T-2681-76
T-2682-76
T-2683-76
T-2684-76
Olympia and York Developments Ltd. (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Addy J.—Toronto, January 8,
1980; Ottawa, April 21, 1980.
Income tax — Income calculation — Deductions — Income
from a business or property — Plaintiff entered into an agree
ment in 1969 to sell certain properties — Agreement gave pur
chaser the right to obtain deed of sale upon payment of con
sideration, and also gave purchaser immediate right to legal
possession, but specified that agreement was not equivalent to
a sale — Purchaser paid wages, taxes, insurance premiums,
made repairs and administered property — Purchaser
defaulted and deed of sale was executed and delivered in 1974
to a third party — Whether a sale took place in 1969, or in
1974 — Whether, in 1969, there was a "disposition" of the
property — Income Tax Act, R.S.C. 1952, c. 148, ss.
20(1)(a),(5)(b),(c),(e)(ii)(A),(B),(6)(a), 8513(1)(d) as amended by
S.C. 1970-71-72, c. 63, ss. 13 ( 1 )(a),( 21 )(c),(f)(ii)(A),(B)
Civil Code, art. 406, 1079, 1472, 1473, 1476, 1478.
In August 1969, plaintiff entered into an agreement with
First General Real Estate & Resources Trust ("First General")
to sell, transfer and convey Place Cremazie Complex. The
agreement provided that the purchaser had the right to obtain
the deed of sale upon payment of either the whole consideration
or of an amount sufficient to reduce the balance owing to a
specified amount. First General was entitled to legal possession
forthwith, but the agreement specifically provided that notwith
standing delivery and actual possession, the agreement was not
equivalent to a sale and did not give First General any rights of
ownership until the deed of sale was executed. First General
assigned all leases to the vendor as security for payment, but
collected and retained all rentals. First General also paid
wages, taxes, insurance premiums, charges of every kind, made
repairs and looked after the general administration of the
property. Finally, First General defaulted under the agreement
and assigned its rights under the agreement to Century Plaza
Limited ("Century Plaza"). A deed of sale was executed and
delivered to Century Plaza in May 1974. The first issue is
whether a sale took place in August 1969, or in May 1974, and
the second issue is whether there was, in August 1969, a
"disposition" within the meaning of section 20(5)(b) of the
former Income Tax Act which would then render effective
sections 20(1)(a) and 20(5)(e)(ii)(A) and (B).
Held, the plaintiff's action succeeds in part. The plaintiff
first sold the property in May 1974 to Century Plaza. There
was, in September 1969, a "disposition" of Place Cremazie
Complex by the plaintiff within the meaning of section 20 of
the former Act (section 13 of the new Act). There was a
disposition for capital cost depreciation purposes as of that time
even though the profit actually realized on the transaction for
the purposes of capital gains would in fact be reported in 1974
and not in 1969, as section 20 of the former Act refers only to
capital cost allowances. Since there is no special definition of
the word "sale" in the Income Tax Act, one must consider that
word in the light of the law of the Province of Quebec as
applied to the relationship. Article 406 of the Quebec Civil
Code states that ownership comprises the right of enjoyment of
the thing and the right to dispose of it absolutely. Enjoyment of
the thing can be conveyed separately from the right of disposi
tion and for a sale to take place the res itself must be disposed
of and not merely the right to enjoy it. Numerous authorities on
the law of the Province of Quebec lead to the conclusion that
even though all the benefits and all of the charges of ownership
which might have passed to the purchaser in possession, if the
vendor has not been paid in full and the parties have expressly
agreed that title would not pass, but remains in the vendor and
also that there would be no sale until the purchase price has
been paid, then, although under article 1478 what has trans
pired is "equivalent to" a sale, it still does not constitute a sale
at law. As to the second issue, the substantive definitions of
"disposition of property" and "proceeds of disposition" in
section 20(5)(b) and (c) are a clear indication that the words
"disposed of' should be given their broadest possible meaning.
The proper test as to when property is acquired must relate to
the title or to the normal incidents of title, either actual or
constructive, such as possession, use and risk. The plaintiff had,
after executing the agreement and upon delivering possession of
the property to First General in 1969, completely divested itself
of all the duties, responsibilities and charges of ownership and
also all of the profits, benefits and incidents of ownership,
except the legal title. It was absolutely and irrevocably obliged
to execute and deliver a clear deed to the purchaser upon
receipt of the balance of the purchase price which was payable
to it. Any additional rights to which it was entitled under the
agreement were solely and exclusively for the protection of that
balance of purchase price and are rights which would normally
be granted to a mortgagee to protect his security.
Laflamme v. Croteau (1920) 57 S.C. 318, referred to.
Desautels v. Parker (1894) 6 S.C. 419, referred to. L'Hon.
William Henry Chaffers v. Morrier (1896) 2 R. de J. 103,
referred to. Lalonde v. De Houle (1927) 33 R.L. (N.S.)
255, referred to. Labelle v. Paquette (1934) 40 R.L.
(N.S.) 380, referred to. Lussier v. Paquette [1948] S.C.
74, referred to. Héroux v. Héroux [1952] R.L. 449,
referred to. Renaud v. Arcand (1870) 14 L.C.J. 102
(S.C.), referred to. R. v. Henuset Bros. Ltd. [No. IJ 77
DTC 5169, referred to. R. v. Compagnie Immobilière
BCN Limitée [1979] 1 S.C.R. 865, followed. Minister of
National Revenue v. Wardean Drilling Limited [1969] 2
Ex.C.R. 166, followed.
