Décary, J:—The issue in this matter is to determine if the share of plaintiff in an amount of $65,000 received by a real estate partnership when a deposit was forfeited, is a taxable capital gain under the provisions of the Income Tax Act.
The facts were agreed upon by the parties and are described in the Declaration:
1. During the 1977 taxation year, Plaintiff was one of the partners of Grovedale Realty Co.
2. On March 3, 1977, an offer to purchase certain immoveable property located in the City of Lachine was addressed by Administration Guipar Inc to Grovedale Realty Co.
3. The purchase price indicated in the said offer was one miliion three hundred and fifty thousand dollars ($1,350,000).
4. The offer to purchase was open for acceptance until 5:00 pm on March 3,1977. 5. The purchase price was to be paid by means of:
(a) a deposit accompanying the offer, payable to the order of Canada Permanent Trust “In Trust”, in the amount of sixty-five thousand dollars ($65,000), which deposit was to be held “In Trust" until the signing of the deed of sale and to be applied on account of the purchase price at that time;
(b) cash upon execution of a valid deed of sale in the amount of eight hundred and twenty-nine thousand two hundred and one dollars and sixty-five cents ($829,201.65); and
(c) by the assumption of an existing mortgage, in the amount of four hundred and fifty-five thousand seven hundred and ninety-eight dollars and thrity-five cents ($455,798.35).
6. At the time of the offer, a certified cheque in the amount of sixty-five thousand dollars ($65,000) was drawn by Administration Guipar Inc, payable to Canada Permanent Trust “In Trust”.
7. A photcopy of this cheque accompanying the offer bears the following notation: “This is a xerox copy of the $65,000 deposit which accompanies this offer. If the purchaser fails or refuses to sign the deed of sale on/or before April 18, 1977, under the conditions stipulated in this offer, this offer shall become null and void, ipso facto, and the $65,000 shall be forfeited to the vendor as partial liquidated damages. Canada Permanent Trust shall, upon demand by the vendor, immediately remit the $65,000 to the vendor. The vendor need not give notice or advice for such forfeiture to take place, and the vendor shall have the right to claim additional damages.”
8. The offer was duly accepted by the vendor, Grovedale Realty Co and a letter was addressed to Canada Permanent Trust indicating that the property had been sold and that the purchaser had issued the deposit cheque, payable to the order of Canada Permanent Trust, and further stating the following:
“If any interest accrues on this deposit, it should be credited to the account of Administration Guipar Inc.”
9. Subsequently, the prospective purchaser failed to carry out the transaction. 10. In consequence of the purchaser’s failure to complete the transaction, the amount deposited with the Canada Permanent Trust was forfeited to Grovedale Realty Co, pursuant to the agreement between the parties, as liquidated damages.
It was also agreed that the evidence in the present case would be the evidence of two other cases: the one of Maxine Wise v The Queen, T-3435- 80 and the one of Sandra Lippman v The Queen, T-3436-80, as these three defendants are partners of Grovedale Realty Co.
The documents filed under quote of D-1 are the offer to purchase and description of property, the acceptance of the offer, the annotation at the verso of the cheque being the deposit of $65,000 and a letter to Canada Permanent Trust dated March 3, 1977.
There are discrepancies as to the dates and the amount in some of these documents but as the facts have been admitted these discrepancies have no bearing in the case.
The acceptance of the offer to purchase reads as follows:
ACCEPTANCE BY VENDOR:
I accept the present Offer to Purchase the property described on the reverse side of this document. I agree to pay to Canada Permanent Trust a commission of FOUR (4) per cent of the agreed sale price, provided the Purchaser signs a valid Deed of Sale on or before April 30,1977.
It is to be noted that the acceptance that completes the meeting of the minds refers not to the 18th of April but to the 30th of April. In a transaction of an amount of $1,350,000 such different dates for the closing should have called for an explanation.
