Court File and Parties

Court File No.: FC-21-00001479-0000 Date: 2023-10-12 Ontario Superior Court of Justice

Between: Marla Crystal Darmantchev, Applicant – and – Vitali Darmantchev, Respondent – and – Petr Darmantchev, Respondent – and – Lidia Darmantchev, Respondent

Counsel: Kamla O. Lewis, Counsel for the Applicant Eli Antel/Stacey Mintsopoulos, Counsel for Respondent Vitali Darmantchev Dani Z. Frodis/Samantha Dineno, Counsel for Respondent Petr Darmantchev Dani Z. Frodis/Samantha Dineno, Counsel for Lidia Darmantchev

Heard: May 15, 2023

Reasons for Judgment

S. SHORE J.

[1] The sole issue for determination on this one-day trial was whether money advanced from the Respondent Father’s parents (the “Grandparents”) to the Applicant Mother and Respondent Father (collectively, the “Parents” or “Parties”) during the Parties’ marriage was a gift or a loan. The matter was scheduled for a trial because the parties are otherwise able to resolve their outstanding property issues.

[2] I find that the money advanced from the Grandparents to the Parties was a loan and not a gift.

[3] Some background information is required to understand my reasons below.

Background

[4] The Parents met at a Baptist church camp. The Parents decided to get married when they found out that the Mother was pregnant with twins. They were married on August 26, 2007. The Mother was 20 years old, and the Father was 21 years old. The Father was still in school. The Grandparents supported the Parents, paying for their wedding and opening their home to them. The Mother’s parents kicked the Mother out of their home and refused to contribute to the wedding expenses, other than buying the Mother’s dress.

[5] The Parents and their children lived with the Grandparents from 2007 to 2012. The Grandparents never asked the Parents to pay rent or to contribute to the expenses of the home. It is clear they love their son, their daughter-in-law and their grandchildren. All three of their grandchildren were born while the Parents were living with the Grandparents.

[6] The Grandparents have been married since 1978. In 1992, they arrived in Canada, along with their three children, as refugees from Moldova. They came to Canada to offer their children a better life. The Grandfather worked as a truck driver in Moldova and in 1994, he obtained his licence in Ontario and began working as a truck driver again. The Grandfather now spends his weeks driving back and forth to Carolina, leaving Monday morning and returning home on Saturday evening. During the trips, he sleeps in his truck. He is 68 years old. His evidence was that he cannot afford to retire because he has large debt payments. The Grandfather earns approximately $67,000 per year.

[7] The Grandmother is 65 years old and is and has been very involved with her grandchildren. She testified that she would care for the children whenever she was asked, even if it meant cancelling her own plans. She advised that she picked the children up from school almost every day and she was always happy to take care of them.

[8] The Parties separated on May 9, 2021.

Advance of funds

[9] There is no doubt the Grandparents, Parents and children were close. So, in 2013, when the Parents asked for assistance to buy a home, the grandparents agreed. They did not have money available to give the Parents, so the Grandparents used a line of credit on their own home to come up with the funds.

[10] The bulk of the money in question was provided to the Parents in 2014, to purchase 55 Carstad Crescent in Vaughan, Ontario (“the Vaughan Home”). The Grandparents initially provided the Parties with $70,000 for the deposit on the Vaughan Home. However, just before closing, the Parents found out that they were required to provide a down payment of 34.5 per cent. They did not have the money for the additional down payment and in March 2014, they approached the Grandparents in a panic to assist with the shortfall. The Grandparents gave them a further $190,000, for a total advance of $260,000, taking their own line of credit to $447,000 with a $450,000 maximum limit.

[11] The evidence from the Grandparents is that they agreed to loan the money to the Parents provided that they pay the money back, along with the interest payments the Grandparents pay on the line of credit. The Father also testified that the expectation was that the money, plus interest, would be repaid as money became available to the Parents or on the sale of the Vaughan Home.

[12] In 2017, the Parents purchased an investment property at 109 Toscana Road, in Woodbridge, Ontario (the “Investment Property”). They received a further $15,000 from the Grandparents for the purchase but needed additional funds to close. The Grandparents had no ability to borrow any additional money on their line of credit. The Parties borrowed an additional $20,000 from the Father’s sister to purchase the Investment Property, which money has since been repaid to the sister.

[13] In May 2017, the Parents refinanced the Vaughan Home and gave the Grandparents the sum of $107,000. It is alleged that this was the first large repayment towards the loan, although there had been some smaller payments (totaling $9,000) made to the Grandparents prior to that time. In August 2017, the Grandparents refinanced their own home and closed their line of credit.

