ITA-7668-94
OTTAWA, ONTARIO, THE 23RD DAY OF JANUARY 1997
BEFORE: DENAULT J.
BETWEEN:
In
re the Income Tax Act,
-
and -
In
re one or more assessments made by the Minister of National Revenue pursuant
to
one or more of the following statutes: the Income Tax Act, the Canada
Pension Plan
and
the Unemployment Insurance Act;
AND:
TRAITEMENT D'EAU
ANJOU NOTRE-DAME INC.,
Judgment
debtor,
AND:
LES PRODUITS
DE LA FAMILLE ANJOU INC.,
Objector.
O
R D E R
The Court:
FINDS that the sale concluded between
the seller Traitement d'eau Anjou Notre-Dame Inc. and the purchaser Les
produits de la Famille Anjou Inc. on November 18, 1993 by a contract
concluded before Jean Martel is invalid as to the judgment creditor, the
Minister of National Revenue;
DISMISSES the objection by Les produits de la
Famille Anjou Inc.;
THE WHOLE with costs against the objector.
PIERRE DENAULT
JUDGE
Certified true translation
C. Delon, LL.L.
ITA-7668-94
OTTAWA, ONTARIO, THE 23RD DAY OF JANUARY 1997
BEFORE: DENAULT J.
BETWEEN:
In
re the Income Tax Act,
-
and -
In
re one or more assessments made by the Minister of National Revenue pursuant
to
one or more of thefollowing statutes: the Income Tax Act, the Canada
Pension Plan
and
the Unemployment Insurance Act;
AND:
TRAITEMENT D'EAU
ANJOU NOTRE-DAME INC.,
Judgment debtor,
AND:
ALAIN
JOLY,
Objector.
Application by the
objector Alain Joly asking the Court to:
-ALLOW this
application to object;
-STAY any
proceedings subsequent to the execution against personal property made in the
case at bar in respect of all the following property:
the 1991 Hyundai
Scoupe automobile serial No. KMHVE21JXMUO74756, the property of Alain Joly;
-ORDER the
officiating bailiff to make an immediate report to this Court of the
proceedings undertaken on the writ of execution issued herein;
-DECLARE that
the execution against the said property in the case at bar is void, irregular
and illegal;
-DECLARE the objector
the sole owner of all the movable property seized and described above;
-GRANT the
objector partial release from the said seizure in execution;
THE WHOLE with
costs against the judgment plaintiff.
[Article
597 of the Code of Civil Procedure]
O R D E R
At the hearing of this
application in Montreal on December 16, 1996 the judgment creditor gave a
release of the seizure.
This release is approved
without costs.
PIERRE DENAULT
JUDGE
Certified true translation
C. Delon, LL.L.
ITA-7668-94
BETWEEN:
In
re the Income Tax Act,
-
and -
In
re one or more assessments made by the Minister of National Revenue pursuant
to
one or more of the following statutes: the Income Tax Act, the Canada
Pension Plan
and
the Unemployment Insurance Act;
AND:
TRAITEMENT D'EAU
ANJOU NOTRE-DAME INC.,
Judgment
debtor,
AND:
LES PRODUITS
DE LA FAMILLE ANJOU INC.,
Objector.
REASONS
FOR ORDER
DENAULT J.
The applicant, Les Produits de la Famille Anjou
Inc. ("PFA"), is objecting
to the seizure made by the Minister of National Revenue ("MNR") on
the property of Traitement d'eau Anjou Notre-Dame Inc. ("TAND"),
owing the sum of $10,753.51 pursuant to a certificate of September 6,
1994. This debt resulted from source deductions not submitted by the debtor
for the period from October to December 1992 and January to November 1993.
The objector argued that
the seized property belonged to it since it had purchased the property by a
notarized agreement made on November 18, 1993. The Minister of National
Revenue, for his part, asked the Court to dismiss this objection: he argued
that the sale of the assets of Traitement d'eau Anjou Notre-Dame Inc. to Les
Produits de la Famille Anjou Inc. was contrary to his rights and cannot be set
up against him.
The documents filed in
support of the objection indicated that on April 30, 1992 Marcel Joly, the
sole shareholder of TAND, assigned all his shares to Michel Gosselin
for one dollar. In return Gosselin undertook to pay to PFA [TRANSLATION]
". . . the debt of $80,000 on a demand note bearing interest at 8% per
annum for a period of five years, with no provision for payment" (Exhibit
R‑5). The agreement further provided that Gosselin [TRANSLATION]
"gave as surety all the assets, present and future, of the company
Traitement d'eau Anjou Notre-Dame Inc., as well as the Anjou Notre-Dame Inc.
franchise". A demand note (Exhibit R‑6) was in fact signed by
Gosselin on April 30, 1992 in favour of Les Produits de la Famille Anjou
Inc.
On November 18, 1993 PFA
bought from TAND, inter alia, inventory on hand, office furniture and
other movable items, the seller's accounts receivable and the Anjou Notre-Dame
Inc. franchise, the seller undertaking to immediately relinquish any trade name
relating thereto. The seller further stated in the contract [TRANSLATION]
". . . that the property which is the subject of this sale represents all,
or nearly all, the property used in a commercial activity which represents all
or part of its business" (Exhibit R‑7). In return the purchaser
gave a full and final release [TRANSLATION] ". . .to the seller for any amount of capital
and interest owed to it pursuant to a demand note in the original amount of
$80,000 signed on April 30, 1992". A clause in the contract provided
that [TRANSLATION] "this agreement does not constitute a sale of stock in
trade".
