Tremblay,
T.C.J.:—These
appeals
were
heard
on
common
evidence
on
June
21,
1989
in
Montréal;
Québec.
1.
Issue
in
Dispute
The
issue
is
whether
the
appellant
is
justified
in
deducting
$303,127
from
its
income
as
a
deduction
for
inventory
for
the
1978
to
1983
taxation
years.
The
Coopérative
fédérée
de
Québec
(hereinafter
referred
to
as
the
C.F.Q.)
considers
itself
to
be
the
owner
of
the
cheese
kept
in
its
warehouses
as
long
as
no
sales
invoice
or
warehouse
receipt
has
been
drawn
up
in
the
customer's
name
thereby
certifying
the
transfer
in
ownership.
The
respondent
submits
that
the
appellant
was
unable
to
claim
the
deduction
since
the
sale
of
the
said
inventories
of
cheese
is
perfected
upon
receipt
of
the
confirmation
of
reservation.
The
transfer
of
ownership
will
crystallize
at
the
time
the
document
is
issued,
independently
of
the
dates
of
the
invoice,
the
payment
and
the
delivery
of
the
inventories
of
cheese.
The
C.F.Q.
was
unable,
therefore,
to
claim
the
deduction
for
inventory
since
it
was
no
longer
the
owner
of
the
cheese
during
the
taxation
years
in
question.
2.
Burden
of
Proof
2.01
The
onus
is
on
the
appellant
to
demonstrate
that
the
respondent's
assessments
are
unjustified.
This
burden
of
proof
is
based
on
a
number
of
judicial
decisions,
including
the
judgment
of
the
Supreme
Court
of
Canada
in
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486;
[1948]
C.T.C.
195;
3
D.T.C.
1182.
3.
Facts
3.01
The
appellant
is
a
co-operative
duly
constituted
under
the
laws
of
Québec.
It
is
also
a
corporation
within
the
meaning
of
the
Civil
Code
of
Lower
Canada.
3.02
The
appellant
operates,
among
other
things,
an
undertaking
for
the
sale
of
cheese.
3.03
The
deductions
for
inventory
of
cheese
that
were
claimed
by
the
appellant
and
refused
by
the
respondent
during
the
years
in
dispute
are
the
following:
|
1978
|
$44,315
|
|
1979
|
$44,315
|
|
1980
|
$57,983
|
|
1981
|
$72,325
|
|
1982
|
$61
,880
|
|
1983
|
$22,309
|
At
the
outset
of
the
trial
the
appellant
conceded
that
during
the
disputed
tax
years
it
notified
its
customer
once
the
cheese
had
been
graded,
weighed
and
identified
on
its
behalf.
The
record
disclosed
that
this
communication
was
made
through
a
confirmation
of
reservation.
The
respondent
says
that
in
all
of
the
above
disputed
amounts,
the
C.F.Q.'s
customers
had
been
given
the
said
notice.
3.04
In
its
notice
of
appeal
of
the
reassessments
by
the
Department
of
National
Revenue,
the
appellant
summarized
the
process
of
manufacture
and
sale
of
cheese
as
follows:
[Translation]
(i)
During
the
years
in
dispute
the
appellant
asked
its
major
customers
to
indicate
to
it
the
quantities
of
cheese
they
intended
to
purchase
monthly
over
a
12-month
period.
Letters
were
exchanged
between
the
appellant
and
J.M.
Schneider
Inc.,
Balderson
Cheese
Ltd.
and
Koffman
Foods
Ltd.;
this
procedure
enabled
the
appellant
to
ensure
it
had
enough
cheese
on
hand
to
meet
the
needs
of
its
customers;
(ii)
The
appellant
obtained
its
cheese
supplies
from
other
co-operatives
located
throughout
Québec;
(iii)
The
cheese
is
manufactured
by
the
regional
co-operatives.
It
is
then
delivered
to
the
appellant
for
storage,
with
the
exception
of
some
samples
that
are
retained
by
the
manufacturers
for
the
purpose
of
eventual
grading
by
governmental
authorities
(Agriculture
Canada,
Food
Production
and
Marketing
Directorate,
Milk
Products
Division),
which
occurs
about
30
to
45
days
after
the
cheese
is
manufactured.
The
cheese
may
be
stored
either
with
the
appellant
or
in
bonded
warehouses
until
the
desired
aging
has
occurred;
(iv)
Immediately
after
the
issuance
by
Agriculture
Canada
of
the
certificate
attesting
the
quality
of
the
cheese
on
the
day
on
which
it
was
graded,
the
regional
co-
operatives
bill
the
appellant.
The
appellant
then
sends
a
monthly
notice
to
its
customers
confirming
the
precise
quantity
of
cheese
that
has
been
manufactured,
reserved,
graded
and
stored
on
their
behalf
during
the
preceding
month,
its
base
commodity
value
at
the
time
it
was
graded,
the
date
of
manufacture
of
each
lot
that
was
stored,
and
the
financial
costs
in
relation
thereto;
(v)
Upon
receipt
of
the
notice,
the
customers
incur
no
expense
and
have
no
entitlement
with
regard
to
the
cheese
stored
with
the
appellant
or
in
a
bonded
warehouse.
The
cheese
remains
in
storage
until
the
customers
request
its
delivery.
Only
then
is
an
invoice
issued
to
record
the
sale.
Upon
receipt
of
the
notice,
the
customers
may
also
request
to
be
billed
immediately
for
the
cheese
that
remains
stored
until
the
desired
aging.
A
warehouse
receipt
is
then
issued
in
their
name
certifying
their
ownership;
(vi)
In
the
event
that
the
cheese
is
stored
in
a
bonded
warehouse,
a
warehouse
receipt
is
issued
by
the
latter
in
favour
of
the
appellant
if
the
appellant
is
the
owner
of
the
cheese
or
in
the
customer's
name
if
the
latter
has
already
paid
the
sale
price
of
the
cheese
to
the
appellant;
(vii)
The
deduction
for
inventory
claimed
by
the
appellant
in
its
financial
statements
applies
only
to
those
quantities
of
cheese
for
which
no
sales
invoice
or
warehouse
receipt
has
been
issued
to
third
parties.
The
appellant
considers
itself
to
be
the
owner
of
the
cheese
as
long
as
no
sales
invoice
has
been
sent
to
its
customer
to
certify
the
transfer
in
ownership.
Once
an
invoice
is
sent
to
a
customer,
the
appellant
withdraws
the
quantity
of
cheese
sold
from
its
inventory.
3.05
Counsel
for
the
appellant
made
similar
statements
in
his
submissions:
[Translation]
I
think
it
is
worthwhile
briefly
summarizing
the
facts
placed
in
evidence.
It
was
explained
to
you
that
a
cheese
undertaking
is
quite
peculiar
in
that
the
aging
of
the
cheese
is
an
extremely
important
element.
Hence
the
necessity,
in
order
to
know
the
customers'
needs
in
advance,
to
have
projections
of
those
needs
on
an
annual
basis.
This
means
that
agreements
of
the
kind
produced
as
Exhibits
A-1
to
A-4
are
made.
.
.
So
the
first
stage:
signing
of
the
agreement.
Second
stage:
a
telephone
conversation
shortly
before
each
production
period
to
confirm
the
customers'
needs.
Third
stage:
manufacturing
of
the
cheese.
Fourth
stage:
grading
by
Agriculture
Canada,
which
occurs
as
a
general
rule
30
to
50
days
after
the
cheese
is
manufactured.
