Tremblay, T.C.C.J.:—
1. Point at issue
The point at issue is whether the appellant company is correct in the computation of its income for the 1988 taxation year ending on September 30, to claim an investment tax credit and to deduct a capital cost allowance in the amount of $2,871 and $8,100 respectively in relation to a 1988 white G.M.C. Tandem truck.
According to the appellant, the contract was passed with the seller, Louns- bury Company Ltd. (hereinafter called" Lounsbury”) on September 30, 1988 for $95,713. The delivery of the truck was provided for October 17, 1988, because it had to be painted with gold line colours.
The respondent disallowed the capital cost allowance on the contention that the purchase contract was concluded after September 30, 1988, that the truck was registered in the name of the appellant with the Motor Vehicle Registrar on October 18, 1988 and for warranty purposes on October 17, 1988, and that the effect of the perishing of the truck, if it would have had happened, were not supported by the company on or prior to September 30, 1988.
2. Burden of proof
2.01 The burden of proof is on the appellant to show that the respondent's reassessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195, 3 D.T.C. 1182.
2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his reassessments were also deemed to be correct. In the present case, the assumed facts are described in paragraphs 9(a) to (f) of the reply to notice of appeal as follows:
9. In assessing the appellant for its 1988 taxation year, the Minister of National Revenue made, inter alia, the following assumptions of fact:
(a) at all material times, Gold Line Transport Ltd., hereafter called the Company,
was a company incorporated under the law of New Brunswick; [admitted]
(b) for the 1988 taxation year, the Company's year end was on September 30, 1988; [admitted]
(c) after September 30, 1988, the Company concluded a contract with Lounsbury Company Ltd., for the purchase of a 1988 white G.M.C. Tandem truck, hereafter called the truck; [denied]
(d) the truck was registered in the name of the company with the Motor Vehicle Registrar on October 18, 1988; [admitted]
(e) the truck was registered by the Company for warranty purposes on October 17, 1988; [denied]
(f) the effect of the perishing of the truck, if it would have had happened, were not supported by the Company on or prior to September 30, 1988; [denied]
3. Facts
3.01 The appellant Gold Line Transport Ltd. (hereinafter called "Gold Line") is a trucking company incorporated under the laws of the province of New Brunswick.
For the 1988 taxation year, Gold Line's year end was on September 30, 1988. 3.02 On September 30, 1988, Gold Line purchased a 1988 white G.M.C. Tandem truck from Lounsbury for the amount of $95,713 (Exhibit A-2).
During the direct examination, Mr. Jardine, the president of Gold Line explained the circumstances of the purchase:
Q. You were there on the 28th. Would you tell His Honour why you were there on the 28th and what occurred?
A. Well, we just went down to check on the truck that was getting repairs done. We"ve had a lot of trouble with that engine and that's one of the reasons we decided to trade it. And we took a —the Volvo out for a drive and liked it. And then we discussed it for a while on our way home and came back down on the 30th and decided to purchase it. (T.S., page 42)
3.03 In consequence, Gold Line bought the truck for $95,713 and traded in for the amount of $41,713 the 1985 International that was getting repaired at Lounsbury's.
On October 17, 1988, Lounsbury received a cheque from Gold Line to the amount of $54,000 which was the difference between the selling price ($95,713) and the trade-in allowance ($41,713) (Exhibit A-4).
3.04 By a separate contract dated October 3, 1988, Gold Line agreed with Lounsbury to have his new truck painted with Gold Line’s colours for the amount of $2,000 (Exhibit A-3).
During the cross-examination by Mr. Meghji, Mr. Jardine, the president of Gold Line, commented on the agreement as follows:
Q. [Mr. Meghji] Sir, when you bought the truck and you agreed to get the Gold Line stripes put on, you were expecting to pick up a truck in October with the stripes on it. Is that correct?
A. [Mr. Jardine] Well, we just decided to get it painted, yeah. And—we didn't have to get it painted. They just seen an opportunity, had some time to do it. And Lounsbury told us we could use their truck which we had traded in when it was— when it came out of the garage, when it was ready. So we took them up on the opportunity and that's all there was to it. (T.S., page 50)
Mr. Jardine also testified that previous experience showed him that if he did not get the truck painted right away, it would probably never get done. In consequence, having the opportunity to be able to use the 1985 International while the new truck was getting painted, he agreed to have it done right away for $2,000.
