A-178-83
The Queen (Appellant)
v.
Imperial General Properties Limited (Respond-
ent)
Court of Appeal, Urie, Stone and MacGuigan
JJ.—Toronto, December 13, 1984; Ottawa, Janu-
ary 11, 1985.
Income tax — Appeal from judgment holding profit on land
sale properly included in 1968 income — Agreement of pur
chase and sale dated 1968 — $70,000 deposit paid in 1968 —
Transfers of property dated 1970 — Appeal allowed — Sale
not taking place until conditions precedent fulfilled — Balance
of purchase price over $70,000 actually received in 1968, not
"amount receivable" under s. 85e(1)(b) until 1970 when condi
tion relating to compliance with Planning Act fulfilled — S.
85e not applicable to moneys received in 1968 — $70,000
deposit not income received in 1968 due to contingency factor
— Minister of National Revenue v. Atlantic Engine Rebuilders
Ltd., [1967] S.C.R. 477 applied — Income Tax Act, R.S.C.
1952, c. 148, s. 85e(1) (as am. by S.C. 1952-53, c. 40, s. 73;
S.C. 1955, c. 54, s. 26).
Contracts — Conditions — Precedent or subsequent —
Agreement of purchase and sale of land subject to conditions
as to rezoning, soil conditions, services and CMHC approval
— Express right of waiver never exercised — Agreement also
subject to compliance with s. 26 of Planning Act — No right of
waiver — All true conditions precedent — Turney v. Zhilka,
[1959] S.C.R. 578 applied — Right of waiver not affecting
nature of true condition precedent — Right to performance of
contract arising from third parties' actions — No binding
contract until conditions fulfilled — The Planning Act, R.S.O.
1960, c. 296, ss. 26(/) (as am. by S.O. 1960-61, c. 76, s. 1)
(a),(e) (as am. by S.O. 1966, c. 116, s. 2), 32b(1) (as enacted by
S.O. 1961-62, c. 104, s. 8), (2) (as am. by S.O. 1966, c. 116, s.
5).
Real property — Agreement of purchase and sale dated
1968 — Transfers of property dated 1970 — No binding
agreement until conditions precedent fulfilled — Right of
possession inconsistent with vendor's exclusive control over
property not established — Right to demolish existing build
ings and commence construction in agreement subject to issu
ance of building permits and registration of plan of subdivision
— Evenis not taking place until 1970 — Right of access to
construction site equally consistent with right of mere access
rather than exclusive legal possession.
Sale of land — Statute of Frauds — Land description
sufficient to satisfy The Statute of Frauds — Supreme Court
of Canada holding in Dynamic Transport Ltd. v. O.K. Detail-
ing Ltd., /19781 2 S.C.R. 1072, conduct of parties considered
in determination of sufficiency of land description — Parties
not having difficulty with identification — The Statute of
Frauds, R.S.O. 1960, c. 381.
Practice — Pleadings — Inadequacy of land description
barring enforceable contract argued — Argument not express
ly pleaded in defence to amended statement of claim —
Original agreement and amending agreements pleaded in
defence — Principle in Re Vandervell's Trust (No. 2), 119741 3
All E.R. 205 (C.A.) applied — Sufficient to state facts — No
need to state legal result.
Appeal from trial judgment holding sale of land took place in
1968. The Minister of National Revenue alleges the sale
occurred in 1970. The agreement of purchase and sale was
dated October 29, 1968. The agreement was subject to condi
tions relating to rezoning, soil conditions, services and CMHC
approval. If the conditions were not fulfilled within two years
from the date of closing, the purchaser had to either waive the
conditions or terminate the transaction. The purchaser had the
privilege of demolishing any buildings standing on the property
and commencing construction. The agreement was also subject
to compliance with The Planning Act which did not occur until
1970. This condition was not subject to waiver. The actual
transfers were dated September 9, 1970. The issue is whether
the Trial Judge erred in holding that the profit realized on the
disposition of the property was properly included in the taxpay
er's 1968 income. The respondent argues that the sale took
place in 1968 and that it was entitled to include in its 1968
income the deposit received in 1968, and the balance receiv
able. As a preliminary issue, the appellant contends that there
was no enforceable contract until the description of the land
was finalized in 1970. The respondent argues that the appellant
cannot present such an argument at this stage because it was
not expressly pleaded.
