A limited partnership purchased software from a vendor corporation in consideration for a cash payment and the issue by it of an "acquisition note". The acquisition note immediately was paid off by the partnership assigning to the vendor promissory notes that were owing to it by its limited partners as a result of their subscription for units of the partnership.
Bowman A.C.J. found that the cost to the partnership for the software was less than the stated purchase price because the promissory notes did not have a value equal to their face amount. This was the case given that the limited partners could get rid of their liability under the notes by assigning them to a third party, which could be a shell company, given that if the software did not generate a stipulated return the partnership had the right to replace the board of directors of the vendor corporation (which at a practical level would be a "formidable obstacle" to the vendor collecting on the promissory notes), and given that under the complex terms of the arrangements the limited partners would have a myriad of defences were they to be sued on the promissory notes.