[Fifth
stage]:
once
the
cheese
is
graded,
Coopérative
fédérée
de
Québec
sends
its
customers
the
document
entitled
"confirmation
of
reservation”
effectively
indicating
the
quality
of
the
cheese
obtained,
the
lot
numbers
indicating
that
there
is
a
certain
quantity
of
cheese
that
is
made
available
to
the
customers
Last
stage:
when
the
cheese
ripens,
it
is
then
delivered.
(Transcript,
pages
6-14)
3
.06
Counsel
for
the
appellant,
in
his
submissions,
laid
particular
emphasis
on
the
various
possibilities
that
may
occur
following
the
issuance
of
the
confirmation
of
reservation.
Three
different
possibilities
can
be
noted:
(a)
The
cheese
that
is
the
subject
matter
of
the
confirmation
of
reservation
is
immediately
invoiced,
paid
and
delivered.
The
ownership
of
the
cheese
inventories
will
be
transferred
upon
invoicing.
(b)
The
cheese
that
is
the
subject
matter
of
the
confirmation
of
reservation
is
not
immediately
invoiced
and
is
stored
on
the
premises
of
the
C.F.Q.
A
warehouse
receipt
is
issued
on
behalf
of
the
C.F.Q.
There
is
a
transfer
of
ownership
at
the
time
of
the
invoicing
and
delivery
of
the
cheese.
(c)
The
cheese
that
is
the
subject
matter
of
the
confirmation
of
reservation
is
immediately
invoiced
and
paid.
However,
it
is
stored
on
the
premises
of
the
C.FQ.
A
warehouse
receipt
is
issued
in
the
customer's
name.
The
ownership
of
the
cheese
inventories
is
transferred
at
the
time
of
the
invoicing.
3.07
However,
the
respondent
presents
a
quite
different
understanding
of
the
process
of
manufacture
and
sale
of
the
cheese
that
is
imposed
on
the
C.F.Q.:
[Translation]
(i)
Pursuant
to
contracts
between
the
appellant
and
its
customers,
the
appellant
was
selling
the
latter
a
certain
quantity
or
cheese
distributed
over
a
certain
number
of
months;
(ii)
Also
pursuant
to
these
contracts
between
the
appellant
and
its
customers,
the
appellant
undertook
to
place
the
quantities
of
cheese
described
in
the
said
contracts
in
a
warehouse
in
Montréal
each
month;
(iii)
The
appellant
also
undertook
to
provide
a
written
notice
concerning
the
quantity
of
cheese,
the
price
at
the
time
of
the
grading
and
the
date
of
manufacture
of
each
lot
stored
on
behalf
of
its
customer
during
the
preceding
month;
(iv)
The
cheese
that
was
stored
was
counted,
weighed
and
identified
by
lot
numbers
and
production
vats
exclusively
on
behalf
of
the
appellant's
customer;
(v)
At
the
relevant
times
the
appellant
was
notifying
its
customer
once
the
cheese
was
graded,
weighed
and
identified
on
its
account;
(vi)
Following
receipt
of
the
confirmation
of
reservation,
the
customer
could
take
delivery
of
the
cheese
or
leave
it
in
the
appellant's
warehouses.
In
the
latter
alternative,
administrative
fees
were
levied
to
cover
the
costs
of
storage,
insurance
and
interest
at
the
rates
provided
in
the
contracts
between
the
appellant
and
its
customers.
3.08
An
analysis
of
the
exhibits
that
were
produced
by
the
parties
indicates
four
types
of
documents
that
are
of
some
importance
to
the
resolution
of
this
dispute:
(1)
In
the
first
place,
there
is
a
contract
that
will
be
termed,
for
descriptive
purposes,
an
“initial
contract”.
It
is
issued
by
the
C.F.Q.
to
its
customers.
It
deals,
first,
with
what
appeals
to
be
the
subject
matter
of
the
agreement
between
the
appellant
and
its
customer.
It
then
lists
the
type
of
cheese
that
the
agreement
concerns,
the
quality
standards
that
must
be
fulfilled,
and
the
approximate
amount
of
cheese
that
will
have
to
be
produced.
Finally,
the
various
terms
and
conditions
that
the
said
agreement
may
include
are
also
presented.
They
include,
among
other
things,
the
methods
by
which
prices
are
set
and
the
determination
of
the
costs
of
storage,
interest
and
insurance.
Some
obligations
to
provide
notice
at
predetermined
periods
and
the
conditions
for
delivery
of
cheese
are
also
included
in
the
“
initial
contract”.
Given
the
importance
of
this
contract,
it
might
be
worthwhile
reproducing
the
text
of
Exhibit
A-1.
This
is
a
contract
between
the
appellant
co-operative
and
Balderson
Cheese
Ltd.
It
is
practically
identical
to
the
contracts
between
the
appellant
and
J.M.
Schneider
Inc.
(Exhibit
A-4)
and
Koffman
Foods
Ltd.
(Exhibit
A-3).
Coopérative
Fédérée
de
Québec
Montréal,
February
12th,
1980.
Balderson
Cheese
Ltd.
Balderson,
Ontario.
KOF
1AG
Attention
Mr.
Yves
Leroux
Quantity:
Approx.
1,000,000
pounds
to
be
manufactured
as
follows:
|
Months
|
Quantities
|
|
April
1980
|
85,000
lbs
|
|
May
|
"
|
95,000
lbs
|
|
June
|
"
|
95,000
lbs
|
|
July
|
"
|
95,000
lbs
|
|
Aug.
|
”
|
95,000
lbs
|
|
Sept.
|
”
|
80,000
lbs
|
|
Oct.
|
”
|
75,000
lbs
|
|
Nov.
|
”
|
80,000
lbs
|
|
Dec.
|
”
|
70,000
lbs
|
|
Jan.
1981
|
75,000
lbs
|
|
Feb.
|
"
|
75,000
lbs
|
|
Mar.
|
”
|
80,000
lbs
|
Conditions:
1.
Commencing
with
the
month
of
April
1980,
Coopérative
Fédérée
de
Québec
shall
place
in
storage
at
Montréal
on
behalf
of
Balderson
Cheese
Limited
such
type
and
quantities
of
Canadian
cheddar
cheese
as
described
above.
2.
Coopérative
Fédérée
de
Québec
shall
give
Balderson
Cheese
Limited
written
notice
of
the
amount
of
cheese,
the
base
market
price
plus
$0.035
at
the
time
of
grading
and
the
date
of
manufacturing
of
each
lot
placed
into
storage
hereunder
during
the
preceding
month.
3.
The
purchase
price
to
be
paid
by
Balderson
Cheese
Limited
for
the
cheese
shall
be
based
on
the
average
price
at
which
the
colored
or
white
cheese
shall
be
sold
at
the
Belleville
Auction
the
week
the
cheese
is
graded.
4.
The
carrying
charge
covering
storage,
interest
and
insurance
shall
commence
at
the
date
of
grading
and
shall
be
added
to
the
base
price
plus
$0.035
at
the
rate
of
$0.023
per
pound
per
month
or
per
part
of
month.
5.
The
cheese
to
be
stored
and
delivered
hereunder
shall
be
Canada
first
grade
at
the
time
it
is
put
into
storage
and
shall
be
re-examined
for
Balderson
Cheese
Limited
protection
by
Coopérative
Fédérée’s
grader
after
five
months.
Should
a
representation
of
Balderson
Cheese
Limited
wish
to
attend
this
inspection,
Coopérative
Fédérée
will
advise
Balderson
Cheese
Limited
of
the
date
of
each
inspection.
6.
Any
cheese
stored
beyond
twelve
months
from
the
date
of
grading
shall
be
invoiced
to
Balderson
Cheese
Limited
and
all
storage
charges
shall
be
paid
by
Balderson
Cheese
Limited
from
then
on.
7.
