Décary,
J:—This
appeal
relates
to
the
years
1966
and
1967,
when
the
Minister
issued
an
assessment
under
which
he
held
that
the
contracts
at
issue
are
contracts
of
sale,
not
rental
contracts.
The
case
was
heard
by
the
Tax
Review
Board,
which
held
that
the
said
contracts
were
leases;
and
consequently
the
assessments
were
disallowed.
Accordingly,
the
question
before
the
Court
is
as
to
the
nature
of
the
contracts
in
dispute.
In
my
opinion,
such
a
question
cannot
be
answered
without
analysing
each
of
the
contracts
and
arriving
at
a
conclusion
based
on
the
civil
law.
Counsel
for
the.
defendant
called
one
witness,
Mr
Sévère
Théberge,
the
general
manager
and
secretary-treasurer
of
defendant.
The
business
of
defendant
consisted
in
operating
a
sawmill,
and
in
doing
so
it
relies
for
supplies
on
the
firm
of
Lagueux
et
Théberge.
The
shares
in
both
companies
are
held
by
the
same
persons.
The
witness
stated
that
the
company
used
a
contract
form
headed
‘‘Lease”,
so
they
could
be
in
a
more
liquid
financial
position,
since
by
this
means
the
investment
was
made
on
a
monthly
basis,
and
the
balance
sheet
showed
no
corresponding
debt
as
such.
The
witness
testified
that
the
company
would
approach
a
manufacturer
of
heavy
equipment,
and
then
make
arrangements
for
a
loan
or
rental
company
to
buy
the
necessary
equipment
and
rent
it
to
defendant.
All
the
contracts
at
issue
contained
a-
purchase
option
which
could
be
exercised
by
defendant
at
a
nominal
price,
much
below
the
market
value
of
the
equipment
at
the
time
the
option
was
exercised.
The
witness
affirmed
that
the
cost
of
the
equipment
was
the
same
whether
it
was
bought
or
leased,
except
that
when
monthly
payments
were
made,
interest
and
administrative
costs
were
added
on.
Counsel
for
the
plaintiff
called
Mr
Michael
Philippon,
defendant’s
comptroller.
This
witness
emphasized
that
the
company’s
procedure
for
obtaining
possession
of
the
equipment
enabled
it
to
avoid
showing
the
monthly
payments
to
be
made
on
the
balance
sheet,
and
this
was
done
for
banking
purposes.
This
assertion
seems
to
lack
force
in
view
of
the
fact
that
these
expenditures
appeared
on
the
profit
and
loss
statement,
and
the
result
of
the
operations,
namely
the
profit
or
loss,
was
shown
on
the
balance
sheet.
In
my
view,
this
was
merely
an
accounting
entry
made
in
the
financial
statements
at
one
place
or
another
depending
on
whether
the
contract
was
treated
as
a
rental
contract
or
a
contract
of
sale.
The
witness
also
testified
that
for
insurance
purposes,
when
the
purchase
option
was
exercised
the
equipment
was
valued
at
an
amount
corresponding
to
the
market
value
at
the
time
the
option
was
exercised.
In
cross-examination,
the
witness
admitted
that
defendant
is
a
party
to
other
contracts
the
format
of
which
differs
from
those
before
the
Court.
Mr
Gagnon,
a
heavy
equipment
broker,
was
called
as
a
witness
by
plaintiff,
and
in
my
opinion
the
gist
of
his
testimony
was
establishing
that
the
initial
cost
of
a
piece
of
equipment
is
the
same
if
the
equipment
is
paid
for
in
cash
or
leased,
but
that
the
interest
and
administrative
costs
are
added
to
the
initial
cost
when
it
is
not
paid
for
in
cash.
Indeed,
in
a
so-called
“rental”
contract
the
person
allegedly
“renting”
pays
interest
and
administrative
costs
for
the
use
of
the
equipment,
since
he
has
not
paid
the
entire
purchase
price.
It
was
also
established
by
the
witness
that
the
market
value
of
the
equipment
at
the
time
the
option
was
exercised
was
always
higher
than
the
amount
payable
at
that
time;
and
it
was
shown
that
if
the
transaction
concerned
an
equipment
rental
company,
and
not
a
finance
company,
the
rental
company
was
responsible
for
maintaining
the
equipment.