The notation on the verso of the $65,000 deposit cheque was as follows:
This is a xerox copy of the $65,000 deposit which accompanies this Offer. If the Purchaser fails or refuses to sign the Deed of Sale on or before April 18, 1977 under the conditions stipulated in this Offer, this Offer shall become null and void, ipso facto, and the $65,000.00 shall be forfeited to the Vendor as partial liquidated damages. Canada Permanent Trust shall upon demand by the Vendor, immediately remit the $65,000.00 to the Vendor. The Vendor need not give notice or advice for such forfeiture to take place, and the Vendor shall have the right to claim additional damages.
That notation refers, inter alia, like the offer, to the 18th of April and to the fact that the $65,000 shall be forfeited to the partnership without giving notice or advice to the Trust Company. One has to note that the deposit for such event of forfeiture is labelled “partial liquidated damages”.
The last document is a letter dated March 3, 1977, from Grovedale Realty Co, to Canada Permanent Trust:
March 3, 1977.
Canada Permanent Trust,
1091 Decarie Blvd,
St Laurent, Que.
We have today sold through your agents properties on 45th Avenue, Lachine, Que. The Purchaser Administration Guipar Inc has issued a deposit cheque payable to your order “in trust” for the sum of $65,000. If any interest accrues on this deposit it should be credited to the account of Administration Guipar Inc. Such interest however, shall not run beyond 30 days from the date hereof. Notwithstanding, we want it clearly understood that the $65,000 you are holding in trust is for our account to be applied to the purchase price and in effect this is now our money which will be physically transferred to us upon the formal conveyance of the property to Administration Guipar Inc.
Furthermore, if there is a default on the part of the Purchaser, we will ask you to forward these monies to us without a conveyance taking place.
GROVEDALE REALTY CO.
cc Mr Yvan Soulard
Mr Yvon Robert Jr.
We, the undersigned, Yvan Soulard and Yvon Robert, hereby acknowledge receipt of a copy of this letter.
Feb. 18, 1977
(and signed by Messrs Yvan Soulard and Yvon Robert Jr).
That letter shows that the date and the amount of the deposit were changed without being initialled.
The Act includes, at clause 54(c)(ii)(B), as being a disposition:
54. In this subdivision,
(a) . ..
(c) “disposition” of any property, except as expressly otherwise provided, includes
(i) any transaction or event entitling a taxpayer to proceeds of disposition of property,
(ii) any transaction or event by which
(A) . . .
(B) any debt owing to a taxpayer or any other right of a taxpayer to receive an amount is settled or cancelled,
(C) .. .
It is my opinion that on the 3rd of March 1977, by its acceptance of the offer to purchase, the partnership had a debt owing to it or a right to an amount totalling $1,350,000; that there being no completion of the sale, no closing, then on the 18th of April there was, ipso facto, forfeiture of the deposit that had then to be remitted to the partnership; that the forfeit had been provided for in the notation on the deposit cheque; that in the letter to the Canada Permanent Trust Company it is stated that in case of default the moneys shall be transmitted to the partnership without conveyance; that the letter of Grovedale Realty Co, to the Canada Permanent Trust Company establishes that moneys of the deposit are moneys of the partnership.
It is well established that the Defendant cannot be bound by an error of her servants in a document like an explanation in a notice of assessment.
The solution of the problem, as I see it, does not require to deal with the matter of the damages the Plaintiff has alleged.
It is my considered opinion that the facts of the case fall within the ambit of clause 54(c)(ii)(B) of the Act. Indeed, there was a debt of an amount of $1,350,000 that was owed to the partnership and was subject to certain conditions and the said debt was cancelled by the receipt of the deposit that has been forfeited. Furthermore, the right to the amount of either $1,350,000 or $65,000 was settled by the receipt of the latter amount. In either event, the receipt of $65,000 is a disposition within the meaning of clause 54(c)(ii)(B) of the Act.
The amount forfeited being included in the definition of disposition, it is therefore a taxable capital gain under the provisions of clause 40(i)(a) of the Act and plaintiff has been properly assessed on her share of the capital gain of the partnership under the provisions of sections 38 and 39 of the Act.
The case shall be dismissed with costs.