Should
Coopérative
Fédérée
de
Québec
not
be
in
a
position
to
place
into
storage
the
total
quantity
required
for
one
specific
month,
it
is
understood
that
the
Coopérative
Fédérée
will
give
additional
quantities
during
the
following
months
to
cover
shortage.
8.
Neither
party
shall
be
held
responsible
in
any
way
for
failure
to
perform
this
contract
on
its
part
caused
by
strikes,
accidents,
riots,
governmental
orders,
decreases
in
milk
quota,
damage
to
or
destruction
or
other
causes
beyond
the
control
of
such
party.
When
the
execution
is
delayed
for
such
a
cause,
the
other
party
may,
at
its
option,
cancel
the
contract
by
a
registered
mail
notice
to
the
other
party
or
delay
the
execution
of
the
contract
of
the
same
length
of
time.
9.
Payment
will
be
according
to
the
policies
of
the
Coopérative
Fédérée
de
Québec.
10.
The
selling
price
will
be
F.O.B.
Montréal.
11.
Our
Order
No.
4003.
Trusting
this
will
be
to
your
entire
satisfaction
and
thanking
you
for
this
business,
we
remain,
Yours
very
truly,
Coopérative
Fédérée
de
Québec
(2)
Secondly,
a
document
entitled
“Confirmation
of
Reservation”
is
produced
each
month
for
the
appellant's
customers.
It
indicates
the
lot
from
which
the
cheese
production
was
drawn.
It
also
indicates
the
vats
containing
the
cheese
that
was
produced
on
behalf
of
the
particular
customer
as
well
as
the
costs
set
each
month
per
hundred
pounds
and
the
price
of
the
cheese.
The
weight
of
these
vats
is
also
registered
on
this
notice.
It
also
contains
the
date
of
manufacture
of
each
vat
of
cheese
that
was
subjected
to
the
identification
procedure.
Finally,
the
date
of
storage
of
the
said
cheese
is
indicated
on
the
notice.
Again,
I
think
it
is
necessary
to
reproduce
the
essential
provisions
of
this
document
issued
by
the
appellant
Coopérative.
They
read
as
follows:
Confirmation
of
Reservation
Montréal,
July
24th,
1980.
Described
hereunder
for
the
account
of:
Balderson
Cheese
Ltd.
Balderson,
Ontario
KOF
1AG
|
Received
|
|
|
in
warehouse:
|
Coopérative
Fédérée
de
Québec
|
|
855,
rue
du
Marché
Central
|
|
P.O.
Box
500—
Station
Youville
Lot:
1816/2
|
|
Montréal,
P.Q.
|
|
H2P
2W2
|
|
Said
to
contain
|
|
Quantity:
|
|
Cartons
First
Grade
Colored
40
lbs
Cheese
Stocks
|
Register:
1649
|
Vats:
6618
to
23
|
|
Production:
June
1980
|
94/93
Score:
480
cartons
|
|
92
Score:
|
cartons
|
Average
Belleville
Price:
July
23rd,
1980
1.563
Plus:
$3.50
1.598
Storage
Date:
July
24th,
1980.
Carrying
charges
$2.35
per
100
lbs
per
month
of
[sic]
part
thereof.
goods
are
insured
by
us
against
loss
or
damaged
[sic]
by
fire.
Date
of
storage:
July
24th,
1980.
per:
Coopérative
Fédérée
de
Québec
Let
us
recall
that
the
price
of
the
cheese
is
fixed
in
relation
to
the
average
price
of
the
cheese
sold
at
the
Belleville,
Ontario
auction
on
the
week
in
which
the
cheese
is
graded
(Exhibit
A-1,
clause
3:
3.08.1).
(3)
Among
the
decisive
documents
that
were
produced
by
the
parties
are
the
invoices,
which
list
the
price
that
is
to
be
paid,
the
weight
of
the
cheese
that
was
produced,
and
a
precise
identification
of
the
lots
and
vats
from
which
the
production
was
taken.
(4)
Finally,
storage
certificates
are
also
issued
by
the
C.F.Q.
to
certify
that
particular
quantities
of
cheese
produced
for
a
particular
customer
are
stored
in
its
warehouses.
The
cheese
that
is
stored
is
once
again
identified
by
the
lot
and
vats
from
which
it
was
produced.
There
is
also
a
clear
reference
to
”
[Translation]
goods
referred
to
hereunder,
received
on
account
of”
on
the
said
warehouse
receipts.
4,
Law—Cases
and
Authorities
4.01
Legislation
Many
statutory
provisions
were
submitted
by
counsel
for
the
parties.
They
appear
for
the
most
part
in
the
Civil
Code
of
Lower
Canada
and
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the"Act"),
and
read
as
follows:
Civil
Code
Art.
1025.
[A
contract
for
the
alienation
of
a
thing
certain
and
determinate
makes
the
purchaser
owner
of
the
thing
by
the
consent
alone
of
the
parties,
although
no
delivery
be
made.
The
foregoing
rule
is
subject
to
the
special
provisions
contained
in
this
Code
concerning
the
transfer
and
registry
of
vessels.
The
safekeeping
and
risk
of
the
thing
before
delivery
are
subject
to
the
general
rules
contained
in
the
chapters
Of
the
effect
of
Obligations
and
Of
the
extinction
of
Obligations
in
this
title.]
Art.
1026.
If
the
thing
to
be
delivered
be
uncertain
or
indeterminate,
the
Creditor
does
not
become
the
owner
of
it
until
it
is
made
certain
and
determinate,
and
he
has
been
legally
notified
that
it
is
so.
Art.
1060.
An
obligation
must
have
for
its
object
something
determinate
at
least
as
to
its
kind.
The
quantity
of
the
thing
may
be
uncertain,
provided
it
be
capable
of
being
ascertained.
Art.
1061.
Future
things
may
be
the
object
of
an
obligation.
But
a
person
cannot
renounce
a
succession
not
yet
devolved,
nor
make
any
stipulation
with
regard
to
it,
even
with
the
consent
of
him
whose
succession
is
in
question.
Art.
1472.
[Sale
is
a
contract
by
which
one
party
gives
a
thing
to
the
other
for
a
price
in
money
which
the
latter
obliges
himself
to
pay
for
it.
It
is
perfected
by
the
Consent
alone
of
the
parties,
although
the
thing
sold
be
not
then
delivered;
subject
nevertheless
to
the
provisions
contained
in
article
1027
and
to
the
special
rules
concerning
the
transfer
of
registered
vessels.]
Art.
1474.
When
things
moveable
are
sold
by
weight,
number
or
measure,
and
not
in
the
lump,
the
sale
is
not
perfect
until
they
have
been
weighed,
counted
or
measured;
but
the
buyer
may
demand
the
delivery
of
them
or
damages
according
to
circumstances.
Income
Tax
Act
20.
(1)
Notwithstanding
paragraphs
18(1)(a),
(b)
and
(h),
in
computing
a
taxpayer's
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted
such
of
the
following
amounts
as
are
wholly
applicable
to
that
source
or
such
part
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto:
(gg)
an
amount
in
respect
of
any
business
carried
on
by
the
taxpayer
in
the
year,
equal
to
that
portion
of
3%
of
the
cost
amount
to
the
taxpayer,
at
the
commencement
of
the
year,
of
the
tangible
property
(other
than”
real
property
or
an
interest
therein)
that
was
(i)
described
in
the
taxpayer's
inventory
in
respect
of
the
business,
and
(ii)
held
by
him
for
sale
or
for
the
purposes
of
being
processed,
fabricated,
manufactured,
incorporated
into,
attached
to,
or
otherwise
converted
into
or
used
in
the
packaging
of,
property
for
sale
in
the
ordinary
course
of
business
that
the
number
of
days
in
the
year
is
of
365;
10.
