Today’s blog is written by Angela Casey, a lawyer at de VRIES LITIGATION
In a decision released at the end of July, the Ontario Court of Appeal reviewed the constituent elements of a legally valid gift.
The issue on appeal in McNamee v. McNamee was whether 500 common shares in the family business, which had been transferred to Mr. McNamee Jr. constituted a gift for the purposes of s. 4(2) of the Family Law Act. If the shares were a gift, their value would not be shared between the divorcing spouses. If the shares were not a gift, their value was to be included in the husband’s net family property and divided between the spouses.
Several years prior to the separation, Mr. McNamee Jr. had come home and proudly announced to his then-wife that his father had made him and his brother equal partners in the family business. Unbeknownst to Mr. McNamee Jr., this characterization wasn’t quite correct.
Mr. McNamee Sr. had implemented an estate freeze, but with two unusual features. Firstly, the preference shares retained by the father were voting shares (in a typical estate freeze, the retained preference shares are non-voting). Secondly, the retained shares entitled the father to dividend out to himself the entire value of the company if he so wished. The husband did not know about these features of the shares retained by his father.
The Court of Appeal reviewed the essential ingredients of a legally valid gift. 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.
The wife’s lawyer argued that the shares were not a gift because: (1) there was consideration for the transfer (2) Mr. McNamee Sr. was chiefly motivated by his desire to effect a legal estate freeze, rather than altruism or affection, (3) Mr. McNamee Sr. did not divest himself of all power and control over the shares, and (4) Mr. McNamee Jr. couldn’t have accepted the gift because he didn’t understand the conditions that attached to it.
The Court of Appeal overturned the decision below and concluded that the transfer of shares was a gift. The panel found that because the transfer was a unilateral act of the father, there could not have been consideration. “There was no bargaining; therefore, there could be no consideration in law”, wrote Blair and Rouleau JJA for the Court. The Court also held that it is not necessary for a gift be motivated by altruism or affection; a gift can have commercial purposes, as long as it involves intentional giving to another without expectation of remuneration. Similarly, the fact that the donor could affect the value of the shares has no bearing on whether the shares were or were not a gift. Whether they had no value, some value or substantial value, the shares were still a gift, the Court held. Finally, the fact that the son was mistaken about the relative strength of his shareholding position did not mean that he did not accept the transfer of the shares. The Court held that the son understood the essential nature of the transaction – he received shares in the company and paid nothing for them – and willingly accepted the gift on this basis.
Thanks for reading,