Harry Wagman v. Minister of National Revenue, [1987] 1 CTC 2071, 87 DTC 13

Bonner, T.C.J.:—The issue in this appeal from an assessment of income tax for the appellant's 1979 taxation year is whether a fee of $100,000 was the income of the appellant as found by the respondent on assessment or whether it was the income of a company as the appellant contends.

E. Wagman & Co. Limited (hereinafter “the company") was incorporated in 1946. The appellant was at all relevant times one of the three directors of the company and its president. He owned two-thirds of its shares and his wife owned the remaining one-third.

For many years following its incorporation the company carried on the business of processing and dealing in wool, cotton and other fibres. For purposes of its business the company owned a factory located at 73-77 St. Patrick Street, Toronto. Over the years the company also purchased houses in the area close to the factory. It held the houses as sources of rental income.

In 1969 the company ceased to carry on the fibre business and it sold the factory property and some other land. The company then bought a 60,000 square foot parcel of land in the same area. Its intention was to develop the newly-acquired land by erecting a revenue-producing building on it. For some time following the purchase the company operated a parking lot on the land.

The plan to develop the new land was frustrated by the enactment of a zoning by-law which imposed a 45 foot building height restriction. The land had been heavily mortgaged and the delays in development caused the company to suffer financial loss. Accordingly, attempts were made to find a buyer. In 1977 the company sold one-third interests in the land to two purchasers which joined it in a joint development venture.

There was another parcel of land situated about 200 yards to the north of the property which the company was attempting to develop. That parcel was known as the D.W.S. property. The appellant, in an attempt to utilize the experience which he had gained over the years in matters related to the development and sale of lands in the area, approached a Mr. Sussman who represented D.W.S. He told Mr. Sussman that the company had owned land in the area, that it had been successful in selling that land and that in the course of doing so he had learned a lot about buyers interested in land in the area. The appellant proposed that he be allowed to sell the D.W.S. land in return for a finder’s fee. Mr. Sussman referred the appellant to another company, Canmort Realty Limited (hereinafter “Canmort") which D.W.S. had already retained to market its land. The appellant then approached Neil McKay, the general manager of Canmort. He told Mr. McKay that he felt he could obtain a buyer for the D.W.S. land. He suggested that he and Can- mort should work together and that upon completion of any sale to a buyer introduced to Canmort by the appellant, Canmort should pay him a “finder's fee” equal to half the real estate commission. An agreement to this effect was formed by an exchange of letters between the appellant on the one hand and Canmort on the other dated January 16 and 17, 1978. The term of the agreement was extended at least twice. Letters confirming the extensions were sent by Canmort to the appellant on February 8 and June 14, 1978.

The appellant was asked whether he was working for himself or for the company in dealing with Mr. Sussman and subsequently with Canmort. He answered that he was always working for the company, that he was being paid a salary by the company and that he did the work on company time.

No reference to the company was made in any of the letters which passed between Canmort and the appellant. The appellant explained that the company did not have any stationery of its own at the time. He said as well that the company had no office and he thus explained the use of his home address in the exchange of correspondence with Canmort. When the arrangement was made by the appellant with Canmort the appellant did not indicate to Mr. McKay that he was»acting on behalf of the company.

The appellant did eventually introduce a buyer and thus the fee now in question was earned. There was no evidence that any reference to the company was made at any time in the course of the appellant’s activities leading to the sale of the D.W.S. property and the earning of the commission.

The first reference to the company arose in an invoice addressed to Canmort Realty Ltd. dated December 20, 1979. A photocopy of an unsigned office copy of that invoice was entered in evidence. The invoice was as follows:

To consulting services rendered

to you in respect to the D.W.S.

Project, including assisting in

all negotiations, and all other

related services in respect thereto,

OUR FEE	$100,000.00
December 20, 1979
E. & O.E.	E. WAGMAN & CO. LIMITED
	Per:

The appellant testified that he delivered the invoice to Mr. McKay and that after some delay payment of the $100,000 was made. The appellant explained that the invoice was prepared in response to a question raised by Canmort as to the propriety of splitting a commission with an unregistered broker or salesman. Mr. McKay testified that he did not recollect either asking for the invoice or seeing it. Canmort's cheque in payment of the fee was made payable to the appellant. Mr. McKay's letter enclosing the cheque was addressed to the appellant and it referred to . . . payment as agreed in recognition of your bringing to our attention a prospective purchaser . . . ”. Mr. McKay's evidence was given with apparent care and was that of a person who had no interest in the outcome. He had no reason to demand an invoice from the company rather than the appellant. I am therefore not prepared to find that the invoice was either requested by or delivered to Canmort. In any event the invoice is not of great importance. The fee had been earned, whether by the appellant or by the company, prior to December 20, 1979.

The appellant pleaded and the respondent denied that the appellant was an employee of the company. No attempt was made to establish that a master and servant relationship existed as the result of any express agreement. However, as previously noted, the appellant was an officer of the company. He was at all relevant times president. He was also one of its three directors.