(1)
For
the
purpose
of
computing
income
from
a
business,
the
property
described
in
an
inventory
shall
be
valued
at
its
cost
to
the
taxpayer
or
its
fair
market
value,
whichever
is
lower,
or
in
such
other
manner
as
may
be
permitted
by
regulation.
248.
(1)
In
this
Act,
"cost
amount”
to
a
taxpayer
of
any
property
at
any
time
means,
except
as
expressly
otherwise
provided
in
this
Act,
(a)
where
the
property
was
depreciable
property
of
the
taxpayer
of
a
prescribed
class,
that
proportion
of
the
undepreciated
capital
cost
to
him
of
property
of
that
class
at
that
time
that
the
capital
cost
to
him
of
the
property
is
of
the
capital
cost
to
him
of
all
property
of
that
class,
(b)
where
the
property
was
capital
property
(other
than
depreciable
property)
of
the
taxpayer,
its
adjusted
cost
base
to
him
at
that
time,
(c)
where
the
property
was
property
described
in
an
inventory
of
the
taxpayer,
its
value
at
that
time
as
determined
for
the
purpose
of
computing
his
income,
(d)
where
the
property
was
eligible
capital
property
of
the
taxpayer
in
respect
of
a
business,
the
cumulative
eligible
capital
of
the
taxpayer
in
respect
of
the
business
at
that
time,
(e)
where
the
property
was
a
debt
owing
to
the
taxpayer
(other
than
a
debt
the
amount
of
which
was
deducted
under
paragraph
20(1)(p)
in
computing
the
taxpayer's
income
for
a
taxation
year
ending
before
that
time)
or
any
other
right
of
the
taxpayer
to
receive
an
amount,
the
amount
of
the
debt
or
other
right
that
was
outstanding
at
that
time,
and
(f)
in
any
other
case,
the
cost
to
the
taxpayer
of
the
property
as
determined
for
the
purpose
of
computing
his
income,
except
to
the
extent
that
such
cost
has
been
deducted
in
computing
his
income
for
any
taxation
year
ending
before
that
time;
"inventory"
means
a
description
of
property
the
cost
or
value
of
which
is
relevant
in
computing
a
taxpayer's
income
from
a
business
for
a
taxation
year;
4.02
Cases
and
Authorities
The
cases
and
authorities
referred
to
by
the
parties
are
the
following:
1.
M.N.R.
v.
Wardean
Drilling
Ltd.,
[1969]
2
Ex.
C.R.
166;
[1969]
C.T.C.
265;
69
D.T.C.
5194.
2.
Steinberg
Katz
v.
Empire
Life
Insurance
Co.,
1982
C.P.
1.
3.
Saskatchewan
Wheat
Pool
v.
The
Queen,
[1985]
1
C.T.C.
31;
85
D.T.C.
5034
(F.C.A.).
4.
Tri-County
Cattle
Co.
v.
M.N.R.,
[1985]
2
C.T.C.
2129;
85
D.T.C.
476
(T.C.C.).
5.
Burrard
Yarrows
Corp.
v.
The
Queen,
[1988]
2
C.T.C.
90;
88
D.T.C.
6352
(F.C.A.).
6.
The
Queen
v.
Dresden
Farm
Equipment
Ltd.,
[1989]
1
C.T.C.
99;
89
D.T.C.
5019
(F.C.A.).
7.
George
Smith
Trucking
Co.
v.
Golden
Seven
Enterprises
Inc.
and
Intercontinental
Packers
Ltd.,
[1989]
3
W.W.R.
544.
8.
Pourcelet,
Michel,
La
Vente,
4th
ed.,
Montréal,
Éditions
Thémis,
1980,
275
pp.
9.
Perreault,
Antonio,
Traité
de
droit
commercial,
Montréal,
Editions
Albert
Levesque,
1936,
3
vol.
10.
Pothier,
P.,
Oeuvres
de
Pothier,
2nd
ed.
by
M.
Bugnet,
Paris,
Cosse
et
Marshall,
1861,
13
vol.
5.01
The
conditions
that
must
be
fulfilled
in
order
to
avail
oneself
of
the
inventory
deduction
under
paragraph
20(1)(gg)
of
the
Act
were
presented
very
clearly
in
Burrard
Yarrows
Corp.,
supra:
(1)
First,
the
deduction
must
be
claimed
with
regard
to
an
inventory
with
a
cost
amount.
(2)
The
property
in
inventory
must
be
tangible
property.
(3)
The
property
in
inventory
must
also
be
described
in
the
taxpayer's
inventory.
(4)
Finally,
the
property
must
be
held
for
sale
in
the
ordinary
course
of
business.
Dresden
Farm
Equipment
Ltd.,
supra,
subsequently
confirmed
that
any
corporation
wishing
to
avail
itself
of
the
inventory
deduction
must
own
the
property
for
which
it
is
claiming
the
deduction.
5.02
The
problem
that
this
Court
must
resolve
in
this
matter
may
be
summarized
as
follows:
was
the
C.F.Q.
the
owner
of
the
cheese
inventories
for
which
a
confirmation
of
reservation
was
issued
and
for
which
no
payment
had
been
made?
In
short,
did
the
appellant
Coopérative,
at
the
end
of
the
fiscal
periods
in
the
disputed
years,
hold
the
ownership
of
the
cheese
inventories
that
were
the
subject
matter
of
the
various
conditions
in
the“
initial
contract"
as
well
as
a
confirmation
of
reservation?
5.03
The
appellant
makes
what
may
be
presented
as
a
three-pronged
submission
to
this
effect.
First,
relying
in
part
on
the
warehouse
certificates
that
were
introduced
in
evidence,
counsel
submits
that
the
fact
that
the
latter
were
issued
on
behalf
of
the
C.F.Q.
is
proof
on
its
face
of
who
is
the
owner
of
the
cheese
inventories.
Secondly,
the
appellant’s
ownership
status
is
confirmed
by
the
fact
that
it
combines
all
of
the
attributes
of
ownership:
possession,
use
of
the
property,
and
the
assumption
of
risks.
Finally,
it
was
forcefully
argued
that
if
this
Court
were
to
find
that
there
had
been
a
sale
of
the
cheese
inventories,
it
was
Clearly
the
intention
of
the
parties
to
delay
the
transfer
of
ownership
of
the
said
inventories
to
the
time
of
the
invoicing
and
payment
for
the
goods.
5.04
This
Court
will
briefly
dispose
of
the
first
two
submissions
by
the
appellant.
In
the
first
place,
the
appellant
confined
itself
to
stating
that
it
is
obvious
that
the
warehouse
receipt
shows
who
is
the
owner
of
the
cheese.
Counsel
for
the
C.F.Q.
stated
that
‘
[Translation]
in
the
business
community,
it
is
well
known
that
a
warehouse
receipt
is
proof
of
ownership
to
a
third
party"
(Transcript,
page
44).
Thus,
a
statement
that
the
goods
referred
to
were
received
on
the
account
of
the
C.F.Q.
would
indicate
unequivocally
that
the
appellant
Coopérative
is
the
owner
of
the
warehouse
inventories
of
cheese.
It
is
quite
clear
that
the
existence
of
such
a
business
practice
was
not
proved
by
appellant's
counsel.
Furthermore,
apart
from
the
insufficiency
of
evidence
concerning
such
a
practice,
this
Court
must
express
some
doubt
about
the
accuracy
or
relevance
of
such
a
statement.
Indeed,
it
is
perfectly
possible
that
a
company
might
ask
the
appellant
Coopérative
to
take
the
necessary
steps
to
get
bonded
warehouses
to
stock
the
cheese
inventories
belonging
to
that
company.