[14] There were payments made to the Grandparents from the Parents over the years, allegedly towards the repayment of the loan. For example, in July 2018, the Parents sold the Investment Property and paid the Grandparents two further lump sums. The Grandmother testified that she kept a record of what had been loaned out and what had been paid back.

[15] In 2021, the Parties decided to sell the Vaughan Home. The Grandparents and the Father testified that in 2021, just prior to separation, the Parents asked the Grandparents if they could hold off on repaying the loan and use the money instead to purchase another home in Bradford, Ontario (the “New Home”).

[16] According to the Father and the Grandparents, the Parties owed the Grandparents $223,300.06 at that time, on account of both principal and interest. But the New Home was close to the Grandparents’ home, and the Grandparents were thrilled to have the children moving closer to them, so they agreed to delay the repayment.

[17] The Parties sold the Vaughan Home and moved back in with the Grandparents until their purchase of the New Home closed. The Parents paid a total of approximately $100,000 as a deposit for the purchase of the New Home, $60,000 from a private lender and $40,000 from their credit cards. The Grandparents were not in a position to advance any more funds to the Parties.

[18] The Parties separated in May 2021, before the purchase of the New Home closed. The Parents lost the $100,000 deposit because they were unable to close on their purchase. After separation, when the Grandparents realized that the purchase of the New Home would not be proceeding, they asked for repayment from the proceeds of sale of the Vaughan Home.

[19] On May 17, 2021, the Grandparents received $190,000 from the proceeds of sale of the Vaughan Home and $14,000 from the Father’s business account, paying off most of the money allegedly owing to them. The Grandparents’ evidence was that they used some of this money to start paying off their own debt. The Father’s evidence is that the remaining $40,000 from the net proceeds of sale was used to pay off the Parties’ credit cards.

[20] In June 2021, the Mother insisted that the $190,000 paid to the Grandparents be paid back to the Parties and be held in trust, pending determination of whether the money advanced was a gift or a loan. The Grandparents repaid the money, and it has been held in trust for the last two years. Because the Grandparents had used some of the money to pay off their own debt, they had to use advances on their credit cards to come up with the missing funds, paying a high interest rate.

Issue

[21] The question is whether the money advanced from the Grandparents was a gift or a loan. The Mother submits it was a gift and the money does not need to be repaid. The Father submits it was a loan and the money is owing to the Grandparents.

[22] The Parties rely on two different lines of cases and law: the first line of cases deals with the presumption of resulting trust. The second line of cases deals with the validity of loans from family members in family law cases. I will deal with each of these in turn.

a. Presumption of Resulting Trusts

[23] A rebuttable presumption in law is a legal assumption that a court will make if insufficient evidence is adduced to displace the presumption. The presumption shifts the burden of persuasion to the opposing party who must rebut the presumption: Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, at para. 22, citing John Sopinka et al., The Law of Evidence in Canada, 2nd ed. (Toronto: Butterworths, 1999), at pp. 105-6.

[24] The law regarding the presumption of resulting trust was set out by the Supreme Court of Canada in Pecore, at paras. 24-25:

[24] The presumption of resulting trust is a rebuttable presumption of law and general rule that applies to gratuitous transfers. When a transfer is challenged, the presumption allocates the legal burden of proof. Thus, where a transfer is made for no consideration, the onus is placed on the transferee to demonstrate that a gift was intended: see Waters' Law of Trusts, at p. 375, and E. E. Gillese and M. Milczynski, The Law of Trusts (2nd ed. 2005), at p. 110. This is so because equity presumes bargains, not gifts.

[25] The presumption of resulting trust therefore alters the general practice that a plaintiff (who would be the party challenging the transfer in these cases) bears the legal burden in a civil case. Rather, the onus is on the transferee to rebut the presumption of a resulting trust.

[25] The Court of Appeal also provides a helpful summary of the presumption of resulting trusts in Foley (Re), 2015 ONCA 382, 125 O.R. (3d) 721, at paras. 26-27:

[26] Equity presumes bargains, not gifts. Thus, when a parent gratuitously transfers property to an adult child, the law presumes that the child holds the property on a resulting trust for the parent: Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, at para. 36. The onus shifts to the adult child to rebut the presumption by proving the contrary intent on a balance of probabilities: Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101, 119 O.R. (3d) 81, at paras. 56-57; Mroz (Litigation Guardian of) v. Mroz, 2015 ONCA 171, at para. 72. The trial judge must begin her inquiry with the presumption and then weigh all the evidence in an attempt to determine the parent’s actual intent at the time of the transfer: Pecore, at para. 44; Sawdon, at para. 57; Mroz, at para. 72.

[26] The Grandparents transferred money to the Parties. The Father submits that there is a presumption of a resulting trust. The Mother submits that she has rebutted the presumption and that the transfer of funds to her and the Father from the Grandparents was a gift.

