Cattanach,
J:—These
are
appeals
by
the
plaintiff
from
its
assessments
to
income
tax
by
the
Minister
of
National
Revenue
under
the
Income
Tax
Act
in
respect
to
the
laintiff's
1968
and
1969
taxation
years.
In
assessing
the
plaintiff
as
he
did
the
Minister
disallowed
deductions
claimed
by
the
plaintiff
in
its
returns
for
the
said
years
in
computing
its
taxable
income
as
business
losses
incurred
in
prior
years.
Prior
to
1835
Zachariah
Allen
had
operated
a
successful
textile
mill.
The
building
was
virtually
fireproof
by
reason
of
its
stone
construction.
Mr
Allen
was
particularly
conscious
of
the
possibility
of
loss
by
fire
and
to
guard
the
contents
of
the
building
from
such
loss
he
caused
buckets
of
water
to
be
placed
at
strategic
locations
throughout
the
building.
When
he
sought
to
place
insurance
upon
his
business
he
was
aghast
at
the
amount
of
the
premiums
demanded
and
felt
that,
because
of
the
kind
of
construction
of
the
building,
the
nature
of
the
business
conducted
by
him
and
the
extraordinary
precautions
taken
to
protect
against
loss,
the
premium
should
be
much
less.
With
true
Yankee
ingenuity
Mr
Allen,
therefore,
devised
a
method
whereby,
when
the
factors
contemplated
by
him
were
present,
insurance
could
be
provided
at
a
reasonable
rate.
The
result
was
a
variation
of
a
mutual
insurance
company
based
upon
two
additional
concepts
(1)
the
cost
of
insurance
is
related
directly
to
the
risk,
and
(2)
a
premium
deposit
is
required
to
be
made
by
the
insured
at
the
inception
of
the
policy
of
insurance
out
of
which
deposit
will
be
retained
at
the
expiration
or
termination
of
the
policy
an
amount
to
cover
the
cost
of
the
insurance
which
is
tantamount
to
a
premium
and
is
referred
to
as
the
absorbed
portion
of
the
deposit.
The
deposits
received
by
the
insurer
from
its
policyholders
are
intermingled
so
as
to
become
indistinguishable
and
becomes
the
property
of
the
insurer.
However,
upon
the
expiry
of
the
policy
and
when
the
absorbed
portion
of
the
policy
has
been
determined,
the
unabsorbed
portion
of
the
deposit
is
returned
to
the
policyholder
by
the
insurer
from
its
funds.
A
line
or
stock
insurance
company
exacts
a
premium
from
the
insured
at
predetermined
rates.
The
excess
of
the
premiums
received
over
the
losses
paid
and
normal
business
expenses
incurred
represents
the
surplus
of
the
company
available
to
its
shareholders
as
dividends.
A
normal
mutual
insurance
company
operates
in
much
the
same
way
as
a
stock
insurance
company.
It
charges
its
policyholders
premiums
at
rates
determined
in
the
same
manner
as
rates
in
stock
companies
are
determined.
However
it
does
not
have
share
capital
but
its
policyholders
become
members
and
as
members
the
profits
earned
by
the
mutual
insurance
company
are
distributed
to
the
members
in
much
the
same
way
as
dividends
are
distributed
to
the
shareholders
in
a
stock
insurance
company.
lt
was
my
impression
from
the
evidence
that
Zachariah
Allen
was
the
originator
of
the
type
of
mutual
insurance
requiring
the
policyholder
to
make
a
premium
deposit
in
a
substantial
amount
at
the
outset.
It
is
also
my
understanding
that
this
type
of
mutual
insurance
company
has
become
known
as
a
factory
mutual.
In
a
factory
mutual
the
directors
meet
and
determine
a
percentage
multiple
which,
when
multiplied
by
the
number
of
months
a
policy
is
in
effect,
determines
the
amount
of
the
absorbed
portion,
or
the
cost
of
insurance,
in
a
premium
deposit
and
incidentally
the
amount
of
the
unabsorbed
portion
of
the
deposit.
The
usual
or
normal
rate
of
return
of
unabsorbed
premium
deposits
on
policies
for
one
year
is
approximately
89%.
So
for
every
dollar
in
a
premium
deposit
the
holder
of
a
one-year
policy
receives
a
refund
of
89
cents.
On
the
basis
of
a
50
cent
premium
deposit
rate,
this
results
in
a
cost
of
insurance
or
premium
of
5.5
cents
for
each
$100
of
insurance.
The
risks
covered
by
factory
mutuals
are
in
large
amounts.
Industry
must
build
large
plants
for
efficient
operation.
This
is
the
type
of
risk
insured
by
factory
mutuals
which
undoubtedly
explains
the
name.
The
average
risk
is
in
excess
of
$1,500,000.