Held, the appeal should be allowed.
The adequacy of the description was not specifically pleaded
in the defence to the amended statement of claim, but the
appellant pleaded the whole of the original agreement and
amending agreements. According to the principle stated in Re
Vandervell's Trust (No. 2), [ 1974] 3 All E.R. 205 (C.A.), it is
sufficient for the pleader to state the material facts. He need
not state the legal result. However, the description of the land
was sufficient to satisfy The Statute of Frauds. Neither party
had any problem identifying the land. The amending agreement
built upon the original strip by enlarging it. The lack of a
precise metes-and-bounds description is not sufficient to render
the land insufficiently identifiable.
The respondent contends that a property is sold when (1)
beneficial ownership has passed under a binding agreement of
purchase and sale and (2) the purchaser has obtained some
possessory right which is inconsistent with the vendor's exclu
sive control over the property.
In support of the second contention the respondent pointed to
the purchaser's right of demolition and construction. However,
these rights arose only after the issuance of building permits
and registration of a plan of subdivision, which did not take
place until 1970. They are not evidence of a right of possession
as of the closing date in 1968. The provision for access to the
construction site is ambiguous in that it is equally consistent
with a right of mere access, rather than of exclusive legal
possession as owner.
There was no binding agreement of purchase and sale until
1970 when the conditions precedent were fulfilled. The
respondent argues that the agreement was deliberately struc
tured to ensure that the conditions were subsequent. Parties
cannot by their own intention make a condition precedent. A
true condition precedent is an external condition upon which
the existence of the obligation depends. A waiver cannot affect
the nature of a true condition precedent. Since the conditions in
the agreement were external conditions, the right to perform
ance occurred solely as a result of third parties' actions which
fulfilled the conditions precedent, thus binding both parties to
the agreement.
The agreement was also subject to compliance with section
26 of The Planning Act. The fact that the condition was
specified as a term of the agreement renders it unnecessary to
prove that the consent of the committee of adjustment under
section 32b of the Act was required. The condition as to
compliance with The Planning Act was also a true condition
precedent, the fulfillment of which depended entirely on the
happening of an external event in the control of third parties.
The condition could not be waived. Thus until the condition
was fulfilled, the purchaser could not have required specific
performance of the contract.
The balance of the purchase price, after the $70,000 actually
received in 1968, was not an "amount receivable" under para
graph 85B(1)(b) until 1970 when the condition relating to
compliance with The Planning Act was fulfilled. The principle
from Minister of National Revenue v. John Colford Contract
ing Co. Ltd., [ 1960] Ex.C.R. 433, that there must be a "clearly
legal, though not necessarily immediate, right to receive" the
amount in question, was applicable.
The deposit of $70,000 was not income received in 1968
because the respondent's right to retain this money was depend
ent upon the contingency factor.
The only deposits recognized as income by section 85B are
those contemplated by subparagraph 85B(1)(a)(ii) which does
not apply. Since this subparagraph deals with deposits, Parlia
ment did not intend that subparagraph 85B(1)(a)(i) should also
do so. Section 85B does not apply to the deposit paid in 1968.
Apart from section 85B, the Supreme Court of Canada held
in Minister of National Revenue v. Atlantic Engine Rebuilders
Ltd., [1967] S.C.R. 477 that nothing in the Income Tax Act
requires the deposits to be treated as profits of the respondent.
Thus the test of income remains whether it had become the
absolute property of the taxpayer, rather than a deposit contin-
gently received: Dominion Taxicab Assn. v. Minister of Na
tional Revenue, [1954] S.C.R. 82; [1954] C.T.C. 34.
