Kerr, J:—This is an appeal from the appellant’s income tax assessment for the year 1967.
In that assessment the Minister added $47,634.59 to the appellant’s declared income, relying upon paragraph 6(1)(b) and subsection 24(1) of the Income Tax Act which read as follows:
6. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year
(b) amounts received in the year or receivable in the year (depending upon the method regularly followed by the taxpayer in computing his profit) as interest or on account or in lieu of payment of, or in satisfaction of interest;
24. (1) Where a person has received a security or other right or a certificate of indebtedness or other evidence of indebtedness wholly or partially as or in lieu of payment of or in satisfaction of an interest, dividend or other debt that was then payable and the amount of which would be included in computing his income if it had been paid, the value of the security, right or indebtedness or the applicable portion thereof shall, notwithstanding the form or legal effect of the transaction, be included in computing his income for the taxation year in which it was received; and a payment in redemption of the security, satisfaction of the right or discharge of the indebtedness shall not be included in computing the recipient’s income.
Two companies whose transactions play a significant part in this case are “Robinson Cotton Mills, Ltd”, sometimes referred to in the exhibited documents as “RCM Ltd”, and herein referred to as “the Robinson Company”; “C & T Investments (Bahamas) Limited”, referred to as “C & T”. Also prominent in this case is the receipt by the appellant in 1967 of 111,486 common shares of the Robinson Company. The appellant was an officer and director of that company at all material times.
In his Reply to the Notice of Appeal the respondent said, inter alia, that as a result of Minutes of Settlement of actions in the Supreme Court of Ontario, dated May 25, 1967 the appellant became the sole owner of 111,486 common shares of the Robinson Company in full satisfaction of all liabilities C & T had to the appellant; that as at May 25, 1967 the sum of $149,573.91 was owed to the appellant only by C & T, of which $47,634.59 represented interest; and that the said 111,486 shares had a value of not less than $149,573.91, which sum represented the amount then owing by C & T to the appellant. Paragraphs 9 and 10 of the Reply read as follows:
9. The Respondent submits that the said 111,486 common shares of “R.C.M. Ltd.” received by the appellant had a value on May 25, 1967 of not less than $149,573.91, the capital indebtedness to the appellant being $101,903.32, and the amount of $47,634.59 being received by the appellant on account or in lieu of payment or in satisfaction of an interest or other debt that was then payable to him by “C & T” and the sum of $47,634.59 would have been included in the appellant’s income for 1967 if it had been paid, and therefore, by virtue of sections 6(b) and 24(1) of the Income Tax Act, the amount of $47,634.59 is to be included in computing the appellant’s income for 1967.
10. The Respondent says, that the 111,486 common shares of “R.C.M. Ltd.” were received by the appellant in his personal capacity in his own account alone, and not as trustee or quasi trustee, and the assessment is valid.
The transfer of the 111,486 shares was an incident in transactions involving unfortunate business dealings and litigation, which I will refer to later herein in more detail, and the appellant claims, inter alia, in his Notice of Appeal that the appellant is in a position of trustee or quasi trustee and has a duty to account to others in respect of the said shares and cannot be said to have received them for his account alone; that in view of his said position he has not charged nor accrued any consideration moneys or any interest and has waived payment of the same, so that he has not received and is not entitled to receive the said $47,634.29; that the shares were not received by him as “‘a security or other right . .. or in lieu of payment of or in satisfaction of an interest” within the meaning of subsection 24(1) of the Income Tax Act; alternatively, that a substantial portion of the $47,634.59 added to his income represents the amount C & T had agreed to pay under a financing agreement and that this portion is not “interest” within paragraph 6(1)(b) and is not an “interest dividend or other debt” within subsection 24(1); also, alternatively, that the “value of the security” was nil and not worth $47,634.59.
Evidence was given by J F Perrett, QC, who was a director of the Robinson Company, the appellant himself and R B G Clarke. Documentary evidence was filed by the appellant in an Exhibit Book running to more than 450 pages (Exhibit 1).