3.05 Mr. Gaston, Branch Manager for Lounsbury Company Ltd. Truck Division, testified that on September 30, 1988, the truck was in a deliverable state and that there was not anything to be done to make it usable.
During his direct examination by Mr. Mockler, he commented on the situation as follows:
A. Well, in our business when we deliver a truck there's two conditions that it may be under. It may be what we call an “incomplete vehicle”, in other words, it's a truck and a sic] chassis with nothing to hook on to the back of it, no body or no wheel. This is a highway road tractor, which means it’s going to haul a trailer of some sort and it would have to have a fifth wheel on it on which the kingpin of the trailer is hooked up. When we order a highway tractor, we order it from the factory equipped with the fifth wheel and the air hoses to hook up that trailer. It’s complete.
Q. The fifth wheel is the hook-up for the trailer, is it not?
A. It’s the hook-up for the trailer, yes.
Q. Yes. And this one came with that hook-up?
A. Yes.
Q. And so am I correct that the day that was driven or on September 30th you could have hooked a trailer to that tractor?
A. That's right. (T.S., pages 16-17)
3.06 Later in his testimony, he explained the nature of the guarantee that goes with the truck bought by Gold Line:
When we sell a truck of this nature, we administer the warranty for a white G.M.C. that covers the warranty on the truck. That covers for a certain term in mileage and repairs on that truck to the major components. We have to warranty register that to our manufacturer, otherwise notify them when the truck officially goes on the road. We have a date—we have a grace period up to 90 days which we can hold back registration to be sure that that truck is in service at the time. Because warranties are important to these customers and it’s very expensive if they don’t have it. So the manufacturer does allow us up to 90 days to warranty register the truck.
Q. So you might sell a truck on day one and the warranty doesn't get registered till day 10 or even up to day 90, I take it.
A. Normally that's what happens, yes.
Q. Has the registration of the warranty got anything to do with when you sell the truck?
A. No. The—selling the truck is our responsibility. The warranty registration is the date that we are telling the manufacturer that we are—we want that warranty to start." (T.S., pages 23-24)
3.07 The three appellants witnesses interrogated during the trial, respectively Mr. Gaston (branch manager of Lounsbury) Mr. Jardine (president of Gold Line), and Mr. Donald Luspy (working in general insurance with Jones Foster Ltd. doing business with Gold Line since 1968), testified that if ever the truck (G.M.C.) would have been damaged (during the time it was sitting at Louns- bury’s to get painted) the perishing of it, if such would have happened on or after September 30, 1988, would have been covered by Gold Line.
According to them, in the event of any damage to or perishing of the truck, on or after September 30, 1988, the truck was covered by Gold Line's insurance. In consequence, Gold Line and not Lounsbury would have been responsible for the payment.
Mr. Gaston during the cross-examination by Mr. Meghji commented as follows:
Q. [Mr. Meghji] So if there had been any damage to the truck, say by vandalism or fire or any such thing, say on October 1st of 1988, you would not have told Gold Line that," It's your problem.” Presumably your insurance would have covered it. Is that correct?
A. [Mr. Gaston] No. Our insurance would not have covered it because at that time the—of the type of insurance that we carried. We would—basically, he would have been responsible. I don’t know if we have in our purchase agreement, but on our—vehicles left in our care, we have it on there that we are not responsible for damages on our lot, although it's a very gray area when it comes down to actually who's going to pay (T.S.,pages 28-29).
3.08 Mr. Donald Luspy from Royal Insurance explained the fleet policy existing between Royal Insurance and Gold Line (Exhibit A-5).
Q. Now, Mr. Luspy, what I'd like you to do is explain to His Honour how the insurance worked.
A. Well, sir, we have what we call a blanket fleet insurance for Gold Line which covers all vehicles registered, owned, operated or leased to the named insured. The named insured in this particular case is Gold Line Transport Ltd. He carries the mandatory limits for public liability and property damage. He carries at his choice certain deductibles on various values on vehicles. For instance, on tractors he carries a twenty-five hundred deductible all peril. On trailers he carries a fifteen hundred deductible all peril. And on any other types of vehicles, such as private passenger cars, light trucks and so on, he carries a five hundred deductible. His policy expires on June 12th each year. A month or so prior to expiry, we ask the principals of Gold Line to provide us with an up-to-date list of vehicles. From that up-to-date list we prepare a renewal. There is an endorsement attached to the face sheet of the policy which is a 21-A, which basically means that all vehicles, as long as they are registered or owned or leased to the named insured, are covered for the ensuing period. It's not necessary for him to provide us any information with vehicles acquired between June 12th of one year and June 12th of the following year. And the deductibles as per the type of vehicle will apply to any vehicle that he acquires after he has given us his list for the ensuing year.
