Tri-County Cattle Company LTD v. Minister of National Revenue, [1985] 2 CTC 2129, 85 DTC 476

Goetz, TCJ:—The appellant, a livestock dealer, claims an inventory allowance pursuant to paragraph 20(1 )(gg) of the Income Tax Act, SC 1970-71-72, c 63, as amended. The appellant purchases cattle from producers in Western Canada for a period of two months, in the spring and in the fall. It telephones or deals through an agent in Western Canada in ordering cattle. The cattle are then shipped by train or truck to his ranch or to farms and feedlots in Ontario. The appellant sells the cattle after feeding them for a time or sells them to cattle buyers or cattlemen in the area. It has the option of selling the cattle to Eastern buyers when the cattle arrive or while they are in transit.

The appellant, when purchasing the cattle in the West, either wires the purchase price or pays when it receives an invoice from the Western producers. This is usually immediately following the sale of the cattle to it. The appellant is responsible for the cattle from the time of purchase by it to the time of purchase by its buyers. It carries insurance to cover injuries, sickness or death in transit, or until it receives payment from its buyers.

The process of sale by the appellant to its buyers is that when the appellant purchases cattle from the Western producers, it contacts the prospective buyers, describing the cattle, their breed, average weight, etc, and gives the cost per pound. If the buyer is satisfied with this description, he requests delivery either to his yard or makes arrangements to pick up the shipment by his own truck at the appellant’s place of business. The buyer may, in accepting a shipment, deduct any loss for sickness, death or injury from the invoice he receives from the appellant.

It is the position of the appellant that it owns the cattle until they are paid for by its buyers. If the buyers refuses acceptance of the shipment, the appellant is responsible for the care of the cattle. In the event a buyer does not pay after being invoiced the appellant attempts to get the buyer to feed the cattle until they are “finished” and makes arrangements to ship by its truck to another buyer. The appellant’s buyers carry no insurance.

Mr Herron, a cattleman and customer of the appellant, states that when the cattle are delivered to his yard he takes care of them and unequivocally states: “I only own cattle when I pay the appellant’s invoice”. Mr Herron, on accepting delivery, does not mix the Western cattle with the rest of his herd and he takes care of them for at least three weeks, fattening them up for sale. He states further that in his business he cannot sell the cattle until he pays for them. In other words, it is normal to the trade in this type of cattle business, to deal with the goods (cattle) in this manner.

Revenue Canada, on performing an audit of the appellant’s books, came to the conclusion that its inventory was too high and that it should have been converted into accounts receivable on the basis that once the cattle were delivered to a customer they no longer were part of the appellant's inventory. Revenue Canada did allow as inventory cattle in transit from Western Canada.

Trading in cattle is a unique business and cattle are a unique commodity. As a result, there has developed a custom in the trade that is different to dealings with many other commodities and hence it is necessary to view the sales in this appeal in a different light than the ordinary sale of goods.

The evidence is clear that once the appellant effects a purchase from a Western producer, it becomes the owner of the cattle and, as a result, it is responsible and carries the risk of ownership from the time that the cattle are placed aboard a carrier for shipment to the East. This risk runs up until the point that the ultimate cattle buyer pays the invoice sent to him by the appellant. Mr Herron has acknowledged that he has no right to deal with the cattle shipped to him via the appellant unless and until he makes full payment therefor. The buyer can have the cattle shipped directly to his yard or to the yard of the appellant. The appellant, in effecting sale to a buyer, describes the type of cattle available, the number of head and the price per pound. They are then generally shipped by truck or carload lots. At this point in time the description of the goods fully meets the definition of “specific or ascertained goods”.

The evidence was also clear that the appellant, the seller, and the buyer understand and agree that title does not pass to the buyer, in spite of deliv- ery, unless and until the buyer makes payment of the appellant’s invoice. This is the custom and usage in the cattle trade.

Subsections 18(1) and (2) of the Sale of Goods Act, RSO 1970, c 421, reads as follows:

18.—(1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

.. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. RSO 1960, c 358, s 18.

It would appear that the transactions involved in this appeal fit clearly within the above subsections. Even though, after delivery, the buyer has the right of acceptance or refusal of the shipment, the usage of the trade and the conditions laid down by the seller and accepted by its buyers is that property of the goods does not pass until the seller’s conditions have been met. See subsection 20(1) of the Sale of Goods Act.

The inventory disputed by the Minister related to shipments that had reached their destination of the buyer’s yard in 1980 but were not invoiced until the 1981 fiscal year. It is possible that the appellant delayed or postponed the invoicing for the cattle shipments directly to the buyers an unnecessarily long time, but there is no such evidence before the Court. The evidence, on the other hand, supports the position that the appellant became owner immediately upon purchase from the Western producers and retained ownership in the property until after invoicing his ultimate buyers and receiving payment therefor. That being so, the appellant has the right to claim the benefit of paragraph 20(1)(gg) of the Income Tax Act and I allow the appeal with costs to be taxed.

Appeal allowed.