V., [1948] CTC 73

COLLINS, J.:—The Court, having examined the pleadings of the parties, the documents of record and the exhibits, having heard the evidence at the hearing and the argument of Counsel and having deliberated, doth now render the following judgment.

CAUSE OF ACTION AND SUMMARY STATEMENT OF THE ISSUES OF LAW AND OF FACT RAISED AND DECIDED

(A) The petitioner made a petition asking for the issue of an interlocutory injunction against the respondent and alleged in connection therewith as follows.

1. That the Petitioner has acquired from the Respondent by Deed of Sale passed before Mtre Guy Gerard, N.P., on March 5th, 1947, in the City of Montreal, that certain immoveable property bearing civic number 5460 Bordeaux Street and also fronting on Chabot Street, the whole as more fully appears from a certified copy of the said Deed of Sale herewith produced and filed as Exhibit P-1.

2. That under the relevant provisions of the said Deed of Sale, it is provided that the Respondent may remove certain improvements added to certain of the buildings erected on the said immoveable property in respect of which pursuant to the provisions of the Income War Tax Act of Canada, the Respondent was allowed special depreciation and should the same be necessary to avoid liability for additional income tax under the provisions of the said Act, the Respondent might demolish the buildings specifically referred to in the said Deed of Sale, subject to proper and sufficient evidence of such necessity being furnished previously to the Petitioner.

3. That notwithstanding the requirements of furnishing proper and sufficient evidence of necessity of demolishing such buildings Respondent is neglecting to do so.

4. That in flagrant violation of the terms and provisions of the said Deed of Sale above referred to, the Respondent has commenced to demolish and is continuing to demolish the said buildings and thereby causing very serious and irreparable damages to your Petitioner.

5. That the conduct of the Respondent, as aforesaid, is not only prejudicial to the Petitioner but is also irregular and illegal and contrary to the Deed of Sale above referred to.

6. That under date of January 27th, 1948, the undersigned attorney acting for and on behalf of the Petitioner have advised Messrs. Hyde & Ahern, Attorneys for the Respondent, that any demolition of the buildings could only be done pursuant to and in accordance with the terms and provisions of the said Deed of Sale above referred to and not solely for the purpose of reducing or cutting down removal costs or expenses, the whole as more fully appears from a copy of the said letter, the original of which is in the hands of the said attorneys who will have to file same at enquete in default whereof secondary evidence of said letter will be made.

7. That your Petitioner is satisfied on expert’s advice, that it is not necessary to demolish the said buildings for the purpose of removing the improvements thereto affected by special depreciation and that after such removal, buildings which existed prior to the improvements being made and in respect of which no special depreciation was applicable, will be safe and useful for the purposes of your Petitioner.

8. That the Mis-en-cause has been represented to the Petitioner as having been instructed by Respondent to carry out the demolition of the said buildings.

9. That Respondent is responsible to the Petitioner for all damages which the said Petitioner has already suffered and will continue to suffer through the illegal acts of demolition to be made by the Respondent to the Petitioner’s property.

10. That your Petitioner is justified in asking that the Respondent as well as the Mis-en-cause be ordered and enjoined by this Court to stop immediately all acts tending to demolish said buildings or demolish them in any way more than absolutely necessary for the purpose of removing said improvements.

11. That it is extremely urgent that the said illegal acts and operations made and carried out by the Mis-en-cause on behalf of the Respondent be stopped at once; unless such illegal acts and operations are put to an end by an interim and later by an interlocutory and permanent injunction, your Petitioner will continue to suffer grave prejudice and irreparable damage through the continuation of such acts and operations on the part of said Respondent.

12. That your Petitioner is ready and willing to furnish such security as this Honourable Court will be pleased to fix pending the adjudication on the merits on the injunction to be issued in this case.

13. That your Petitioner is also desirous of instituting an action for the sum of Twenty Thousand Dollars ($20,000.) for damages and will ask that a permanent injunction be issued against the Respondent herein.