It
therefore
follows
since
the
losses
will
be
large
that
large
premium
deposits
must
also
be
required
even
though
experience
has
shown
that
only
about
10%
is
required
as
cost
of
insurance
or
premiums.
Furthermore
most
jurisdictions
require
that
a
company
licensed
in
those
respective
jurisdictions
must
not
accept
insurance
on
any
single
risk
in
excess
of
10%
of
its
net
assets.
For
that
reason
if
a
factory
mutual.
were
only
to
exact
a
deposit
approximate
to
the
cost
of
the
insurance
its
assets
would
be
correspondingly
reduced
and
its
underwriting
capacity
reduced
accordingly.
After
having
worked
out
this
method
of
insurance
Zachariah
Allen
and
others
became
the
incorporators
of
Manufacturers
Mutual
Fire
Insurance
Company
of
Rhode
Island
incorporated
by
an
act
of
the
General
Assembly
of
the
State
of
Rhode
Island
passed
at
the
October
session
in
1835.
Another
company
to
operate
in
the
same
manner
was
incorporated
under
the
name
of
Firemen’s
Mutual
Insurance
Company
by
an
act
of
the
General
Assembly
of
the
State
of
Rhode
Island
passed
at
the
May
session
in
the
year
1854.
A
further
company
to
operate
in
the
same
manner
was
incorporated
under
the
name
of
The
Blackstone
Mutual
Fire
Insurance
Company
by
an
Act
of
the
General
Assembly
of
the
State
of
Rhode
Island
passed
at
the
May
session
in
the
year
1868.
Fer
convenience
I
shall
refer
to
these
companies
hereinafter
as
Manufacturer’s,
Firemen’s
and
Blackstone.
Under
the
laws
of
the
State
of
Rhode
Island
and
more
particularly
the
general
corporation
statute
of
that
state
ordinary
business
corporations
could
be
incorporated,
“merged”
or
“consolidated”
and
their
articles
of
incorporation
amended
without
recourse
to
the
legislature
but
insurance
companies
were
expressly
excluded
from
the
operation
of
the
general
statute.
Insurance
companies
in
Rhode
Island
can
only
be
incorporated
by
an
act
passed
by
the
General
Assembly
of
that
State
and
any
amendment
to
such
an
act
may
only
be
effected
by
a
further
act
of
the
legislative
body.
There
is
no
provision
in
the
general
law
of
Rhode
Island
which
permits
of
the
“merger”
or
“consolidation”
of
insurance
companies.
I
have
enclosed
the
words
“merger”
and
‘‘consolidation”
in
quotation
marks
because
I
am
given
to
understand
that
they
are
technical
words
under
the
law
of
Rhode
Island.
In
19
Corpus
Juris
Secundum
under
the
title
“Corporations”,
“Consolidation”
is
defined
in
81603
as
follows:
There
is
a
consolidation
of
corporations
where
the
rights,
franchises,
and
effects
of
two
or
more
corporations
are
united
in
a
single
corporation,
the
stockholders
of
which
are,
so
far
as
they
choose
to
become
such,
composed
of
those
of
the
companies
so
uniting.
The
term
is
elastic,
however,
and
has
been
given
other
meanings.
Later
in
the
text
it
is
stated:
.
.
.
Although
it
would
be
in
the
interest
of
clearness
of
definition
that
“consolidation”
be
limited
to
signify
such
union
of
two
or
more
corporations
as
necessarily
results
in
the
creation
of
a
third
new
corporation,
the
term
“consolidation”
is
an
elastic
one
and
may
include
a
union
of
two
or
more
corporations
into
a
new
one
with
a
different
name
with
or
without
extinguishing
the
constituent
corporations,
.
.
.
In
the
concluding
paragraph
of
81603
reference
is
made
to
“amalgamation”
as
follows:
“Amalgamation”
is
a
term
employed
in
England
apparently
in
the
same
sense
that
“consolidation”
is
used
in
this
country,
and
is
used
by
the
English
courts,
as
consolidation
is
used
by
the
American
courts,
to
designate
a
merger
as
what
is
properly
designated
as
a
consolidation.
It
is
stated:
A
true
consolidation,
which
exists
where
a
new
corporation
springs
into
existence
to
assume
the
liabilities
of
the
former
corporations
and
the
prior
corporations
are
dissolved
and
cease
to
exist,
should
be
distinguished
from
a
merger,
which
“means
something
more
than
a
mere
consolidation,
and
which
exists
where
one
corporation
is
continued
and
the
others
are
merged
in
it
without
the
formation
of
a
new
corporation.
The
effect
of
consolidation
is
described
in
§1626
as
follows:
The
usual
effect
of
a
consolidation
is
to
create
a
new
corporation
and
dissolve
the
constituent
corporation,
which
thereafter
cannot
issue
stock
but
Is
not
precluded
from
winding
up
its
affairs.