We
must
now
examine
the
contracts
to
which
defendant
was
a
party.
The
first
contract,
dated
April
1,
1967,
is
between
defendant
and
Corporate
Plan
Leasing
Limited.
It
concerned
two
items,
a
truck
and
a
Lift
Truck
Plant
[sic].
This
contract
is
for
a
period
of
36
months,
with
a
monthly
payment
of
$95.16,
and
$95.16
per
annum
at
the
end
of
the
contract,
for
the
truck;
on
the
Lift
Truck
Plant
a
monthly
payment
of
$286.71
was
required,
and
$286.71
per
annum
at
the
end
of
the
contract.
On
April
30,
1967
Corporate
Plan
Leasing
Limited
gave
defendant
a
purchase
option
at
a
price
equivalent
to
five
per
cent
of
the
balance
owed
at
the
end
of
the
contract
period,
that
is
prior
to
renewal
of
the
contract.
Defendant
was
to
obtain
‘all
permits,
licences
and
registration
required
for
use
of
the
equipment”;
to
pay
all
“fees,
expenses,
charges
and
taxes”;
obtain
policies
of
insurance
on
the
equipment,
and
not
sell
the
equipment
without
the
prior
consent
of
Corporate
Plan
Leasing
Limited.
It
was
established
that
the
total
cost
of
the
alleged
rental,
if
interest
and
administrative
costs
are
deducted,
was
equivalent
to
the
market
price,
and
that
when
the
option
was
exercised
the
market
value
of
the
equipment
was
greater
than
the
nominal
amount
paid
by
defendant.
The
second
contract
relates
to
a
barker
and
a
roller
conveyor,
and
other
accessory
equipment
used
in
operating
the
said
roller.
This
contract
was
for
60
months,
with
a
monthly
payment
of
$625,
making
a
total
amount
of
$37,500.
It
was
concluded
with
the
Industrial
Acceptance
Corporation
Limited
and
dated
September
28,
1966.
Among
its
other
aspects
the
contract
provides
that
any
conversion,
as
well
as
ail
maintenance,
repairs
or
replacement,
shall
be
done
at
defendant’s
expense.
In
addition,
the
cost
of
all
licences
shall
be
assumed
by
defendant.
Clause
23
of
the
said
contract
should
be
cited
in
part:
23.
To
the
extent
not
prohibited
by
law,
the
lessee
waives
all
rights,
benefits
and
protection
conferred
by
section
19
of
the
Conditional
Sales
Act,
Revised
Statutes
of
Alberta,
and
agrees
that
the
provisions
of
The
Limitation
of
Civil
Rights
Act,
Revised
Statutes
of
Saskatchewan,
as
amended,
do
not
apply
to
this
lease
or
to
any
contract
or
instrument
renewing
or
extending,
or
which
is
subordinated
to,
this
lease,
or
to
the
rights,
powers
or
remedies
of
the
lessor,
his
assigns
or
any
other
person
under
the
terms
of
this
lease,
or
under
the
terms
of
any
contract
or
instrument
renewing
or
extending,
or
subordinated
to,
this
lease.
It
may
be
noted
that
on
the
first
page
of
this
contract
Industrial
Acceptance
Corporation
Limited
is
described
as
the
lessor,
and
further
on
in
the
same
contract,
in
a
paragraph
titled
“Sale,
Transfer
and
Warranty”,
that:
The
lessor
by
these
presents
sells,
transfers
and
conveys
to
Industrial
Acceptance
Corporation
Limited
(hereinafter
referred
to
as
the
“Corporation”)
all
its
right,
title
and
interest
to
and
in
the
preceding
lease,
covering
the
leasing
of
the
equipment
therein
described,
and
all
rental
and
other
sums
now
and
subsequently
payable
by
the
lessee
therein
named,
and
all
rights
and
remedies
of
the
lessor
relating
thereto,
and
the
lessor
further
sells,
transfers
and
conveys
to
the
Corporation
the
equipment
therein
described,
subject
to
the
rights
of
the
said
lessee
as
stipulated
in
the
said
lease.
