Estate of Simone C Mauger v. Minister of National Revenue, [1972] CTC 2264, 72 DTC 1234

Maurice Boisvert:—This appeal is from an assessment dated December 13, 1968 and amended September 23, 1970, setting tax of $7,402.50 for the taxation year 1956.

The appeal was heard in Montreal, Province of Quebec on February 12 and 17, 1971, by the then Tax Appeal Board.

The assessment was made on the estate of Simone C Mauger, that is, 12 years after the event which, according to respondent, resulted in a taxable gift.

The facts may be summarized as follows: Mrs Mauger was adopted as a Child by the Duponts. Mr Dupont was a physician and Mr Mauger a dentist. In 1935 Dr Dupont bought a house located at the corner of Principale and Johnson Streets in Granby, paying $12,000 for it. In 1936 the Maugers and Duponts decided to occupy the house together. Mrs Dupont died and the Maugers looked after Dr Dupont who, according to undeniable evidence, was a confirmed alcoholic and gave a great deal of trouble. In 1946, by a unilateral deed made before Lindor Tétreault, Notary, Dr Dupont stated he had sold Mrs Mauger the house which they occupied together. The sale price clause is expressed in the deed as follows:

(TRANSLATION)

This sale is made for the sum of FIVE THOUSAND dollars ($5,000.00) previously paid in cash by the purchaser to the Seller, who acknowledges it, giving complete and final discharge.

it had been agreed between the parties that the Maugers would contribute $50 monthly to household expenses, payment of taxes and insurance. Each month the Maugers paid Dr Dupont the sum of $50, or $600 a year. In 1946 they had paid more than $5,000. Matters remained in this state and the common domicile with Dr Dupont continued as before, the Maugers paying $50 monthly as in previous years. On June 16, 1956 there was a bilateral deed of sale of the house, which reads as follows:

(TRANSLATION)

MR MASTAI DUPONT, physician, residing in the City of Granby, Que., hereinafter known as THE SELLER,

By these presents SELLS, with guarantee against any interference or eviction, free of any charge and mortgage,

To SIMONE CARTIER, the wife contractually separated as to property of Mr Conrad Mauger, dentist, both of 150 Principale Street in the City of Granby, Que., here present and accepting, hereinafter known as the PURCHASER, the following, namely:

DESCRIPTION

An immovable located in the City of Granby, Que., on the southeast corner of Principale and Johnson Streets, known and described in the plan and official book of reference of the register of the Village of Granby, as being the north portion of Lot THREE HUNDRED and NINETY-ONE. measuring sixty feet wide on Principale Street by a depth of one hundred and ten feet.

Bounded as follows: on the north by Principale Street, on the east by Lot 390, on the south by the remainder of the said Lot 391, and on the west by Johnson Street.

With the buildings erected thereon.

Also included in this sale, all household goods and office furniture without exception or reservation.

The whole in its present condition, the Purchaser declaring she is well acquainted with the same and is satisfied therewith.

TITLE

The Seller acquired the said immovable from H E Comtois, née Delphine Rousseau, by deed of sale before J A Drouin, NP on June 19, 1935, copy thereof recorded as No 96975 in the Shefford Registry Office.

POSSESSION AND CONDITIONS

The Purchaser is already in possession of the aforementioned immovable and shall enjoy and dispose of the same with full ownership now and henceforth, provided she:

(1) pays the land taxes of whatever kind that shall fall due in the future only, free of any tax now owing;

(2) pays the costs hereof;

CIVIL STATUS OF THE SELLER

The Seller states that at the time of purchase of the said immovable he was married, under legal community of property, to Alphéma Myot, that his spouse has since died, and that he has become the sole and universal legatee in right of the immovable and of all that is sold herewith.

PRICE

This sale is made for the price of TWO THOUSAND dollars ($2,000.00), previously paid in cash by the Purchaser to the Seller, who acknowledges it, giving full and final receipt therefor, and further, in consideration of the full and final receipt given by the Purchaser to the Seller for services rendered, board, care and any other cause.

From this deed it will be seen that (1) the seller acknowledges that Mrs Mauger, his adopted daughter, was in 1946 already in possession of the property; (2) that the consideration in respect of the sale includes more than the price of $2,000, namely, the consideration for services rendered, board, care and any other cause. Dr Dupont remained with the Maugers from 1946 to 1960. He was placed in confinement in 1960 and died in 1962, leaving a small estate of $20,000 which went to his nephews and nieces.