WHEREFORE your Petitioner prays that by judgment to be rendered herein an order be given for an interlocutory injunction to be issued against the Respondent and to be served both on the Respondent and on the Mis-en-cause ordering them to stop immediately any further work or acts of demolition and restraining them from any act constituting illegal demolition or causing damages to the property of the Petitioner in particular those buildings bearing civic number 5460 Bordeaux Street or on any other buildings covered by the said Deed of Sale and that an interim injunction for all the purposes aforesaid be granted immediately to remain in force until adjudication upon the present petition and that, in due course, the interim injunction to be issued forthwith be thereafter declared interlocutory and permanent; the whole with costs against the Respondent but without costs against the Mis-en-cause except, as to the latter, in case of contestation.

(B) The respondent by way of contestation of the plaintiff’s petition alleged as follows.

1. The Deed of Sale alleged in paragraphs 1 and 2 speaks for itself, but Respondent denies that its right to demolish the buildings referred to in the said Deed of Sale was subject to proper and sufficient evidence of such necessity being furnished previously to the Petitioner.

2. Respondent denies the allegations contained in paragraph 3, the said Deed of Sale, Exhibit P. 1, not requiring it in any way to furnish proper and sufficient evidence of necessity of demolishing the said buildings, and the said allegation is false in law and in fact and is made in bad faith.

3. The allegations contained in paragraph 4 are denied, but the Respondent admits having entered into a contract with the Mis-en-cause to demolish the said buildings.

4. The allegations contained in paragraph 5 are denied.

5. The letter from Petitioner’s Attorney to Respondent’s Attorney bearing date the 27th of January, 1948, speaks for itself, and the Respondent files same as requested as Exhibit R. 1.

6. It ignores the allegations contained in paragraph 7 and in answer thereto states that it is satisfied, on Expert’s advice, that demolishing and removal of buildings and improvements is necessary under the provisions of the Income War Tax Act or otherwise in order that it may retain the benefits of special depreciation allowed it in respect of such buildings.

7. It denies the allegations contained in paragraphs 10 and 11.

8. It denies the allegations contained in paragraphs 12 and 13.

AND THE RESPONDENT FURTHER SAYS:

9. By Deed of Sale bearing date at Montreal, March 5th 1947, executed before D. Girard, Notary Public, the Respondent sold to Petitioner an emplacement fronting on Bordeaux and Chabot Streets, in the City of Montreal, situated adjacent to a property owned by the Petitioner, to whom it had a special value by reason of the fact that it was adjacent to Petitioner’s property.

10. The merchant value of Respondent’s property was less than the purchase price paid for it by the Petitioner, $125,- 000.00, and this price was agreed to by Petitioner because the property had for it a special value for the reasons above mentioned.

11. In the said Deed of Sale it was provided that the Vendor, Respondent, could remove all improvements made by it to the original building and/or demolish and remove the buildings bearing Nos. 1, 2 and 4 provided such removal and/or demolition may be necessary under the provisions of the Income War Tax Act or otherwise in order that the Vendor may retain the benefit of special depreciation allowed in respect of such buildings.

12. The removal and/or demolition of said buildings Nos. 1, 2 and 4 is necessary under the provisions of the Income War Tax Act or otherwise in order that the Respondent may retain the benefit of special depreciation allowed in respect of such buildings, and the failure on the part of Respondent to demolish and remove the said buildings would impose on it an additional income tax liability of some $50,000.00.

13. In the circumstances, the Respondent is entitled to demolish and remove the said buildings.

14. The said Deed of Sale, Exhibit P. 1, does not provide, as falsely alleged by Petitioner, that Respondent’s right to demolish the said buildings is subject to proper and sufficient evidence being furnished previously to the Petitioner of the necessity of such demolition.

15. In accordance with its rights, the Petitioner has contracted with the Mis-en-cause for the demolition and removal of the said buildings and by reason of Petitioner’s Injunction the said Mis-en-cause has notified Respondent that it holds the latter responsible in damages if the contract between Respondent and Mis-en-cause is not carried out.

16. As by the Deed of Sale, Exhibit P. 1, Respondent has the right to demolish and remove the said buildings, Petitioner will suffer no damage whatsoever as a result thereof.

17. The Petition herein is unfounded in law and in fact.

18. Petitioner reserves the right to claim from Respondent any damages suffered by it by reason of the Interim Injunction granted without notice to it in the present case and the right to claim payment of the balance of purchase price payable by Petitioner under the said Deed of Sale, Exhibit P. 1, which said balance of purchase price amounts to the sum of $80,000.00 and is past due and payable, but which Petitioner has refused and neglected to pay although duly requested so to do.