I
do
not
see
how,
if
Industrial
Acceptance
Corporation
Limited
is
the
lessor,
it
can
convey
its
rights
to
itself.
This
to
my
mind
indicates
that
Industrial
Acceptance
Corporation
Limited
is
the
creditor
of
defendant
for
the
sale
of
the
equipment
described.
On
October
20,
1966,
Industrial
Acceptance
Corporation
Limited
advised
defendant
that
the
equipment
could
be
purchased
for
$1
when
the
contract
expired.
It
should
be
noted
in
connection
with
this
purchase
option
that
the
sum
of
$37,500
had
to
be
paid
before
the
option
could
be
exercised
by
defendant.
The
sum
of
$37,500
was
the
market
value
of
this
equipment
at
the
date
of
the
contract;
the
amount
of
$1,
payable
on
exercising
the
option,
is
less
than
the
market
value
of
the
equipment
five
years
after
signature
of
the
contract,
as
is
established
by
the
evidence.
The
third
contract
is
dated
December
20,
1966
and
was
concluded
between
defendant
and
Hewitt
Equipment
Limited.
It
concerns
an
amount
of
$52,134.30,
for
a
traxcavator
and
a
‘‘Pulpwood”
(?)
fork.
The
contract
was
made
for
29
months,
at
a
monthly
rate
of
$1,477,
including
insurance,
after
an
initial
payment
of
$7,000.
The
general
conditions
of
the
contract
indicate
that
all
provincial
and
municipal
sales
taxes
are
defendant’s
responsibility.
Damaged
parts
are
to
be:
replaced
by
defendant;
all
local,
municipal,
provincial
and
federal
taxes
are
to
be
paid
by
defendant.
Hewitt
Equipment
Limited
takes
care,
in
paragraph
15,
to
state
that
it
remains
owner
of
the
equipment
at
all
times;
this
appears
at
the
very
least
redundant,
if
Hewitt
Equipment
Limited
is
in
fact
the
owner
of
the
equipment.
On
December
27,
1966
defendant
was
given
a
purchase
option,
which
could
be
exercised
during
the
period
of
rental,
for
the
balance
owed
after
deduction
of
100%
of
the
rental
paid.
A
contract
with
such
a
stipulation
bears
a
strange
resemblance
to
an
instalment
sale.
On
April
3,
1967
a
contract
was
concluded
between
defendant
and
the
E
W
Bliss
Company
(Canada)
Ltd
relating
to
an
automatic
compressed
air
sprinkler
system,
with
all
accessories
required
by
such
a
system,
for
a
total
amount
of
$16,230,
with
an
initial
payment
of
$2,730
and
a
monthly
payment
of
$225
over
a
period
of
60
months.
Under
this
contract
defendant
undertook
to
pay
all
taxes
and
assessments
and
insure
the
system
for
the
duration
of
the
contract,
either
with
a
total
loss
clause
in
the
insurance
policy
on
the
building
or
by
specific
insurance
on
the
item
alone.
On
April
20,
1967
a
purchase
option
was
given
to
defendant
in
the
amount
of
$1,
in
addition
to
any
rental
payments
due
or
to
become
due
for
the
remainder
of
the
lease.
In
my
opinion
this
contract,
and
the
other
contracts
reviewed
above,
demonstrate
that
although
the
option
was
exercised
prior
to
termination
of
the
lease,
all
payments
due
had
to
be
made
before
it
was
exercised.
On
May
11,
1966,
under
a
contract
concluded
between
Tab
Rentals
Limited,
defendant
and
Lagueux
et
Théberge
Inc,
defendant
took
possession
of
four
vehicles.
The
next
day
Tab
Rentals
and
defendant
exchanged
irrevocable
promises
to
sell
and
purchase
respectively
all
the
vehicles
at
a
price
equivalent
to
5%
of
the
original
value
of
each
vehicle.
I
feel
such
an
agreement,
made
one
day
after
the
alleged
lease,
clearly
demonstrates
the
true
nature
of
the
first
agreement,
since
this
bilateral
promise
of
sale
and
purchase
clearly
constituted
a
contract
of
sale.