Q. Now, Mr. Luspy, the evidence is here that they purchased a vehicle from Lounsbury on September the 30th, 1988. Could you tell His Honour, would that vehicle have been covered by this insurance?
A. That vehicle would have been covered the same as any other vehicle that was covered on the policy, from September 30th through until June 12th of the following year.
Q. Okay. And counsel for the Minister here asked the question, if this truck had been vandalized while it was still at Lounsbury’s on September the 30th, whether or not it would be covered. I"m asking you, would it have been covered under your policy?
A. In my opinion, it would be. I have had experience in the past that—where a bill of sale has been made up and a registration not —or the vehicle not registered. The insuring company—in other words, ownership transferred the minute the bill of sale was—then we would be on the hook, that's right. (T.S., pages 53-55)
3.09 The truck got painted as agreed by the parties and on or about October 17, 1988, Gold Line brought back the 1985 International to Lounsbury (3.04) and got its new truck (G.M.C.) painted with Gold Line colors.
4. Law—cases at law—analysis
4.01 Law
The main provisions involved in the present case are sections 18 and 19 of the Sale of Goods Act, R.S.N.B. 1973, c. S-1 as amended. They read as follows:
18(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at the time that the parties to the contract intend it to be transferred.
18(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case. R.S., c. 199, section 18.
19. Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods passes to the buyer:
Rule 1. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.
Rule 2. Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until that thing is done, and the buyer has notice thereof.
The provisions of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") and Income Tax Regulations concerning capital cost allowance and investment tax credit will apply or not depending whether the contract was passed on September 30, 1988 or after. It is not necessary to quote those provisions.
4.02 Cases at law
Counsel for the parties referred the Court to the following cases at law:
1. Jerome v. Clements Motor Sales Ltd., 15 D.L.R. (2d) 689, [1958] O.R. 738 (O.C.A.);
2. Alexander Gibson v. William G. McKean & Archibald Randolf, [1876] 16 N.B.R. 299;
3. M.N.R. v. Wardean Drilling Ltd., [1969] 2 Ex. C.R. 166, [1969] C.T.C. 265, 69 D.T.C. 5194;
4. Kirsch Construction Ltd. v. M.N.R., [1985] 2 C.T.C. 2387, 85 D.T.C. 675 (T.C.C.);
5. Kirsch Construction Ltd. v. The Queen, [1988] 2 C.T.C. 338, 88 D.T.C. 6503 (F.C.T.D.);
6. Yorkton Broadcasting Co. v. M.N.R., [1987] 1 C.T.C. 2222, 87 D.T.C. 165 (T.C.C.)
4.03 Analysis
4.03.1 The issue of this case turns on the effect of the purchase contract passed between Gold Line and Lounsbury on September 30, 1988.
In consequence, the Court has to decide whether or not the property in the truck, on September 30, 1988, effectively passed to Gold Line.
4.03.2 In their simplest form, the parties' arguments can be summarized as follows:
4.03.2(1) Counsel for the appellant
1. Referring to section 18 of the Sale of Goods Act (4.01) he contends that on September 30, 1988, it was the intention of the parties that the property in the truck would pass to Gold Line. Therefore, even if some act would have remained to be done to the truck by Lounsbury, the property in it was passed anyway.
2. He also refers to the Jerome v. Clements Motor Sales Ltd. case (4.02(1)) in which Schroeder, J.A. stated at page 700 (D.L.R.) that:
There is no doubt but that the operation of rule 2, section 19 is subordinated to the real intention of the parties as to when the property in the subject-matter of the sale should pass to the purchaser if that intention has been manifested in some other manner.
In consequence, counsel for the appellant submits that it was the real intention of the parties that the property in the truck pass to Gold Line on September 30, 1988, and therefore the Rules outlined in section 19 of the Sale of Goods Act are subordinated to the real intention of the parties on September 30, 1988.
3. He subsidiarily contends that if the truck would have got damaged on or after September 30, 1988 (3.02) it would have been supported by Gold Line's insurance coverage.
He consequently refers to subsection 21(1) of the Sale of Goods Act which reads as follows:
21(1) Unless otherwise agreed, the goods remain at the seller's risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not, except that where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party in fault as regards any loss that might not have occurred but for such fault.