[27] As set out above, there is no dispute that there was an advance of money from the Grandparents to the Parents. In preparation for this trial, the Father took the Grandmother’s records and entered them on a spreadsheet. The Grandparents and Father also provided the supporting bank statements for the various transactions. The statements show money going out from the Grandparents’ account and into the Parents’ account, in accordance with their narrative. The statements also show the money going from the Parents to the Grandparents, consistent with the Grandparents’ narrative that they received repayments from time to time. The spreadsheet was made an exhibit at trial and not challenged.

[28] The Mother did not dispute that the money was advanced, but she had a different explanation for the flow of money. I do not accept the Mother’s narrative with respect to why there was money being transferred between the Grandparents and the Parents. I find she did not meet her onus of rebutting the presumption.

[29] I found the Mother’s testimony to be inconsistent and, at times, difficult to follow. The Mother contradicted her own evidence several times. The Mother had trouble answering some questions directly and testified that she “could not recall” if she thought the answer would hurt her case.

[30] By way of example of her contradictory evidence (and there were many), at para. 22 of her affidavit sworn May 8, 2023, the Mother states, “[o]ver the course of our marriage there were explicit discussions and assurances by the Respondent’s Parents that the funds advanced were gifts and are not to be repaid”. At para. 6 of her affidavit, the Mother states, “both she, the Respondent and the Respondent’s Parents consistently and mutually agreed to help each other with monetary gifts, when the other needed support. This pattern of sharing money was indicative of their familial structure and customs.” However, when asked to provide details of any of these conversations or meetings with the Grandparents, she testified that she had no recollection of any specific conversations.

[31] By way of further example, at para. 20 of her affidavit, the Mother states that she “always understood” that any funds provided were gifts, based on two text messages between the Mother and Father. But these text messages were exchanged after the date of separation and are ambiguous at best. They offer no assistance as to the Grandparents’ intent at the time of the advance. The Mother could not have “always understood” from the text message that the money was a gift, if the statements in the texts were only made after separation and several years after the money was advanced. This does not assist in determining the intention in 2013 and 2014 when the money was first advanced by the Grandparents. As set out in Pecore, it is the intention of the transferor, at the time of the transfer, that governs whether the transfer of property is a gift or a loan: at paras. 56-59.

[32] Further, the Mother’s explanation for why money was given to the Parents from the Grandparents and why there were subsequent amounts flowing from the Parents to the Grandparents was hard to understand. The Mother alleges that money simply flowed both ways, as gifts, with no real accounting between them. The Mother alleges that the Grandparents gifted them money when they needed it and the Parents gifted the Grandparents money when the Grandparents needed it; she claims this was their understanding and that is what families do. The Mother often repeated in her testimony that they were family and that is what families do. She testified that she could not recall having a conversation with the Grandparents about whether the money was a gift or a loan, despite also testifying that there were “explicit discussions and assurances”. Her evidence was that there was a constant revolving system of payments back and forth between the Grandparents and Parents. She testified that any sums exchanged were to the parties’ mutual convenience without any expectation of repayment.

[33] In her pleadings, the Mother submitted that similar financial gifts were being made to the Grandparents’ two other children. The Grandparents and the Father disputed this assertion. There was no evidence at trial to support the Mother’s allegation. The Grandparents had loaned small amounts of money to one child, who repaid the money quickly. At other times, when they were in financial difficulty, the Grandparents borrowed money from their daughter. They repaid her as well.

[34] The Grandparents’ testimony was that they all understood that the money had to be paid back. The Grandparents do not have the financial resources to make gifts of this size to the Parents, never mind their three children. The Grandparents borrowed money to assist the Parents.

[35] When the Grandparents did not have any more funds to advance to the Parents, the Parents borrowed money from each of their sisters. The sisters were paid back. The Parents also borrowed money from the Mother’s father, and this money was also repaid. No written agreement between the Mother and her father were provided, even though she testified that her father would never loan money without an agreement.

[36] The Mother spent time giving evidence as to the nature of her relationship with the Father. I accept that the marriage had its problems, but I do not accept that the nature of the relationship, in this case, goes to the issue as to whether the money advanced from the Grandparents was a gift or a loan.

[37] I find that the Mother has not rebutted the presumption of resulting trust. I do not accept her explanation as to why the money was gifted to them and then other money gifted back to the Grandparents. I did not find her evidence to be credible. I prefer the evidence provided by the Father and the Grandparents.

b. When is an advance a loan?

[38] If the advance was a loan, then there would be no need to make a finding on the presumption of resulting trust. For this analysis, I will continue to rely on the factual findings set out above.