I
believe
this
analysis
of
these
five
contracts
and
options
suffices
to
show
that
what
is
involved
is
not
a
rental
but
a
sale
on
a
suspensive
condition,
on
instalment
or
by
leasing.
I
do
not
think
it
is
necessary
or
even
useful
to
refer
to
the
provisions
of
subsection
137(1)
of
the
Income
Tax
Act
to
determine
whether
deduction
of
the
costs
associated
with
the
various
contracts
unduly
or
artificially
reduces
defendant’s
income.
In
my
view,
the
nature
of
the
rights
and
obligations
created
by
the
contracts
concluded
by
defendant
must
be
arrived
at
by
reference
to
the
provisions
of
the
Civil
Code.
In
my
opinion
fiscal
law
is
an
accessory
system,
which
applies
only
to
the
effects
produced
by
contracts.
Once
the
nature
of
the
contracts
is
determined
by
the
civil
law,
the
Income
Tax
Act
comes
into
effect,
but
only
then,
to
place
fiscal
consequences
on
those
contracts.
Without
a
contract,
without
a
law
and
an
obligation,
there
can
be
no
fiscal
levy.
Application
of
the
Income
Tax
Act
is
subject
to
a
civil
determination,
whether
such
a
determination
be
according
to
civil
or
common
law.
There
is
no
need,
in
deciding
as
to
the
nature
of
the
contracts,
to
have
recourse
to
the
theory
popular
in
fiscal
law
of
form
and
substance,
if
the
private
law
of
the
place
where
the
contract
was
concluded,
which
is
the
Civil
Code
in
the
case
at
bar,
contains
provisions
the
effect
of
which
is
comparable
to
that
theory.
The
provisions
of
Article
1013
of
the
Civil
Code
indicate
the
criterion
to
be
applied
in
case
of
doubt
as
to
the
nature
of
a
contract:
1013.
When
the
meaning
of
the
parties
in
a
contract
is
doubtful,
their
common
intention
must
be
determined
by
interpretation
rather
than
by
an
adherence
to
the
literal
meaning
of
the
words
of
the
contract.
The
decision
in
Thibault
v
Auger^
[1950]
QSC
343,
deals
directly
with
this
point:
In
interpreting
a
contract
the
Court
must
seek
to
discover
the
intent
of
the
parties,
whatever
the
name
they
have
given
to
it.
They
may
in
fact
State
that
they
have
sold
or
rented
a
thing,
but
it
is
not
within
their
power
to
alter
the
meaning
of
the
contract
itself,
and
if
that
contract,
which
they
call
one
of
rental,
has
all
the
characteristics
of
a
sale,
it
will
be
governed,
not
by
the
principles
relating
to
rental,
but
by
those
relating
to
sale.
This
will
be
decided
by
reference
to
the
wording
of
the
contract
itself,
its
purpose
and
the
circumstances
surrounding
the
conclusion
of
such
a
contract.
'
French
commentators*
have
discussed
the
nature
of
such
contracts,
which
they
call
location-vente
(hire-purchase
contracts).
I
refer
to
Mazeaud
on
the
point:t
Hire-purchase
.consists
of
a
lease
accompanied
by
a
promise
to
sell
.
.
.
If
the
contract
really
involves
a
lease
and
a
sale
distinct
from
each
other,
it
is
lawful
and
of
full
effect
.
.
.
Very
often,
however,
the
hire-purchase
contract
disguises
an
instalment
sale
with
a
reservation
of
ownership;
the
rental
payments
agreed
on
being
in
reality
only
fractions
of
the
purchase
price,
and
the
price
fixed
in
the
promise
of
sale
only
the
last
of
these
fractions.
In
such
cases
the
courts
disregard
appearances;
weighing
the
proportion
of
the
stipulated
rental
to
the
price
fixed
in
the
promise
of
sale,
they
analyse
the
hire-purchase
contract
as
an
instalment
sale
with
a
reservation
of
ownership.
