The Queen v. Morris Mendelson, [1953] CTC 85, 53 DTC 1067

ARCHIBALD, J.:—Her Majesty the Queen, as plaintiff, claims payment from the defendant for the period March 31, 1943, to March 22, 1949, for sales tax claimed pursuant to Sections 140 and 142, subsections 1, 2 and 3 of The Excise Tax Act, at the rate of twenty-five percent, on a total of sales allegedly amounting to $80,749.89, on which the amount of sales tax would total $20,187.47.

The defendant is a secondhand dealer in the city of Montreal. In the period March 31, 1943, to March 22, 1949, he acquired from customers certain articles under a written contract, reading that the customer sold to him those articles. In the agreed Statement of F'acts will be found an enumeration of the various articles which he dealt in as a secondhand dealer.

On behalf of the plaintiff it was urged that there are two transactions. First that the defendant pays the customers for the article and then makes a second contract with the customer that if the customer will repay him the price of the article plus a certain compensation, the defendant will return the article sold to him.

The plaintiff also claims that in a transaction in which the defendant returns the article to the customer, it is a sale which is subject to the tax.

The defendant on the other hand contends that there was no outright sale to him in the first instance, that it was only a sale subject to a provision that the vendor in the first instant could redeem the article so sold to the defendant under conditions. In other words that it only became an actual sale when said vendor failed within a certain time or delay to redeem said article. It was urged that this transaction was in the nature of a pawn not a sale.

No evidence was adduced by either side on the hearing before me, but there was a lengthy Statement of Facts, signed by counsel for the plaintiff and counsel for the defendant. Paragraphs 18 and 19 of the said Statement of Facts or Admissions read as follows:

‘‘18. It is admitted that, if the Defendant and his employees, as well as customers, in relation with the transactions involved in this case, were heard under oath, they would say that at the occasion of all these transactions the customers came to the Defendant’s place of business and asked for a loan to be made to them on the guarantee of the articles they delivered, and the Defendant agreed to make a loan, according to their demand; and the papers Exhibits D-1 and D-2 above referred to were then filed and delivered as above-mentioned.

19. Any reference in these Admissions to loan or sale and to borrower or buyer as describing the transactions involved, is not to be taken as a definite determination of the character of the transactions, which character will be left to the Court for determination, according to all the true facts.’’

In my opinion, it was unfortunate that witnesses were not called to give any evidence before me. Counsel for the plaintiff argued with great force that on the basis of the admitted facts, the transactions involved in this case, were actually sales in the first instance. I shall refer to this phase later. Moreover, that if they were not actually sales in the first instance, the defendant employed a method of evading not only the relevant sections of The Excise Tax Act, but also actually circumvented the statutory and other provisions relating to pawnbrokers in the city of Montreal and the Province of Quebec, and also adopted a means of extracting exhorbitant, excessive and illegal interest charges contrary to the Dominion of Canada provisions respecting interest. That may be the result of his transactions, but it must be pointed out that it is not the duty of this Court to determine whether or not the defendant cireumvented the various regulations respecting pawnbrokers, or violated the provisions of the statutory requirements of the Dominion of Canada respecting interest. Furthermore, no evidence was adduced before me to support the argument made by him in this regard. The sole evidence, or the equivalent of evidence adduced before me is that appearing in paragraphs 3, 4, 5, 6 and 7 of the Statement of Facts which, under paragraphs 18 and 19 of the said Statement of Facts, quoted above, would have been the evidence of the various persons referred to in that Statement of Facts, if heard before me under oath.

In such circumstances, with reluctance, I conclude that the transactions between the defendant and the parties to the original transactions with the defendant during the relevant period, did not constitute outright sales and were therefore not subject to sales tax.

The parties agree to the relevant times w hen the sales tax, as demanded, would be in effect, and as to the amount claimed. The documents in the form covering the transactions are as follows. (It should be noted this is a specimen and the dates appearing may require adjustment. )

“I, the undersigned have SOLD TO

Je, soussigne, declare avoir VENDU A

M. M E N D E L s O N, 167 CRAIG STREET WEST

For the price of $5.00

Pour le prix de

and declare that I am the absolute owner of said articles.

Received payment in full.

et declare, en outre, etre le seul et absolu proprietaire des dits

effets. Recu paiement complet.

Montreal, Sept. 10, 1948.

Name

Address .

Time 6 :45 Registered G M

Age 45 Ht. 5.5 Wet. 140 Comp. Blonde

F No. 5498.

“Lancaster 0171

F 5498 October 10, 1948.

M. MENDELSON

Antiques — Silver — Gold

WE BUY and SELL ANYTHING OF VALUE

167 Craig Street West

Next door to Tramways Bldg. MONTREAL, P.Q.’’

It will be observed from the forms quoted above, that while the transaction purports to be an absolute sale, yet having regard to the information given in the agreed Statement of Facts, there appears opposite the word ‘‘registered’’ the letters ‘‘G M’’ which are in code and are explained in the agreed Statement of Facts. The interpretation of the code letters is found in the business card giving the number of the transaction, in this case, ‘* #'5498’’, and opposite it the date, ‘‘October 10, 1948’’, which is the date on or before which the article in question may be redeemed. It follows from this interpretation that no sale could be completed until after that date and until that date had expired the transaction was in the nature of a loan or a pawn, not a sale.

The plaintiff’s claim against the defendant will therefore be dismissed, but not with costs, because the defendant in using the words “SOLD TO” when no sale was made, naturally misled the plaintiff and further by using the code letters ‘‘G M’’ did not indicate to the plaintiff the true nature of the transaction. The plaintiff’s own conduct was responsible for the litigation.

Judgment accordingly: