laws of any other jurisdiction dealing with the distribution of property in the event of death or marriage breakdown.
15Subsequent to the implementation of the estate freeze, the appellant and his brother and his father executed a unanimous shareholders' agreement. This agreement provides that in the event a common shareholder retires or leaves the employ of the company, his or her common shares are to be converted into fixed-value non-voting preferred shares of the corporation, having a redemption value equal to the fair market value of the shareholder's common shares on the final date of employment by the corporation.
16Holdco's shareholders' register shows that 500 common shares were transferred to Clayton McNamee on March 20, 2003. The appellant knew that he had become a shareholder and testified that at some point in time -- although he could not remember when -- his father told him the shares were a gift. He did not pay for the shares. The appellant erroneously thought that he and his brother and father had become equal one-third owners of the business, and happily conveyed that news to the respondent. They were excited about this because it was an indication that their hopes for the future were coming to fruition -- i.e., that at some point the appellant and his brother would take over the business and it would provide for their future needs. In practical terms, the appellant had not become an "equal owner" of the business, given his father's overwhelming voting control. In fact, however, he and his brother were 50 per cent owners of any future increase in the equity of the business, provided their [page407] father did not exercise his right to dividend out that equity to himself -- which he had not done by the time of the marriage breakdown.
17The appellant was not aware of the details of the estate freeze transaction, however. He remembers signing some documents in 2003, but he did not totally understand them. In particular, he was not shown the Declaration of Gift until after he and the respondent had separated in 2007. Until that time, he did not know about the strings attached to the transfer of the shares or that his father was attempting to prevent him and his wife from sharing the value of the shares equally in the event of a breakdown of their marriage.
Working lives
[18]
Working Lives
The appellant started working in the family business shortly after he met the respondent. As noted, he ran the construction side of the McNamee Concrete business, while his brother ran the sales division and his father controlled the business overall and dealt with all important issues, including financial matters. The appellant worked hard, spending 10-12 hour days, seven days a week at the beginning and later reducing that workload to five days a week as more staff was taken on. The business did well and the appellant's income from 2004 through 2008 ranged upward from $96,400 to $136,300 (plus the use of a company vehicle).
19The respondent, meanwhile, was the primary parent for child care during the marriage. She has a grade 12 education. She was employed in the workforce from 1985 until 2002, at which time she switched jobs. Shortly thereafter, however, she suffered a serious horse riding mishap, and the injuries she suffered prevented her from returning to the new job. Thereafter, she did some part-time work as a riding instructor, which was one of her areas of interest. The respondent was engaged in some re-training as a legal administrator at the time of trial and her anticipated starting salary was in the range of $30,000-$35,000 annually.
20The appellant readily acknowledged that his substantial contribution to the company would not have been possible without the respondent's contribution in the home over the 18 1/2 years of marriage. The respondent also assisted the appellant in his work in the company, although the trial judge made no conclusive findings about the nature and extent of the respondent's assistance. He found that the respondent "did provide some valuable assistance to Clayton on job sites not only as company for him so he could go to work, but as a second set of [page408] hands that he could rely on", but that it was "not possible to quantify how much work this amounted to or how often with any specificity". Law and Analysis
Were the shares transferred by way of gift?
[21]
Law and Analysis
Section 4(2) of the Family Law Act, R.S.O. 1990, c. F.3 excludes gifts received during the marriage from a spouse's net family property:
4(2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse's net family property: 1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
22The onus of proving exclusion under s. 4(2) is on the person claiming it: s. 4(3).
Elements of a gift
[23]
Elements of a Gift
Although the term "gift" is not defined in the Family Law Act, a gift, generally speaking, is a voluntary transfer of property to another without consideration: Black's Law Dictionary, 7th ed. (St. Paul, MN: West Group, 1999), at p. 696; Birce v. Birce (2001), 2001 8607 (ON CA), 56 O.R. (3d) 226, [2001] O.J. No. 3910 (C.A.), at para. 17. A transfer of property by contractual agreement involves a mutual exchange of obligations ("consideration"), but a transfer by way of gift involves a gratuitous, unilateral transaction: Mary Jane Mossman and William Flanagan, Property Law: Cases and Commentary, 2nd ed. (Toronto: Emond Montgomery Publications, 2004), at p. 439. As McLachlin J. observed in Peter v. Beblow, 1993 126 (SCC), [1993] 1 S.C.R. 980, [1993] S.C.J. No. 36, at p. 991-92 S.C.R., "[t]he central element of a gift [is the] intentional giving to another without expectation of remuneration".
24The essential ingredients of a legally valid gift are not in dispute. There must be (1) an intention to make a gift on the part of the donor, without consideration or expectation of remuneration, (2) an acceptance of the gift by the donee and (3) a sufficient act of delivery or transfer of the property to complete the transaction: Cochrane v. Moore (1890), 25 Q.B.D. 57 (C.A.), at pp. 72-73 Q.B.D.; Mossman and Flanagan, supra, at p. 441, Bruce Ziff, Principles of Property Law, 5th ed. (Toronto: Carswell, 2010), at p. 157.
25Some authorities have sought to refine or qualify these elements in various ways, but they remain the substance of a [page409] valid gift. Here, the trial judge found two qualifications to be significant. First, he concluded, correctly, that the donor must divest himself or herself of all power and control over the property and transfer such control to the donee. Secondly, he concluded -- incorrectly, in our view -- that the intention of the donor must be inspired by affection, respect, charity or like impulses and not by commercial purposes.
26The trial judge based his conclusion that the transfer of shares to the appellant was not a gift on four factors: (a) the transfer was not a gratuitous transfer but was a transfer for consideration; (b) Mr. McNamee Sr. did not intend to gift the shares; (c) Mr. McNamee Sr. did not divest himself of all power or control over the shares; and (d) the appellant did not accept the gift.
27Respectfully, we do not think he was correct in law in so concluding. The transfer was by way of gift.
Consideration
[28]
Consideration
The trial judge concluded that the transfer of shares was not gratuitous but was a transfer for consideration. We disagree.
29"Consideration" in law is a contractual concept. It is the value that flows from a promisee to a promisor as a result of a bargain. There can be no consideration, however, when there has been no bargain or -- to put it another way -- consideration cannot flow from a promisee who does not know he or she is negotiating, much less passing value to a promisor in an exchange he or she doesn't know exists. Here, the share transaction was completely unilateral on the part of Mr. McNamee Sr.; his sons had no meaningful input with respect to it.
30Thus, the debate about whether or not the share exchange was supported (a) by past consideration, in the form of the father "supposing" he was "rewarding the boys for 15 years of hard work", or (b) by future consideration in the form of the boys' continued employment with the company is not particularly helpful. Past consideration does not generally support a subsequent contract, and even if the trial judge was right in his finding that securing the continued involvement of the appellant and his brother in the business constituted a benefit flowing from the sons to their father, such a finding does not matter in [page410] these circumstances. There was no bargaining; therefore, there could be no consideration in law.
31It is helpful to remember that the issue is not whether the donor (or, for that matter, the donee) received some benefit from the estate freeze (Mr. McNamee Sr. accomplished his corporate planning; the boys received their common shares). The issue is whether the donee has provided any consideration to the donor for the transfer of the shares. For the reasons outlined above, the appellant provided no consideration in that regard. The fact that Mr. McNamee Sr. accomplished his corporate planning goals -- including capping his value in the company at $2 million, with the right to draw out more if he wished; protection from creditors; and relief from possible tax consequences on his death -- do not amount to consideration flowing from the appellant to him. Nor, we would add, did the appellant's continued employment with McNamee Concrete constitute consideration for the transfer of the shares in the circumstances. The appellant receives a good salary for his services as an employee of the enterprise, and the father's vague hope that his sons would continue with the company does not constitute consideration flowing from the boys. The shares were not transferred in order to ensure the sons' continued involvement in the company; they were transferred to give effect to the estate freeze plan. Motive underlying a donor's conduct is not the same thing as consideration flowing from the donee.
32Moreover, the appellant is not bound to the company on pain of "losing" his shares, as the respondent contends, except in a technical sense. Like many shareholders in a closely held family corporation, his shares will be converted into fixed- value non-voting preference shares if he retires or leaves as an employee. But those shares will not be worthless. They will reflect the value attributed to his common shareholding position at the time of his departure. The appellant does not retire or leave at the risk of losing everything. Mr. McNamee Sr. receives no consideration flowing from his sons, in the form of forbearance from leaving, in this sense.
Intention
[33]
Intention
The trial judge found that Mr. McNamee Sr. did not intend to gift the shares to his sons; rather, he intended to complete the estate freeze in order to protect his company from creditors (and to avoid potential tax consequences). In this respect, the trial judge said [at paras. 233-35, 245-46]:
Clearly on the evidence the intention of John in authorizing and directing the estate freeze was not for the purpose of making a gift to his boys. It was to creditor proof his business and thus better protect the future of his business. [page411]
The transfer of the shares was but one step that was necessary for the primary objective to be accomplished.
So long as the main objective was achieved with the requirements he demanded John was less concerned about how the shares were transferred to his sons. This is evident from his testimony when asked why he didn't sell the shares to the boys. He answered that it was because they didn't have any money. . . . . .
A necessary step in achieving his goals involved transfer of shares -- sale or gift.
-- Sale: boys had no money
-- Gift: not because he wished gratuitously, out of generosity and as his kindly motivating intent, but because a transfer of shares was a necessary step and to do so by "gift" keeps the shares from the spouses and this further protects John's mandate of preserving his control.
I conclude that John did not have the intent to make a gift of the shares to his sons. That was but one step in the sophisticated plan that John specifically directed.
34Respectfully, this analysis erroneously conflates intention with underlying motivation or purpose. They are not the same concepts and to treat them as such constitutes error in law. That Mr. McNamee Sr.'s primary purpose or motivation in transferring the shares was to underpin the estate freeze does not mean he did not intend to gift the shares in order to give effect to that purpose. Had the trial judge focused on Mr. McNamee Sr.'s intention in relation to the transfer of the shares itself, rather than on his ultimate purpose or motivation in putting the estate freeze in place, he would have realized -- on the evidence here -- that Mr. McNamee Sr. did intend to gift the shares: the documentation to that effect (the Declaration of Gift) is clear; the fact that he did not sell the shares to the boys because they had no money -- as noted by the trial judge above -- reinforces the notion that the transfer was by way of gift; and there was no "consideration" in law, as we have earlier explained. The intention respecting the transfer of shares was to do so gratuitously. The transfer was part of the corporate structure putting the estate freeze in place. And the estate freeze was the ultimate motivation or purpose.
35Had he given effect to these distinctions, the trial judge would have recognized that Mr. McNamee Sr. had the requisite intention as donor to transfer the shares by way of gift.
36In his analysis, the trial judge relied upon a Superior Court decision, Traversy v. Glover, 2006 24130 (ON SC), [2006] O.J. No. 2908, 30 R.F.L. (6th) 372 (S.C.J.), which, in turn, at para. 39, cited the following [page412] statement as part of the definition of "gift" from Black's Law Dictionary, 5th ed. (St. Paul, MN: West Group, 1979):
In tax law, a payment is a gift if it is made without conditions, from detached and disinterested generosity, out of affection, respect, charity or like impulses, and not from the constraining force of any moral or legal duty or from the incentive of anticipated benefits of an economic nature.
37We are not able to find this reference in later editions of Black's. In any event, we are not persuaded that "inspired by affection, respect, charity, or like impulses" is the only type of donor intention that may found a valid gift -- "the spirit of, say, cufflinks under the Christmas tree", as the trial judge put it. Here, the intention to transfer the shares had a perfectly legitimate legal objective, namely, to underpin the corporate restructuring in the form of an estate freeze. To the extent that Traversy and the trial judge here are suggesting that for a gift to be valid the donor's intention may only be motivated by altruism, we respectfully disagree. A transfer of property by way of gift may equally be motivated by commercial purposes provided the transfer is gratuitous, i.e., as McLachlin J. (as she then was) put it in Peter v. Beblow, supra, provided it involves "[the] intentional giving to another without expectation of remuneration".
Delivery
[38]
Delivery
"Delivery" of the shares is not an issue. Everyone concedes that the shares were transferred to the appellant.
Acceptance and divesting of power and control
[39]
Acceptance and Divesting of Power and Control
To be valid, a gift must be accepted by the intended donee.
40On behalf of the respondent, Mr. Augustine makes two arguments in support of the respondent's position that the shares were not accepted in a fashion that would validate them as a gift.
41First, he submits that Mr. McNamee Sr. did not divest himself of all power and control over the shares and therefore did not effect an irrevocable transfer of them to the appellant. Why does he say this? Because Mr. McNamee Sr. retained control over the value of the gift since he could dividend out the equity at any time, and because if the appellant did not continue to work for the company the shares themselves were subject to being converted to preferred shares and being redeemed.
42Secondly, Mr. Augustine submits that the gift fails because the appellant was unaware of the conditions attached to it prior to the critical date, namely, the date of separation. His lack of knowledge in this respect vitiated his "acceptance" and [page413] therefore vitiated what would otherwise have been a valid gift (assuming for these purposes that the other criteria for a gift had been met).
43We do not accept either of these submissions.
44The fact that the donor could affect the value of the shares at any given time reflects the nature of the estate freeze in question. It has no bearing on whether the shares as transferred were or were not a gift. The shares could be of no value, of limited value or of substantial value. As it turned out, they were of substantial value -- $418,200 -- when it counted. The appellant received what he received, and the donor irrevocably transferred the shares for what they were. That the unanimous shareholders' agreement calls for the conversion of the appellant's common shares into fixed-value preference shares, should the appellant retire or leave the company, is of little significance in this respect. Such a provision is a common protector for shareholders in closely held corporations against the consequences of another shareholder leaving but still retaining unwanted leverage through potentially mischievous voting rights. It has nothing to do with whether or not the shares were transferred and received as a gift.
45Nor do we think the fact that there were unknown strings attached to the gift -- unknown to the appellant at the time of his separation -- invalidates the gift in these circumstances.
46For one thing, the appellant clearly knew about and accepted the transfer of the shares. He, and everybody else, operated on the basis that he was a common shareholder of the company for a period of several years. He signed papers in the presence of his father and brother at the time of the estate freeze, and although he did not "totally" understand the documents he read, he knew that he and his brother were the owners of 500 shares in the company that had been transferred to them, and he knew they had not paid anything for the shares. Although he could not remember when it happened, he was told by his father that the shares were a gift. As noted above, the appellant (erroneously) thought that he, his brother and his father were equal shareholders and happily conveyed that news to the respondent. The fact that he was mistaken about the relative strength of his shareholding position does not mean that he did not accept the transfer of the shares.
47While a valid gift may be made without the donee's knowledge, subject to the donee's right to repudiate the gift upon learning of the transfer, the respondent contends the donee must ultimately understand the nature of the transaction and willingly accept title to the property transferred, as transferred, [page414] before the gift is completed: see Ziff, supra, at p. 157. In this regard, the trial judge concluded (para. 209):
These authorities indicate that the question of whether or not the husband in the case at bar is found to have accepted his father's gift would require that he know of the transfer of shares, at the time it was made. Indeed, at the very minimum, he would be required, under the rule in Wilson v. Hicks [See Note 1 below] which is still good law in Ontario, to have understood the nature of the transaction and to have willingly accepted title to the shares. This understanding presumes an element of knowledge that he was the donee to the transfer of the shares at the time the transfer was made and of the terms and conditions attached to the shares.
48In the passage cited above, however, Professor Ziff qualifies this concept:
Acceptance of a gift involves an understanding of the transaction and a desire to assume title. This is a requirement that is treated with little rigour: in the ordinary case, acceptance is presumed to exist. (Emphasis added)
49Here, contrary to the trial judge's view, the appellant understood the essential nature of the transaction -- he had received shares in the company and had paid nothing for them -- and he willingly accepted title to those shares. In the circumstances of this case, we do not think the appellant's lack of knowledge of the terms and conditions attached to the gift is particularly germane. We say this for a number of reasons.
50First, the inference suggested by the respondent is that the appellant would not have accepted the shares, had he known of the strings attached. But there is no evidence to support that suggestion. While the trial judge found that, if asked, the appellant and the respondent would have confirmed their intention to share the benefits of the transfer equally, he made no finding that the appellant would have rejected the shares had he been aware of the strings attached to them. This is not surprising, as such a finding would have cut against the grain of the parties' expectations, i.e., that the appellant and his brother would help develop, and ultimately take over, the business enterprise, and that the appellant's interest in the company would provide for them and their family in the future.
51Secondly, a scenario in which the appellant repudiated the gift upon learning of the strings attached to it (and assuming that he acquired this knowledge before the operative date) assists no one in this proceeding. In the absence of valuable consideration supporting the transfer -- which we have concluded [page415] is the case here -- the failed gift would revert to the failed donor, Mr. McNamee Sr. The respondent would not have benefitted from this, nor would the appellant. And whatever benefits had accrued from the estate freeze to that point might well be jeopardized. A rejection scenario is highly unlikely, in our view. Whatever else might have been done is pure speculation.
52Thirdly, the conditions or strings attached to the transfer of shares are of little relevance or weight here. They add nothing in the circumstances. The requirement that neither the shares, nor any increase in their value, form part of the parties' matrimonial property regime is simply a reflection of the law as it presently stands: Family Law Act, s. 4(2). Nor is the condition that the shares remain the property of the appellant and not be transferred to his spouse affected. For purposes of the "gift" analysis, and given Ontario's family law equalization payment regime -- as opposed to a division of property regime -- the shares remain the property of the appellant notwithstanding the breakdown of the parties' marriage.
The transfer of shares was a gift
[53]
The Transfer of Shares Was a Gift
For the foregoing reasons, we are satisfied that the appellant received his 500 common shares in the company as a gift. Subject to the constructive trust/unjust enrichment analysis, to which we now turn, it follows that, by operation of s. 4(2) of the Family Law Act, neither the appellant's ownership interest in the shares, nor any increase in the shares' value, form part of the appellant's net family property for purposes of calculating the equalization payment. The trial judge erred in ordering that half the value of the shares be included in the equalization payment to be made to the respondent.
Beneficial ownership/constructive trust claim
[54]
Beneficial Ownership and Constructive Trust Claim
Our determination that the shares were a gift to the appellant is not the end of the matter, however. This is because the respondent has advanced a claim for a beneficial ownership interest in the shares on the basis of unjust enrichment and constructive trust.
55The respondent's constructive trust claim was a live issue at trial, but unfortunately the parties had framed the issue as follows: "If the shares are excluded [from the husband's net family property], has the husband been unjustly enriched such that the wife is entitled to a remedy by way of constructive trust?" Because the trial judge found that the shares were not to be excluded from net family property, he did not find it necessary to assess the respondent's claim for a constructive trust. [page416]
56In our view, the trial judge should have determined claims of ownership, including beneficial ownership, of all assets prior to dealing with the net equalization payment exclusions under s. 4(2) of the Family Law Act.
57In Rawluk v. Rawluk, 1990 152 (SCC), [1990] 1 S.C.R. 70, [1990] S.C.J. No. 4, the Supreme Court of Canada articulated a two-step process in which ownership is determined before any consideration of equalization under the Family Law Act. The court wrote, at p. 90 S.C.R.:
Sections 4 and 5 of the Family Law Act, 1986 create a two- step property division process that emphasizes the distinction between the determination of legal and equitable ownership and the equalization of net family property. These sections require a court first to determine individual "ownership piles" and then to equalize the spouses' assets by ordering the spouse with the larger ownership pile to pay money to the spouse with the smaller pile.
58The court also held that the regime created by the Family Law Act did not oust the equitable remedy of constructive trust in the process of settling the affairs of married couples upon separation. Far from excluding the remedy of constructive trust, the fundamental objectives of the Act "are furthered by the use of the constructive trust remedy in appropriate circumstances" (Rawluk, at p. 90 S.C.R.).