(C) The petitioner by way of amended answer to the contestation of the respondent alleged as follows :

1. It joins issue with the allegations contained in paragraph 1 of Respondent’s contestation.

2. It denies the allegations contained in paragraph 2 of said contestation and also that the Petitioner’s allegations in paragraph 3 of the petition were made in bad faith.

3. It prays acte of the admission contained in paragraph 3 of the Respondent’s contestation to the effect that Respondent has entered into a contract with the Mis-en-cause to demolish the buildings concerned in this case and otherwise joins issue with the said paragraph.

4. It joins issue with paragraphs 4 and 5 of the Respondent’s contestation.

5. It denies emphatically the allegations contained in paragraph 6 of the Respondent’s contestation.

6. It joins issue with paragraphs 7 and 8 of the Respondent’s contestation.

7. That in reply to paragraphs 9 and 10 Petitioner states that it admits that the purchase price of said property was in excess of the market value thereof and that the fact that it was contiguous to other property of Petitioner’s was an important factor in fixing its value for the Petitioner, but Petitioner further says that although said improvements made by Respondent in the buildings were of no value to Petitioner for the purposes for which the said buildings were being acquired, and although no value was attributed to said improvements in fixing the purchase price of said property, Petitioner nevertheless attributed a value to said buildings without said improvements in that Petitioner could use them for storage and like purposes.

8. That the Deed of Sale and the Income War Tax Act referred to in paragraph 11 of the Respondent’s Contestation speak for themselves and otherwise the said paragraph is denied.

J. That the allegations contained in paragraph 12 of the Respondent’s Contestation are denied, the demolition of the buildings Nos. 1, 2 and 4 not being necessary under the provisions of the Income War Tax Act and also under the Deed of Sale above referred to or otherwise in order for the Respondent to retain the benefit of special depreciation allowed in respect of such buildings.

10. That the allegations contained in paragraph 13 of the Respondent’s Contestation are denied.

11. That it joins issue with the allegations vontained in paragraph 14 of the Respondent’s Contestation.

12. That the allegations contained in paragraph 15 of the Respondent’s Contestation are irregularly and illegally pleaded and are irrelevant and have no bearing on the issue and should be struck and in any event the said allegations are denied.

13. That the allegations contained in paragraphs 16 and 17 of the Respondent’s Contestation are denied.

14. That the sum of $80,000.00 referred to in paragraph 18 of the Respondent’s Contestation is governed by the relevant provisions to that effect contained in the Deed of Sale above referred to which speak for themselves and therefore the allegations as to the said sum of $80,000.00 as contained in paragraph 18 of the Contestation are irregularly and illegally pleaded and are irrelevant and unfounded both in law and in fact and in any event the said allegations are denied.

(E) The respondent for reply to the said amended answer of the petitioner prayed acte of certain admissions, made certain denials and generally joined issue thereon.

(F) The facts of the case are the following: The respondent Bloc-Tube Controls of Canada Limited, sold to the petitioner Fry-Cadbury Limited an emplacement fronting on Bordeaux Street and Chabot Street in the City of Montreal by a Deed of Sale executed on March 5th, 1947. The property sold is therein described as follows:

"DESCRIPTION"

That certain emplacement fronting on Bordeaux Street and Chabot Street in the said City of Montreal, known and designated as subdivisions numbers . . . .

Together with all buildings there erected and bearing numbers 1, 2, 3, 4, 5, 6, 7 and 8, on a sketch prepared by the parties and annexed hereto signed for identification by them and the said notary, subject to a right of demolition and/or removal of buildings bearing Nos. 1, 2 and 4, as hereinafter provided.

As the whole is now at present with all servitudes and rights attached thereto . .

Clause 7 of the Conditions of Sale to the fulfillment of which the petitioner bound and obliged itself reads as follows :

" 7th. To let the Vendor remove all improvements made by it to the original building and/or demolish and remove the buildings bearing numbers 1, 2 and 4 on said annexed sketch provided such removal and/or demolition may be necessary under the provisions of the Income War Tax Act or otherwise in order that the Vendor may retain the benefit of special depreciation allowed in respect of such buildings.’’