CASES JUDICIALLY CONSIDERED
APPLIED:
Re Vandervell's Trust (No. 2), [1974] 3 All E.R. 205
(C.A.); Dynamic Transport Ltd. v. O.K. Detailing Ltd.,
[1978] 2 S.C.R. 1072; Turney v. Zhilka, [1959] S.C.R.
578; Hobart Investment Corpn. Ltd. v. Walker et al.,
[1977] 4 W.W.R. 113 (B.C.C.A.); Robertson Ltd.,
Kenneth B.S. v. Minister of National Revenue, [1944]
Ex.C.R. 170; Diamond Taxicab Assn. Ltd. v. Minister of
National Revenue, [1952] Ex.C.R. 331; [1952] C.T.C.
229; Dominion Taxicab Assn. v. Minister of National
Revenue, [1954] S.C.R. 82; [1954] C.T.C. 34; Minister
of National Revenue v. Atlantic Engine Rebuilders Ltd.,
[1967] S.C.R. 477; Minister of National Revenue v. John
Colford Contracting Co. Ltd., [1960] Ex.C.R. 433.
NOT FOLLOWED:
Genern Investments Ltd. v. Back, [1969] 1 O.R. 694
(H.C.); Dennis v. Evans (1972), 27 D.L.R. (3d) 680
(Ont. C.A.); affg. [1972] 1 O.R. 585 (H.C.).
REFERRED TO:
384238 Ontario Limited v. The Queen in right of
Canada, [1984] 1 F.C. 661; (1983), 52 N.R. 206 (C.A.);
Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R.
536; 84 DTC 6305; Kirby v. Cowderoy, [1912] A.C. 599
(P.C.); Re Shantz and Hallman (1927), 60 O.L.R. 543
(C.A.); Barnett v. Harrison, [1976] 2 S.C.R. 531; Wil-
char Construction Ltd. v. R., [1982] 2 F.C. 489 (C.A.).
COUNSEL:
Ian MacGregor and Michael Templeton for
appellant.
Wolfe D. Goodman, Q.C. and Joanne E.
Swystun for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Goodman & Carr, Toronto, for respondent.
The following are the reasons for judgment
rendered in English by
MACGUIGAN J.: The respondent disputes a
reassessment of income tax for the 1972 taxation
year. The dispute is over the taxability of the
proceeds of a sale of land which respondent alleges
took place in 1968 but which the Minister of
National Revenue interprets as having occurred in
1970. The Trial Division [[1984] 1 F.C. 146] held
for the respondent and the appellant appeals to
this Court.
The. respondent is a successor corporation to
Brampton Realty Limited ("Brampton"), both
being incorporated under the laws of the Province
of Ontario. Brampton was engaged in the business
of buying, selling and servicing land, and con
structing many types of buildings.
In October of 1968 Brampton was the owner of
land situated in the Borough of Scarborough in
Metropolitan Toronto at the intersection of Birch-
mount Road and Sheppard Avenue East which
was large enough for the construction of a number
of apartment buildings. On October 29, 1968,
Brampton agreed to sell enough land for two
apartment sites to one Jack Mendlewitz.
The agreement was described by the Trial Judge
as follows [at pages 148-151]:
The monetary terms of the agreement of purchase and sale
(hereinafter the "original agreement") dated October 29, 1968
were that the purchase price was $844,250 to be paid as
follows: $20,000 on signing the agreement, $50,000 on October
31, 1968, $145,000 upon registration of a plan of subdivision
concerning Mendlewitz' proposed development of the property,
and the balance "as then determined" by way of two mortgages
back to Brampton once certain conditions have been fulfilled.
The opening paragraph of the original agreement reads as
follows:
The undersigned, JACK MENDLEWITZ (as Purchaser)
hereby agrees to and with BRAMPTON REALTY LIMITED (as
Vendor) through Drillich & Company Realty Limited, agent
for the Vendor, to purchase all and singular the lands and
premises owned by the Vendor lying in the Borough of
Scarborough, being on the north side of Sheppard Avenue
East and the East Side of Birchmount Road, and being
sufficient lands for two apartment buildings containing 307
suites (each site of approximate equal size), one of which
sites is at the corner of Sheppard and Birchmount Avenues,
at the price or sum of EIGHT HUNDRED AND FORTY-FOUR
THOUSAND TWO HUNDRED AND FIFTY DOLLARS
($844,250.00) of lawful money of Canada, payable as
follows.