59Rawluk makes clear that a claim of ownership is distinct from a claim for a share in property value; the constructive trust claim addresses the former and the equalization regime of the Family Law Act covers only the latter. As explained by Cory J., on behalf of the majority, the court needs to determine the owner of an asset before it makes an inventory of each spouse's assets and carries out the equalization calculation. In other words, the consideration of constructive trust claims occurs as an essential preliminary step before the determination of net family property and before equalization.
60Cory J. pointed to s. 10 of the Family Law Act as support for his conclusion that the legislature intended ownership issues to be resolved before equalization is calculated. As he noted, at p. 94 S.C.R., s. 10 "allows a spouse to apply to a court to determine a question of ownership or possession prior to equalization, and thus to assert some degree of control over matrimonial property during cohabitation".
61Section 10(1) reads:
10(1) A person may apply to the court for the determination of a question between that person and his or her spouse or former spouse as to the ownership or right to possession of particular property, other than a question arising out of an equalization of net family properties under section 5, and the court may, [page417] (a) declare the ownership or right to possession; (b) if the property has been disposed of, order payment in compensation for the interest of either party; (c) order that the property be partitioned or sold for the purpose of realizing the interests in it; and (d) order that either or both spouses give security, including a charge on property, for the performance of an obligation imposed by the order,
and may make ancillary orders or give ancillary directions.
62Rawluk also highlights the significance of the distinction between an ownership interest and entitlement to equalization of value. Cory J. wrote, at pp. 92-93 S.C.R.:
The distinction between a share in ownership and a share in property value through an equalizing transfer of money is more than an exercise in judicial formalism. This distinction not only follows the two-step structure of the Family Law Act, 1986 but reflects conceptual and practical differences between ownership and equalization. Ownership encompasses far more than a mere share in the value of property. It includes additional legal rights, elements of control and increased legal responsibilities. In addition, it may well provide psychological benefits derived from pride of ownership. Where the property at issue is one to which only one spouse has contributed, it is appropriate that the other spouse receive only an equalizing transfer of money. But where both spouses have contributed to the acquisition or maintenance of the property, the spouse who does not hold legal title should be able to claim an interest in that property by way of a constructive trust and realize the benefits that ownership may provide. The imposition of a constructive trust recognizes that the titled spouse is holding property that has been acquired, at least in part, through the money or effort of another. The non-titled spouse's constructive trust interest in this property is distinct from the right to an equalizing share of property value that is derived not from an independent property right but from the status as a married person.
63The two-step process described in Rawluk has been applied consistently by this court: see, e.g., Hamilton v. Hamilton, 1996 599 (ON CA), [1996] O.J. No. 2634, 92 O.A.C. 103 (C.A.); Roseneck v. Gowling (2002), 2002 45128 (ON CA), 62 O.R. (3d) 789, [2000] O.J. No. 4939 (C.A.). In Hamilton, Osborne J.A. stated, at paras. 25-26:
The first step required by s. 4 is to identify all relevant property. Then ownership has to be determined. At this stage, trust principles may be brought to bear such that ownership of property for net family property purposes is deemed to be different from that which may be recorded in a titled document. Once the ownership of property is established, the value of the property at the valuation date must be determined.
Next the court must determine the relevant deductions and exclusions under ss. 4(1) and 4(2) of the Family Law Act. [page418]
64In Roseneck, Weiler J.A. put it succinctly, at para. 2:
Under s. 4, the calculation begins by ascertaining the title to property owned by each spouse as at the date of separation. Beneficial ownership of that property is then ascertained taking into account trust principles where applicable. Following this, the court determines the relevant deductions and exclusions under the Act[.] [Citations omitted]
65Therefore, a court must first apply trust principles to determine ownership before turning to the exclusions listed in s. 4(2). This is supported by the language of s. 4(2), which provides: "The value of the following property that a spouse owns on the valuation date does not form part of the spouse's net family property . . ." (emphasis added). A spouse cannot exclude property that is beneficially owned by someone else.
