Landlord’s rights under letter of credit limited by tenant’s bankruptcy

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Get it in writing! A recent BC case highlighted the dangers of entering into financial arrangements with family members, without a clear written agreement on the terms of the arrangements. In T.L.G. v. K.M.G. (unusually, the names of the parties are not disclosed), a mother and father advanced money to their daughter which was used to buy her a house near Victoria. The daughter’s name went on the title, except for a 1% interest to the parents’ names.

Later, the family fell out over the question of whether this advance was a loan or a gift. The parents sued, saying the property was really theirs.

After hearing both evidence suggesting that the advance was a loan, and evidence suggesting that it was a gift, the Court decided that, on balance, the weight of evidence pointed to the conclusion that the advance was a loan and was not intended as a gift. The evidence included the fact that the parents had lent money to, and been repaid by, their other child. Since the advance was a loan, the Court found that the daughter held the property on a “resulting trust”, as trustee for the parents, and the Court ordered its sale with the sale proceeds to go to the parents.

There was some difficult weighing of evidence by the Court, and had the evidence been slightly different the outcome might have been the opposite. The parents’ big mistake: failing to get the terms of the arrangement in writing. This is a common failing in dealings between family members. In this case the daughter may have legitimately thought – perhaps wishfully – that the advance was a gift, and the disagreement tore the family apart. Had the arrangement been clear from the start, this family might still be together.

In a financial transaction of any size, take the time to reduce the terms to writing, and get legal advice if at all in doubt about how to do that. This family wishes they had.

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