Finally,
it
is
interesting
to
note
that
only
Koffman
Foods
Ltd.
was
given
warehouse
receipts
issued
on
behalf
of
C.F.Q.
However,
the
warehouse
receipts
issued
to
this
company
were
produced
prior
to
the
confirmations
of
reservation.
Considering
the
significance
such
confirmations
of
reservation
might
have
in
terms
of
the
respondent's
submissions,
the
existence
of
a
reference
to
the
effect
that
the
goods
are
stored
on
behalf
of
the
C.F.Q.
would
considerably
lessen
its
impact.
In
conclusion,
given
the
fact
that
only
Koffman
Foods
Ltd.
had
its
cheese
inventories
stored
on
the
account
of
C.F.Q.
the
weakness
of
the
evidence
presented
by
the
appellant
requires
that
the
submission
based
on
the
irrevocable
probative
value
of
the
warehouse
receipts
must
be
rejected.
With
regard
to
the
ownership
attributes
that
the
appellant
claims
to
have
in
relation
to
the
cheese
inventories,
I
am
of
the
opinion
that
the
comments
by
Marceau,
J.
in
Saskatchewan
Wheat
Pool,
supra,
at
36
(D.T.C.
5038)
suffice
to
dismiss
this
submission.
They
read
as
follows:
The
Pool's
title
may
have
some
of
the
attributes
of
ownership,
namely
possession,
use
and
risk,
but,
regardless
of
their
striking
limitations
here,
these
are
attributes
attached
to
many
other
legal
titles
(namely
that
of
a
bailee),
and
much
more
significantly,
the
Pool
never
acquires
those
attributes
which
are
exclusively
attached
to
ownership,
i.e.,
the
right
to
use
as
one
pleases
and
for
one's
own
personal
advantage,
the
right
to
consume,
to
destroy
or
to
dispose
of,
and
conversely
the
"obligation"
to
assume
the
risk
of
loss
due
to
any
cause
including,
of
course,
force
majeure.
It
is
clear
from
this
excerpt
that
such
ownership
attributes
as
possession,
use
and
the
assumption
of
the
risks
must,
in
order
to
confer
ownership
status
on
the
person
exercising
them,
attain
a
certain
level
of
intensity.
It
is
obvious
that
the
use
and
possession
of
the
cheese
inventories
does
not
meet
the
test
suggested
by
Marceau
J.
With
respect
to
the
risks
assumed
by
the
appellant
under
clause
8
of
Exhibit
A-1
(3.08(1)),
the
scope
of
that
clause
is
not
at
all
comparable
to
an
undertaking
of
all
the
risks
that
might
affect
the
quality
of
the
cheese
inventories.
5.05
The
third
prong
of
our
analysis
consists
of
determining
whether
a
sale
of
cheese
inventories
was
actually
concluded.
If
so,
a
corollary
of
this
initial
question
will
involve
a
determination
as
to
the
time
at
which
the
transfer
of
ownership
of
the
said
cheese
inventories
occurred.
5.05.1
Counsel
for
the
appellant
submits
that
Exhibits
A-1
to
A-4
cannot
be
contracts
of
sale,
given
the
fact
that
the
cheese,
at
the
time
these
agreements
were
made,
was
not
yet
manufactured.
It
would
therefore
be
a
sale
without
goods.
Appellant
submits
that
such
an
operation
would
clearly
contradict
the
significance
the
authorities
have
given
to
article
1472
of
the
Civil
Code.
Indeed
there
appears
to
be
a
recognition
that
in
order
for
a
sale
to
be
perfected
it
must
demonstrate
the
existence
of
a
thing
that
constitutes
the
object
of
the
sale.
Therefore
these”
initial
contracts",
in
the
opinion
of
counsel
for
the
C.F.Q.,
are
simply
manifestations
of
an
intention
to
purchase
that
at
no
time
amount
to
a
transfer
of
ownership
of
the
inventories
of
cheese.
It
must
be
pointed
out
at
this
stage
of
our
analysis
that
respondent's
counsel
clearly
stated,
when
Exhibits
A-1
to
A-4
were
introduced,
that
the
sale
of
the
said
inventories
had
never
been
perfected
(Transcript,
p.
89).
However,
the
transfer
of
ownership
of
the
cheese
inventories
will
be
effective
only
when
certain
procedures
of
grading
and
specific
localization,
information
and
identification
have
been
completed.
Subject
to
this
last
condition,
the
respondent
submits
that
the
"initial
contracts"
contain
all
of
the
elements
of
a
perfected
sale.
The
Court
is
convinced
of
the
merit
of
this
submission.
In
fact,
an
analysis
of
Exhibit
A-1
(3.08(1))
shows,
right
from
the
initial
paragraph,
that
a
sale
involving
the
Coopérative
Fédérée
de
Québec
and
Balderson
Cheese
Ltd.
is
projected.
It
is
hard
to
reach
any
other
conclusion
from
reading
the
words
"/n
accordance
with
our
telephone
conversation
with
you,
we,
Coopérative
Fédérée
de
Québec
agree
to
sell
to
Balderson
Cheese
Limited
and
Balderson
Cheese
Limited
agree
to
purchase
the
following".
Moreover,
the
product
that
is
the
subject
matter
of
the
sale
is
just
as
clearly
identified
(although
in
general
terms):
Canadian
cheddar
cheese
colored,
heat
treated,
Canada
first
grade".
Finally,
the
terms
and
conditions
for
fixing
the
sales
prices
are
clearly
established.
It
should
be
explained
that
the
authorities
generally
seem
to
recognize
that,
for
a
contract
of
sale
to
occur,
it
is
unnecessary
for
the
price
to
be
definitively
determined.
Pourcelet,
supra,
states
the
following,
at
page
78:
"[Translation]
Thus,
it
is
unimportant
whether
the
price
is
expressly
determined
in
the
offer,
but
the
offer
must
contain
the
elements
that
will
enable
the
price
to
be
established
subsequently."
Pothier,
supra,
makes
a
very
similar
comment
(book
3,
number
24):
[Translation]
The
price
that
is
the
essence
of
the
contract
of
sale
must
be
certain
and
determinate.
It
is
not
necessary
that
it
be
absolutely
determinate;
it
is
sufficient
that
it
be
such
that
it
must
so
become."
It
is
also
interesting
to
note
that
the
quantity
of
cheese
involved
in
the
“initial
contracts"
is
approximate,
although
this
has
very
little
impact
on
whether
a
contract
of
sale
was
actually
concluded.
The
reference
to
"approx.
1,000,000
pounds",
under
"
quantity"
in
Exhibit
A-1
(3.08(1))
seems
to
clearly
indicate
such
an
intention
in
the
contracting
parties.
It
is
therefore
obvious
that
a
document
or
subsequent
proceedings
are
to
follow,
specifying
the
exact
quantity
of
cheese
that
will
be
conveyed
to
the
client.
I
think
that
the
confirmations
of
reservation
that
the
C.FQ.
undertakes
to
provide
to
its
customers
under
clause
2
of
Exhibit
A-1,
and
the
communications
of
such
a
document,
are
used
precisely
in
order
to
confirm
the
exact
quantities
of
cheese
that
will
be
conveyed
to
the
various
customers.
In
short,
it
is
clear
that
a
contract
of
sale
was
concluded
over
a
certain
period.
However,
it
is
essential
to
determine
the
time
at
which
the
transfer
of
ownership
of
the
inventories
of
cheese
occurred.
In
this
regard,
the
parties'
submissions
are
diametrically
opposed.
5.05.2
The
respondent,
relying
on
certain
provisions
of
the
Civil
Code
and
a
portion
of
the
authorities
on
contracts
of
sale
that
were
introduced,
argues
that
the
transfer
of
ownership
was
assured
at
the
time
of
the
customers’
receipt
of
the
confirmations
of
reservation.
Considering
the
nature
of
the
inventories
of
cheese,
which
must,
in
the
words
of
the
respondent's
counsel,
be
characterized
as
fungibles,
the
effects
of
the
contract
of
sale
will
crystallize
when
the
quantities
of
cheese
forwarded
to
the
customers
are
clearly
identified
through
confirmations
of
reservation.
This
excerpt
from
the
submissions
by
counsel
for
the
respondent
summarizes
quite
clearly
the
essence
of
his
argument:
[Translation]
So,
Your
Honour,
the
appellant
has
the
burden
of
establishing
that
it
was
always
the
owner
of
the
cheese
inventory
at
the
beginning
of
each
of
the
taxation
years
at
issue.
The
respondent's
position
is
that
in
the
civil
law
the
appellant
is
no
longer
the
owner
of
the
cheese
inventory
since
the
cheese
that
was
the
subject
matter
of
the
contract
between
the
appellant
and
its
various
customers,
such
as
Schneider,
Kaufman
[sic],
Balderson
and
Crescent
Cheese,
was
sold,
except
that
at
the
time
the
contract
was
signed,
since
the
subject
had
not
been
identified,
weighed
and
counted,
and
the
purchasers
were.
.
.
had
not
been
legally
notified,
there
was
no
sale,
at
that
time,
the
sale
was
not
perfected,
that
is,
there
was
a
sale
but
it
was
not
perfected,
because
the
ownership.
.
.
the
subject
matter
was
not
determinate
and
article
fourteen
seventy-four
(1474)
tells
us.
.
.
and
one
thousand
and
twenty-six
(1026),
which
we
will
come
back
to
later.
.
.
that
was
when
there
was
a
transfer
of
ownership.
So,
for
the
purposes
of
the
Court,
it
was
when
the
customers
were
notified,
by
the
notices
of
confirmation
of
reservation,
that
the
ownership
was
transferred.
We
submit
that.
.
.
we
respectfully
submit
that
the
appellant
cannot
claim
that
it
fulfilled
the
conditions
provided
in
paragraph
twenty
(20)
one
(1)(gg),
since
it
cannot
be
said
that
the
appellant
was
holding
the
inventory
of
cheese
for
the
purpose
of
being
sold,
since
it
was
no
longer
the
owner
of
that
inventory.
[Transcript,
pages
78-9]
5.05.3
The
appellant,
on
the
other
hand,
submits
that
the
intention
of
the
C.F.Q.
and
its
customers
was
clearly
to
delay
the
transfer
of
ownership.
Michel
Pourcelet
(4.02(8)),
who
seems
to
reflect
the
opinion
of
the
legal
authorities
in
this
regard,
acknowledges
at
page
83
of
his
work
that
there
might
be
a
derogation
from
the
rule
that
ownership
transfers
immediately.
He
states:
[Translation]
The
principle
of
the
immediate
transfer
of
ownership
is
mitigated
in
practice
by
the
nature
of
the
transaction
or
the
purpose
for
which
it
is
undertaken.
However,
the
parties
may
agree
to
derogate
from
the
principle
of
immediate
transfer
by
adjourning
it
a
determinate
time.
There
seems,
therefore,
to
be
a
recognition
of
the
possibility
of
derogating
from
the
general
rule
that
the
transfer
of
ownership
of
the
subject
matter
of
the
contract
of
sale
if
concomitant
with
the
applicable
identification
procedures
when
fungibles
are
involved.
However,
the
intention
of
the
parties
to
the
contract
must
be
clearly
to
that
effect.
Counsel
for
the
C.F.Q
submits
that
the
imposition
of
administration
charges
under
clause
4
of
contract
A-1,
the
issuance
of
a
purchase
order
by
Koffman
Foods
Ltd.
close
to
a
year
after
receipt
of
the
confirmation
of
reservation,
and
the
reference
to”
selling
price:
F.O.B.
Montréal"
in
clause
10
of
Exhibit
A-1
are
all
indications
that
the
parties
intended
to
delay
the
transfer
of
ownership
of
the
inventories
of
cheese
to
the
time
of
its
invoicing
or
delivery.
5.06
The
analytical
perspective
I
propose
to
employ
will
consist
of
an
analysis
of
the
set
of
documents
that
were
introduced
by
the
parties.
This
will
therefore
involve,
to
paraphrase
Michel
Pourcelet,
probing
and
construing
the
agreement
in
order
to
elucidate
the
intention
of
the
parties.
Given
the
fact
that
this
intention
emerges
from
a
set
of
documents,
I
incline
to
an
interpretation
that
will
ensure
some
coherence
and
consistency
among
the
various
classes
of
contracts.
5.06.1
It
is
also
necessary
to
keep
in
mind
that
the
intention
of
the
parties
to
a
contract
is
to
be
discerned
from
a
set
of
elements
and
not
from
a
few
scattered
facts
to
which
one
attempts
to
give
an
obviously
unwarranted
significance.
Thus,
if
the
terms
of
the
various
documents
clearly
established
the
time
at
which
the
ownership
of
the
inventories
was
to
be
transferred,
this
intention
should
prevail
over
the
auxiliary
provisions
of
the
Civil
Code.
Failing
a
clear
contractual
intention,
however,
the
ordinary
law
of
the
Civil
Code
provisions
concerning
obligations
will
have
to
apply.
5.06.2
The
elements
which,
as
appellant's
counsel
suggests,
indicate
a
clear
intention
of
the
parties
to
delay
the
transfer
of
ownership
of
the
inventories
of
cheese
to
the
date
of
invoicing
and
payment
for
those
inventories
are
not
sufficiently
conclusive,
in
my
opinion.
Indeed,
it
was
stated
that
the
imposition
of
administrative
charges
on
the
various
customers
of
the
C.F.Q.
demonstrated
the
intention
of
the
parties
to
delay
the
transfer
of
ownership
until
the
payment
for
the
cheese
inventories
(Transcript,
pages
18
and
33).
Appellant's
counsel
relied
principally
on
a
passage
from
Dresden
Farm
Equipment
Ltd,,
supra.
However,
I
am
of
the
opinion
that
the
jurisprudential
principle
that
the
appellant
is
attempting
to
invoke
is
inapplicable
to
this
case.
It
must
be
recalled
that
in
business
matters
the
determination
of
ownership
very
often
results
from
a
painstaking
analysis
of
the
agreement
between
the
parties
to
the
contract.
In
view
of
the
many
terms
and
conditions
that
such
contracts
may
comprise,
it
is
essential
to
keep
in
mind
that
the
comments
drawn
from
judgments
resolving
commercial
disputes
must
be
read
in
light
of
both
the
letter
and
the
spirit
of
the
particular
agreement.
Thus,
the
effect
of
the
passage
in
Dresden
Farm
Equipment
Ltd.,
supra,
that
the
appellant
is
attempting
to
use
is
primarily
to
counterpose
the
particular
tests
for
consignment
sales
to
those
for
a
sale
effecting
a
transfer
of
ownership.
This
excerpt,
at
pages
108-109
(D.T.C.
5025),
accurately
presents
the
analytical
perspective
employed
by
Urie,
J.
in
that
case:
All
of
the
cases
to
which
we
were
referred
and
which
I
have
read,
base
the
determination
on
applying
the
recognized
law
relating
to
consignment
sales
to
the
circumstances
of
the
particular
case.