The Robinson Company is an old established company which carried on a textile manufacturing business and owned a mill property and farmland in the Woodbridge area of Ontario. By 1964 it had discontinued manufacturing and had rented part of its mill property to Monsanto Chemical Company. In that year a decision was taken to try to sell the company’s properties or the shares held by members of the Robinson family and real estate brokers were engaged for the purpose. Soon thereafter one Ronald Cornwell of New York City came into the picture with a proposal by C & T to acquire a controlling interest in the company through purchase of a sufficient number of the shares owned by members of the Robinson family and other shareholders. At that time there were about 180 shareholders and 150,000 issued common shares, the Robinson family ownership being as follows:
| W W Robinson (the appellant) | 64,457 |
| W H Robinson | 18,165 |
| Gordon Robinson | 18,815 |
| Estate of Gordon Robinson | 2,326 |
| Gee & Company (nominee) | 7,490 |
The appellant negotiated with Cornwell and an agreement (hereinafter referred to as the “purchase agreement”) dated November 14, 1964, resulted. It was made between the appellant and W H Robinson, as sellers, and C & T Investments (Bahamas) Limited and it provided, inter alia:
1. That the sellers would sell to C & T 90,000 of the common shares of the Robinson Company at $5.50 per share for a total of $495,000 plus a contingent price of 75¢ per share upon certain conditions being thereafter met.
2. That C & T would make an offer to all shareholders of the Robinson Company to purchase up to 82.6% of their shares on substantially the same terms as C & T was purchasing the 90,000 shares.
The appellant testified that the 90,000 shares consisted of 53,200 owned by himself, 15,600 by the estate of Gordon Robinson, 15,000 by W H Robinson and 6,200 by Florence L Robinson.
The understanding by the appellant was that C & T would provide the money to buy the 82.6% of the shares owned by the other shareholders, in the amount of $186,598.50. But on November 19, 1964 C & T advised that it did not have the money to purchase the additional shares, and the appellant was persuaded to lend the required money to C & T, the loan to be repayable to him by C & T in terms set forth in an agreement (hereinafter referred to as the “trust agreement”) dated November 19, 1964 made between C & T, the appellant and the National Trust Company Limited (being the Registrar and Transfer Agent of the shares). This agreement provided, inter alia:
1. An acknowledgment that the appellant had paid to National Trust by way of loan to C & T the said sum of $186,598.50.
2. That National Trust would forward an offer to the other shareholders.
3. That National Trust would disburse the money to purchase the shares and refund to the appellant any of the money not required for that purpose.
4. That National Trust would hold all shares acquired pursuant to the offering as security for repayment of the loan and interest.
5. That C & T would pay National Trust its fees, costs, charges and disbursements.
6. That C & T would pay interest at 7% on the loan.
Shortly thereafter $68,425.50 was refunded to the appellant as not needed, thereby reducing the principal of the loan to $118,173. National Trust acquired 21,486 shares and held them as such security.
A meeting of the directors of the Robinson Company was held in Toronto on November 19, 1964. The minutes state that the meeting was then informed that the company proposed to purchase all of the issued and outstanding shares (being 3 in number) of the capital stock of Pinacle Homes (Chateaugay) Ltd, a New York company and to pay $580,000 in cash for those shares. A resolution was passed for the purchase of the shares. The meeting was also informed that the company had certain cash moneys available in its bank account and that arrangements had been made for the company to borrow $350,000 from the Canadian Imperial Bank of Commerce to make up the required purchase money; that C & T was the majority shareholder of the Pinacle Company and had agreed to guarantee the loan and in support of its guarantee to pledge with the bank 82,000 shares of the Robinson Company; and further that in order to meet the requirements of the bank the appellant had agreed to give to the bank his personal guarantee to the extent of the said $350,000 and that for this accommodation the Robinson Company was to pay him an amount equal to 3% per annum on the said $350,000 or on portions thereof outstanding until repayment in full to the bank. The following resolution was passed:
BE IT RESOLVED that in order to provide sufficient funds for this Company to acquire the issued and outstanding shares of Pinacle Homes (Chateaugay) Ltd this Company, namely Robinson Cotton Mills Limited, do borrow from The Canadian Imperial Bank of Commerce the sum of $350,000.00 on a short-term 90-day basis on the understanding that within such period of 90 days this Company would obtain a mortgage on its lands and buildings at Woodbridge, Ontario, and use the proceeds of such mortgage to repay its indebtedness to the said bank;
AND BE IT FURTHER RESOLVED that in view of the fact that as an accommodation to this Company Mr. W. W. Robinson had agreed to act as one of the guarantors in respect of such loan, this Company do pay to Mr. W. W. Robinson an amount equal to 3% per annum on such sum of $350,000.00, or the balance thereof from time to time outstanding during the period of such loan and until the same is repaid to the said Canadian Imperial Bank of Commerce in full;
Accordingly an agreement (hereinafter referred to as the “financing agreement”) was made on November 19, 1964 between the Robinson Company, C & T and the appellant in which it was agreed:
1. That the Robinson Company would borrow $350,000 from the bank.
2. That C & T would guarantee repayment by the Robinson Company to the bank of the loan and interest and in support of its guarantee would hypothecate and pledge to the bank its 90,000 shares of the Robinson Company.
3. That the appellant would personally guarantee to the bank repayment by the Robinson Company of the loan and interest.
4. That in consideration of the accommodation extended by Robinson, the Robinson Company and C & T would pay to the appellant an amount equal to 3% per annum on the said $350,000 or any part remaining outstanding until paid in full, together with interest.
5. That C & T would indemnify and save harmless the appellant in respect of his guarantee or in the event he is called upon to implement it.
The Robinson Company obtained the loan of $350,000 from the bank and paid $580,000 for the Pinacle shares. C & T hypothecated and pledged its recently acquired 90,000 Robinson Company shares in support of the arrangement and guarantee.
However, soon thereafter it began to appear that the appellant had been greatly misled by false information respecting C & T and the Pinacle Company and their assets, and considerable correspondence and investigation ensued.
C & T was unable to meet its obligations and in January 1967 the bank demanded that the appellant implement his guarantee of the $350,000 loan. The appellant thereupon raised the necessary money by selling securities owned by him and using an interest-bearing overdraft with the bank and paid the bank the full amount in January 1967, whereupon he received from the bank 82,002 shares of the Robinson Company then in possession of the bank, which C & T had pledged to the bank as security. The remaining 7,998 of the 90,000 shares had been delivered by the bank to J F Perrett as nominee of C & T. The appellant testified that he suffered a loss of $37,477.29 in selling his securities.
Three actions were commenced in March and April 1967 in the Supreme Court of Ontario against C & T, namely:
First Action: By the appellant as plaintiff in which he claimed payment of $121,511.54, being the amount due on the loan of $186,598.50 to C & T and interest at 7% under the trust agreement, and $3,833.28, being the 3% payable under the financing agreement in respect of the $350,000 borrowed from the bank to finance the purchase of the Pinacle shares.
Second Action: By the appellant and W H Robinson on behalf of themselves and other shareholders of the Robinson Company, claiming payment of $67,500 plus $16,114.50 being the contingent purchase price of 75¢ per share payable by C & T in respect of the initial 90,000 shares and the subsequently purchased 21,486 shares of the Robinson Company, plus $1,294.90 transfer taxes and costs to National Trust, plus interest at 6% on the total of those amounts, $84,909.40.
Third Action: By Robinson Cotton Mills Ltd and the appellant claiming:
1. By the Robinson Company to rescind the financing agreement for purchase of the Pinacle shares, and for recovery of the purchase moneys of $580,000.
2. By the Robinson Company and the appellant for damages for fraudulent misrepresentations in connection with that transaction and for a declaration that the transaction is voided and that the Robinson Company is entitled to the return of its $580,000.
3. By the appellant to be indemnified for the $350,000 paid by him to the bank under his guarantee of the loan made by the bank to the Robinson Company, and interest thereon from the date of his payment.
