Kirsch Construction Ltd. v. The Queen, 88 DTC 6503, [1988] 2 CTC 338 (FCTD)

Strayer, J.: —

Introduction

This is an appeal from a decision of the Tax Court of Canada dismissing the plaintiff's appeal with respect to the Minister’s reassessment of income tax for the taxation year of the corporation ending March 31, 1977. The only issue is as to when a particular roadpaver was acquired by the plaintiff corporation, this being relevant to whether it could deduct depreciation on that piece of equipment during the taxation year in question in accordance with subparagraph 13(21)(f)(i) of the Income Tax Act which allows such deduction in respect of property “acquired” before the end of a taxation year. The Minister concluded that the paver was not “acquired” until after March 31, 1977.

Facts

I agree with the findings of fact by the learned Associate Chief Judge of the Tax Court. None of the evidence called before me indicated anything different in substance. On March 30, 1977, one day before the end of the plaintiff company's taxation year, Mr. Reinhold Kirsch, president and major shareholder of the plaintiff, went to the Saskatoon premises of Industrial Sales Ltd. where he signed an "Order for Industrial Equipment". The equipment described in the order was the roadpaver in question, including a serial number for the paver which according to Mr. Kirsch was obtained by Industrial Sales personnel in a telephone call to the factory in the State of Illinois. According to the written order, the paver was "to be shipped F.O.B. Saskatoon".

The order document which was a printed form, included on its first page the following note:

This order is subject to the written acceptance of the Vendor, INDUSTRIAL SALES LTD., by one of its Officers. Purchaser's deposit to be returned if not accepted.

It appears from the document, and the evidence confirmed, that this order was accepted in writing on April 11, 1977 at the office of Industrial Sales Ltd. in Regina, Saskatchewan. Page 2 of the printed order form which was headed “ADDITIONAL PROVISIONS” commenced as follows:

The title to all goods ordered and furnished hereunder and to all repairs, replacements of and accessions to said goods shall remain in the Vendor until the full purchase price and all notes given therefor have been paid in full in cash . . .

Mr. Kirsch gave a cheque in the amount of $20,000 dated March 30, 1977 and this cheque was subsequently debited to his bank account on April 5, 1977. A further cheque for the balance of the purchase price, in the amount of $97,276 was put in evidence. This cheque was also dated March 30, 1977 although Mr. Kirsch was unable to say specifically when he had signed it. He agreed that the cheque would have been held by his wife on behalf of the company until delivery of the paver. The evidence shows that this cheque for the balance was not debited to his bank account until June 14,1977. It was Mr. Kirsch's evidence on cross-examination that this balance was not due until the paver was delivered. According to the bill of lading the paver was shipped from the factory on May 13,1977. It was actually shipped to Tisdale, Saskatchewan and the evidence indicates that it arrived approximately May 25, 1977. Immediately thereafter employees of Industrial Sales Ltd. came to Tisdale and did the necessary assembling and preparation to make the paver operation. Although a serial number with one digit difference from that on the order was used in the bill of lading, the plaintiff testified that the paver he received had the same number as originally given by the factory when it was ordered.

On June 14 the plaintiff's insurance policy with the Saskatchewan Government Insurance Office was amended by increasing the coverage to include this paver and, as noted above, on that same date the cheque for the balance of the purchase price was debited to the plaintiff's account.

Conclusions

It has been held that property is "acquired" for the purposes of capital cost allowance when title has either passed to the taxpayer or the taxpayer has obtained all the incidents of title such as possession, use and risk. [1]

With respect to both of these tests, I am satisfied that they can be applied on the basis of the written contract consisting of the order signed by the plaintiff's representative on March 30, 1977 and accepted in writing by Industrial Sales Ltd.'s representative on April 11, 1977. I can see no justification for going beyond the words of the written contract and relying on parol evidence as I was invited to do by counsel for the plaintiff. I can see no ambiguity or other circumstances here which would justify going outside the written contract itself. Although Mr. Kirsch signed a standard form contract not prepared by himself, the relevant terms in question are not surprising or oppressive and the representatives of the vendor, Industrial Sales Ltd., would have had no reason to think that Mr. Kirsch would neither understand nor consent to such provisions. [2] (I might add that the parol evidence offered was in any event vague or hearsay).

The written contract here is quite clear. In the first place, it cannot be taken to have come into effect until accepted in writing on April 11, 1977 and therefore until that time there was no sale of the paver and title could not have passed.

Even if the plaintiff had convinced me that the contract had been accepted orally by representatives of the vendor on March 30, 1977, by the contract's own terms title could not pass until delivery of the paver and payment of the balance of the purchase price. The contract itself specifies that the paver is "to be shipped F.O.B. Saskatoon". It has been held by the Supreme Court of Canada that unless the contrary is indicated it is to be presumed from such an expression that property is not to pass until delivery at the destination indicated. [3] In this connection counsel for the plaintiff contended that since delivery was actually made at Tisdale, Saskatchewan the defendant could not rely on this principle as otherwise it would mean that title had never passed. It is of course for the plaintiff to show when title passed or when the plaintiff otherwise acquired the property and not for the defendant to prove the date of passing of title. But at least it can be inferred that the reference to “F.O.B. Saskatoon" meant that the parties did not intend title to pass until delivery. Further, the opening words of page 2 of the contract, quoted above, show that property was not to pass until full payment was made, and this obviously did not occur until approximately June 14, 1977 when the second cheque was debited to the purchaser's account.

With respect to the question of when title passed, reference was made to the relevant provincial law, the Sales of Goods Act. [4] Section 19 of that Act provides as follows:

19. (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 the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intentions of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

lt appears to me that the goods were specific or ascertained in this case and that, for the foregoing reasons, the intention of the parties must be essentially taken from the written contract itself. Nothing in their conduct clearly indicates any different intention. It was suggested by counsel for the plaintiff that some of the rules in section 20 of the Act might apply instead to the transaction. But that section commences with the words:

20. 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 is to pass to the buyer: . . .

I agree with the learned Associate Chief Judge of the Tax Court that there is no need to resort to these rules as a “different intention" appears in the written contract.

With respect to the question of whether, even in the absence of the passing of title, the plaintiff had "acquired" the roadpaver by acquiring all the incidents of title, the evidence is clear that the plaintiff did not have such incidents on March 30, 1977. It is clear that the plaintiff did not have possession or use of the machine until after May 25,1977 the approximate delivery date. In fact the machine was apparently not operable until the employees of Industrial Sales Ltd. had completed their work in early June. Notwithstanding certain evidence of Mr. Kirsch as to his present views as to when the plaintiff company assumed the risk, there is nothing to indicate to me that the plaintiff company had assumed any risk prior to the time when title passed. On examination for discovery, Mr. Kirsch expressed the view that:

[a]s long as it was in their hands they are responsible. As soon as we get it, we've got an automatic insurance that covers us automatically.

The specific endorsement of the company's insurance policy to cover this piece of equipment was obtained effective June 14, 1977 and as the cheque for the payment of the balance of the purchase price was also cleared that day at the plaintiff's bank it is reasonable to conclude that the parties considered the passage of title and risk to have occurred as of that date.

It is therefore clear for several reasons that the plaintiff had not acquired the roadpaver in question on March 30, 1977 nor by March 31, 1977, the end of its 1977 taxation year. The machine was not acquired until probably June 14,1977, but at least no sooner than the latter part of May when the machine arrived in Tisdale. The appeal is therefore dismissed.

Appeal dismissed