INCOME tax appeal.
COUNSEL:
D. A. Brown, D. A. Ward, Q.C. and J. B.
Claxton, Q.C. for plaintiff.
W. Lefebvre and P. Barnard for defendant.
SOLICITORS:
Davies, Ward & Beck, Toronto, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
ADDY J.: The trial involved four separate
actions which the plaintiff instituted against the
defendant arising out of the assessments of the
plaintiff for income tax purposes for the taxation
years 1970 to 1973 inclusively.
The sole issue between the parties regarding
each of the four assessments is the date at which,
for income tax purposes, an apartment complex is
to be considered as having been effectively either
sold or disposed of by the plaintiff. The four cases
were therefore, on consent, tried together on
common evidence.
No witnesses were called at trial as all of the
allegations of fact, contained in the first fifteen
paragraphs of the statement of claim, were admit
ted at trial by the defendant, with the exception of
the allegation in the first three lines of paragraph
15 to the effect that the apartment complex was
disposed of by the plaintiff on the 15th of May,
1974.
The aforementioned paragraphs of the state
ment of claim read as follows:
1. The Plaintiff is a corporation incorporated under the laws of
Ontario and carries on business in Canada as a real estate
developer and as a merchandiser of building products.
2. The fiscal period of the Plaintiff ends on July 31 in each
relevant year.
3. On or about the 1st day of April, 1969 the Plaintiff
purchased for valuable consideration certain immovable prop
erty consisting of land and three buildings in the City of
Montreal known as "The Place Cremazie Complex" at an
aggregate consideration (including legal fees) of $15,062,734 of
which $1,495,600 was paid for land and other non-depreciable
property and $13,567,134 was paid for the buildings, assets
described in class 3 of Schedule B of the Income Tax
Regulations.
4. By memorandum of agreement (hereinafter called the "said
agreement") entered into as of August 31, 1969 the Plaintiff
agreed, subject to the terms and conditions set out in the
agreement, to sell, transfer and convey The Place Cremazie
Complex to First General Real Estate & Resources Trust, a
Massachusetts Trust organized pursuant to a declaration of
trust dated July 31, 1962 as amended and reconstituted on
August 9, 1962 and as further amended on September 30, 1968
and April 28, 1969 (hereinafter called "First General").
5. The said agreement required First General to assume mort
gages aggregating $8,325,662 and to pay to the Plaintiff
$8,775,000 as follows:
(a) $1,150,000 concurrently on the execution of the
agreement;
(b) $1,350,000 on or before November 1, 1969;
(c) interest on the said sum of $1,350,000 accrued as and
from August 31, 1969 computed at the rate of 8% per annum
to November 1, 1969;
(d) $6,275,000 on or before August 31, 1970 with the right
of First General to request the deferment of the payment of
$2,562,500 of the said $6,275,000 until February 28, 1971
and $3,712,500 until August 31, 1971 which the Plaintiff
was required to grant unless during the period August 31,
1969 and terminating August 31, 1970 First General shall
have filed a registration statement with the Securities and
Exchange Commission of the United States and shall have
fulfilled all requirements to enable it to sell or issue to the
public or otherwise its shares, securities or other obligations
and shall have received the proceeds of the sale of such
shares;
(e) interest on the said sum of $6,275,000 accrued from
August 31, 1969 computed up to and including August 31,
1970 at 4.27% per annum and thereafter at the prevailing
prime rate from time to time charged by Canadian chartered
banks but in any event not less than 8% per annum.
6. The said agreement provided that First General had a right
to obtain the Deed of Sale to vest title to and ownership of The
Place Cremazie Complex in it upon either of the following
events: (a) forthwith upon the receipt by the Plaintiff or its
assigns of all of the amounts referred to in paragraph 5 of this
Statement of Claim, or (b) provided First General had fulfilled
all of the obligations contained in the agreement, upon payment
to the Plaintiff of an amount sufficient to reduce the balance
owing to $3,075,000.
7. The said agreement specifically provided that notwithstand
ing the delivery to and actual possession by First General of
The Place Cremazie Complex, the said agreement was not to be
the equivalent of a sale and was not to give First General any
rights of ownership in the properties, title to which continued to
vest in the Plaintiff until the execution of the Deed of Sale
referred to in paragraph 6 of this Statement of Claim.
8. First General was financially unable to make the payment
due on the execution of the said agreement of $1,150,000 and
accordingly, in order to keep the potential sale of The Place
Cremazie Complex as a live contract, the Plaintiff, through a
nominee, on or about September 29, 1969, received a first
debenture in the amount of $1,150,000 due March, 1971
secured on First General's interests in certain oil and gas leases
in Western Canada. In December 1969 First General obtained
a bank loan of $800,000 which was paid to the Plaintiff
through its nominee in reduction of the principal amount owing
under the debenture to $350,000.
9. First General was financially unable to make the second
payment of $1,350,000 under the said agreement on November
1, 1969. The Plaintiff, again in order to keep the potential sale
as a live contract, through its nominee in February 1970
received convertible notes of First General due September I,
1972 in the principal amount of $1,250,000 (United States
currency), the equivalent of $1,341,406.25 (Canadian curren
cy) and a cheque for $8,593.75.