The actions were settled in May 1967. Minutes of Settlement were agreed and they were confirmed by an order of the Supreme Court of Ontario. The settlement provided, inter alia:
1. An estimate by the parties that in the circumstances and for the purposes of the settlement the issued shares of the Robinson Company had a value of approximately $1.25 each at the time of the settlement.
2. An assignment and transfer by C & T to the appellant of C & T’s right, title and interest in the 90,000 shares of the Robinson Company purchased by C & T and in the 21,486 shares of that company in possession of National Trust under the trust agreement.
3. An assignment and transfer by C & T to the appellant of C & T’s right, title and interest in the indebtedness of $350,000 and interest owing by the Robinson Company formerly to the bank and now to the appellant (who took over the position of the bank) and the Robinson Company’s promissory note in that sum.
4. An assignment and transfer by C & T to the appellant of C & T’s right, title and interest in $9,000 paid by the Robinson Company as a dividend and held by the bank under the financing agreement.
5. Preservation of the rights, powers and obligations, inter se, of of the appellant, the other shareholders of the Robinson Company, and that company, particularly in respect of the common shares of the company and the $350,000 indebtedness owing by that company. The appellant, as president of the Robinson Company, in his report to the shareholders on May 1, 1968, said in part as follows:
We are pleased to report that the three actions referred to above were concluded on May 25, 1967, per Minutes of Settlement, approved by The Supreme Court of Ontario whereby the 111,486 shares acquired by C & T Investments (Bahamas) Limited, were awarded to W. W. Robinson in settlement of a total claim of:
$167,922.51 being monies owing to him by C & T $350,000.00 being security, for him having paid a Bank loan for like amount $ 83,614.50 being 75¢ per share on 111,486 shares $601,537.01
The company’s annual report for 1967 shows in the balance sheet as a current liability a “Loan from director (note 2) $350,000” and “(note 2)” states:
2. By reason of a demand made by Canadian Imperial Bank of Commerce W. W. Robinson, one of the guarantors of a bank loan made to the company in November, 1964, has taken over the position of such bank and the securities for the loan held by such bank. The loan carries interest at current bank rates.
The Robinson Company in later years paid off the bank loan.
Meanwhile the Toronto Stock Exchange had suspended trading in shares of the Robinson Company on March 10, 1965 pending receipt of a filing statement and on March 8, 1967 had removed the shares from the trading list.
Opinion evidence was given by Robert B G Clarke, vice-president of Moss, Lawson & Co Limited, a member of the Toronto Stock Exchange, who has been engaged in the securities and investment business for many years. He said that he had ascertained that there had been no bids or transactions in the over-the-counter market for shares of the Robinson Company while trading of them on the Toronto Stock Exchange was suspended, and in his opinion the shares during the period from late 1964 to 1969 and particularly about mid-1967 were unmarketable and, so far as affecting a sale was concerned, had very little, if any, value, but he said that he did not consider the worth of the company behind the shares and that it was possible for shares to be transferred other than through the market.
The appellant testified that the shares were not worth the estimate of $1.25 each set forth in the Minutes of Settlement, for in arriving at that estimate the company’s investment in the Pinacle stock was given a value of $580,000, although it had been written down in the Robinson Company’s books to $1.00 in 1965, and the company had also lost its listing on the Toronto Stock Exchange, worth $35,000, and had incurred legal and other costs.
The Robinson Company sold its farmland in 1968 for $200,000 and sold its mill plant in February 1970 for $600,000. The appellant agreed on cross-examination that the properties concerned had those values in May 1967 also.
Attached to the minutes of a meeting of the directors of the Robinson Company held on October 30, 1967 is a memorandum (pages 448-49 of Exhibit Book) dated November 9, 1967 which was prepared by the appellant respecting his intentions in regard to the 111,486 shares. The memorandum reads as follows:
From: W. W. Robinson Nov. 9, 1967
Re: Robinson Cotton Mills Limited, Directors meeting of October 30, 1967
The Chairman wished to have recorded in the minutes, his position relative to the 111,486 shares of the Company which he secured from C & T Investments (Bahamas) Ltd, per the Minutes of Settlement, dated May 25, 1967, which were approved by the Supreme Court of Ontario, and which was the result of three actions against C & T Investments (Bahamas) Ltd. The said Minutes of Settlement is attached hereto.