The selling price was $125,000.00 of which $45,000.00 was paid by petitioner on or prior to the date of the Deed of Sale. In a letter written on December 30th, 1947, by the respondent to the petitioner (Exhibit D-3) the respondent wrote in part as follows:

. . Will you kindly also note that, in order to avoid the re-opening of past assessments and the disallowance of special depreciation on building improvements, we have had to take steps to have the main building, as well as the brick building, formerly occupied by New Method rotato Chips Reg’d, demolished. In fact the work has already been started and you should be able to take possession in the course of the next ten days or so

This letter was received by the petitioner either on the 30th day of December 1947 or on the 31st of December 1947 so that petitioner was fully aware of what the respondent intended to do as and from the 31st of December at least. The respondent vave the demolition contract to Gaston Guay, the mise-en-cause. Guay paid the respondent the sum of $3800.00 for the privilege of demolishing the buildings. Discussions took place between the parties and on the 380th of January, the petitioner made an application for an injunction. An interim injunction was granted ex parte ordering the respondent to stop immediately any further work or acts of demolition and to refrain from any act constituting illegal demolition or causing damages to the property in question. The interim injunction was continued and still remains in force and the case is now before this Court on the application for the interlocutory injunction.

REASONS FOR JUDGMENT

1. It is clear from the Deed of Sale (Exhibit P. 1) that the petitioner purchased and acquired ownership of all the buildings erected on the immoveable properties in question including the buildines bearme the numbers 1, 2 and 4 on the said sketch as from March 5th, 1947. The respondent did not retain any ownership in the buildings by the Deed of Sale.

2. When the petitioner purchased the said buildings it acquired not only the four walls and the roof of each of them but it acquired also ownership of all the so-called improvements made by the respondent in so far as those improvements become immoveable by their nature, by their destination or by reason of the object to which they were attached. A building is a collection of moveables but when these moveables serve to complete a building they become immoveables by nature from the time of their incorporation therein or their attachment to it. Although detailed evidence was not made before this Court with regard to the nature of each so-called improvement it is clear from the evidence which was made that they certainly formed part of the buildings such as cement floors, steel beams, staircase, etc. In fact no attempt was made by the parties to establish that any of these improvements were moveable and not subject to the terms of the Deed of Sale. The Court must treat them therefore as immoveable with the result that they formed part of the buildings in question and that the ownership of them passed to the petitioner on the execution of the Deed of Sale.

3. The respondent accepted from the petitioner the sum of $125,000.00 as the selling price of the land and buildings which were sold. As the respondent was granted special depreciation, in respect of these buildings and improvements, the provisions of para. (n) of subsec. (1) of sec. 6 of the Income War Tax Act became fully applicable upon the execution of the Deed of Sale. The provisions of the said para. (n) provide in effect that in the case of the sale of immoveable assets (excluding machinery and equipment) in respect of which special depreciation has been allowed, the Minister of National Revenue has the right to revise the income tax assessments of the vendor for the years when the special depreciation was allowed by disallowing, to the extent provided, such special depreciation. The respondent has brought itself squarely within the provisions of the said para. (7) by the said sale. It is now solely a question of determining between the Minister of National Revenue and the respondent as to how much money, if any, should, as a result of the said sale, be refunded to the Canadian Government by reason of any disallowance of the whole or any part of the special depreciation. This particular question is not before this Court for adjudication and this Court is consequently not in a position to express any opinion thereon.

4. It is true that in the Deed of Sale the respondent reserved the right to remove certain improvements and/or to demolish certain buildings for the purpose of evading income tax but such reservation is of no effect for the following reasons:

