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Acknowledgement of Debt, Gifting, Relationship Property

Buyer’s remorse

The expression “Beware Greeks bearing gifts” as been attributed to  the story of the wooden horse of Troy, used by the Greeks to trick their way into the city. It is recorded in Virgil’s Aeneid, Book 2, 19 BC:

“Do not trust the horse, Trojans. Whatever it is, I fear the Greeks even when they bring gifts.”

The Trojan horse in question was received as a parting gift and welcomed, the Trojans unaware that the belly of the beast was filled with armed soldiers who would destroy the city of Troy.

Some gifts closer to home require the same scrutiny.  Consider family loans.  Even when clearly documented as a loan, there is a tendency to presume that the loan is “really” a gift.

Mulligan v Rhodes is an example of this phenomenon.   Mrs Mulligan made a substantial loan advance to her daughter and husband who were experiencing financial difficulties.  Seven years later the couple separated and Mrs Mulligan called up the loan and when payment was not forthcoming obtained summary judgment.  Her son-in-law then applied to have the judgment stayed or set aside on the basis that it was really a gift.  Arguments advanced included:

  • no demand was made until the marriage ended
  • Mr and Mrs Rhodes had been married for 35 years when the loan was made
  • the loan was for more than Mr and Mrs Rhodes’ debts – Mr Rhode contending that his foolish utilisation of the loan advance not applied to repay debts owing to third parties was consistent with the parties treating the loan as a gift
  • it wasn’t fair as the repaid funds would then be paid to Mrs Rhodes who supported her mother’s application
  • the deed of debt was a sham

The court disagreed.  Had the transaction not been documented, the court might have been more minded to consider the nature of the transaction.  However, the point was moot because the transaction was in fact documented. The argument of sham failed because it would have been necessary to show that all parties intended to structure a gift as a loan to presumably “hoodwink” Inland Revenue an avoid gift duty that would otherwise have applied at the time.

The case is a sensible reminder of the need to appreciate that the legal form adopted will likely be the legal form applied to an arrangement.  It is not open to parties to revisit the documentation later when it is enforced.

References

  • Mulligan v Rhodes [2015] NZHC 2369
  • Mills v Dowdall [1983] NZLR 154
  • Williams v Williams [1956] NZLR 970

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