Ministre Du Revenu National v. Intermodal Container Transport Ltée, [1999] 4 CTC 303, 99 DTC 5619

Prothonotary Morneau .

Reasons for Order

I have before me motions under article 597 of the Code of Civil Procedure by two brothers, Jeffrey and Gregory Beauchamp, in opposition to seizures by the seizing creditor against thirteen movables consisting for the most part of cranes or closely related equipment used in the crane leasing industry, an area in which the judgment debtor, the above-mentioned opposing parties and all of the companies hereinafter involved operate.

Although each of the opposing parties filed its own motion in both this case and in file ITA-9734-98, it must be observed that basically the motion of each opposing party is the same, and this applies to both cases on file. Accordingly, it is appropriate to present these reasons in terms of the opposition by Jeffrey Beauchamp (henceforth referred to in some instances under the collective designation “Beauchamps”).

These reasons and the order accompanying them will be applicable to all of the motions in this case and in file ITA-9734-98.

The seized property in dispute is the following (the property):

[Translation]

l. I Chevrolet pick-up truck, registration FN983330, green:

2. I Ford 9000 truck, orange NS/ W90JVHA6973 with boom, registration L86164;

3. I Grove crane, model 4080 NS/ R21365, registration FN98335:

4. I GMC Sierra Grande vehicle, red, registration FJ52559;

5. I GMC Custom de Luxe pick-up, blue, registration FN98329;

6. I Pontiac Transport vehicle, green, registration FMI 2051, NS/1GMDU06D2RT2131 52;

7. I Jaguar vehicle, grey, without engine, registration FE96635;

8. I! Western Star truck, blue, without engine, with boom:

9. I green truck with rotary flange, NS/FCIN3012RW33493;

10. I Ford L9000 truck with boom, registration L126647;

ll. I Grove crane, model 84506, NS/AC1Y5013L N 31125 with ace.:

12. I Lorain crane NS/500 /72;

13. I 40-ton crane, retractable, German and Russian manufacture, bearing registration RK91 398.

The Beauchamps are claiming the various properties under two classes of contracts which, according to their allegations, make them the owners of the property.

Although the opposing parties’ approach may seem convincing at first sight, I do not think I can agree with them in their oppositions since in the light of my analysis too many aspects of the case are inconsistent or remain unanswered.

Furthermore, the opposing parties did not actually reveal their approach in this case until quite late, when amending their motions or during and through the submissions by their counsel. Indeed, they failed to grasp the opportunity, when drafting their affidavit in support of their oppositions, to mention, let alone explain in detail, that there had to be juxtaposed to some of the written contracts some oral agreements by which the vendors, the Beauchamps, retained full ownership of the property sold until full payment of the purchase price. Similarly the existence of certain hypothecs on these properties was not mentioned at all by the opposing parties in their motion. It was only in the course of her submissions that their counsel established the existence of all these hypothecs. Finally, the written claims in the opposing parties’ motion record are simply a repetition of what is said in the affidavits. It was only in the course of the hearing that I and the seizing creditor could actually assess the legal position of the opposing parties. This procedure is inconsistent with both the letter and the spirit of the Rules.

On the other hand, and although this is not decisive in itself, it should be noted here that a fair number of the written contracts in dispute were entered into between the parties on December 9, 1997, that is about two months after Revenu Québec had seized the property of, inter alia, Service de Grues Intermodal Inc., also known as Intermodal Crane Service Inc. (hereinafter Crane).

To assess the situation more clearly, I think it would be useful, first, to focus on the contracts through which the Beauchamps allegedly sold some of the property in instalments.

I. Instalment sale of property

An initial series of contracts involves seized property number 9: I green truck with rotary flange, NS/FCIN3012RW33493.

This property is alleged to be the Beauchamps’ by the following reasoning.

It was allegedly assigned to the Beauchamps by Beau-Co Corporation Inc. (Beau-Co) by a written contract on December 9, 1997, as is indicated by a contract designated in the record as contract D. Beau-Co is a corporation in the Bahamas whose shareholders and directors are the Beauchamps and their father.

According to the Beauchamps, Beau-Co could thus assign this property because it had remained its owner under a contract of sale signed on December 19, 1995 between it as the vendor and Crane as the purchaser; this contract was designated in the record as contract D. 1.

The Beauchamps argued that this contract D.] should be viewed as a contract of sale by instalment, owing to an oral agreement to this effect that is said to have existed between the parties at all times, parallel to the written contract D.]. Since Crane defaulted on its payments under the contract, it should never have acquired ownership of the property. The ownership of this property therefore remained in Beau-Co, which could then assign it to the Beauchamps in December 1997.

Under Quebec law, as applied to the facts of the case, and owing to the existence of an hypothec granted by Crane on the property and published in December 1997, I am unable to accept the existence of this oral contract between the parties under which the sale is said to be an instalment sale and not an executed sale in favour of Crane effective December 19, 1995.

In my opinion, the only reason why contract D.] is entitled a “Conditional Sales Contract” is that it contains on page 3 a no-competition agreement between the parties. The clause in the final paragraph of page 2 is not a retention of title clause but simply an acceleration clause in favour of the vendor. This contract D.] provides in the following words that any alteration or agreement must be initialled in writing:

No change in this Contract shall be binding unless in writing signed by an officer of Seller. No agreement, representation or warranty shall be binding on Seller unless expressly contained herein or in a writing attached hereto duly signed by the Seller. This Contract shall be binding upon the Purchaser, his and their heirs, administrators, successors and assigns.

It is worth noting that the parties provided all of these clauses in writing but failed to provide in a contract of sale that it was an instalment sale.

The facts referred to in the three preceding paragraphs indicate to me that any recognition of an oral agreement that this sale was not an executed sale but rather an instalment sale would directly conflict with the principle set out in article 2863 of the Civil Code of Québec (C.C.Q.). This article States:

Art. 2863. The parties to a juridical act set forth in a writing may not contradict or vary the terms of the writing by testimony unless there is a commencement of proof.

I think one can apply mutatis mutandis to this situation the following extract from the Quebec Court of Appeal’s decision in Robillard c. Lacaille (1992), [1993] R.D.J. 284 (Que. C.A.), at page 288:

[Translation]

First, it should be explained that the trial judge was correct when he wrote that allowing the appellants to prove that writings P-1 and P-2 were executed subject to an unwritten term would amount to “altering” the terms of these writings.

What is involved here is not the completing of documents that are clearly incomplete, spelling out what is implicit, or interpreting them. What is sought is rather a substantial alteration in the scope of writings P-1 and P-2.

Likewise, I do not believe that the purpose of the oral agreement is to interpret contract D.l or to complete it because it is clearly incomplete. In this sense, article 2864 of the C.C.Q. does not apply. That article states:

Art. 2864. Proof by testimony is admissible to interpret a writing, to complete a clearly incomplete writing or to impugn the validity of the juridical act which the writing sets forth.

Nor do we have any commencement of proof within the meaning of article 2865, which states:

Art. 2865. A commencement of proof may arise where an admission or writing of the adverse party, his testimony or the production of a material thing gives an indication that the alleged fact may have occurred.

Consequently, I would accord little weight to the following clause in the preamble to the contract of assignment executed between Beau-Co and the Beauchamps on December 9, 1997 (contract D):

WHEREAS pursuant to the terms of the Contract [D.1], Beau-Co Corporation Limited continues to remain the owner of the Property:

Jt will be noted that this clause does not even refer to the oral agreement belatedly alleged by the Beauchamps on the cross-examination on their affidavit. Yet it is that oral agreement alone that could be contemplated here.

Another fact will also be noted which runs counter to the allegation that it is Beau-Co, and now the Beauchamps, that are the owners of the property, and not Crane. This is the existence of an hypothec granted by Crane in favour of the Beauchamps. This hypothec was published on December 12, 1997. It deals, inter alia, like contracts D.l and D, with the property identified earlier. The existence of this hypothec was not cited by the opposing parties in either their motion or their amended motion.

Counsel for the Beauchamps explained the existence of this hypothec in her description of the facts, as follows. The hypothec, she said, was granted by Crane in order to secure to Beauchamps, who were residents of Ontario, against the use of their crane in another province, in this case Quebec.

In law, the process applicable to this hypothec would be as follows. Under article 2681, paragraph 2, Crane could grant this hypothec. The article states:

Art. 2681. A conventional hypothec may be granted only by a person having the capacity to alienate the property hypothecated.

It may be granted by the debtor of the obligation secured or by a third person.

In the context alleged by the Beauchamps, an instalment sale, this hypothec was granted by Crane on the property of another. Under article 2670 of the C.C.Q., this hypothec would have encumbered the property in question only if Crane had become the owner of the property, which never happened. Article 2670 states:

Art. 2670. A hypothec on the property of another or on future property begins to affect it only when the grantor acquires title to the hypothecated right.

In the context of an instalment sale, this hypothec simply cannot be justified. It is clear that the security sought by the Beauchamps never existed in practice since article 2670 prevented that. If, in the context of that article, Crane had become the owner, it would have meant that the Beauchamps had been fully paid. At that point, the Beauchamps would no longer need any security, and therefore any hypothec.

The existence of this hypothec is incomprehensible and is not justified in practice or in law unless contract D.I is considered to make Crane the full owner of the property as of December 19, 1995. Crane could then logically grant an hypothec on that same property in December 1997.

It is this latter conclusion that I adopt. Accordingly, the opposing parties could not oppose the seizure of the property, since they cannot be considered the owners of that property. Their opposition in relation to this property is therefore dismissed.

Under this insert title, a further contract is said to embody not an executed sale but an instalment sale in favour of the Beauchamps. Accordingly, the following properties (as listed in paragraph 4, supra) are said to belong to the Beauchamps and thus exempt from the seizures in question:

10. 1 Ford L9000 truck with boom, registration LI26647; 12. I Lorain crane NS/500 /72;

13. 1 40-ton crane, retractable, German and Russian manufacture, bearing registration RK91398.

These properties are covered, first, in a written contract dated August 29, 1996 by which the Beauchamps sold them to Les Grues Unies Inc. (Grues Unies). This contract was identified in the record as contract E. According to my analysis of this contract, it discloses a full sale at the time of its execution. On the cross-examination on their affidavits, and in their amended motion, the Beauchamps argued that this contract should have been regarded as a contract of sale by instalment owing to an oral agreement to this effect executed parallel to the written contract. Essentially this approach is similar to that taken in the case of contract D.1.

In the first place, this contract contains some written clauses which, as in contract D. 1, prohibit any oral agreement. They read as follows:

11. Entire Agreement

11.1 This Agreement constitutes the entire agreement between the parties

hereto with respect to the subject matters contained herein provided for and supersedes and replaces any other agreement respecting such matters.

11.2 The Vendor shall not be bound by any verbal undertaking, admission, agreement, representation or warranty to the Purchaser unless expressly contained herein or in a writing attached hereto duly signed by the Vendor.

12. Amendments

12.1 This Agreement may not be modified or amended except by instrument in writing signed by each of the parties hereto.

On the other hand, this contract E contains a clause providing for the grant of hypothecs by two entities, to guarantee the vendor, the Beauchamps, the payment of the purchase price, which was staggered over several time payments. Clause number 4 of the contract provides as follows, in its Opening words:

4. Security

4.] As security for the payment of the Purchaser Price to the Vendor together

with all costs and accessories due thereupon and to guarantee the fulfillment of the Purchasers obligations hereto, the Purchaser hereby agrees to execute a hypothec on the equipment detailed more fully hereinbelow complete with all attachments and accessories

The “purchaser” for the purposes of the contract is Grues Unies.

In some similar terms that follow, the judgment debtor in this case, Intermodal Container Transport Limited (Container), also granted the Beauchamps an hypothec to further secure the payment of the purchase price by Grues Unies:

4.2 In addition to the foregoing, the parties hereto agree that for further security

for the payment of the Purchaser Price to the Vendor together with all costs and accessories due thereupon and to guarantee the fulfillment of the Purchasers obligations hereto, the Guarantor hereby agrees to execute an additional hypothec on the equipment detailed more fully hereinbelow complete with all attachments and accessories

The grant of these two hypothecs was effectively incorporated in two distinct hypothecs that were eventually published in accordance with the applicable system in Quebec.

As for the hypothec granted by the purchaser, Grues Unies, counsel for the opposing parties justified its existence in the context of an instalment sale in terms similar to the explanations provided concerning the existence of the hypothec under contract D.]. So, adopting mutatis mutandis the reasons expressed in paragraphs 24 to 30, the opposing parties could not oppose the seizure of the property, given that they cannot be considered the owners of this property. It is Grues Unies that is the owner. The opposition of the opposing parties in relation to this property is therefore dismissed.

Insofar as Container’s hypothec is concerned, it was granted on the following property: I Grove crane, model 84506, NS/AC1Y5013L N 31125 with acc. (property no. 11).

This property was therefore, at the time of the hypothec, the property of Container and the Beauchamps obtained the status of hypothecary creditors. However, they performed none of the formal actions required in law to assert their rights as hypothecary creditors. They cannot therefore be considered the owners of this property as well. Accordingly, their opposition is likewise dismissed in this regard.