10. First General was financially unable to pay on February 28,
1971 the sum of $2,562,500 required to be paid on that date
and also was unable to pay the principal amount of $350,000
due on that date on its debenture secured by its oil and gas
leases in Western Canada. Because the Plaintiff still wanted to
keep the potential sale of The Place Cremazie Complex to First
General as a live contract, on or about June 9, 1971 (effective
as of January 1, 1971) the Plaintiff purchased the said oil and
gas leases from First General for a price of $2,454,000 which
was satisfied:
(a) by the assumption of the liability of First General under
a first debenture secured on the leases in the principal
amount of $617,310;
(b) in form, by the assumption of and, in fact, by the
discharge of the liability of $350,000 due on the second
debenture;
(c) the discharge of the convertible note in the principal
amount of $1,250,000 (United States currency) which on
June 9, 1971 was the equivalent of $1,273,438 (Canadian
funds); and
(d) the payment of $213,252. The said payment of $213,252
was concurrently repaid to the Plaintiff by First General as a
prepayment of interest due under the said agreement.
11. On or about June 9, 1971 the said agreement was amended
for the purpose, among other things, of deferring payment of
the entire sum of $6,275,000 payable under the said agreement
referred to in subparagraph (d) of paragraph 5 of this State
ment of Claim to February 28, 1974.
12. On or about May 17, 1972 a second amendment was made
to the said agreement for the purpose, among other things, of
having the Plaintiff waive existing defaults by First General in
respect of its obligations to pay real estate taxes under the said
agreement and to provide that First General would be required
to pay $100,000 as an additional deposit.
13. On or about January 31, 1974 the said agreement was
further amended to provide a further postponement in the
closing date to September 30, 1974 and for a further deposit of
$1,175,000 payable on or about January 31, 1974 with the
balance of the purchase price of $5,000,000 payable on closing.
14. First General never had the financial ability to pay the
purchase price for The Place Cremazie Complex and on or
about January 31, 1974 assigned to Century Plaza Limited all
of its rights under the said agreement as amended and received
from Century Plaza Limited the sum of $1,175,000 which was
paid to the Plaintiff as an additional deposit on that date as
referred to in paragraph 13 of this Statement of Claim.
15. The Place Cremazie Complex was disposed of by the
Plaintiff to Century Plaza Limited on or about May 15, 1974
by execution and delivery to Century Plaza Limited of a Deed
of Sale of The Place Cremazie Complex and the payment by
Century Plaza Limited of the sum of $5,000,000 due on
closing.
Also produced on consent at trial were some
twenty-five exhibits, the most important of which
being Exhibit 1, the agreement for sale of the 31st
of August 1969, referred to in the above-quoted
paragraphs of the statement of claim. It must be
stated also at the outset that both parties agree,
and I am fully satisfied, that the sale was in all
respects an arm's-length transaction and, further
more, that, whenever it did take place, it was in
effect a sale in the course of business as defined in
section 8513(1) (d) of the Income Tax Act' referred
to as the former Act and in corresponding section
20(1)(n) of R.S.C. 1952, c. 148 as amended by
S.C. 1970-71-72, c. 63, hereinafter referred to as
the new Act.
The specific issue before the Court is whether
the real property consisting of three buildings
known as "Place Cremazie Complex," in Mon-
treal, was sold or disposed of by the plaintiff to
Century Plaza Limited (hereinafter referred to as
"Century Plaza") on the 15th of May 1974, as
evidenced by the agreement between Century
Plaza and First General and by the deed granting
the lands to Century Plaza (refer Exhibits 11 and
12) as alleged by the plaintiff or whether it had in
fact been sold or disposed of to First General on
the 29th of September 1969, as alleged by the
defendant. The plaintiff argued that the formal
contract of the 31st of August between it and First
General, produced as Exhibit 1 at trial and herein-
after referred to as the "agreement", did not con
stitute a sale to First General but merely a promise
to sell and as First General had been unable to
fulfil the conditions therein contained, it acquired
no ownership interest in the complex.
The defendant, in addition to pleading that
Place Cremazie Complex was, on the 29th of
September 1969, either sold or is to be considered
as having been "disposed of' within the meaning
of section 20(5)(b) of the former Act, pleaded
alternatively that, in any event, as it had originally
acquired Place Cremazie Complex for the purpose
of gaining or producing income therefrom, it com
menced at that time to use the asset for another
1 R.S.C. 1952, c. 148 as amended up to but not including
S.C. 1970-71-72, c. 63.
purpose and must be deemed to have disposed of it
at that time pursuant to section 20(6)(a) of the
aforesaid former Act. This alternative plea based
on change of use was abandoned at trial.
Should I find that there was a sale in 1969
pursuant to the aforesaid agreement, then, obvi
ously the plaintiffs claim must fail. Should I find,
however, that although there was no sale at that
time, there was, however, under section 20(5)(b) a
disposition within the meaning of that section,
then, the plaintiff would succeed in part because
there would have been a disposition for capital cost
depreciation purposes as of that time even though
the profit actually realized on the transaction for
the purposes of the capital gains would in fact be
reported in 1974 and not in 1969, as section 20 of
the former Act refers only to capital cost allow
ances. Should I find that there was neither a sale
nor a disposition in 1969 then, of course, the
plaintiff will be fully successful in its claim.
It is evident that the rights of the parties to the
contract and all matters governing various agree
ments and legal relations arising from the actions
of the parties to those agreements must be deter
mined in accordance with the law of the Province
of Quebec.
The rights of the parties arise out of the agree
ment filed as Exhibit 1 and full consideration must
be given to its terms. Since there is no special
definition of the word "sale" or any special mean
ing to be attached to it in the Income Tax Act, one
must consider that word in the light of the law of
the Province of Quebec as applied to the relation
ship created by the agreement (Exhibit 1).