A
merger
in
the
strict
sense
does
not
create
a
new
corporation
but
the
corporation
into
which
the
original
corporations
are
merged
continues
to
exist.
Other
results
may
follow
a
consolidation
or
merger
according
to
the
terms
of
the
statutes
and
agreements
under
which
the
transaction
is
effected.
A
consolidation
is.
effective
when,
and
only
when,
actual
consolidation
takes
place.
In
the
text
of
§1626
it
is
stated:
The
effect
of
a
consolidation,
with
respect
to
extinction
of
the
constituent
corporations
and
the
creation
of
a
new
corporation
or
the
continued
existence
of
one
or
both
of
the
constituent
corporations,
depends
upon
the
statute
under
which
the
consolidation
is
effected,
and
on
the
preexisting
relations
of
the
constituent
corporations
to
which
the
statute
and
contract
relate.
Consideration
is
sometimes
given
to
the
intent
and
purpose
of
the
contracting
parties
as
expressed
in
the
agreement,
but
this
must
be
done
in
the
light
of,
and
in
subordination
to,
the
statute
under
which
the
union:is
effected.
The
general.
rule
is
that
a
consolidation
effects
the
dissolution
of
the
original
corporations
and
brings
into
existence
a
new
corporation.
Where
the
legislature
simply
authorizes
a
consolidation,
without
expressly
declaring
its
effect,
it
must
be
deemed
to
have
this
general
rule
in
view,
and
to
intend
that
it
shall
apply.
Other
results
which
may,
and
sometimes
do,
follow
are
the
merger
of
one
corporation
into
another
and
the
continuance
in
existence
of
the
latter;
.
.
.
lt
is
clear
from
the
foregoing
extracts
from
Corpus
Juris
Secundum
that
whether
the
original
corporations
continue
in
existence
following
a
consolidation
is
dependent
on
the
intent
of
the
statute
by
which
consolidation
is
effected.
In
late
1967
Manufacturer’s,
Firemen’s
and
Blackstone
considered
it
advisable
to
combine
the
operations
of
the
companies
and
obtained
legal
advice
as
to
how
to
best
achieve
that
desired
end.
The
procedures
of
transferring
all
assets
of
each
company
to
a
new
company
incorporated
by
legislative
act
or
by
a
transfer
of
the
assets
of
two
of
the
companies
to
the
third
company
and
by
having
the
newly
incorporated
company
or
the
third
company
assume
all
liabilities
were
rejected.
The
management
of
the
three
companies
were
reluctant
to
have
a
new
company
take
over
the
three
companies
or
one
of
the
companies
take
over
the
other
two
because
of
their
reluctance
to
forego
the
history
of
the
three
companies
having
been
in
business
for
over
one
hundred
years.
Importance
was
attributed
to
antiquity
and
tradition.
Further,
and
of
more
practical
importance,
the
transfer
of
assets
by
two
of
the
three
companies
to
the
third
and
the
assumption
of
their
liabilities
by
the
third
or
the
transfer
of
assets
by
the
three
companies
and
the
assumption
of
their
liabilities
by
a
newly
formed
company
would
not
qualify
as
a
tax
free
reorganization
under
the
provisions
of
the
United
States
Internal
Revenue
Code.
The
expedient
adopted
was
the
passage
of
a
Special
Act
by
the
General
Assembly
of
Rhode
Island
in
1968
whereby
Manufacturer’s,
Firemen’s
and
Blackstone
were
combined
to
form
MFB
Mutual
Insurance
Company,
which
corporate
name
was
subsequently
changed
to
Allendale
Mutual
Insurance
Company,
by
which
name
the
plaintiff
is
described
in
the
style
of
cause
herein.
This
combination
was
accomplished
by
the
Special
Act
of
1968
amending
the
acts
by
which
the
three
companies
were
incorporated.
Each
of
those
original
acts
continue
in
existence
as
amended
by
the
Special
Act
of
1968.
The
salient
provisions
of
the
amending
Special
Act
of
1968
may
be
expressed
in
summary
form
as
follows:
\
1.
By
virtue
of
section
1
the
“associates,
successors
and:
assigns”
of
the
original
incorporators
of
Manufacturer’s,
Firemen’s
and
Blackstone
are
“made
and
consolidated
into
a
corporation
by
the
name
of
MFB
Mutual
Insurance
Company”
(which
name
was
changed
subsequently
to
Allendale
Mutual
Insurance.
Company).
2.
By
section
2
the
corporate
existence
of
Manufacturer’s,
Firemen’s
and
Blackstone,
(referred
to
in
the
statute
as
the
“constituent
corporations”),
“shall
be
consolidated
into
and
continued
in
this
corporation
which
‘shall
be
deemed
to
be
the
same
corporation
as
each
of
the
said
constituent
corporations”.
At
this
point
I!
would
interject
to
say
that
the
foregoing
language
recognizes
the
continued
existence
of
the
three
constituent
companies
while
at
the
same
time
permitting
them
to
do
business
in
consolidated
form
under
the
name
of
MFB
Mutual
Insurance
Company.
The
language
of
the
foregoing
provision
is
in
direct
contrast
to
the
language
of
the
“merger”
and
“consolidation”
provisions
of
the
statute
governing
corporations
generally
in
Rhode
Island
which
is
to
the
effect
that
on
merger
or
consolidation
the
separate
existence
of
all
constituent
corporations
which
are
consolidated
or
those
except
the
corporation
into
which
another
or
others
have
merged
‘shall
cease”.
3.
Further
by
section
2
all
of
the
property
of
the
constituent
corporation
“shall
be
transferred
to
and
vested
in
this
corporation
by
virtue
of
this
Act”.
4.
Similarly
by
section
2
“this
corporation”
us
made
liable
for
all
liabilities
of
the
constituent
corporations
and
are
enforceable
against
“this
corporation”.
Again
I
would
interject
to
say
that,
while
the
corporate
existence
of
Manufacturer’s,
Firemen’s
and
Blackstone
are
continued,
their
continued
existences
are:
in
the
form
of
shells
of
corporations,
without
assets
or
liabilities.
5.
By
the
concluding
sentence
of
section
2
which
reads,
“The
age
of
this
corporation
shall
be
deemed
to
be
that
of
the
oldest
of
the
constituent
corporations”,
the
concession
is
made
to
the
desire
of
the
respective
managements
to
preserve,
and
in
two
instances,
to
extend
the
antiquity
of
the
constituent
corporations.
Parenthetically
speaking
this
seems
to
be
a
futile
provision.
MFB
Mutual
Insurance
Company
did
not
come
into
existence
until
1968.
If
its
existence
is
to
be
made
retroactive
until
1835
it
is
then
incongruous
to
continue
the
existence
of
the
constituent
corporations.
The
most
that
is
accomplished
by
this
provision
is
that
MFB
Mutual
Insurance
Company,
now
Allendale
Mutual
Insurance
Company,
can
advertise
that
it
is
138
years
old
as
at
1973
with
an
increased
age
in
subsequent
years.
6.
By
section
4
each
person
who
was
a
member
of
a
constituent
corporation
becomes
a
member
of
“this
corporation,”
during
the
currency
of
the
policy
of
insurance
held.
A
member
is
entitled
to
one
vote
for
every
$10,000
of
insurance
held
but
only
to
a
maximum
of
20
votes
regardless
of
the
insurance
held.
Because
no
risk
is
accepted
for
less
than
an
amount
of
$1,500,000
as
a
matter
of
policy,
it
follows
that
each
member
is
entitled
to
20
votes.
7.
By
section
10
it
is
possible
that
“this
corporation”
(and
I
assume
the
constituent
corporations
had
like
authority)
might
issue
policies
which
do
not
entitle
the
insured
to
membership
in
the
corporation
nor
to
participate
in
unabsorbed
premium
deposits
or
surplus
but
such
insured
are
exempt
from
liability
to
assessment
if
losses
exceed
the
funds
of
the
corporation.
It
was
established
that
no
such
non-assessable
policies
were
ever
issued.
8.
By
section
9
on
liquidation
persons
who
were
members
of
“this
corporation”
six
years
before
the
date
of
the
vote
to
go
into
liquidation
are
entitled
to
share
in
surplus
reserve
rateably
in
proportion
to
the
amount
of
premium
deposits
paid
by
them
to
“this
corporation”
or
to
any
of
the
constituent
corporations
within
the
said
six
year
period.
Persons
who
were
members
of
the
constituent
corporations
became
members
of
“this
corporation”
by
virtue
of
section
4.
If
they
are
not
members
they
do
not
share
in
the
distribution
on
liquidation.
However,
expert
testimony
was
given
that
if
the
vote
of
liquidation
occurred
within
six
years
of
the
effective
date
of
the
Special
Act
of
1968,
members
of
the
constituent
corporations
within
the
six-year
period,
whether
members
or
not
after
the
effective
date,
would
be
entitled
to
participate
in
such
liquidation
by
reason
of
the
continuance
of
the
corporate
existence
of
the
constituent
corporations
after
the
effective
date.
Under
paragraph
27(1
)(e)
of
the
Income
Tax
Act
for
the
purpose
of
computing
the
income
of
a
taxpayer
for
a
taxation
year,
there
may
be
deducted
from
income
for
that
year
business
losses
sustained
in
the
five
taxation
years
immediately
preceding
and
the
taxation
year
immediately
following
the
taxation
year.
Manufacturer’s
and
Blackstone
incurred
business
losses
in
their
1968
and
prior
taxation
years.
The
plaintiff
herein,
Allendale
Mutual
Insurance
Company,
in
computing
its
income
for
its
1968
and
1969
taxation
years
sought
to
deduct
the
business
losses
previously
incurred
by
Manufacturer’s
and
Firemen’s,
two
of
its
constituent
corporations.
