Clear and Convincing Evidence is Required to Rebut a Presumption of Gift From Parent to Child

Bhagat v. Bhagat, 217 N.J. 22 (2014).  A father transferred stock in a close corporation to his son.  Such transfers from parent to child are generally presumed to be gifts, unless the presumption is rebutted.  The issue in this appeal, which proceeded from cross-motions for summary judgment, was what level of proof is required to rebut the presumption and whether judicial estoppel applied to bar the son’s assertion that this was a gift.  In a unanimous opinion by Judge Cuff, the Court ruled that judicial estoppel was unavailable, the clear and convincing standard of proof applied, and that cross-motions for summary judgment should have been denied.

Judge Cuff addressed the judicial estoppel issue first.  In a prior intra-family lawsuit that was ultimately resolved by settlement, the son took a position that was argued to have created a judicial estoppel that barred him from asserting here that the stock was a gift.  After exhaustively discussing the background principles of judicial estoppel, Judge Cuff found judicial estoppel inapplicable.  “[T]he doctrine is not invoked unless a court has accepted the previously advanced inconsistent position and the party advancing the inconsistent position prevails in the earlier litigation.  Stated differently, the doctrine does not apply when the matter settles prior to judgment because no court has accepted the position advanced in the earlier litigation.”

With that preliminary issue disposed of, Judge Cuff turned to the standard of proof necessary to rebut the presumption of gift.  She carefully canvassed decisions going back as far as 1857, and noted that those cases endorsed a level of proof that is “convincing and leave[s] no reasonable doubt,” a test that confusingly incorporates “elements of the clear and convincing standard and the beyond a reasonable doubt standard.”  Moreover, terms such as “cogent,” “certain,” and “definite” crept into the caselaw on this test as well.

Judge Cuff found that “the standard has been understood as, and should be, clear and convincing.  We view the other language used in the cases as simply an attempt to describe the quality of evidence, e.g., clear, cogent, certain, and definite, that will satisfy the clear and convincing standard of proof.”  The “no reasonable doubt” test, “which applies in no other civil setting in this state,” has no place in the analysis regarding rebuttal of the presumption of gift.  Applying that test, the Court found material issues of fact sufficient to call for the denial of summary judgment.

This case contains an extremely useful summary of the law of gifts, a detailed discussion of judicial estoppel, and a careful explanation of the rationale for the clear and convincing standard in this particular context.  It is well worth reading and absorbing.