It was pointed out that, in support of the propo
sition that a sale had not taken place, one could
rely on several expressions within the agreement
for sale. For instance, at the very outset it is stated
that the vendor has "agreed to sell" and the pur
chaser has "agreed to purchase", that there is
therefore no statement that the real estate is actu
ally being sold but an implication that it will be
sold in the future. Similarly, in clause 1, the
vendor promises, undertakes and agrees to sell and
the purchaser promises, undertakes and agrees to
purchase, it being argued from this that the parties
are contemplating a future sale. Against this, of
course, the defendant argues that the parties are
described as vendor and purchaser, that the state
ment that one has agreed to sell means in effect
that the property is being sold.
The first part of clause 3 at page 6 of the
agreement reads as follows:
3. THAT the Vendor represents and warrants that, upon the
signing of the Deed of Sale, as hereinafter provided, the title to
the Properties shall be good and marketable and free and clear
of any and all charges, mortgages, hypothecs or other encum
brances of any nature whatsoever (including any privileges
contemplated by Articles 2013 and following of the Civil Code
of Quebec), save and except for the hypothecs and mortgages
presently affecting the Properties and referred to in Schedule
"B" which is annexed hereto.
The plaintiff argues that this constitutes a con
dition that the sale is not to take place until the
deed is executed. The defendant, on the other
hand, argues that this is a specific warranty and
not a condition which one might expect to find if
this were a mere agreement to sell in the future.
The plaintiffs view is the better one.
The most important clause, however, pertaining
to reservation of both ownership and sale is the
first part of clause numbered 9, at page 12, which
reads as follows:
9. THAT the purchaser shall be entitled to, and shall have legal
possession of the properties forthwith. Notwithstanding the
delivery to and actual possession by the Purchaser, the present
memorandum of Agreement shall not be equivalent to a sale
and shall not give the Purchaser any right of ownership in the
Properties, title to which shall vest in the Vendor until the
execution of the Deed of Sale as herein provided.
As to the right to collect rents, it is interesting to
note that the purchaser in the agreement for sale
transferred and assigned all leases to the vendor as
security for payment (see clause 15, page 18, of
Exhibit 1). Since the purchaser, First General, was
actually by this specific clause transferring the
leases to Olympia, First General must have
become the owner of these leases pursuant to a
preceding clause numbered 11 of the said agree
ment wherein it is stated "THAT the Vendor
hereby subrogates and substitutes the Purchaser in
and to all of his rights, actions and privileges under
all leases...." There would otherwise be no ques
tion of the purchaser transferring them to Olympia
and York Developments Limited (hereinafter
called "Olympia") as security for payment. They
would simply have remained Olympia's property
as they were before the execution of the agree-
ment. The transfer and assignment of leases as
security for payment is a provision which is nor
mally required of an owner from a lender when the
former executes a mortgage or a hypothec in
favour of the lender. These clauses, in my view,
constitute evidence that the parties considered that
clause 11 transferred not only the right to collect
rents, which were in fact collected throughout by
the purchaser, but the actual property of the leases
themselves, and not, as was argued by counsel for
the plaintiff, evidence that the leases were never
considered to have been transferred.
Although the actual rentals were collected and
retained by First General as a purchaser, the
mortgage payments, both principal and interest,
made by it on account of the mortgages to which
the property was subject, were shown in the books
of the vendor plaintiff as "deemed rental income."
In view of the position adopted by the plaintiff as
to ownership, this would be the only way of show
ing the income since the rents themselves remained
the property of First General. These book entries,
in my view, are not evidence of much except as to
the apparent view which the plaintiff took of its
own position following the signing of the agree
ment. Against this of course, one might cite the
fact that on the 29th of September 1969, the
vendors, in writing to their agent, referred to the
"sale by us of the premises known as Place Crema-
zie.. .." (Refer Exhibit 2.)
Clause 16 of the agreement prevented the pur
chaser, without leave of the vendor, from entering
into any new lease extending beyond the 31st of
August 1971, being the final date to which the
vendor could postpone the balance of $8,775,000
which was to be paid directly to the vendor and
which date was also when the deed was to be
executed and delivered. In a similar manner to an
assignment of rents to secure payment of a debt on
real estate, a prohibition against long-term leases,
and more specifically against leases extending
beyond the term of the payment of the balance of
the monies owing, is something which one would
normally expect a mortgagee to impose upon a
mortgagor of property used for rental-income pur
poses. Although it does limit the right of the
purchaser to deal with the property, it is not for
that reason a provision which would contradict
ownership of the res. It is quite simply a restriction
which goes directly to the protection of the monies
owing for which the res is pledged and is mainly a
device ensuring to the creditor who might ulti
mately be obliged to realize on the security, that
its value would not in the meantime have been
diminished by long-term leases granted for unduly
low rents or subject to conditions unreasonably
favouring any lessees. The clause does not, as
argued by counsel for the plaintiff, prove that a
sale has not taken place.
There was also a complete prohibition against
registration of the agreement or a notice of any of
its provisions, accompanied by a penalty clause
expressed as liquidated damages in default of com
pliance by the purchaser with this prohibition.
These two provisions, in my view, do not prevent a
sale from having taken effect. The decision of the
Supreme Court of Canada is authority for this
view. It was held in Dulac v. Nadeau (Tas-
chereau and Fauteux JJ., as they then were, dis
senting) that, notwithstanding these provisions,
since there was a transfer of possession, the pur
chaser, by virtue of article 1478 of the Code,
became in effect the owner of the lands and was
entitled to give a third party a clear title to the
buildings which had been removed from the lands
in question.