The agreement provides that the said purchase price is based
upon the sum of $2,750 per suite for 307 suites, and that after
the registration of the plan of subdivision, building permits will
be secured for the construction of two apartment buildings
containing the 307 suites, with a gross minimum area of 900
square feet for each suite.
The following paragraph reads as follows:
This agreement is conditional upon the following condi
tions, and if the same are not fulfilled within two years from
the date of closing the Purchaser must either complete the
within transaction and waive such unfulfilled conditions, or
terminate the within transaction, in which event he shall be
entitled to the return of any and all moneys paid hereunder
without deduction and without interest.
The four conditions are to the effect that: (1) the Borough
will zone the subdivision to permit the construction of the
buildings; (2) the soil conditions will allow for the construction
of the buildings with no increase in costs; (3) the lands will be
fully serviced; and (4) the subject property will be approved by
Central Mortgage and Housing Corporation for mortgage
purposes.
That paragraph (paragraph 4) concludes as follows:
Provided that if such conditions are not satisfied within one
year from the date of closing the purchaser can declare the
within agreement null and void in which event he shall be
entitled to a return of all monies paid hereunder.
The agreement then provides for the remainder of the pur
chase price "as then determined" to be payable by way of two
separate mortgages. Each paragraph dealing with the two
separate mortgages includes a clause to the effect that the
mortgagor (Mendlewitz) shall have the privilege of demolishing
any buildings standing on the subject property and to com
mence construction, "without such demolition and/or construc
tion being deemed an act of waste so as to cause the said
mortgage to be considered in default". A proviso to the same
effect appears earlier in the document, in the paragraph dealing
with the payment of the balance of the purchase price. On the
last page of the eight-page document it is provided that "the
Purchaser shall at all times have access to the construction site
to enable the Purchaser to carry out construction on the said
lands".
The original agreement was followed by an agreement dated
August 8, 1969 between Jack Mendlewitz as purchaser and
Imperial General Properties Limited as vendor. This agreement
acknowledges the original agreement and refers to the amalga
mation of Brampton by the Plaintiff.
This agreement also provides that "if prior to the commence
ment of construction of the apartment buildings ... the Pur
chaser [Mendlewitz] receives an acceptable bona fide offer to
purchase from any party ... [he] shall give the Vendor [the
plaintiff] ... the prior option to purchase" at the price of the
bona fide offer.
A further agreement of purchase and sale, dated September
9, 1969, was entered into between the plaintiff and Mendlewitz
dealing with additional lands adjacent to the subject property
for the price of $289,250. That agreement is also conditional
upon certain conditions to be fulfilled by October 29, 1970, or
for the purchaser to terminate the transaction or to waive the
unfulfilled conditions. This agreement further provides that
default by the purchaser or the vendor under the within agree
ment shall constitute default under the original purchase
agreement.
On September 10, 1970, Mendlewitz authorized and directed
the plaintiff to engross a deed in favour of Palmyra Holdings
Limited and a deed in favour of St. Giles Developments
Limited, two parties to which had been assigned each a portion
of the subject property by Mendlewitz. The actual transfers
under The Land Titles Act of Ontario [R.S.O. 1960, c. 204]
are dated September 9, 1970.
A statement of adjustments, dated September 10, 1970,
shows the total purchase price of 307 suite and 83 suiters to be
$1,070,750, from which sum are deducted several mortgages
leaving a "balance due on closing payable to Imperial General
Properties Limited" of $154,000.
The actual adoption by the Council of the Borough of the
Board of Control recommendations to amend the subdivision
agreement, as requested by the plaintiff, is dated September 14,
1970, and was transmitted by the plaintiffs attorneys to Men-
dlewitz's attorneys on September 22, 1970.