66It must be stated that, in the vast majority of cases, any unjust enrichment that arises as the result of a marriage will be fully addressed through the operation of the equalization provisions under the Family Law Act; the spouse who legally owns an asset will ordinarily share half its value with the other spouse as a result of the equalization provisions under the Act. However, a fair and contextual reading of the equalization and net family property provisions of the Family Law Act ensures that married spouses are not deprived of equitable remedies they would otherwise have available to them because, as noted above, ownership issues -- equitable or otherwise -- are to be determined before the net equalization payment exercise is undertaken.
67The appellant, however, submits that the conditions imposed by the appellant's father in the Declaration of Gift prevent the respondent from being able to acquire an interest in the shares.
68In our view, the conditions in the Declaration of Gift are of no force or effect. When the appellant's father gave the shares to the appellant, he did not disclose the conditions to the appellant, nor did he provide the appellant with a copy of the Declaration of Gift. The appellant accepted the gift of the shares believing they were without conditions. The shares were transferred into his name and the appellant subsequently entered into a unanimous shareholder agreement with his brother and father.
69For several years after receipt of the gift, the appellant worked for the company on the understanding that the shares were unconditionally his. It was not until after the appellant and respondent separated that the Declaration of Gift was shown to the appellant. By that date, if the shares were impressed with a constructive trust, the conditions would not [page419] operate so as to invalidate such a trust or the gift. In the peculiar circumstances of this case, and where the conditions were not communicated to the appellant until well after the gift was accepted and it became impossible for the appellant to comply, the conditions could not operate so as to invalidate the gift or prevent the imposition of the constructive trust: see, e.g., Yates v. University College, London (1875), L.R. 7 H.L. 438 (H.L.) and In Re Macklem and Niagara Falls Park Commissioners, [1887] O.J. No. 5, 14 O.A.R. 20 (C.A.).
70In the present case, therefore, the trial judge should have assessed the respondent's claim of a beneficial ownership interest in the shares pursuant to s. 10 of the Act before engaging with the equalization scheme. Since the trial judge's reasons focus mainly on the issue of whether the shares were a gift, he did not seem to direct his full fact-finding powers to the constructive trust issue. Indeed, he explicitly declined to resolve the factual disputes between the parties concerning the nature and duration of the respondent's assistance to the appellant in his contributions to the company, other than to say that he found that her testimony demonstrated considerable knowledge about this work.
71Reviewing the record, we are not satisfied that there are sufficient factual findings for this court to determine on its own whether the respondent is entitled to a constructive trust. The only recourse, then, is a new trial on that issue. A new trial shall only be ordered when a substantial wrong or miscarriage of justice has occurred: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 134(6). In our view, the error with respect to the gift issue, which led to the constructive trust issue never being addressed despite being pleaded by the parties, was a substantial wrong. A new trial is warranted in order to give full consideration to the constructive trust claim. Disposition
[72]
Disposition
For all of the foregoing reasons, we would allow the appeal and set aside the order of the trial judge dated March 18, 2010, requiring the appellant to pay to the respondent the sum of $209,100, plus prejudgment interest on that amount, in full and final satisfaction of all right, claim and interest of the respondent in the 500 common shares in 1518006 Ontario Limited in the name of the appellant. However, we would direct a new trial on the issue of whether the respondent has unjustly enriched the appellant and is entitled to a beneficial ownership interest in the shares in the form of a constructive trust. [page420]
73There is also an outstanding order restraining the appellant from depleting the said shares without the written consent of the respondent "until such time as the sum of $209,100.00 plus accrued interest has been paid in full". Since the appellant is no longer liable for this amount, it no longer serves as basis for preventing the appellant from depleting his shares. However, given that there may be a new trial to determine the parties' respective rights and interests in the shares held in title by the appellant, we would modify the order so that the appellant is restrained from depleting the said shares without written consent of the respondent and that this order shall continue until further order of the Superior Court.
74As the results of the appeal are mixed, we would make no order as to costs.
Appeal allowed.
Notes
Note 1: Wilson v. Hicks (1911), 23 O.L.R. 496, [1911] O.J. No. 151 (C.A.).