I
have
already
related
the
contractual
and
other
circumstances
in
this
case
in
some
detail
so
that
it
is
unnecessary
for
me
to
review
them
again.
Suffice
it
to
say
that
the
Tax
Review
Board
member
and,
accordingly,
the
learned
Trial
Judge
laid
particular
emphasis
on
the
assumption
of
all
risks
and
costs
relating
to
the
obligation
to
case
(sic)
for
the
goods
following
their
delivery.
That
is
merely
one
of
the
indicia
to
be
taken
into
account
in
determining
whether
or
not
the
transaction
is
truly
one
of
consignment.
It
is
not
the
sole,
nor
necessarily,
the
major
one.
It
is
an
obligation
commonly
found
in
a
variety
of
commercial
transactions
as
can
be
seen
from
the
three
cases
to
which
I
have
made
reference.
While
there
was
no
contractual
right
to
return
the
goods
to
J.D.L.
there
was
a
right,
which
had
never
been
refused,
to
transfer
the
goods
to
another
dealer
either
at
the
instigation
of
J.D.L.
or
upon
its
consent,
if
requested
by
the
respondent.
In
nature
it
was
substantially
a
right
of
return
and
again
is
another
factor
to
be
taken
into
account
in
characterizing
the
transaction.
At
least
of
equal
importance
is
the
fact
that
there
was
no
requirement
to
pay
for
the
goods
prior
to
retail
sale
nor
were
any
carrying
charges
required
to
be
paid
no
matter
how
long
the
goods
remained
in
stock.
That
fact
is
in
stark
contrast
to
sales
made
on
credit
where
it
is
well
known
that
carrying
charges
for
the
indebtedness
are
routinely
imposed
by
the
creditor.
The
carry-over
deposit,
according
to
the
uncontradicted
evidence,
was
not
applicable
to
all
goods
on
the
same
terms
and
was
not
considered
to
be
part
of
the
purchase
price.
Rather,
it
was
a
refundable
deposit
payment
the
purpose
for
which
was
”
.
.
.
a
reminder
to
the
Dealer
that
he
has
a
unit
in
inventory
that
he
should
be
putting
extra
effort
to
move
because
he
had
it
for
over
a
year
or
more."
Such
deposits
were
refundable
on
either
sale
or
transfer
of
the
goods
to
which
they
applied.
I
find
it
hard
to
accept
the
implications
that
appellant's
counsel
is
trying
to
give
to
the
aforementioned
passage.
In
fact,
Urie
J.
emphasizes
that
the
lack
of
payment
of
administrative
charges
is
perfectly
compatible
with
a
consignment
sale
which,
by
nature,
cannot
give
rise
to
a
transfer
of
ownership
of
the
things
that
are
its
subject
matter.
However,
it
would
be
rash
indeed
to
suppose
that
the
Court
said
it
is
normal,
when
a
creditor
imposes
administrative
charges,
that
the
debtor,
regardless
of
the
agreement
between
the
parties,
cannot
own
the
property
that
is
the
subject
matter
of
the
agreement
in
question
(Transcript,
page
18).
5.07
Thus,
in
view
of
the
significant
differences
that
exist
between
the
documents
produced
by
the
parties
to
this
dispute
and
the
agreement
that
was
examined
in
Dresden
Farm
Equipment
Ltd.,
supra,
it
would
be
inappropriate
to
rely
on
some
excerpts
from
the
analysis
in
the
latter
judgment
in
order
to
extract
some
criteria
from
it
to
help
define
the
intention
of
the
parties
to
the
various
contracts
issued
by
the
C.F.Q.
5.08
It
was
also
submitted
that
the
issuance
of
a
purchase
order
by
Koffman
Foods
Ltd.
almost
one
year
after
the
issuance
of
a
confirmation
of
reservation
once
again
demonstrates
the
intention
of
the
C.F.Q.
and
its
customer
to
delay
the
transfer
in
ownership
to
the
date
of
invoicing
and
payment
of
the
inventories
of
cheese
(Transcript,
pages
14
and
47).
However,
I
am
of
the
opinion
that
this
document
does
not
affect
the
period
in
which
the
transfer
of
ownership
of
the
cheese
inventories
occurred.
Indeed,
it
is
interesting
to
note
that
the
quantities
found
in
this
document
are
practically
identical
to
those
registered
on
the
confirmations
of
reservation.
Furthermore,
is
it
purely
circumstantial
that
the
purchase
order
has
the
same
lot
identification
numbers
as
the
confirmations
of
reservation
that
were
issued
one
year
earlier?
This
brief
analysis
has
convinced
me
that
such
a
document
is
simply
a
formal
procedure
enabling
a
customer
such
as
Koffman
Foods
Ltd.
to
notify
the
C.F.Q.,
particularly
when
the
aging
period
of
the
cheese
has
been
extended,
that
it
would
like
the
cheese
that
was
stored
with
the
appellant
Coopérative
to
be
sent
to
it.
The
invoicing
and
payment
of
the
inventories
will
be
done
later,
as
is
demon-
stratedby
the
invoice
issued
to
Koffman
Foods
Ltd.
The
definition
of
the
English
term
"purchase
order"
(bon
de
commande)
in
Black's
Law
Dictionary
corroborates
my
position
in
this
regard.
It
reads:
Document
authorizing
a
seller
to
deliver
goods
with
payment
to
be
made
later.
A
written
authorization
calling
on
a
vendor
or
supplier
to
furnish
goods
to
the
person
ordering
such.
It
constitutes
an
offer
which
is
accepted
when
the
vendor
supplies
the
quantity
and
quality
ordered.
5.09
Finally,
counsel
for
the
appellant
insisted
at
length
on
the
importance
of
the
reference
to”
selling
price:
F.O.B.
Montréal”
in
determining
the
time
of
the
transfer
of
ownership
of
the
cheese
inventories
(Transcript,
pages
35-7,
48).
The
cases
and
authorities
seem
to
be
unanimous
in
finding
that
the
characteristic
of
an
F.O.B.
sale
is
to
have
the
ownership
of
the
property
that
is
to
be
conveyed
transferred
at
the
time
when
these
goods
become
the
responsibility
of
the
carrier.
The
comment
from
the
Traité
de
droit
commercial
by
Antonio
Perreault,
which
was
submitted
by
counsel
for
the
respondent,
deserves
a
brief
mention
here.
The
excerpt
from
page
97
of
book
2,
which
proves
particularly
determinative
in
this
case,
reads:
[Translation]
In
practice,
it
is
necessary
to
find
out
whether
the
parties
used
only
these
letters
F.O.B.,
or
whether
they
added
to
them
some
terms
that
modify
their
meaning.
Thus,
could
it
be
that
the
use
of
the
term
"selling
price;
F.O.B.
Montréal”
instead
of"vente
F.O.B.
Montréal”
[sale
F.O.B.
Montréal]
substantially
modifies
the
meaning
given
to
this
phrase
by
the
cases
and
authorities?
I
think
it
would
have
been
worthwhile
for
the
appellant
to
prove
the
thinking
behind
this
term
with
greater
clarity
in
order
to
provide
a
better
picture
of
this
intention
of
the
parties
in
this
respect.
The
failure
to
do
so
is
not,
however,
determinative,
although
it
does
raise
a
small
doubt
in
my
mind.
However,
it
seems
to
be
acknowledged
that
the
intention
of
the
parties
in
any
form
of
contract
cannot
be
elicited
only
through
a
single
test.
The
intention
must
emerge
from
the
whole
of
the
circumstances
in
each
specific
instance.
This
passage
from
George
Smith
Trucking
Co.,
supra,
appears
to
bear
out
this
position:
In
the
end
all
the
circumstances,
including
the
withheld
documents,
the
other
documents,
and
the
conduct
of
the
parties,
must
be
considered.