The purchaser, First General, had an immediate
right to a deed on making the payments provided
for in the agreement and also enjoyed the right to
prepay the purchase price due the vendor at any
time. The plaintiff had the corresponding absolute
obligation to convey upon payment. This is clearly
stated at page 14, clause 13, of Exhibit 1 which
reads:
Notwithstanding the foregoing, the Purchaser shall have the
right at any time, provided he has fulfilled all the obligations
herein stipulated, to pay to the Vendor by anticipation an
amount sufficient to reduce the balance owing to the Vendor to
the sum of Three Million and Seventy-Five Thousand Dollars
($3,075,000.00), and to secure the execution of a Deed of Sale,
which will vest title to and right of ownership of the Properties
in the Purchaser.
Following the stipulation that the title would
only vest in the purchaser after registration of the
deed, there was a provision that the latter would
nevertheless have to keep the property in a good
'a [1953] 1 S.C.R. 164.
state of repair and not allow it to deteriorate, etc.
This, coupled with the obligation of the purchaser
to insure the buildings in order "to secure pay
ment" with loss payable to the vendor "according
to his interest," would appear to indicate that the
parties intended the property to be at the risk of
the purchaser, although there is no clear statement
either way on this issue. According to the law of
the Province of Quebec, the risk of loss falls on the
owner. Jean-Louis Baudouin in his part entitled
Les obligations 2 has this to say on the subject at
page 191:
[TRANSLATION] 360 — General Principle — Quebec civil
law, following the modern French tradition, places the risk of
accidental loss or destruction on the owner of an object. The
risk is thus tied not to the holding or possession of the object
but to the title and right of ownership. It thus becomes especial
ly important to determine precisely the exact moment at which
title passes since the risk of loss of the object in question is also
transferred at the same time.
One might also refer to Marler's text on The
Law of Real Property' at page 179 paragraph 410
(3rd) and at page 184 paragraph 418.
To summarize, it has been established to my full
satisfaction that, except for the right to obtain and
register a deed to the property, which right would
accrue to it on payment of the amounts due the
vendor, the purchaser, following its entering into
full possession of the property on the 30th of
September 1969, enjoyed all of the rights of an
owner whose property might have been subject to a
hypothec in favour of a mortgagee enjoying the
benefit of the normal undertakings protecting the
security. The purchaser was from that moment
fully entitled to enjoy the rents and profits of the
property and, upon payment of all amounts due to
the vendor, would have been entitled to sell the
property with a clear title subject only to pre-exist
ing mortgages in favour of third parties to which
the property and the sale had been subject. It also
had to bear the normal burdens of ownership for
not only was it obliged to pay out wages, taxes,
insurance premiums and charges of every kind but
it had to make all repairs and look after the
general administration of the property. I also find
that the parties formally declared and in all proba-
2 Treatise entitled Traité élémentaire de droit civil, 1970.
3 Quebec 1932.
bility intended that, notwithstanding possession,
the agreement would not be equivalent to a sale
and would not create the purchaser the owner of
the property nor give it any right to title, the latter
remaining vested in the vendor. (Refer clause 9 of
agreement quoted, supra.)
It now remains to be considered whether, in the
light of these findings, a sale has taken place
according to the laws of the Province of Quebec.
I have considered without applying them the
following cases: Cornwall v. Henson 4 ; Trinidad
Lake Asphalt Operating Company, Limited v.
Commissioners of Income Tax for Trinidad and
Tobagos; Buchanan v. Oliver Plumbing & Heating
Ltd. 6 ; together with the passages in 19 C.E.D.,
Chapter IX and Halsbury's, Third Edition,
Volume 34 referred to by counsel. These, of course
constitute exclusively English common law juris
prudence on the subject. The law of real property
is one of the areas where common law and civil
law principles are most likely to be at variance or
at least to flow from different fundamental prem
ises. At common law, the nature of the relationship
existing between a vendor and purchaser of real
estate under given circumstances is governed to a
large extent by the distinctions between legal and
equitable ownerships, estates and remedies and by
the principles applicable to various categories of
trusts and trustees. None of these concepts even
exists in civil law. To seek by way of common law
jurisprudence to reach a solution to the present
issue would be to venture out on a perilous journey
over rocky and tortuous roads, fraught with pit
falls, which would lead to a mere cul-de-sac, if
one were fortunate.
The following articles of the Civil Code were
referred to by counsel during argument and are
textually reproduced here for ease of reference:
Art. 406. Ownership is the right of enjoying and of disposing
of things in the most absolute manner, provided that no use be
made of them which is prohibited by law or by regulation.
Art. 1079. An obligation is conditional when it is made to
depend upon an event future and uncertain, either by suspend
ing it until the event happens, or by dissolving it accordingly as
the event does or does not happen.
4 [1899] 2 Ch. 710.
[1945] A.C. (P.C.) I.
6 [1959] O.R. 238.
When an obligation depends upon an event which has actual
ly happened, but is unknown to the parties, it is not conditional,
it takes effect or is defeated from the time at which it is
contracted.
Art. 1472. Sale is a contract by which one party gives a thing
to the other for a price in money which the latter obliges
himself to pay for it.
It is perfected by the consent alone of the parties, although
the thing sold be not then delivered; subject nevertheless to the
provisions contained in article 1027 and to the special rules
concerning the transfer of registered vessels.
[Article 1027 is not applicable.]