The 111,486 shares were turned over to W. W. Robinson, in lieu of money owing to him and other shareholders per the following schedule.
CURRENT DISTRIBUTION OF THE SHARES OF ROBINSON COTTON MILLS LTD
150,000 shares Total outstanding. 100%
111,486 Transferred from C & T to W.W.R. per terms of settlement. These shares are subject to a payment of 75$ each, to those shareholders who sold same to C & T, at the time of its offer through the National Trust Company — 74.32% 38,514 Freely held, being those shares retained by the share- holders at the time of C & T’s offer — 25.68% 150,000 shares
March 31, 1965 Loan to C &T T re National Trust $121,511.54 7% interest on $118,173.00 from Mar. 31, 65 to May 25, 67 — 785 days 17,790.69 Owing to National Trust by C & T, Paid by W.W.R. 1,294.90 Transfer fees Paid by W.W.R. 820.02 Legal Fees Paid by W.W.R. 68.36 3% on $350,000.00 from Nov. 18, 64 to May 25, 67 — 919 days 26,437.00 SUB-TOTAL $167,922.51 LESS June 23, 1967 Received from National Trust, being money in trust for C & T and paid to W.W.R. per terms of settlement 2,148.60 June 23, 1967 Received from Canadian Imperial Bank of Commerce being money held in trust for C & T and paid to W.W.R. per terms of settlement 9,000.00 December 1967 To be paid by R.C.M. to W.W.R. in lieu of its obligation to pay 50% of the 3% interest owing on the $350,000.00 loan to R.C.M. 7,200.00 $ 18,348.60 NET OWING TO W.W.R. $149,573.91 6% Demand Note owing by R.C.M. to W.W.R. 350,000.00 75$ per share on 111,486 shares held by W.W.R. pro rata to the shareholders who sold to C & T 83,614.50 Total liability against the 111,486 shares held by W.W.R. $583,188.41 DISTRIBUTION OF PROCEEDS
First Priority — $149,593.91 to W.W.R. for his sole benefit
Second — 350,000.00 Third — 83,614.50 to W.W.R. who has agreed to pay 75C per share, pro rata, to the shareholders who sold the said shares to C & T Fourth — Remaining Funds — Pro rata over 38,514 shares being the shares retained by the shareholders at the time of C & T’s offer of purchase through National Trust HEREUNDER ARE TWO EXAMPLES ILLUSTRATING THE RESULTS FROM THE SALE OF THE COMPANY’S ASSETS AND ITS SUBSEQUENT WINDING UP AND THE RESULTS FROM THE SALE OF SHARES.
Estimate cash available for distribution in the event of the assets being sold
and the company wound up.
Excess of current assets over liabilities $ 50,000.00 Deposit with Sun Life re pensions 25,000.00 Land 190,000.00 Buildings $825,000.00 Less: Recaptured depreciation 120,000.00 705,000.00 970,000.00 Less liability 583,000.00 Available for distribution 387,000.00 Less: 10% expenses 38,700.00 Spread over 38,514 shares 348,300.00 — $9.00 per share. Estimate cash available for distribution in the event of the shares of the Company being sold. Excess of current assets over liabilities 50,000.00 Deposit with Sun Life re pensions 25,000.00 Land 190,000.00 Buildings 750,000.00 1,015,000.00 Less liability 583,000.00 Available for distribution 432,000.00 Less: 10% expenses 43,200.00 Spread over 38,514 shares 388,800.00 = $10.00 per share
In a letter to complaining shareholders dated August 20, 1968 the appellant stated that apart from the shares purchased by C & T there were 38,514 shares of the Robinson Company and that of those 23,743 were owned by the Robinson family, the remainder by other persons, and his letter stated, in part:
13. Regardless of the final outcome you now, no doubt, understand that neither I nor the Robinson Group can benefit beyond the percentage owned of the 38,514 shares and no one wishes otherwise.