Subsection
851(1)
of
the
Income
Tax
Act
is
as
follows:
851.
(1)
In
this
section,
an
amalgamation
of
two
or
more
corporations
means
a
merger
of
such
corporations
(each
of
which
is
hereinafter
in
this
section
referred
to
as
a
“predecessor
corporation’’)
to
form
one
corporate
entity
(hereinafter
in
this
section
referred
to
as
the
“new
corporation’’)
in
such
a
manner
that
(a)
all
of
the
property
of
the
predecessor
corporations
immediately
before
the
merger
becomes
property
of
the
new
corporation
by
virtue
of
the
merger,
(b)
all
of
the
liabilities
of
the
predecessor
corporations
immediately
before
the
merger
become
liabilities
of
the
new
corporation
by
virtue
of
the
merger,
and
(c)
all
of
the
shareholders
(except
any
predecessor
corporation)
of
the
predecessor
corporations
immediately
before
the
merger
become
shareholders
of
the
new
corporation
by
virtue
of
the
merger,
otherwise
than
as
a
result
of
the
acquisition
of
property
of
one
corporation
by
another
corporation,
pursuant
to
the
purchase
of
such
property
by
the
other
corporation
or
as
a
result
of
the
distribution
of
such
property
to
the
other
corporation
upon
the
winding
up
of
the
corporation.
The
foregoing
definition
of
amalgamation
contemplates
a
merger
of
two
or
more
corporations
(referred
to
as
“predecessor
corporations”)
in
such
a
way
as
to
form
“one
corporate
entity”
(referred
to
as
a
“new
corporation”).
In
short,
two
or
more
corporate
entities
must
merge
to
form
one
new
corporate
entity.
If
the
emergence
of
a
new
corporate
entity
does
not
result
in
a
particular
circumstance
then
there
is
not
an
amalgamation.
Paragraph
851(2)(i)
provides
that
“for
the
purpose
of
paragraph
(e)
of
subsection
(1)
of
section
27,
business
losses
sustained
by
a
predecessor
corporation
are
not
deductible
in
computing
the
taxable
income
of
the
new
corporation”.
The
purpose
of
this
provision
is
obvious.
It
is
designed
to
thwart
the
amalgamation
of
a
profitable
corporation
with
an
unprofitable
one
in
order
to
take
advantage
of
the
latter’s
accumulated
business
losses
under
paragraph
27(1
)(e).
An
amalgamation
for
the
purposes
of
the
Income
Tax
Act
does
not
include
a
merger
which
is
brought
about
by
the
purchase
of
the
assets
and
business
of
one
corporation
by
another
or
as
the
result
of
a
distribution
of
its
property
to
another
corporation
on
winding
up
(see
subsection
851(1)).
In
both
these
instances
the
corporation
acquiring
the
assets
continues
unaltered
as
the
same
legal
entity
as
before.
This
is
not
the
case
in
an
amalgamation
where
a
new
corporation
comes
into
being.
Thus
the
issue
to
be
resolved
in
the
present
appeals
stands
forth
in
stark
relief.
If
what
was
effected
under
the
Special
Amending
Act
of
1968
of
the
General
Assembly
of
the
State
of
Rhode
Island
as
outlined
above
constitutes
an
amalgamation
of
Manufacturer’s,
Firemen’s
and
Blackstone
into
Allendale
Mutual
Insurance
Company
within
the
definition
of
that
term
in
subsection
851(1),
as
is
contended
on
behalf
of
the
Minister,
then
the
Minister
was
right
in
disallowing
the
deductions
claimed
by
the
plaintiff
and
assessing
it
accordingly.
On
the
other
hand
it
was
contended
on
behalf
of
the
plaintiff
that
the
consolidation
of
Manufacturer’s,
Firemen’s
and
Blackstone
as
Allen-
dale
Mutual
Insurance
Company
by
the
Special
Act
of
the
legislation
of
Rhode
island
did
not
constitute
an
amalgamation
under
subsection
851(1)
because,
(1)
the
constituent
companies
continue
to
exist
as
legal
entities,
and
(2)
even
if
the
first
contention
is
not
accepted
what
was
done
does
not
fall
within
subsection
851(1)
because
all
of
the
three
conditions
do
not
apply.
In
my
opinion
it
is
immaterial
that
the
term
“amalgamation”
is
unknown
to
the
law
of
the
United
States
and
to
the
State
of
Rhode
Island.
Apparently
the
term
“consolidation”
is
used
in
those
jurisdictions
in
a
sense
synonymous
with
“amalgamation”.
As
I
have
indicated
before
if
what
was
accomplished
under
the
Special
Act
of
Rhode
Island
falls
within
the
definition
of
amalgamation
in
subsection
851(1)
that
concludes
the
matter.