(a) The petitioner has already purchased for $125,000.00 and acquired the ownership as of March 5th, 1947, of the buildings and improvements in question and any demolition or removal at any time after March 5th, 1947 cannot change the fact that the selling price of the land and the buildings including the said improvements was established at $125,000.00, and that that sum of $125,000.00 is the selling price to which the provisions of the said para. (n) now apply. The provisions in the Deed of Sale that certain buildings or improvements might be removed or demolished does not affect ownership. Whether such demolition or removal does or does not take place, the value of the land and the buildings as fixed by the Deed of Sale to wit $125,000.00 would not be affected in any way. The petitioner would not have to pay more if the buildings and improvements were not removed and would not be entitled to a rebate if they were removed or demolished. The petitioner agreed to pay $125,000.00 in full knowledge of the existence of the demolition and removal clause contained in the Deed of Sale. It is true that the actual physical value to the petitioner of the said buildings might be greater or less depending upon whether or not any removal or demolition takes place. But that is no test. If the petitioner was satisfied to pay $125,000.00 and give the respondent the right to remove or demolish certain buildings or improvements that is the business of the petitioner. It does not affect the fact that the sum of $125,000.00 was the agreed price of sale for immoveable assets which included unquestionably the buildings and improvements. The question as to whether or not the petitioner was of the opinion that it did not buy the improvements is of no consequence. The Deed of Sale speaks for itself and cannot be contradicted by either party to it. It is clear and must receive the ordinary interpretation applicable to every such Deed of Sale. The whole right of the respondent to remove and/or demolish the said buildings and/or improvements depends entirely upon whether or not it is necessary to do so to evade income tax. If income tax cannot be evaded the respondent cannot now demolish or remove the buildings or improvements. The respondent cannot now evade income tax by any such removal or demolition so that no right to remove or demolish can be effectively exercised by the respondent.

(b) The general principle of the law of Quebec is that no one can by private agreement validly contravene the laws of publie order and good morals. Every condition in a contract contrary to law or inconsistent with good morals is void and renders void the obligation depending upon it. It is clear in the Court’s opinion that the said provisions in the Deed of Sale relating to the demolition and/or removal of buildings and improvements for the purpose of evading income tax violate this very elementary prohibition of law. The evidence is that the respondent was granted special depreciation in an amount of $19,396.42 for the year 1941 and a further amount of $57,473.92 for the years 1943 and 1944, a total of $76,870.34 in all applicable to the buildings. While no evidence was made as to the extent of the liability for income or excess profits taxes of the respondent for the years in question, the Court understands that the respondent fell within the provisions of the Excess Profits Tax Act and in the written pleadings filed in this case it was estimated by the respondent that the additional income tax liability if the special depreciation was disallowed might amount to some $50,000.00. The petitioner established before the Court that the buildings which the respondent wished to have demolished had a replacement value of $70,000.00 and the petitioner also estimated that it could use these buildings for storage purposes at a saving of $10,000.00 per annum in storage charges which would otherwise have to be paid to third parties. It is quite evident therefore that the value of the buildings is substantial. Special depreciation was granted by the Canadian Government during the war time for the purpose of speeding up the war effort and of assisting companies to produce to their maximum capacity. It was realized by the authorities that many buildings would have to be constructed or improved upon to achieve maximum war time production and that some of these buildings would have little or no peace time value. Consequently in order to protect the public revenue the Income War Tax Act was amended to provide in effect that no company should be able to make a profit on an after-the-war sale of a building as a result of having’ obtained special depreciation on such building. It is only fair that the public treasury should be reimbursed to the extent of the loss suffered in taxation by the granting of special depreciation when a company to which special depreciation has been granted sells the building in question at a price which gives a profit to the company as a result of the granting of special depreciation. The rather complicated provisions of the income tax law in this regard do not attempt to deprive such a company of its legitimate profit on the sale of such a building but they do attempt to prevent and rightly so a profit being realized as a result of the granting of special depreciation. In effect the law says that if such a building can be sold at such a price as to establish that special depreciation was not needed, then such special depreciation should be cancelled and the ordinary taxes should then be paid by such a company as if such special depreciation had not been granted either in whole or in part as the case may be. The Courts are the public guardians of the Treasury and of public order and good morals and while they must remain impartial as between the subject and the Crown they cannot give countenance to or ignore any tax evasion scheme which is brought to their attention because any such scheme violates the laws of public order and good morals. In this case it appears that the respondent has received the benefit of a reduction of some $50,000.00 on its own estimate in taxation as a result of the special depreciation granted to it and instead of being willing to refund any part of the benefit so received the respondent is attempting to escape its obligation by demolishing buildings which have a replacement value of some $70,000.00 and an estimated rental value of about $10,000.00 yearly at a time when the shortage of building space and materials is critical. Apart from all other reasons, the Court is definitely of the opinion that it cannot approve any such demolition or removal because the effect of it might be to deprive the Public Treasury of perhaps some $50,000.00 thus forcing other individuals and companies in Canada to make up that sum of $50,000.00 in some other way at a time when taxation is around a peacetime peak and bears most heavily on all persons and furthermore because it would destroy buildings which have a very definite present value and use for no valid reason and just add that extra burden to the building and material shortage now existing.