In closing I should tell you that there was no other way out of the mess than for me to accept the responsibility including a non defined trusteeship. I wish it could have been otherwise. You may be interested to learn that my personal costs exceeded $7,000.
The appellant also prepared ledger sheets (pages 451 and 452 in the Exhibit Book) respecting the 111,486 shares, set forth next herein. (The entries were not made on the dates indicated in the ledger, they were typed by the appellant as and when he felt able to do so.) The appellant also testified that the 3% payable to him under the financing agreement was not regarded by him as interest.
| p. 451: | Debits | Credits | Balance | ||||||||||||||||
| Nov. 14, | 64 | Paid | National Trust | 186,598.50 | |||||||||||||||
| Dec. 19, | 64 | Rec’s from National | |||||||||||||||||
| Trust | 68,425.50 | 118,173.00 | |||||||||||||||||
| Jan. 67 | Loss re guarantor of | ||||||||||||||||||
| RCM’s bank loan | 37,477.29 | ||||||||||||||||||
| Jan. 31, | 67 | Interest paid CIBC on | |||||||||||||||||
| O/D | re paying bank loan | 181.16 | |||||||||||||||||
| May 25, | 67 | Paid National Trust, | |||||||||||||||||
| owing by C & | T | 1,294.90 | |||||||||||||||||
| Transfer fees paid by ROM | |||||||||||||||||||
| charged to me | 820.02 | ||||||||||||||||||
| Legal fees paid by RCM | |||||||||||||||||||
| charged to me | 68.36 | 158,014.73 | |||||||||||||||||
| As Trustee for various | |||||||||||||||||||
| shareholders 111,486 shares | |||||||||||||||||||
| of RCM @ 750 | plus dis | ||||||||||||||||||
| tribution | 85,000.00 | 243,014.73 | |||||||||||||||||
| Jan. 19, | 67 | Rec’d from CIBC (held | |||||||||||||||||
| for C | & | T) | 8,999.90 | ||||||||||||||||
| June 23, 67 | Rec’d from National | ||||||||||||||||||
| Trust (held for C & | T) | 2,148.60 | |||||||||||||||||
| Jan. 3, | 68 | Rec’d from RCM to repay | |||||||||||||||||
| Nat | Trust | $1,294.90 | |||||||||||||||||
| Rec’d from RCM to repay | |||||||||||||||||||
| Trans fees | 820.02 | ||||||||||||||||||
| Rec’d from RCM to repay | |||||||||||||||||||
| legal fees | 68.36 | ||||||||||||||||||
| Rermainder of $5,000 | |||||||||||||||||||
| forgiven by | |||||||||||||||||||
| C & | T | 4,196.52 | 6,370.80 | 225,486.43 | |||||||||||||||
| PRIORITIES | WHEN | SHARES ARE SOLD | AND/OR | RCM WOUND | UP | ||||||||||||||
| Balance | |||||||||||||||||||
| 1 | To W.W.R. | $158,014.73 | less | $17,528.30 | |||||||||||||||
| already paid | 140,486.43 | ||||||||||||||||||
| 2 | To various shareholders of 111,486 | shares @ 75c per | |||||||||||||||||
| share | plus cost of distribution | 85,000.00 | |||||||||||||||||
| 225,486.48 | |||||||||||||||||||
| 3 | If more than | $225,486.48 | is realized then any | ||||||||||||||||
| surplus will be distributed over the 38,514 | |||||||||||||||||||
| shares that were not sold toC | & T | ||||||||||||||||||
| p. | 452: | Debits | Credits | Balance | |||||||||||||||
| Dec. 18, | 64 | (A) 7% | on $186,598.50 | ||||||||||||||||
| Nov. | 18/64 to | ||||||||||||||||||
| Dec. | 18/64 | ||||||||||||||||||
| 31 | days | 1,109.36 | |||||||||||||||||
| May 25, | 67 | (B) 7% | on $118,173.00 | ||||||||||||||||
| Dec. | 18/64 to | ||||||||||||||||||
| May 25/67 | |||||||||||||||||||
| 888 | days | 20,124.70 | |||||||||||||||||
| May 26, 67 | (C) 3% on $350,000.00 | ||
| Nov. 18/64 to | |||
| May 25/67 | |||
| 919 days | 26,439.00 | ||
| Dec. 31, 67 | Interest on (C) | ||
| forgiven | 26,439.00 | ||
| Mar. 68 | Interest on (A) & | ||
| (B) forgiven | 21,234.06 | —0— | |
While I have not referred to all of the evidence I think that I have referred to it sufficiently to give an adequate indication of the principal facts.