The examination of Alain
Joly, vice-president of PFA, casts some useful light on the implications of
these transactions. He described PFA as a manufacturer of water treatment
equipment distributed through franchises. In 1992, as problems arose with the
distribution of products in Notre-Dame-du-Bon-Conseil, his father Marcel Joly,
the president of PFA and sole shareholder of TAND, assigned his shares to a
company employee, Michel Gosselin. In return Gosselin assumed a debt for $80,000 which by a
demand note he undertook to repay. It was clear from the examination of Alain
Joly that Gosselin was not paying PFA or his rent and that in short
[TRANSLATION] "he was not paying anyone" (p. 18 of the
examination). The witness said that Gosselin had never signed this franchise
contract with PFA and, in view of his refusal to perform his obligations,
[TRANSLATION] "we did not buy his business, we just took back what was
ours" (p. 24 of the examination).
In its objection,
however, PFA took a different approach: it objected to the seizure of TAND's
property, stating that it had purchased the property in a contract which
specified that it was not a sale of stock in trade. The Minister of National
Revenue argued, on the other hand, that this transaction was made contrary to
his rights as a TAND creditor. Counsel for the Minister of National Revenue
raised several irregularities in these transactions, including the fact that
Gosselin gave the assets of his company as security by an agreement and by a
demand note, which is unlawful as such, and without regard to the rules of a
commercial pledge. She further argued that Gosselin gave his company's assets
gratuitously as there was no proof he was indebted to PFA. Finally, she argued
that if the Court concludes that the $80,000 debt allegedly owed by Gosselin
was in fact a TAND debt, the sale should be deemed to be fraudulent, null and
void as to her as the Minister of National Revenue, a TAND creditor, was not
paid when the goodwill was sold.
It does not appear
necessary to deal with all these points.
There is a well-known
rule that a debtor's property is the common pledge of his creditors, and where
they claim together they share its price rateably, unless there are amongst
them legal causes of preference: this is the actual wording of art. 1981
of the Civil Code of Lower Canada as it read at the time of the facts at
issue. Additionally, in order to protect creditors of a debtor who disposes of
his stock in trade to their detriment the legislature has laid down special
rules in the Civil Code: bulk sales, found in arts. 1569(a)
et seq. Briefly, these rules provide that in any sale of stock in
trade or merchandise outside the ordinary course of the seller's business the
purchaser, before paying the price, must obtain an affidavit from the seller
containing the names and addresses of all the seller's creditors, amounts due
or to become due and the origin of each claim, as a basis for distributing the
selling price between such creditors, otherwise the sale shall be deemed to be
fraudulent and null and void as regards the creditors.
The Court must determine
whether in the circumstances of the case at bar the alienation constituted a
bulk sale. This is a question of fact which the judge must analyse by
determining whether the sale affected an important part of the merchant's
business, whether it was made outside the ordinary course of his business,
whether the items form part of the stock in trade, and finally, whether the
seller intended to cease operating his business, in whole or in part.
In the case at bar the
documents filed in support of the objection and the examination of Alain Joly,
vice-president of PFA, indicated that the disposal of TAND property on
November 18, 1993 constituted the latter's share of a bulk sale and that
the parties' failure to observe the rules made it null and void, in particular
as regards the garnisher as a TAND creditor.
There is no doubt that
the sale of the TAND assets affected an important part of the merchant's
business: the contract stated, first, that the property sold represented all,
or nearly all, the goods used in the course of the business, and second, the
objector did not show that the seller had reserved a significant number of
items in order to carry on his business. Further, since the seller disposed
not only of its stock in trade but its office furniture, accounts receivable
and franchise, it goes without saying that the sale was made outside the
ordinary course of business, and all the items formed part of the stock in
trade.
Finally, the Court notes
a significant contradiction as to the nature of the contract of sale of November 18,
1993 between the statements it contained and those made by the witness Alain
Joly in his examination. Contrary to what Alain Joly suggested, namely that
PFA simply intended to retake the property owned by it, the seller specifically
stated in the contract that it was the sole owner of the property described,
free of any privilege and any contract of pledge. In short, there was nothing
to indicate that the purchaser PFA held any lien whatsoever over the TAND
assets and could have exercised any right to retake the property. On the
contrary, everything tended to show that the sale by TAND was of its stock in
trade. Including a clause to the contrary in the contract will not suffice to
exclude the peremptory application of the bulk sale rules.
In so far as the objector
relied on a contract of sale which did not comply with the bulk sale rules,
that contract cannot be set up against the garnisher. The objection therefore
cannot be allowed.
PIERRE DENAULT
JUDGE
OTTAWA, Ontario,
January 23, 1997.
Certified true translation
C. Delon, LL.L.
FEDERAL
COURT OF CANADA
TRIAL
DIVISION
NAMES
OF COUNSEL AND SOLICITORS OF RECORD
COURT FILE No.:ITA-7668-94
STYLE OF CAUSE:ITA v. Traitement d'eau Anjou Notre-Dame
Inc. et al.
PLACE OF HEARING:Montréal, Quebec
DATE OF HEARING:December 16, 1996
REASONS FOR ORDER BY:Denault J.
DATED:January 23, 1997
APPEARANCES:
Hélène Beaumontfor Her Majesty the Queen
Michel Bélangerfor the objector
SOLICITORS OF RECORD:
George Thomsonfor Her Majesty the Queen
Deputy Attorney General of Canada
Michel Bélangerfor the objector
St-Hubert, Quebec
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