It is now necessary to look at the contracts by which the Beauchamps allegedly acquired certain property from Crane and Container.

I. Contracts by which the Beauchamps allegedly acquired certain property from Crane and Container

Here again there are two contracts under private seal and some hypothecs the presence of which must be explained.

Under contract B, on December 9, 1997, Crane sold the Beauchamps the following property, which was seized, as quoted earlier in paragraph 4:

1. I Chevrolet pick-up truck, registration FN983330, green:

2. 1 Ford 9000 truck, orange NS/ W90JVHA6973 with boom, registration L86164;

3. 1 Grove crane, model 4080 NS/ R21365, registration FN98335;

4. 1 GMC Sierra Grande vehicle, red, registration FJ52559;

5. 1 GMC Custom de Luxe pick-up, blue, registration FN98329;

8. I Western Star truck, blue, without engine, with boom;

In this case, the Beauchamps do not argue that this was an instalment sale. However, if this sale actually took place, it is hard to understand why on December 12, 1997 a hypothec was published on this property of Crane in favour of the Beauchamps. In the context of an executed sale on December 9, 1997, why would the vendor have granted the purchaser an hypothec? Logically, it would be the converse! Furthermore, this hypothec, too, would have been granted on the property of another within the meaning of article 2670 of the C.C.Q. This hypothec would only be effective in practice if the property had been returned to Crane’s patrimony, a possibility that is not covered in the contract. The argument that this hypothec was granted in order to secure the Beauchamps, given the use of the property in Ontario by the vendor notwithstanding the sale, makes no sense, therefore.

Furthermore, the record and the pleadings indicate that this contract B was primarily aimed at bringing two cranes officially into the patrimony of the Beauchamps, as a result of the fact that the Beauchamps, through a third party corporation (Windsor), had paid Crane’s tax debt to Revenu Québec. Given this tax debt, Revenu Québec had seized the cranes from Crane.

These cranes among the seized property are the following:

2. I Ford 9000 truck, orange NS/ W90JVHA6973 with boom, registration L86164;

3. 1 Grove crane, model 4080 NS/ R21365, registration FN98335;

There are two paradoxes in connection with these cranes.

First, these cranes are covered in contract D. 1, which we reviewed earlier. According to the Beauchamps’ interpretation of D.1, these cranes still remained their property as a result of this contract. Why, then, under contract B, would Crane resell these cranes to the Beauchamps? The Court was told that the inclusion of these cranes in both contracts was simply an error, although no evidence was presented by way of explanation.

Second, if these cranes were in fact already the property of the Beauchamps, why did the Beauchamps not make a claim in opposition to the seizure by Revenu Québec, instead of literally purchasing some property that already belonged to them? After all, this opposition procedure is well known to the Beauchamps, as it is being used in the present proceed- ing. The Court was told that the Beauchamps had proceeded as they did because this allowed them to take possession not only of the two cranes but of a series of other properties. However, my understanding of the predominant evidence is that the other property taken from Revenu Québec was of little value and use, and some of it was headed for the scrapheap.

So much for the problem with contract B. As for contract C, its existence is presented as a replica of the situation under contract B. However, it covers two distinct properties, namely:

6. 1 Pontiac Transport vehicle, green, registration FMI 2051, NS/I GMDU06D2RT213152;

7. 1 Jaguar vehicle, grey, without engine, registration FE96635;

There is also a paradox in connection with this latter contract. Although it is not apparent on the face of the contract, the evidence indicates that this contract of sale by Container was to pay off part of a debt incurred by Grues Unies under contract E. Why is that? The record is silent on this point.

All of these paradoxes, these aspects that remain vague and unanswered, incline me to the view that the opposing parties have not discharged their evidentiary onus in regard to contracts B and C. In this sense, I adopt the theory of the case advanced by the seizing creditor, to the effect that it is legally entitled under articles 1451 and 1452 of the C.C.Q. to rely instead on the apparent actions taken by the parties at that time, namely, the grant by Crane and Container of hypothecs in favour of the Beauchamps. From this perspective, the opposing parties should be viewed only as hypothecary creditors. They did not complete the necessary formal proceedings to convert their status as hypothecary creditors to that of owners, that is, the title under which they are claiming the property under contracts B and C as well as under the other contracts.

For all of these reasons, the oppositions by the opposing parties are dismissed, with costs.

Oppositions dismissed.