The rationalization that the appellant made and carried out the arrangement with Canmort during regular working hours for which he was paid a salary fails on two grounds. The appellant admitted during cross-examination that he did not receive a salary during the period in question. Furthermore, it seems highly unlikely that an officer and major shareholder of a very small family company such as this was subject to an arrangement stipulating regular working hours.

The appellant was asked whether since 1946 he had worked for himself or for the benefit of the company. His answer was, “Always for the company. I have no other income, no other assets, no other interests, only E. Wagman & Co. Limited?' He testified that throughout the course of the company's business he looked after all the correspondence and all purchasing, selling and invoicing. It was, he said, always his practice to sign his own name. By that I understood the appellant to mean that he did not indicate at any time that he was signing in a representative capacity.

The appellant’s version of the events leading to the earning of the commission was supported by the evidence of his son who, during the period in question, was a lawyer practising his profession in Toronto. He testified that he understood that his father's dealings with Mr. Sussman and with Mr. McKay were undertaken not for himself personally but, rather, on behalf of the company. He did not explain the basis on which he reached this conclusion.

Counsel for the appellant stated that:

. . . it is the position of Mr. Wagman and obviously of his company, who is not a party, that it was the company that earned the finder's fee; that Mr. Wagman always acted on behalf of this company; that all of his over thirty years, any investment, business undertaking of any sort that he did, he did through his company; that this finder's fee was something that the company was in the business of doing anyway or was related to the businesses of the company. In any event, all of the businesses that Mr. Wagman did, Mr. Wagman did for his company and to say that he did anything else differently in this circumstance would really be contrived and would have to be something that he intentionally did.

Counsel for the appellant submitted that the existence of a corporate decision is a question of fact; that resolutions and formal meetings, though evidence of a corporate decision, are not necessary to the formation thereof; and that if those responsible for the decisions of a corporation actually make a decision, then it is an act of the corporation. Thus, she reasoned, the appellant was the directing mind and owner of the corporation, that he had decided that the company should attempt to earn the finder's fee and that the decision was therefore the decision of the company. In this regard she relied on Eisenberg (formerly Walton) v. Bank of Nova Scotia and Ri- dout, [1965] S.C.R. 681; 52 D.L.R. (2d) 506, and Roman Hotels Ltd. v. Desrochers Hotels Ltd. (1976), 69 D.L.R. (3d) 126.

The best evidence of a corporate decision is, without doubt, a by-law or resolution. The statutory provisions in force at the relevant time included subsection 130(1) and paragraph 21 (1 )(e) of the Business Corporations Act, R.S.O. 1970, c. 53:

130. — (1) The board of directors shall manage or supervise the management of the affairs and business of the corporation.

21. — (1) The directors may pass by-laws not contrary to this Act or to the articles to regulate,

(e) the appointment, remuneration, functions, duties and removal of agents, officers and employees of the corporation and the security, if any, to be given by them to it.

No by-law or resolution was entered in evidence establishing or in any way dealing with the ambit of the appellant’s authority to act for the company, whether in relation to any specific transaction or type of transaction, either by virtue of the office of president or otherwise.

The suggestion that the transaction now in question must be seen to be indistinguishable from those which the appellant had carried out in the past is, I find, unhelpful. There was no evidence as to what authority, if any, was conferred upon the appellant for purposes of carrying on either the fibre business or the subsequent activities related to the development and sale of the company land. Furthermore, assuming that grants of authority to manage the fibre business and to acquire and develop land on behalf of the company are to be inferred from the past conduct of the appellant, no inference can logically be drawn that such grants carried with them authority to carry on the business of a real estate broker.

It is not necessary to make detailed reference to either of the cases referred to by counsel for the appellant. Neither is directly on point. Both deal with assertions that actions which on their surface appear to be the actions of the corporations were not properly authorized. In both cases the courts were dealing with decisions assented to by all shareholders. Thus, for example, in Ridout, Spence, J., speaking for the Court, said*: [1]

. . . I have been led to the conclusion that a corporation, when a matter is intra vires of the corporation, cannot be heard to deny a transaction to which all the shareholders have given their assent even when such assent be given in an informal manner or by conduct as distinguished from a formal resolution at a duly convened meeting.

In the present case, of course, the appellant was not the sole shareholder and he was not the sole director and there was no evidence of assent by the others. Furthermore, the actions of the appellant in this case bear no outward indication that the appellant was acting in a representative capacity. In essence, the appellant’s assertion that he was so acting rests on a mental process which was neither recorded nor communicated in any way prior to the time when the transaction was completed and the fee or commission earned. I can discover no basis for a conclusion that the appellant’s decision was converted into a corporate action. The appellant has therefore failed to establish that the respondent was wrong in assuming, as he did, that:

. . . at all material times the Appellant personally performed the services for which he received remuneration of $100,000.00 during his 1979 taxation year and was at no time acting as an agent or on behalf of any other party;

The appeal will therefore be dismissed.

Appeal dismissed.