Art. 1473. The contract of sale is subject to the general rules
relating to contracts and to the effects and extinction of
obligations declared in the title Of Obligations, unless it is
otherwise specially provided in this code.
Art. 1476. A simple promise of sale is not equivalent to a
sale, but the creditor may demand that the debtor shall execute
a deed of sale in his favor according to the terms of the
promise, and, in default of so doing, that the judgment shall be
equivalent to such deed and have all its legal effects; or he may
recover damages according to the rules contained in the title Of
Obligations.
Art. 1478. A promise of sale with tradition and actual
possession is equivalent to sale.
Article 406 states quite clearly that ownership
comprises two distinct rights: the right of enjoy
ment of the thing and the right to dispose of it
absolutely. When dealing with these concepts,
Marler in his treatise on The Law of Real Prop
erty, supra, states:
Ownership is perhaps better defined as the right in virtue of
which a thing is subject in an absolute and exclusive manner to
the will and power of a person; Aubry & Rau, II, No. 190;
Planiol, I, No. 1027. It has thus two characteristics: it is
absolute, and it is exclusive.
63. Complete and incomplete ownership:—The owner can
exercise all of the above powers when his ownership is com
plete, or, as it is usually but not so correctly called, absolute, for
there is no absolute ownership. At the same time, ownership is
the most complete of all real rights, it is the sum of all the real
rights that may exist in respect to a thing. Yet, the owner's
right is not always complete. To be so, it must be perpetual,
and the thing owned must not be subject to any real right in it
in favour of another. It is incomplete, when it is temporary or
when the thing owned is subject to a real right in favour of
another.
68. The ownership of a thing can never be in suspense:—The
ownership of a thing must reside at any given time in some
person or group of persons, or in a legal entity. A thing must
have an owner. A thing which has no owner is held to belong to
the Crown, C.C. 584, 401.
420. The seller must convey the thing itself:—In a sale, the
seller must do more than convey to the purchaser his right in
the thing or the possession of it as before the Code; he must
convey to him the thing itself.
It is clear that enjoyment of the thing can be
conveyed separately from the right of disposition
and that for a sale to take place the res itself must
be disposed of and not merely the right to enjoy it.
Although article 1478 of the Civil Code states
that a promise of sale coupled with the transfer of
actual possession is the equivalent of a sale, that
article is subject to some interpretation. Marler in
his text on The Law of Real Property, supra,
states:
443. Promise of sale with delivery:—When a promise of sale
is accompanied by delivery, which is an act of the debtor, and
actual possession, implying the intention of the creditor to
become owner, it is equivalent to a sale, C.C. 1478. (Editor's
Note: Greaves et al. v. Cadieux, 50 S.C. 361.) A promise of
sale is never the same thing as a sale, but in this case it has the
effect of a sale, as the ownership is transmitted. There is on the
one side the will to sell manifested by the act of delivery, and
the will to buy evidenced by the creditor taking possession as
owner. The ownership passes; the thing is at the creditor's risk;
nothing is lacking except the formal deed to be executed as the
evidence of the contract, and its registration as a notice to third
parties.
440. The bilateral promise:—When the promise of sale is
bilateral, lone party promising to sell and the other to buy a
certain immovable at a stated price, the contract to be imple
mented on the demand of either by the execution of a deed, at
any time, or within a certain delay, or after a certain time, the
contract is not of sale so as to transfer the ownership immedi
ately. There can be no sale if there is an intention that the
ownership and the risks shall not pass until the obligation
contracted by either is fulfilled voluntarily by the execution of
the deed of sale, or by either of them being compelled to carry
it out by a judgment having the effect of a deed, McIntyre v.
Birchenough, 35 R.L., n.s. 14, supra No. 417.
Faribault, Traité de Droit Civil du Québec,
Volume XI, article 116, contains the following
statement:
[TRANSLATION] It should be noted that even where it is
accompanied by delivery, a promise to sell is not equivalent to a
sale where it is made subject to a suspensive condition, or where
the parties have agreed that the prospective vendor is to retain
ownership of the res until the purchase price is paid in full or
until the promissee has fulfilled all his obligations. There is a
clear line of authority to this effect in the cases.
See also the case of Laflamme v. Croteau 7 .
The same principle was also applied in the fol
lowing cases: Desautels v. Parker 8 ; L'Hon. Wil-
liam Henry Chaffers v. Morrier 9 ; Lalonde v. De
Houle'°; Labelle v. Paquette"; Lussier v.
Paquette 12 ; and Héroux v. Héroux". On this sub
ject the statement of MacKay J. in Renaud v.
Arcand 14 is worthy of note. He states [at page
104]:
[TRANSLATION] Although art. 1478 of the Civil Code of
Lower Canada, in accordance with the opinion of almost all the
authorities, establishes that "a promise of sale with tradition
and actual possession is equivalent to sale," this provision must
not be interpreted more broadly than was intended. That such
an act has several of the characteristics of a sale and is effective
in the sense that the vendor is bound by this act to pass title if
the purchaser fulfills all the conditions stipulated is beyond
dispute. This is what all the authorities and later the authors of
our Civil Code were trying to express. It cannot be said,
however, that the effects of such an act are so absolute that
they deprive the prospective vendor of all rights of ownership
and transfer absolute ownership to the prospective purchaser.
Such an act must not be given broader effects than the parties
intended.