The
Quebec
courts
have
frequently
had
occasion
to
analyse
similar
contracts.
In
Gravel
v
Massicotte
et
Cou
il
lard
(1932),
52
CB
R
146,
the
Court
of
Appeal
considered
such
a
contract
to
be
a
conditional
sale,
not
a
lease:
Under
the
contract
the
obligations
of
the
alleged
lessee
seem
to
be
those
of
any
ordinary
owner.
Unquestionably,
the
parties
to
such
a
contract
may
give
it
the
name
of
a
lease;
nonetheless
our
courts
have
often
had
to
interpret
such
contracts,
and
have
at
times
construed
them
as
having
the
nature
of
a
disguised
sale,
particularly
when
they
involve
immovables,
the
possession
of
which
is
yielded
up
to
the
lessee,
who
Is
made
subject
to
all
the
obligations
of
a
true
owner;
in
the
case
at
bar,
the
alleged
rental
is
$250
a
month,
amounting
to
$3,000
a
year;
however,
it
is
stipulated
that
interest
at
seven
per
cent
shall
run
on
the
entire
balance
of
the
sum
of
$27,500;
and
other
clauses
require
the
lessee
to
maintain
the
premises
and
pay
municipal
taxes
and
assessments,
pay
for
insurance
and
so
forth.
In
Carey
v
Carey
(1912),
42
QSC
471
at
475,
the
Court
observed:
In
order
to
decide
as
to
the
nature
of
a
contract,
we
must
look
to
the
common
intent
of
the
parties,
rather
than
looking
only
at
the
literal
meaning
of
the
words,
but
the
way
in
which
the
contract
is
described
must
also
be
taken
into
account.
After
a
careful
examination
of
the
evidence
and
of
the
document
itself,
I
have
come
to
the
conclusion
that
it
does
not
contain
a
lease;
it
contains
either
a
sale
on
a
suspensive
condition
or
a
sale
on
a
resolutory
condition.
The
words
“lessee”
and
“rental’’
are
used
in
the
document,
but
there
is
no
rental
and
no
lessee.
The
lessee
is
the
purchaser
and
the
rental
is
the
selling
price
.
.
.
In
distributing
the
payments
plaintiff's
purpose
was
to
permit
defendant
to
pay
a
capital
sum
which
he
could
not
pay
all
at
once.
In
A
R
Williams
Machinery
&
Supply
Co
v
Morin,
[1933]
SCR
570,
Cannon,
J
of
the
Supreme
Court,
after
reviewing
the
Quebec
case
law,
Said,
at
page
580:
This
solution,
adopted
in
several
similar
cases,
is
not
binding
on
this
Court.
However,
we
wished
to
indicate
the
pattern
in
Quebec
jurisprudence.
We
do
not
depart
from
that
pattern
in
refusing
to
treat
respondent
as
a
lessor
with
respect
to
the
intervenant,
irrespective
of
the
ownership
rights
of
the
latter,
when
all
indications
are
that
the
contract
in
question,
or
to
use
the
textbook
expression,
the
essential
purpose
of
the
legal
operation,
was
to
confer
on
defendant
company,
which
lacked
the
capital
needed
to
make
the
purchase
immediately,
not
the
uncertain
possession
of
a
lessee,
but
rather,
absolute
ownership
of
the
immovable
in
question.
Taking
into
consideration
the
facts
established,
the
precedents
and
legal
commentary
cited,
the
Court
concludes
that
the
payments
as
a
whole
were
made
in
order
to
purchase
the
equipment;
indeed,
the
total
amount
of
the
payments
made
during
the
period
of
alleged
rental
are
wholly
deductible
from
the
purchase
price,
and
correspond
exactly
to
the
purchase
price
of
the
equipment
plus
interest
payable,
during
the
period
of
alleged
rental,
on
the
balance
of
the
purchase
price.
I
therefore
conclude
that
these
were
conditional
sales
on
a
suspensive
condition,
and
not
leases.*
The
appeal
is
allowed
and
the
assessments
referred
back
to
the
Minister
for
re-examination
and
reassessment,
to
allow
for
interest
and
administrative
costs;
the
whole
with
costs.
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