As to the value of the 111,486 shares. Mr Clarke’s opinion of the value of the Robinson Company shares is unreliable, in my opinion, principally because he did not consider the worth and assets of the company behind its shares. The market value of shares is influenced by numerous factors, and the determination of the value of the Robinson Company shares in a period when the company had unusual problems and its shares were not being sold or offered for sale is particularly difficult. But, having regard to the price put upon them in 1964, the assets of the company at that time and in subsequent years as shown in its financial statements, the sale of its farm property in 1968 for $200,000 and the sale of its mill property in February 1970 for $600,000, which the appellant agreed was also their value in May 1967, and the agreed estimate of approximately $1.25 per share as set forth in the Minutes of Settlement, it is my opinion that the 111,486 shares had a value of not less than $149,573.91 on May 25, 1967, as claimed by the respondent.
As to the amount owed to the appellant by C & T. In his memorandum of November 9, 1967, previously referred to, the appellant stated that the amount owing to him by C & T at May 25, 1967 in respect of the loan to C & T under the trust agreement and interest and incidental payments in that connection, plus the 3% on the $350,000 bank loan, was $149,573.91 net, as detailed in the memorandum. In that memo he also stated that he had a first priority for that sum for his sole benefit.
The respondent claims that C & T owed that sum of $149,573.91 to the appellant personally at May 25, 1967. The respondent also claims, as set forth in paragraph 10 of his Reply, that in that amount there were the following items representing interest or other income debt to a total of $47,634.59:
7% interest on $118,173.00 from November 19,
The respondent is treating the 3% payable on the $350,000 bank loan as an interest or other debt that would be included in computing the appellant’s income if it had been paid. I think that it is proper to so treat it, and I find that at May 25, 1967, C & T owed the appellant $149,573.91, of which $47,634.59 was an “interest, dividend or other debt” within the meaning of subsection 24(1) of the Income Tax Act that would be included in computing his income if it had been paid, and if the appellant received the said 111,486 shares in May 1967 in his personal capacity on his own account I would find that he thereby received an applicable portion of the value of the shares, $47,634.59, in satisfaction of the said income debt owed to him by C & T, as assessed by the respondent, and I would dismiss the appeal.
| 1964 to March 31, 1965 | 3,338.54 |
| 7% interest on $118,173.00 from March 31, | |
| 1965 to May 25, 1967 | 17,790.69 |
| 3% on $350,000.00 from November 18, 1964 | |
| to May 25, 1967 | 26,437.00 |
| Unreported interest received from “R.C.M. | |
| Ltd” | 68.36 $47,634.59 |
However, there is the question whether the appellant received the 111,486 shares in his personal capacity on his own account alone and not as a trustee or quasi trustee. In that respect certain facts stand out. Some of them lend support to the appellant, some favour the respondent’s case. Debts were owed by C & T to other shareholders as well as to the appellant. The Robinson Company, the appellant, and other shareholders, had claims against C & T, and three actions were instituted in the Supreme Court of Ontario on those claims. In one of them the appellant claimed in his personal capacity, in the second he and W H Robinson claimed on behalf of themselves and other shareholders, and in the third the appellant and the Robinson Company made claims, including a claim by that company for recovery of the $580,000 paid for the Pinacle shares. The appellant held the Robinson Company’s promissory note for $350,000. The company paid it off in full in subsequent years. The Settlement was in respect of all the actions and claims. The contingent price of 75^ per share was owed in respect of each of the 111,486 shares. The appellant was an officer and director of the company. Subsequent to the Settlement he indicated his intention to apply the proceeds from any realization of the shares in a way that would give first priority to his personal claims and secondary priority to other shareholders. The Minutes of Settlement expressly reserve the rights inter se of the appellant, the company and the other shareholders. They do not declare the appellant to be a trustee of the shares. Title to the shares had previously passed to C & T, and the Settlement transferred all that company’s rights, title and interest in the shares to the appellant without any expressed limitation or condition. They had been pledged by C & T as security in respect of the $350,000 bank loan and the $186,598.50 lent to C & T under the trust agreement. The appellant’s personal outlay was greater, in his opinion, than the value of the 111,486 shares at the time of the Settlement, for he did not think they were worth $1.25 each, although that figure was set for the purposes of the Settlement.