Under
subsection
851(1)
three
conditions
must
be
present
for
the
section
to
be
applicable.
First,
under
paragraph
851(1
)(a),
all
of
the
property
of
the
predeces:
sor
corporations
immediately
before
the
merger
must
become
the
property
of
the
new
corporation
by
virtue
of
the
merger.
This
condition
has
been
satisfied
by
section
2
of
the
Special
Act
which
provides
that
all
the
property
of
the
“.
.
.
constituent
corporations”
is
“transferred
to
and
vested
in
this
corporation”
so
that
this
corporation
shall
hold
and
enjoy
all
(such:
property)
in
the
same
manner
and
to
the
same
extent
as
such
(property
was)
held
and
enjoyed
by
any
one
of
the
constituent
corporations
immediately
prior
to
such
time”.
Second,
under
paragraph
851(1
)(b)
ail
of
the
liabilities
of
the
predecessor
corporations
immediately
before
the
merger
must
become
the
liabilities
of
the
new
corporation
formed
by
the
merger.
This
second
condition
has
also
been
satisfied
by
section
2
of
the
Special
Act
which
provides
that
all
of
the
liabilities
of
the
constituent
corporations
are
transferred
to
and
made
enforceable
against
MFB
Mutual
Insurance
Company,
which
is
the
former
name
of
the
plaintiff,
to
the
same
extent
as
if
the
said
liabilities
had
been
incurred
or
contracted
by
it.
Further,
section
2
requires
the
plaintiff
to
issue
every
policyholder
of
any
of
the
constituent
corporations,
on
demand,
an
endorsement
evidencing
the
liability
of
the
plaintiff
under
the
policy.
The
third
condition
required
to
be
fulfilled
under
paragraph
851(1)(c)
is
that
all
shareholders
(except
any
predecessor
corporation)
of
the
predecessor
corporations
immediately
before
the
merger
shall
become
shareholders
of
the
new
corporation
by
virtue
of
the
merger.
Because
Manufacturer’s,
Firemen’s
and
Blackstone
are
mutual
insurance
companies
they
were
incorporated
without
share
capital
and
as
such
had
no
shareholders.
The
plaintiff,
being
a
mutual
insurance
company,
likewise
has
no
share
capital
and
accordingly
no
shareholders.
By
paragraph
139(1)(ao)
the
ordinary
meaning
of
the
word
“shareholder”
as
used
in
the
Income
Tax
Act
is
extended
to
include
‘‘a
member
or
other
person
entitled
to
receive
payment
of
a
dividend”.
In
paragraph
139(1)(k)
“dividend”
is
not
specifically
defined
and
accordingly
its
ordinary
meaning
would
be
ascribed
thereto
but
by
virtue
of
paragraph
139(1)(k)
a
stock
dividend
is
not
included
in
the
meaning
of
dividend.
Obviously
the
extended
definition
of
“shareholder”
was
designed
to
include
those
persons
who,
while
not
holding
a
share
of
capital
stock
because
there
is
no
capital
stock,
by
virtue
of
their
participation
in
a
corporation
without
share
capital
carrying
on
a
commercial
venture
to
make
a
profit
and
by
reason
of
the
structural
organization
of
the
corporation,
are
entitled
to
share
in
any
profits
of
the
corporation.
Accordingly
the
members
of
mutual
insurance
companies
of
the
usual
type
would
fall
within
the
extended
definition
of
a
shareholder
because
membership
in
the
corporation
follows
from
becoming
a
policy-
holder
and
the
policyholders
or
members
share
in
the
profits
of
the
company
through
receipt
of
dividends.
However
factory
mutual
companies
are
different.
Manufacturer’s
Firemen’s
and
Blackstone
and
the
plaintiff
are
factory
mutuals.
They
do
not
charge
premiums
as
such
but
require
their
policyholders
to
deposit
a
sum
of
money
at
the
outset.
Semi-annually
the
directors
determine
a
percentage
multiple
which
when
multiplied
by
the
number
of
months
the
policy
is
in
force
determines
the
cost
of
the
insurance.
On
expiration
of
the
policy
the
cost
of
the
insurance
is
deducted
as
the
absorbed
portion
of
the
premium
deposit.
An
amount
representing
the
balance
is
refunded
to
the
policyholder.
The
‘advantage
to
the
policyholder
is
that
he
gets
his
insurance
coverage
at
a
lower
rate
than
he
could
otherwise.
He
does
not
receive
dividends
as
such
and
accordingly
he
is
not
a
shareholder
within
the
meaning
of
that
word
for
the
purposes
of
the
Income
Tax
Act
even
though
he
is
a
member
of
the
corporation
and
exercises
voting
rights.
The
unabsorbed
portion
of
the
premium
deposit
refunded
to
the
policyholder
is
merely
the
return
of
an
advance
made
by
him.