After Mrs Dupont’s death, the Maugers took more care of Dr Dupont whose medical practice brought in next to nothing because of his alcoholism. He had his meals with the Maugers and Mrs Mauger bought him his clothes, did his laundry etc. The duties were often tiring and sometimes most unpleasant. He set the house on fire in a state of drunkenness, though it was quickly extinguished by the fire department. We need not continue. It was Dr Mauger, the dentist, who had just married the Dupont’s daughter, adopted at the age of three, who found the house which the Duponts bought for a joint domicile and combined offices for Dr Dupont and Dr Mauger. Dr Mauger looked after maintenance and, as noted above, paid his way, $50 monthly.

The house was one hundred years old. It was so old that valuation experts testified that the house as such was worth very little in 1960, but that the property’s value was in the lot. As a matter of record the property was sold in 1963 for $65,000. In 1964 Mrs Mauger filed a tax return and was assessed. She declared the sale of the property in her return. The original assessment was made on June 3, 1964 and the reassessment is dated December 13, 1968, ie more than four years after the first assessment.

Mrs Mauger died in the interval and respondent assessed her estate, claiming that what took place in 1956 was not a sale but a gift of an amount of $65,000, which was reduced by a reassessment dated September 23, 1970 to the amount of $55,000. The tax payable was computed as follows:

To arrive at the above result respondent converted a sale into a gift, on the pretext that in 1956 the immovable sold had a higher market value than the consideration shown in the deed of sale.

Contracts have effect only as between the parties; here, respondent was a third party. If the third party is injured the remedy is by revocatory action (Civil Code, Art 1032 et seq). Respondent has not proved (1) that the seller and purchaser, in 1946 and 1956, intended to defraud respondent; (2) that the 1946 and 1956 agreements were gratuitous contracts; (3) that the seller was an insolvent debtor in 1956; (4) that respondent was an anterior creditor when the 1956 sale took place; (5) that respondent had to take a stand before one year had elapsed from the date on which he learned of the deed of sale.

Clearly respondent’s position under the Income Tax Act must be considered in the light of its proper application. Nevertheless, respondent had to allege fraud or show that the deed of June 16, 1956 was without consideration, or gratuitous. There is nothing to this effect in the Reply to the Notice of Appeal, and he bases his case on section 111, subsections 112(1) and (2), and section 113 of the Income Tax Act (RSC 1952, c 148 as amended), which read as follows:

111. (1) A tax shall be paid as hereinafter required upon the gifts made in a taxation year by an individual resident in Canada or a personal corporation.

(2) For the purpose of this section, “gift” includes a transfer, assignment or other disposition of property (whether situate inside or outside Canada) by way of gift, and without limiting the generality of the foregoing, includes

(a) the creation of a trust of, or an interest in, property by way of gift, and

(b) a transaction or transactions whereby a person disposes of property directly or indirectly by way of gift.

112. (1) Tax shall be assessed and paid under this Part on the aggregate taxable value of all gifts made by a donor during the taxation year.

(2) For the purpose of this Part, “aggregate taxable value” is the aggregate value of the gifts made by the donor during the taxation year other than those exempt under subsection (3) or (4) minus

(a) in the case of an individual, either

(i) $4,000, or

(ii) one-half the difference between the taxable income of the donor for the immediately preceding taxation year as determined under Part I and the tax that was payable thereon under Part I,

whichever is greater;

113. Tax under this Part shall be computed in accordance with the following rates:

Where the aggregate taxable value exceeds

$40,000 but does not exceed $50,000 . . . . 15%

It is clear from reading section 111 that a gift must not be the invention of the respondent but rather the creation of the taxpayer. It is stated that “a tax shall be paid upon the gifts made in a taxation year”. Further, gift “includes a transfer, assignment or other disposition of property by way of gift”. Respondent therefore had to prove that a gift had been made to Mrs Mauger in 1956. This he has not done, and could not do. In his plea counsel alleges that the consideration in the deed of sale was inadequate because in 1956 the value of the property was greater than the consideration. Article 989 of the Civil Code states that:

989. A contract without a consideration, or with an unlawful consideration has no effect; but it is not the less valid though the consideration be not expressed or be incorrectly expressed in the writing which is evidence of the contract.

Article 980 adds:

990. The consideration is unlawful when it is prohibited by law, or Is contrary to good morals or public order.

In this case the consideration mentioned in the deed of sale of June 1956 is in no way contrary to good morals, and in itself contains nothing prohibited by law. It does not offend public order. We shal! return to this point, but first, in what does contractual consideration consist? ‘‘Consideration” is defined as follows in Black’s Law Dictionary, 4th edition, at page 279:

The inducement to a contract. The cause, motive, price, or impelling influence which induces a contracting party to enter into a contract.