4.03.2(2) Counsel for the respondent
He submits that the property in the truck was not transferred to the appellant until after September 30, 1988 for the following reasons:
1. The appellant did not have the incidents of ownership. He did not have possession nor use of it because it was still sitting at Lounsbury’s being painted. At that time, the truck was not in a deliverable state. He referred the Court to the Wardean Drilling Ltd. case (4.02(3)) where Mr. Justice Cattanach stated on the same question as to when property is acquired. He stated at pages 270-71 (D.T.C. 5197):
Test to determine acquisition of property
The decision in this appeal turns on the question as to when the rig and substructure were "acquired" by the respondent. The submission on behalf of the respondent was, as I understood it, that goods are acquired by a purchaser thereof when the vendor and the purchaser have entered into a binding and enforceable contract of sale and purchase. The test and concept of a contract was that adopted by the Tax Appeal Board in the decision now under appeal.
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.
Counsel for the respondent contends that the present case is similar to the Wardean Drilling Ltd. case (4.02(3)) and consequently he submits that even if the appellant may have some property rights under the purchase contract (302), he does not own the property in the truck.
The D.T.C. headnote of that case reads as follows at page 5194:
Held: The Minister’s appeal was allowed. The respondent company was not entitled to deduct the capital cost allowance it had claimed in 1963 on the drilling rig and the subsidiary equipment. Neither item had been acquired by the company in 1963. It was true that the contracts for the purchase ana sale of the rig and equipment were completed prior to the end of 1963. However, this was not the proper test to be applied. A purchaser has acquired property of a class in Schedule 8 to the Regulations 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. An examination of the relevant provisions of the Alberta Sale of Goods Act (which governed the present matter) led to the conclusion that the property in the drilling rig and in the subsidiary equipment did not pass to the company until 1964.
2. He also submits that the evidence of the purchase agreement (Exhibit A-2) is not enough to make the transfer occurred. He contends that regarding the Yorkton Broadcasting Co. case (4.02(6)) and the Jerome case (4.02(1)), it is not enough to simply say that both parties had the intention to transfer the property in the goods. There has to be much more compelling evidence such as an express clause or something to that effect.
3. He therefore submits that the title did not transfer to Gold Line on September 30, 1988 and consequently in case of the perishing of the truck, it would have been Lounsbury's and not Gold Line's responsibility.
4. He also submits that the rule of subsection 19(2) of the Sale of Goods Act applies to the present case and therefore, the property in the truck cannot have been passed to Gold Line on September 30, 1988.
4.04 Opinion of the Court
The answer to the question in the present appeal is governed by provisions in the Sale of Goods Act (4.01) pertaining to when property in the goods is transferred to the buyer under a contract of sale.
4.04.1 According to subsection 18(1) of the Sale of Goods Act (4.01), the question whether and when the property passes to the buyer is theoretically dependent upon the intention of the parties. Subsidiarily, subsection 18(2) of the Sale of Goods Act also prescribed that the intention of the parties may be ascertained by regard to the terms of the contract, the conduct of the parties and the circumstances of the case.
However, since the parties may have not clearly expressed their intention in regard to the transfer of the property, section 19 of the Sale of Goods Act (4.01) contained a number of presumptions which are to be applied unless a different intention appears.
4.04.2 It seems clear and logical that the governing principle must be the one contained in section 18 of the Sale of Goods Act (4.01).
The rules outlined in section 19 are only presumptions and therefore unless a different intention appears from the terms of the contract, the conduct of the parties and the circumstances of the case, there will be no need in consequence to refer to the rules laid down in that section of the Sale of Goods Act.
4.04.3 Counsel for the respondent has referred the Court to subsection 19(2) of the Sale of Goods Act (4.03.2(2)4).
Do the circumstances of the present case command the Court to refer to the presumption of subsection 19(2) of the law?
A positive answer would mean that none of the elements of section 18 put in the case at bar would ascertain the intentions of the parties to transfer property in the goods.
4.04.4 There is no doubt that a purchase contract (Exhibit A-2) was passed between the parties on September 30, 1988. Once again, the question is: Did it transfer the property to Gold Line?
4.04.5 First of all, it is important to realize that property in the goods (truck) has to be distinguished from the possession of it. In fact, the property in the goods may have been transferred to the buyer before or after the goods have been delivered to him. In consequence, the fact that the truck was still at Lounsb- ury's being painted until October 17, 1988 (4.03.2(2)) is not necessarily significant. In the case at bar, it is not.