In
section
9
of
the
Special
Act
the
members
are
given
the
right
on
liquidation
or
winding
up
to
share
in
the
distribution
of
the
surplus
reserve
and
other
assets
on
a
pro
rata
basis.
This
right
extends
to
those
persons
who
were
members
of
the
constituent
corporations
in
the
prior
six
years.
A
distribution
of
assets
on
winding
up
is
essentially
a
return
of
capital
and
is
not
the
payment
of
a
dividend.
in
interpreting
a
statute
the
intention
of
the
legislature
is
to
be
determined
as
expressed
in
the
words
used
but
to
understand
those
words
it
is
helpful
to
consider
them
in
conjunction
with
the
object
the
legislature
had
in
view.
The
object
of
paragraph
851(1
)(c)
is
that
the
persons
who
form
the
predecessor
corporations
will
continue
to
be
the
persons
who
form
the
new
corporation.
This
object
is
sought
to
be
achieved
by
requiring
that
all
shareholders
of
the
predecessor
corporations
and
all
members
of
predecessor
corporations
entitled
to
payment
of
dividends
im-
mediately
before
the
merger
shall
be
shareholders
or
members
of
the
new
corporation.
Obviously
by
section
1(a),
(b)
and
(c)
of
the
Special
Act,
the
associates,
successors
and
assigns
of
the
incorporators
of
the
Manufacturer’s,
Firemen’s
and
Blackstone
are
thereby
made
and
consolidated
into
the
plaintiff.
Those
persons
who
formed
the
predecessor
corporations
immediately
prior
to
the
merger
continue
to
form
the
new
corporation
but
the
hiatus
in
paragraph
(c)
of
subsection
851(1)
occurs
in
that
those
persons
are
not
shareholders
or
members
entitled
to
receive
payment
of
dividends
by
reason
of
the
peculiarities
inherent
in
factory
mutual
companies.
It
is
a
condition
precedent
to
the
contention
made
on
behalf
of
the
plaintiff
that
amalgamating
corporations
must
have
shareholders.
There
are
instances
when
that
is
not
so
in
which
event
it
follows
that
paragraph
(c)
of
subsection
851(1)
is
not
susceptible
of
being
applicable
and
compliance
with
the
conditions
of
paragraph
(c)
would
not
be
necessary
to
constitute
amalgamation
as
defined.
A
further
answer
appears
to
me
to
be
that
since
there
were
no
shareholders
in
the
predecessor
corporations
and
no
shareholders
in
the
new
corporation
it
follows
that
the
shareholders
in
the
predecessor
corporations
and
in
the
new
corporation
are
the
same
so
that
the
condition
contemplated
in
paragraph
(c)
of
subsection
851(1)
are
complied
with.
I
now
turn
to
the
first
contention
on
behalf
of
the
plaintiff
that,
because
under
the
Special
Act
of
Rhode
Island
the
constituent
corporations
have
a
continued
existence
as
corporate
entities
although
devoid
of
assets,
without
liabilities
or
capital
but
with
amended
articles
of
incorporation,
it
follows
that
there
has
been
no
amalgamation.
This
result
presupposes
that
there
can
be
no
amalgamation
within
the
meaning
of
subsection
851(1)
if
the
predecessor
corporations
continue
in
their
existence.
In
the
Special
Act
of
Rhode
Island
it
is
stated
that
the
‘‘constituent
corporations”,
that
is
Manufacturer’s,
Firemen’s
and
Blackstone,
shall
be
consolidated
into
and
continued
in
“this
corporation”
that
is
the
plaintiff,
which
shall
be
deemed
to
be
the
same
corporation
as
each
of
the
constituent
corporations.
In
the
extract
from
81603
in
19
Corpus
Juris
Secundum
quoted
above,
it
is
stated
in
the
last
paragraph
thereof
that
“amalgamation”
is
a
term
employed
in
England
(and
in
Canada)
in
the
same
sense
that
the
term
“consolidation”
is
used
in
the
United
States.
It
is
also
stated
in
81603
that
the
term
“consolidation”,
which
I
consider
to
be
synonomous
with
“amalgamation”,
is
an
elastic
term
which
signifies
the
union
of
two
or
more
corporations
which
results
in
the
incorporation
of
a
new
corporation,
but
the
term
may
also
include
a
union
of
two
or
more
corporations
into
a
new
corporation
with
or
without
extinguishing
the
existing
corporations.
Which
course
was
adopted
must
be
determined
by
the
statute
under
which
the
union
was
effected.
In
the
Deltona
Corporation
v
MNR,
[1971]
CTC
297:
71
DTC
5186,
I
had
occasion
to
consider
when
an
amalgamated
corporation
was
incorporated
under
the
provisions
of
section
128A
of
the
Canada
Corporations
Act.
.