If by the Settlement the appellant was to be a trustee of the shares it is strange that the Minutes of Settlement did not so state and provide terms and conditions of the trust. The plaintiffs in the actions in the Supreme Court of Ontario had an experienced and competent firm as their solicitors and much consideration must have been given to the matters involved. I do not think that paragraph 4 of the Minutes of Settlement, which reserved rights inter se, expressed or recognized a trust on the part of the appellant in respect of the shares.
The appellant played a prominent part in involving the company and himself and other shareholders with C & T, and it is reasonable to conclude that he felt an obligation to the other shareholders for that reason, and therefore indicated his intention to let them share the proceeds from any realization of the shares, after recouping himself for his outlay and loss, even if he was not obliged to do so.
The appellant’s good faith all through the transactions with C & T was unquestionable. They seemed at the time to be unobjectionable and above board and good business for all concerned. He was deceived, but not through any fault on his part, and he was not blameworthy. His personal outlay and loss was large. The shares had been pledged as security. In the circumstances it was not unreasonable for the Settlement to transfer and assign to him all C & T’s right, title and interest in the 111,486 shares, with no limitations or trusts or strings attached.
While at times in my consideration of this case I have been somewhat disposed to think that the appellant received the shares in trust, I have reached the conclusion that he received them in his personal capacity and on his own account and that the assessment made by the respondent was soundly based.
An argument was made on behalf of the appellant that he had a right to allocate the portion of the debt representing interest. The principle stated in Cory Brothers & Co v Owners of Turkish Steamship “Mecca”, [1897] AC 286, was referred to. That statement of principle was approved by the Supreme Court of Canada in Waisman and Ross v Crown Trust Co, [1970] SCR 553 at pages 559-60 as follows:
The applicable principle is stated in the following two passages from the speeches in Cory Brothers & Co v Owners of Turkish Steamship “Mecca”, [1897] AC 286,
Lord Herschell at p. 292:
“. . . It is clear that if the appellants had merely entered in their own books an account such as was transmitted, it would not have amounted to any appropriation by them, and they would still have been at liberty to appropriate the payment as they pleased. It is equally clear, however, that when once they had made an appropriation and communicated it to their debtors, they would have no right to appropriate it otherwise.”
Lord Macnaghten at pp. 293 and 294:
“Now, my Lords, there can be no doubt what the law of England is on this subject. When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor. In 1816, when Clayton’s Case (1 Mer. 585, 608) was decided, there seems to have been authority for saying that the creditor was bound to make his election at once according to the rule of the civil law, or at any rate, within a reasonable time, whatever that expression in such a connection may be taken to mean. But it has long been held and it is now quite settled that the creditor has the right of election ‘up to the very last moment,’ and he is not bound to declare his election in express terms. He may declare it by bringing an action or in any other way that makes his meaning and intention plain.”
But the facts in this case do not support that argument. The fact is that all claims of the plaintiffs against C & T were released in the Settlement, to which C & T was a party, and the appellant could not thereafter appropriate or allocate the shares to part only of C & T’s debt to him. However, this does not prevent the appellant, in carrying out his intention to apply the proceeds of any realization of the shares in the manner and with the priorities indicated by him and previously referred to herein, from waiving, as between himself and the other shareholders, the interest portion of the debt and to that extent reducing the portion of the proceeds that he would retain for himself.
The appeal will be dismissed, with costs.