Section 21 of the Sale of Goods Act (4.03.2(1)3.) illustrated in fact that once the goods have been transferred, it is of little importance who between the buyer or the seller actually has the possession of them.
4.04.6 However, according to the Court, the fundamental rule is that risk passes with property. Consequently, the question of on which party stands the location of the risk has all its importance to determine who between Gold Line and Lounsbury has the real ownership of the truck.
In the present case, which party would be responsible for the perishing?
4.05 The purchase contract (Exhibit A-2) does not expressly mention who would be responsible in the case of the perishing of the truck. However, this is not conclusive. The intention of the parties may be deducted from their conduct and from the circumstances of the case (section 18 of the Sale of Goods Act).
Both parties (Gold Line and Lounsbury) have testified that their intention was to transfer property when they concluded the sale contract. Therefore they also testified that in the case of the perishing of the truck, on or after September 30, 1988, the loss would have been assumed by Gold Line's insurance company (3.08).
Mr. Luspy (worker for Gold Line's insurance company) also commented in that sense (3.07) when he explained to the Court how the insurance (the blanket fee insurance) worked.
4.06 As to the circumstances of the present case, the Court believes that it is of significant importance to consider the fact that the painting contract concluded between the parties (Exhibit A-3) was concluded after the purchase contract (Exhibit A-2). Therefore, the sale of the truck was not conditional to the painting work the parties agreed on afterwards (3.04).
The painting contract (Exhibit A-3) was independent from the sale contract concluded earlier by Gold Line and Lounsbury.
Nothing in the purchase contract tends to indicate that Lounsbury was Nothing in the purchase contract tends to indicate that Lounsbury was bound to paint the truck to make it in a deliverable state.
4.07 The Jerome case (4.02(1)) referred to during the present appeal also questioned the acquirement of the property.
The substance of that case is described as follows in the D.L.R. headnote of the judgment at page 689:
Where, in the absence of a contrary intention, the passing of title to specific goods depends on whether they have been put in a deliverable state and the buyer has notice thereof (as provided by rule 2 of section 19 of the Sale of Goods Act, R.S.O. 1950, c. 345), the fact that the things to be done are trivial in nature does not affect the question. A conditional sale agreement for the purchase of a car for which the buyer agreed to pay by turning in two used cars and paying the balance in cash provided for certain repairs to be made by the seller as part of the deal and for the installation in the purchased car of the battery presently in one of the cars to be turned in. The buyer kept this car in the meantime but turned in the other, transferred the ownership of both to the seller and paid the cash balance. She also signed for the transfer of the ownership licence of the purchased car and this licence was completed and placed in the car on July 9th. The buyer was to take possession on July 12th or 13th. All repairs save the changing of the battery were completed on July Tith and the car was put in the seller's showroom. Early next morning a fire destroyed the seller's premises and the car was badly damaged. Held, on appeal, Laid law J.A. dissenting, the trial Judge had rightly found that the risk of loss was on the seller because title had not passed to the buyer.
The difference between the Jerome case (4.02(1)) and the present case is that in the first one the seller was bound to do some work on the car which he had not completed. Moreover, the terms of their contract indicate a conditional purchase.
The present case does not suggest the same circumstances. The evidence has shown to the satisfaction of the Court that on the day the purchase contract was passed between Lounsbury and Gold Line, the truck was effectively in a deliverable state (3.05).
Moreover, the fact that the warranty registration was dated October 17, 1988 does not affect the position of the appellant (3.06) as the evidence demonstrated.
The purchase contract was not made subject to a condition which suspended the passing of property. It was not conditional to and dependent on the painting work to do.
In the Court's view, the rule number 2 set forth in section 19 of the Sale of Goods Act is not applicable to the circumstances of this case. Lounsbury was not bound to paint the truck for the purpose of putting it into a deliverable state.
In the Wardean Drilling Ltd. case (4.02(3)), the seller was bound to add certain things to the drill rig.
In the Yorkton Broadcasting Co. case (4.02(6)), the transfer of the Cessna was conditional to when the full purchase price was paid.
Therefore, the present case is distinguished from those above.
On the evidence, I am satisfied that the appellant must succeed. Considering the conduct of the parties as well as the circumstances of the present case (Exhibits A-2 and A-3), the Court arrives at the conclusion that on September 0, 988, the property in the truck transferred to Gold Line.
5. Conclusion
For the above reasons, the appeal is allowed with costs and the matter is referred back to the respondent for reconsideration and reassessment.
Appeal allowed.