These numerous authorities on the law of the
Province of Quebec all seem to lead to the same
conclusion, namely, that even though all the ben
efits and all of the charges of ownership which
might have passed to the purchaser in possession,
if the vendor has not been paid in full and in
addition the parties have expressly agreed that title
would not pass but remains in the vendor and also
that there would be no sale until the purchase
price has been paid, then, although under article
1478 what has transpired is "equivalent to" a sale,
it still does not constitute a sale at law.
On the other hand one finds what appears to be
7 (1920) 57 S.C. 318.
8 (1894) 6 S.C. 419.
9 (1896) 2 R. de J. 103.
10 (1927) 33 R.L. (N.S.) 255.
11 (1934) 40 R.L. (N.S.) 380.
12 [1948] S.C. 74.
13 [1952] R.L. 449.
14 (1870) 14 L.C.J. 102 (S.C.).
a completely contrary view expressed by the fol
lowing authorities. Mazeaud, Leçons de Droit
Civil 15 and Mignault, Le Droit Civil Canadien 1 b.
Mazeaud states at page 753 of his text:
[TRANSLATION] Neither of these analyses can be accepted,
however. The event which becomes the condition is the pay
ment of the purchase price; the essential element of a contract
cannot be chosen as the condition (cf. Vol. II, 2nd ed., No.
1039); selling subject to the condition that the purchase price is
to be paid is not entering into a conditional sale but an actual
sale, since in any sale the purchaser is obliged to pay the
purchase price.
A deferred-payment sale with title remaining in the vendor is
in reality a pure and simple sale, but subject both to commis-
soria lex or a resolutory clause (cf. Vol. II, 2nd ed., No. 1104)
and to an agreement that the title is not to pass until the
purchase price has been paid in full: the parties have agreed
that the vendor will retain title until the purchase price has
been paid in full, and that the sale will be rescinded automati
cally in the event of failure to pay an instalment of the
purchase price (cf. trib. civ. Valenciennes Nov. 30, 1956, Gaz.
Pal. 1957. 1. 461).
[Mazeaud is of course here stating the civil law of
France as opposed to the civil law of the Province
of Quebec.]
One finds, however, the following statements in
Mignault's text at pages 4 and 5:
[TRANSLATION] In our law a sale not only creates obliga
tions, usually it also transfers ownership at the same time, as
we shall see shortly. It can thus be defined as follows: an
agreement whereby one of the parties transfers or undertakes to
transfer the ownership of a thing for a price which the other
party undertakes to pay.
There,,are three essential components in this definition of a
sale:
1. A thing which is the subject of the sale;
2. A price;
3. Consensus ad idem of the parties with respect to the thing
and the price.
When these three components occur together, the sale is
perfected in Roman law and in our law, in other words, it is
constituted, it exists. Thus it exists as soon as the parties have
agreed on the thing and on the price.
and also at pages 11 and 12:
[TRANSLATION] In our law a sale can have any of three
effects. It can: (1) create obligations; (2) transfer ownership;
(3) transfer the risk to the purchaser.
These three effects do not always occur together, however. A
sale sometimes only creates obligations and at other times
transfers ownership at the same time as it creates obligations,
with or without the purchaser assuming the risk.
15 Second Edition, Volume 3.
16 Volume 7 (1906).
The three effects occur together when the sale, whether
outright or on credit, is the sale of a specific res of which the
vendor was the owner. Such a sale obliges the vendor to deliver
and guarantee the thing sold and obliges the purchaser to pay
the purchase price.
It also makes the purchaser the owner. Transfer of ownership
is as direct and immediate an effect as the creation of obliga
tions in such a case. Title passes from the vendor to the
purchaser by virtue of the sale itself, without there having to be
either delivery or payment of the purchase price. The vendor is
thus also the transferor and the purchaser also the transferee
(arts. 583, 1025.)
The fact that credit has been extended to one of the parties
does not prevent the sale from immediately transferring owner
ship; since the mere granting of credit does not suspend the
acquisition of any rights which the contract may create but
only their execution (art. 1089).
It would be different, however, if the parties had expressly
provided that ownership was not to be transferred until some
future date.
When the purchaser becomes the owner, finally, he also
assumes the risk. In Roman law this rule was stated as follows:
res peril domino (arts. 1025, 1200).
Mignault seems to be confining his consider
ation in these paragraphs mainly to the sale of
movables, but the same principle would apparently
apply to immovables.
It would seem to follow from the statement of
these two last-mentioned authorities that, where a
purchaser has entered into possession and enjoys
all of the fruits and rights of ownership, the con
tract authorizing this can be considered a final
contract of sale at law even though the sale price
has not been completely paid and the parties have
expressly agreed that title would not pass and the
agreement would not create a sale until the full
price has been paid.
Having regard to the great preponderance of
authority, which includes opinions of many learned
civil law judges, in support of the first view, I am
rejecting that of the authors Mazeaud and Mi-
gnault on the subject.
It is true that where all of the essential require
ments exist to create and establish legal relation
ship and where that relationship is described by a
legally recognized and accepted word or expres
sion, any agreement between the parties to the
relationship purporting to establish that the rela
tionship does not exist or will not be described or
recognized by that term cannot in any way change
or affect the situation as it does exist in fact and in
law nor the legal terms which describe it. In the
case at bar, however, the civil law itself recognizes
that if the purchaser and the unpaid vendor have
agreed that, until payment a sale would not have
taken place between them, there is no sale at law
but merely an executory contract that at some
future date upon payment being received, a sale
will then take place.
For the above reasons, I must therefore conclude
in the case at bar that there never was a sale
between the plaintiff and First General and that
the plaintiff first sold the property in May 1974 to
Century Plaza.