[39] I have considered the line of cases submitted by both parties that discuss the validity of loans between parents and adult children. Many of the cases relied on by the Mother predate Pecore. These cases were not helpful.

[40] The Grandparents rely on several cases where funds advanced were considered a loan, even without a loan agreement. [1]

[41] I found the Grandparents to be sincere in their testimony and I have no reason to doubt their credibility. The Grandparents and Father have satisfied me that the money was advanced as a loan. I am satisfied that there were repayments made from the time the money was first advanced, and larger payments made when property was sold or refinanced.

[42] Some of the factors to consider in determining whether there was a loan were set out by the Court of Appeal in Chao v. Chao, 2017 ONCA 701, 99 R.F.L. (7th) 281, at para. 54, citing Locke v. Locke, 2000 BCSC 1300. They include:

1. whether there were any contemporaneous documents evidencing a loan;
2. whether the manner for repayment is specified;
3. whether there is security held for the loan;
4. whether there are advances to one child and not others or advances on equal amounts to various children;
5. where there has been any demand for payment before the separation of the parties;
6. whether there has been any partial repayment; and
7. whether there was any expectation or likelihood of repayment.

[43] In finding that the advance was a loan, I accept the following facts:

a. The Parents went to the Grandparents for money to assist them in purchasing a home. Although there was no written agreement, the Grandparents met with the Parents when they first started looking at homes and had ongoing discussions with them regarding the loan, including the need for the Parents to repay the loan along with the interest incurred on the line of credit. b. The Grandparents advanced $70,000. The Parents needed further funds on an urgent basis, and a further $190,000 was advanced by drawing on the Grandparents’ line of credit. c. The Grandparents’ intention when advancing the money was that they would be repaid from time to time when money became available or on the sale of the Vaughan Home. d. The Grandparents were not in a financial position to gift the funds to the Parties. They had to incur their own debt to loan the money to the Parents. e. There was a history of repayment, which was documented by the Grandmother and supported by the bank statements. If the money was intended as a gift, no explanation was offered as to why the Grandmother kept careful records of the money given to the Parents and the money repaid to the Grandparents. This is inconsistent with the Mother’s narrative. f. Most of the money was for the purpose of buying property, which in itself was security for the money loaned. g. There is a history of the Parents and Grandparents borrowing and then repaying money to other family members. There is no history of the Grandparents giving their other children similar advances. h. There was an expectation or likelihood of repayment.

[44] For the reasons set out above, I find that the money advanced was a loan.

[45] Now that the court has determined that the money advanced from the Grandparents to the Parents was a loan, the remaining question is what money is owing to the Grandparents?

Quantum of Money owing to the Grandparents

[46] The Parents lived beyond their means. They prioritized funding their own lifestyle rather than paying back the Grandparents. This left the Grandparents responsible for meeting the minimum payments on the debt incurred to help the Parents, including payment of the interest.

[47] From 2013 to 2021, the Grandparents paid $70,483.55 of interest on the line of credit for the money paid to the Parents, in addition to the initial money advanced to the Parents. I find that as of the date of separation, the interest of $70,483.55 is owed to the Grandparents in addition to the money advanced.

[48] In April 2021, the Vaughan Home sold. The Parties received $235,539.24 from the proceeds of the sale. From these proceeds, the Grandparents received $190,000. They paid off their credit cards and they were going to pay down their line of credit/mortgage. However, in June 2021, the Mother insisted that the money be returned and held in trust until the issue of the loan had been determined at trial. The Grandparents returned the money but had to take advances again on their credit cards at a higher interest rate. The Grandparents have incurred interest payments in the sum of $19,972.36 on these credit cards since returning the money to the real estate lawyer. Given that I have found the money was owing to the Grandparents, the interest of $19,972.36 should also be repaid to the Grandparents, as a debt incurred after the date of separation.

Conclusion

[49] I find that for the purpose of determining the Parties’ equalization of net family property, the Grandparents loaned the Parties money during the marriage of which $223,300.06 was still owing as of the date of separation. As of the date of separation, the Parties also owe the Grandparents $70,483.55 for the interest incurred by the Grandparents on their own line of credit/debt. The Parties also owe the Grandparents $19,972.36 for interest the Grandparents incurred following separation.

[50] If the Parties are unable to resolve the issue of costs, they may make written costs submissions to me, no more than three pages, plus any offers to settle and their bills of cost.

S. Shore, J. Released: October 12, 2023

Footnotes

[1] See for example M.S. v. A.R., 2017 ONSC 5182, Walker v. Farsijani, 2021 ONSC 5571, 61 R.F.L. (8th) 123, and Maghakian v. Takaoka, 2022 ONSC 2004, 41 R.P.R. (6th) 251.