The above definition includes “Considerations which are devoid of efficacy in point of strict law, but are founded upon-a moral duty, and may be made the basis of an express promise”. The same dictionary defines “Express or Implied Considerations” thus:

Express or Implied Considerations. The former are those which are specifically stated in a deed, contract, or other instrument; the latter are those inferred or supposed by the law from the acts or situation of the parties.

“Good Consideration” is defined by the same dictionary thus:

Good consideration. Such as is founded on natural duty and affection, or cn a strong moral obligation.

On page 714, “Fair and Valuable Consideration” is defined thus:

Fair and Valuable Consideration. One which is a substantial compensation for the property conveyed, or which is reasonable in view of the surrounding circumstances and conditions, in contradistinction to an adequate consideration.

The foregoing observations suggest that consideration is not to be confused with market value. There is no provision in the Income Tax Act requiring a taxpayer to sell his property and set the consideration at the market value. An individual may often give his property a sentimental value in excess of the market value. (TRANSLATION) “The compensation is the cur debetur, the reason for the obligation assumed by means of a contract” (Trudel, Traité de Droit Civil de Québec, vol 7, page 109).

The deed of sale which respondent treats as a deed of gift is unquestionably onerous. In his Traité (supra), Trudel discussed consideration in a similar contract as follows, at page 113:

(TRANSLATION)

Onerous contracts are characterized by a group of things which one individual seeks to obtain from another by granting him some compensation. Each contracting party can have a host of reasons impelling him to agree. These reasons will be the consideration for the contract to the extent that, by any overt act whatever, they are given a legal existence. This overt action is of a specific nature: it requires that each contracting party be aware of the other’s legal motives. Such knowledge is the externalization required for the reason to become the consideration of the onerous contract (Banque canadienne nationale v Beauchamp (1928), 24 RJ 365; Roy v Beaudoin (1927), 33 QB 220).

This is easy to understand. The surest reasons are obviously the things which one party intends to receive from the other and the terms and conditions for furnishing the benefit which said party undertakes to provide. What is all this, if not the very substance of the contract: what one wants to get, for what one wants to give? This is what makes up the cur debetur.

We have said that the deed of sale of June 16, 1956 was an onerous contract, that there was overt consideration and that more than one consideration is mentioned in the said deed. Thus we are not dealing with a contract in which consideration is allegedly wanting. The written contract establishes a presumption of consideration, and it is for the injured third party to show (a) the want of real consideration;

(b) a pretended consideration; (c) finally, that the consideration is contrary to public order. As we have noted, respondent makes only one submission, namely that the Income Tax Act is of a public nature and the sale is neither more nor less than a gift. He does not take freedom of contract into account. In order to succeed respondent had to abide by the Act, in particular section 115, which makes the provisions of section 46 applicable.

Mrs Mauger filed a tax return in 1964 and respondent went over it carefully. He assessed her on June 3, 1964 at the same time that the said return made reference to the sale of the Dupont property, concluded in 1963, which had become the Mauger property. Mrs Mauger put her head in the lion’s mouth. However, respondent had four years io make a reassessment, unless the taxpayer had made any misrepresentation or committed any fraud in making the return or supplying any information. There is no error in Mrs Mauger’s return, and there is not an iota of proof that Dr Dupont or the Maugers had the least intention of defrauding the tax authorities. In 1956 the Maugers had invested $12,000 in the property; Dr Dupont had a moral obligation to compensate his daughter and Dr Mauger for services rendered. At the time of the sale in 1956 no one was thinking of selling their place of residence, because they had their medical and dentistry offices there. No buyer came to them to offer a higher price for the property. Try as I might to find evidence of fraud, I find none; try as I might to find evidence of a gift, I find none.

I have come to the conclusion, in respect of this whole matter that the assessment of December 13, 1968 is outside the time limit specified by the Act, and the deed of sale made between Dr Dupont and his daughter is a lawful and valid deed, both between the parties and in reference to respondent.

Counsel for the respondent cited the following cases: Fofonoff v MNR, [1969] Tax ABC 1185; Estate of Delphina D Gagnon v MNR, 24 Tax ABC 309. The facts established in both those cases are of a different order, and can have no effect on my decision in this appeal.

Moreover, I refer the parties to Tuma v MNR, 23 Tax ABC 97, and in particular to the remarks on page 99 regarding the necessary constituents of a gift.

For the foregoing reasons, the appeal is allowed.

Appeal allowed.