Considering
all
the
circumstances,
I
agree
with
the
trial
judge
that:
The
intention
of
the
parties
is
to
be
ascertained
having
regard
for
the
terms
of
the
contract,
the
conduct
of
the
parties
and
the
circumstances
of
the
case.
Having
regard
to
those
factors,
I
am
satisfied
the
intention
of
the
parties
(whether
or
not
they
actually
directed
their
minds
to
the
matter
specifically)
must
be
inferred
to
have
been
that
property
in
the
meat
products
would
pass
when
each
order
was
loaded
on
the
trucks
of
George
Smith.
Thus,
the
presence
of
a
"selling
price:
F.O.B.
Montréal”
clause
does
not
enable
one
to
overlook
the
entirety
of
the
evidence,
which
is
clearly
to
the
effect
that
the
sale
of
the
inventories
of
cheese
effected
a
transfer
of
ownership
of
the
said
inventories
at
the
time
of
the
issuance
by
the
C.F.Q.
of
the
confirmations
of
reservation.
Considering
the
fact
that
the
appellants
evidence
never
demonstrated
that
the
intention
of
the
parties
was
to
achieve
a
transfer
of
ownership
during
the
invoicing
and
payment
of
the
cheese
inventories,
it
was
necessary
that
counsel
for
the
C.F.Q.
present
almost
irrefutable
evidence
of
the
actual
intention
of
the
parties
in
relation
to
such
a
clause.
The
serious
deficiencies
in
the
appellant's
evidence
in
this
regard
will
be
fatal
to
it.
5.10
This
Court
must
therefore
decide
in
favour
of
the
respondent's
claim,
given
the
appellant's
inability
to
demonstrate
that
the
intention
of
the
parties
was
Clearly
to
derogate
from
the
requirements
of
the
Civil
Code
in
relation
to
the
transfer
of
ownership
of
the
inventories
of
cheese.
Indeed,
an
analysis
of
the
documents
that
were
introduced
in
evidence
demonstrates
quite
convincingly
the
coherence
of
the
process
of
manufacture
and
sale
of
the
cheese
which,
as
the
respondent
suggests,
the
appellant
Coopérative
must
perform
(3.07).
The
transfer
of
ownership
of
a
fungible,
that
is,
an
undifferentiated
thing,
is
clearly
governed
by
articles
1026
and
1474
of
the
Civil
Code.
The
sale
is
therefore
not
perfected
and
will
accordingly
amount
to
a
transfer
of
ownership
when
the
identification
and
information
formalities
have
been
completed.
Michel
Pourcelet,
in
La
Vente,
gives
a
concise
presentation
of
this
position.
It
would
not
be
inappropriate,
in
the
circumstances
of
this
case,
to
present
a
few
excerpts,
which
are
found
at
pages
84
to
86
of
his
volume:
[Translation]
When
the
sale
bears
on
things
that
are
designated
only
by
their
type
(a
sale
of
undifferentiated
commodities
such
as
wine,
wheat
or
machinery),
the
transfer
of
ownership
is
delayed
until
such
time
as
the
fungible
becomes
a
definite
body.
It
can
do
so
only
inasmuch
as
certain
operations
specified
by
the
Civil
Code
have
been
performed,
thereby
allowing
the
thing
to
be
individualized.
Under
article
1474,
"When
things
moveable
are
sold
by
weight,
number
or
measure,
and
not
in
the
lump,
the
sale
is
not
perfect
until
they
have
been
weighed,
counted
or
measured.
.
.
.
"
Ownership
can
pertain
only
to
an
individualized
thing.
A
thing
is
said
to
be
individualized
when
it
is
identified.
This
is
the
species
in
Roman
law,
that
is,
the
set
of
features
that
characterize
and
identify
an
object.
The
transfer
of
ownership
is
realized
only
when
the
thing
becomes
determinate,
that
is,
when
it
becomes
a
definite
element.
Article
1026
is
categorical
and
reinforces
the
meaning
of
article
1474:
If
the
thing
to
be
delivered
be
uncertain
or
indeterminate,
the
creditor
does
not
become
the
owner
of
it
until
it
is
made
certain
and
determinate,
and
he
has
been
legally
notified
that
it
is
so.
In
the
sale
by
weight,
number
or
measure,
the
individualization
is
done
by
weighing,
counting
or
measuring,
which
must
be
performed
in
accordance
with
the
intention
expressed
by
the
parties.
For
the
purchaser
to
become
the
owner,
the
goods
pertaining
to
him
must
be
separated
from
the
group:
for
example,
a
sale
of
500
bushels
of
wheat
out
of
a
total
10,000
bushels
in
some
silos.
In
addition
to
the
counting,
measuring
or
weighing
procedures
in
order
to
individualize
the
goods,
there
are
other
methods
of
individualization:
the
parties
may
agree
that
the
delivery
of
the
goods
to
the
purchaser's
domicile
will
imply
a
transfer
of
ownership,
or
that
the
marking
of
the
goods
by
either
the
vendor
or
the
purchaser
who
affixes
his
name
or
trade
mark
on
a
pile
of
wood,
for
example,
will
individualize
the
goods
and
thereby
entail
a
transfer
of
ownership.
The
essential
effect
of
the
individualization
by
the
procedures
referred
to
is
to
transfer
the
ownership
forthwith
to
the
purchaser.
As
long
as
the
operation
is
not
carried
out,
the
vendor
remains
the
owner
of
the
goods,
even
though
there
was
an
agreement
of
the
parties
on
the
thing
and
on
the
price
and
accordingly
all
of
the
risks
of
the
thing
are
the
responsibility
of
the
vendor.
The
confirmations
of
reservation
that
ensued
from
the
“initial
contracts"
clearly
fulfil
these
requirements.
5.11
The
parties
entered
in
to
an
agreement
at
the
start
of
the
hearing
that:
In
case
No.
87-2123(IT):
(a)
for
1978,
the
appellant
withdraws
its
objection;
(b)
for
1979,
a
further
amount
of
$35,624
is
allowed
as
a
deduction
for
inventory;
(c)
for
1980,
the
appellant
withdraws
its
objection;
(d)
for
1981,
a
further
amount
of
$5,509
is
allowed
as
a
deduction
for
inventory;
In
case
No.
88-189
(IT):
(a)
For
1982,
the
appellant
withdraws
its
objection;
(b)
for
1983,
a
further
amount
of
$52,
106
is
allowed
as
a
deduction
for
inventory.
5.12
Whereas
the
burden
of
proof
was
initially
on
the
appellant;
Whereas
the
Civil
Code
provisions
must
be
applied
in
the
absence
of
contractual
clauses
expressly
providing
the
contrary;
Whereas
the
evidence
in
support
of
the
appellant's
argument
was
insufficiently
proven;
The
appeals
for
all
the
taxation
years
at
issue
must
accordingly
be
dismissed
in
their
entirety.
However,
in
view
of
the
agreement
reached
on
further
deductions
for
the
1979,
1981
and
1983
taxation
years,
the
appeals
for
the
said
taxation
years
will
be
allowed
in
part.
6.
Conclusion
The
appeals
for
the
1978,
1980
and
1982
taxation
years
are
dismissed.
Further,
in
accordance
with
the
agreement
reached,
the
appeals
for
the
1979,
1981
and
1983
taxation
years
are
allowed
in
part
and
the
matter
is
referred
back
to
the
respondent
for
reconsideration
and
reassessment.
The
reassessments
for
the
said
1979,
1981
and
1983
taxation
years
are
otherwise
upheld,
without
costs.
Appeals
allowed
in
part.
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