-
Under
subsection
(13)
of
section
128A
upon
the
issue
of
letters
patent
the
amalgamation
agreement
has
full
force
and
effect
and
by
paragraph
(a),
“the
amalgamating
companies
are
amalgamated
and
are
continued
as
one
company
..
.”.
I
pointed
out
at
page
320
[5199]
that
upon
the
“issue”
of
the
confirming
letters
patent
the
two
“amalgamating
companies”
ae
continued
as
“one
company”
called
the
“amalgamated
company”.
As
previously
stated
there
were
two
companies
and
after
the
issue
of
the
letters
patent
there
is
only
“one
company”
it
seems
to
follow
that
that
“one
company”
is
a
company
that
did
not
previously
exist
and
that
came
into
existence
at
that
time.
It
was
then
stated
on
page
321
[5200]
:
...
In
my
view,
once
it
is
accepted
that
amalgamation
results
in
a
corporation
that
did
not
exist
before,
it
follows
that
it
is
among
other
things,
the
“incorporation”
of
that
new
corporation.
In
a
footnote
it
was
stated
that,
The
only
alternative
view
would
appear
to
be
that
the
amalgamated
corporation
is
not
a
new
corporation
at
all
but
is
merely
a
continuation
of
the
existence
of
the
two
amalgamating
corporations
in
a
unified
form,
.
.
.
From
the
evidence
adduced
and
from
the
terms
of
the
Special
Act
which
were
interpreted
in
evidence
the
only
logical
inference
to
be
drawn
is
that
there
was
the
creation
of
a
new
corporation
by
the
three
constituent
corporations
being
consolidated
into
it.
The
three
groups
of
persons
who
formed
Manufacturer’s,
Firemen’s
and
Blackstone
were
blended
into
or
consolidated
into
a
corporation
by
the
ultimate
name
of
Allendale
Mutual
Insurance
Company
in
such
a
manner
that
all
the
property
of
the
predecessor
corporations
became
that
of
the
new
corporation
and
all
the
liabilities
of
the
predecessor
corporations
became
those
of
the
new
corporation.
Accordingly
the
provisions
of
subsection
851(1)
have
been
complied
with
notwithstanding
that
the
predecessor
corporations
continue
to
have
a
technical
corporate
existence.
As
I
have
said
before,
it
is
subsection
851(1)
which
governs.
The
language
of
subsection
851(1)
does
not
contemplate
that
the
predecessor
corporations
must
be
extinguished
and
when
use
is
made
of
the
word
“merger”
the
word
is
not
used
in
a
technical
sense
that
there
must
be
a
termination
of
the
corporate
existence
of
the
predecessor
corporations.
The
paramount
factor
is
that
a
new
entity
must
emerge.
For
the
foregoing
reasons
I
conclude
that
there
has
been
an
amalgamation
of
Manufacturer’s,
Firemen’s
and
Blackstone
into
the
plaintiff,
a
new
corporation,
from
which
it
follows
that
the
Minister
was
right
in
assessing
the
plaintiff
as
he
dd.
lt
would
appear
to
me
that
if
there
was
no
amalgamation
that
would
not
assist
the
plaintiff,
because
it
was
not
the
plaintiff
which
sustained
the
business
losses
in
a
business
carried
on
by
it,
but
rather
the
losses
sought
to
be
deducted
by
the
plaintiff
were
those
sustained
by
Manufacturer’s
and
Blackstone
which
are
continued
in
existence.
For
the
reasons
previously
expressd
I
am
of
the
view
that
the
effect
of
the
Rhode
Island
statute
is
to
create
the
plaintiff
as
a
new
corporation
and
it
is
accordingly
a
person
different
from
its
predecessor
corporations.
There
would
appear
to
be
no
impediment
to
the
Minister
assessing
the
predecessor
corporations
because
those
corporations
have
not
disappeared.
I
do
not
interpret
section
2
of
the
Rhode
Island
statute
where
it
states
that
the
age
of
the
plaintiff
shall
be
the
age
of
the
oldest
constituent
corporation
as
meaning
that
the
plaintiff
has
had
a
retroactive
existence
since
that
date
but
as
previously
indicated
I
interpret
that
language
merely
as
providing
that
the
plaintiff's
age
is
deemed
to
be
that
which
would
otherwise
not
be.
Under
the
Rhode
Island
statute
there
are
four
corporate
entities,
those
of
Manufacturer’s,
Firemen’s
and
Blackstone
which
are
continued
and
that
of
the
plaintiff
which
is
created.
That
being
so
I
find
it
difficult
to
follow
how
business
losses
sustained
by
two
of
those
entities
can
become
the
business
losses
of
a
different
corporate
entity,
in
this
instance
the
plaintiff.
It
is
true
that
the
plaintiff
assumed
the
liabilities
of
the
three
constituent
corporations
but
liabilities
differ
from
and
are
not
business
losses.
The
appeals
are,
therefore,
dismissed
with
costs.
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