As previously stated, the second issue to be
determined is whether there was, in August 1969,
a "disposition" within the meaning of section
20(5)(b) of the former Act which would in turn
then render effective sections 20(1)(a) and
20(5)(e)(ii)(A) and (B). (These sections now
being numbered 13(21)(c), 13(1)(a) and
13(21)(f)(ii)(A) and (B) in the new Act.) These
provisions read as follows:
20. (1) Where depreciable property of a taxpayer of a
prescribed class has, in a taxation year, been disposed of and
the proceeds of disposition exceed the undepreciated capital
cost to him of depreciable property of that class immediately
before the disposition, the lesser of
(a) the amount of the excess, or
shall be included in computing his income for the year.
(5) In this section and regulations made under paragraph (a)
of subsection (I) of section 1 I,
(b) "disposition of property" includes any transaction or
event entitling a taxpayer to proceeds of disposition of
property;
(e) "undepreciated capital cost to a taxpayer of depreciable
property" of a prescribed class as of any time means the
capital cost to the taxpayer of depreciable property of that
class acquired before that time minus the aggregate of
(ii) for each disposition before that time of property of the
taxpayer of that class, the least of
(A) the proceeds of disposition thereof,
(B) the capital cost to him thereof, or
Section 20(5)(c) states that "disposition"
includes sale and several other types of payment
such as compensation for damage, amounts pay
able under a policy of insurance, etc., but does not
purport to be exhaustive of the definition of "dis-
position of property" contained in section 20(5)(b)
which I have quoted. In fact, section 20(5)(b)
itself, which uses the word "includes" is not itself
an exhaustive or restrictive definition. In this
respect, in delivering judgment on behalf of the
Supreme Court of Canada, Pratte J. in The Queen
v. Compagnie Immobilière BCN Limitée" stated
at page 876:
The substantive definitions of "disposition of property" and
"proceeds of disposition" in s. 20(5)(b) and (c) are a clear
indication that the words "disposed of" should be given their
broadest possible meaning.
The word "acquired" used in section 20(5)(e) is
obviously the direct opposite of "disposed" (or
disposition) as used in the same section and must
contain substantially the same elements viewed
from the side of the person acquiring the asset as
opposed to the person disposing of it. The meaning
of the word "acquired" as used in section 20(5)
was fully considered by my brother Cattanach J.
in The Minister of National Revenue v. Wardean
Drilling Limited' 8 . At page 172 of the report he
states:
With all deference I cannot accede to that view.
In my opinion the proper test as to when property is acquired
must relate to the title to the property in question or to the
normal incidents of title, either actual or constructive, such as
possession, use and risk.
and again at page 173 he states:
As I have indicated above, it is my opinion that a purchaser
has acquired assets of a class in Schedule B when title has
passed, assuming that the assets exist at that time, or when the
purchaser has all the incidents of title, such as possession, use
and risk, although legal title may remain in the vendor as
security for the purchase price as is the commercial practice
under conditional sales agreements. In my view the foregoing is
the proper test to determine the acquisition of property
described in Schedule B to the Income Tax Regulations.
17 [1979] 1 S.C.R. 865.
18 [1969] 2 Ex.C.R. 166.
That view is followed and approved by Bastin
D.J., in The Queen v. Henuset Bros. Ltd. [No.
1]' 9 . He stated at page 5170:
It follows that all the incidents of ownership other than the
legal title reserved in the vendor by the conditional sales
agreements such as possession, risk and the right to use the
tractors were acquired by the buyer on December 30, 1971. In
my opinion the reservation of the legal title to the tractors in
the vendor as security did not affect the issue any more than
the taking of security on the tractors in the form of a chattel
mortgage would have done. This opinion is supported by the
judgment of Mr. Justice Cattanach in the case of M.N.R. v.
Wardean Drilling Limited [69 DTC 5194], (1969) C.T.C. 265.
In the case at bar, the plaintiff had, after
executing the agreement and upon delivering
possession of the property to First General in
September 1969, completely divested itself of all of
the duties, responsibilities and charges of owner
ship and also all of the profits, benefits and inci
dents of ownership, except the legal title. It was
absolutely and irrevocably obliged to execute and
deliver a clear deed to the purchaser upon receipt
of the balance of the purchase price which was
payable to it. Any additional rights to which it was
entitled under the agreement were solely and
exclusively for the protection of that balance of
purchase price and are rights which would normal
ly be granted to a mortgagee to protect his
security.
Having regard to what the Supreme Court of
Canada said in The Queen v. Compagnie
Immobilière BCN Limitée, supra, as to how the
concepts of "disposition of property" and "pro-
ceeds of disposition" must be interpreted and
having regard also to the statement of Cattanach
J. in The Minister of National Revenue v. War-
dean Drilling Limited, supra, (with which I fully
agree) I find that there was in the circumstances
of the present case, in September 1969, a "disposi-
tion" of Place Cremazie Complex by the plaintiff
within the meaning of section 20 of the former Act
(section 13 of the new Act).
The assessments of the plaintiff by the Minister
of National Revenue for the taxation years 1970,
1971, 1972 and 1973 will therefore be referred
back to him for reassessment on the basis that
there was no sale of Place Cremazie Complex by
the taxpayer any time previous to or during those
19 77 DTC 5169.
years but that there was a "disposition" of the
property within the meaning of section 20(5)(b) of
the former Act and section 13(21)(c) of the new
Act in September 1969.
The plaintiff will be entitled to its costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.