Our system of democracy requires that every taxable individual and company should bear his or its legal proportion of taxation for the general benefit and upkeep of the state. The obligation to pay taxes is clearly a matter of public order and good morals. Any attempt to avoid the obligation to pay lawfully imposed taxes when such taxes are legally payable is a derogation from the essential duties and obligations of each citizen.

Under art. 50 of the Code of Civil Procedure all persons and companies are subject to the superintending and reforming power of the Judges of the Superior Court in accordance with law. This Court exercises therefore a very broad power. It has no hesitation consequently in declaring null and void as if they had never been written the following provisions of the Deed of Sale.

l‘ subject to a right of demolition and/or removal of buildings bearing Nos. 1, 2 and 4, as hereinafter provided ;

7th. To let the Vendor remove all improvements made by it to the original building and/or demolish and remove the buildings bearing numbers 1, 2 and 4 of said annexed sketch provided such removal and/or demolition may be necessary under the provisions of the Income War Tax Act or otherwise in order that the Vendor may retain the benefit of special depreciation allowed in respect of such buildings; . . .’’

Even though such nullity has not been asked for in the proceedings these provisions contravene the laws of public order and good morals and should not be given force and effect to in any way. The question as to the application of sec. 32A of the Income War Tax Act is not before this Court.

5. Under the circumstances the respondent should therefore be enjoined from continuing with the demolition of the said buildings. The issue as presented to this Court by the parties resolved itself into whether or not the respondent could remove the improvements without demolishing the buildings, and thus avoid the income tax or whether demolition of the buildings was necessary to accomplish this purpose. As this Court had determined to decide this case on entirely different grounds than those raised by the parties it is reasonable that the petitioner and the respondent should pay their own costs. The Court is compelled by law before issuing an injunction to determine the amount of security to be furnished for the costs and damages which the respondent may suffer by its issue. It is impossible now to determine such costs and damages. The respondent received from the mis-en-cause, Gaston Guay, the sum of $3800.00 for the privilege of wrecking the buildings but that amount or the amount of its estimated tax loss of $50,000.00 or the estimated replacement value of $70,000.00 have not necessarily any relation to each other or to the amount of the damages resulting from the issue of an injunction. The Court arbitrarily fixes the security at the sum of $10,000.00 and reserves to each party the right to apply at any time for the decrease or increase of this amount in accordance with the existing circumstances.

JUDGMENT

The Court doth hereby grant an interlocutory injunction against the respondent and the mis-en-cause and doth hereby order the respondent and the mis-en-cause to stop immediately any further work or act of demolition and doth restrain them from any act constituting demolition or causing damages to the property of the petitioner and in particular to those buildings bearing Civic No. 5460 Bordeaux Street in the City of Montreal or to any other buildings covered by the Deed of Sale and this Court doth hereby further order that this interlocutory injunction shall be and remain in full force and effect until final judgment has been rendered by the Superior Court upon the action in damages taken by the petitioner against the respondent, on January 30th, 1948, and doth further order that security be furnished by the petitioner to the respondent and the mis-en- cause in the amount of $10,000.00 in accordance with law to the satisfaction of this Court for the costs and the damages which the respondent and the mis-en-cause may suffer by its issue. Such security may be furnished by deposit in this Court of the amount of $10,000.00 in cash or by the furnishing of a suitable bond for that amount of an authorized Bonding Company. The Court hereby dissolves the interim injunction issued in this case effective seven days from the date of this judgment and doth order that the interlocutory injunction hereby granted by this judgment shall not enter into force and effect unless and until security has been furnished in the manner and to the extent hereinabove provided. The whole with the petitioner and respondent paying their own costs and with no costs against the mis-en-cause.