On these facts the issue is whether or not the
Trial Judge erred in holding that the profit real
ized by Brampton on the disposition of the prop
erty was properly included in its income for its
1968 taxation year. The determination of that
issue necessitates a finding as to the time of com
pletion of the sale. The respondent argues that the
property was sold on October 31, 1968, and that it
rightly included in its 1968 income both the
$70,000 it had received in 1968 and the balance of
$774,240 receivable from Mendlewitz on account
of the property.
The relevant law is principally section 85B of the
Income Tax Act, R.S.C. 1952, c. 148, as amended
[by S.C. 1952-53, c. 40, s. 73; S.C. 1955, c. 54, s.
26; S.C. 1957, c. 29, s. 19], which, in 1968 read in
part, as follows:
85B. (1) In computing the income of a taxpayer for a
taxation year,
(a) every amount received in the year in the course of a
business
(i) that is on account of services not rendered or goods not
delivered before the end of the year or that, for any other
reason, may be regarded as not having been earned in the
year or a previous year, or
(ii) under an arrangement or understanding that it is
repayable in whole or in part on the return or resale to the
taxpayer of articles in or by means of which goods were
delivered to a customer,
shall be included;
(b) every amount receivable in respect of property sold or
services rendered in the course of the business in the year
shall be included notwithstanding that the amount is not
receivable until a subsequent year unless the method adopted
by the taxpayer for computing income from the business and
accepted for the purpose of this Part does not require him to
include any amount receivable in computing his income for a
taxation year unless it has been received in the year;
(c) subject to subsection (3), where amounts of a class
described in subparagraph (i) or (ii) of paragraph (a) have
been included in computing the taxpayer's income from a
business for the year or a previous year, there may be
deducted a reasonable amount as a reserve in respect of
(i) goods that it is reasonably anticipated will have to be
delivered after the end of the year,
(ii) services that it is reasonably anticipated will have to be
rendered after the end of the year,
(iii) periods for which rent or other amounts for the
possession or use of land or chattels have been paid in
advance, or
(iv) repayments under arrangements or understandings of
the class described in subparagraph (ii) of paragraph (a)
that it is reasonably anticipated will have to be made after
the end of the year on the return or resale to the taxpayer
of articles other than bottles;
I propose to deal first with the most fundamen
tal question, that of the sale.
Here, a preliminary issue arises over the
adequacy of the land description. Appellant con
tends that there could be no enforceable contract
between the parties to the original agreement
because it was only in 1970 that the quantity and
the description of the land to be conveyed were
finalized. Respondent disputes that contention and
also argues that appellant cannot present such an
argument at this stage because it was not expressly
pleaded.
On the one hand, I can see nothing unfair in
appellant's raising this issue, as indeed it was also
raised at trial, although the Trial Judge made no
explicit holding with respect to respondent's argu
ment. While in the memorandum of fact and law
for this appeal the appellant argues the adequacy
of the description, it did not specifically plead this
defence in the defence to the amended statement
of claim. It seems to me that the relevant principle
was well stated by Lord Denning in Re Vander-
vell's Trust (No.2), [ 1974] 3 All E.R. 205 (C.A.),
at page 213 (applied by this Court per Stone J., in
384238 Ontario Limited v. The Queen in right of
Canada, [1984] 1 F.C. 661, at page 678; (1983),
52 N.R. 206 (C.A.), at page 217):
It is sufficient for the pleader to state the material facts. He
need not state the legal result. If, for convenience, he does so,
he is not bound by, or limited to, what he has stated. He can
present, in argument, any legal consequence of which the facts
permit.
In the instant case, the appellant pleaded the
whole of the original agreement and also the two
further amending agreements in the defence to the
amended statement of claim. These are essentially
the factual materials with which the legal argu
ment is constructed.
On the other hand, I believe that the respondent
correctly contends that the description of the land
to be sold was sufficient to satisfy The Statute of
Frauds [R.S.O. 1960, c. 381] and hence not
render the contract unenforceable for that reason.
In Turney v. Zhilka, [1959] S.C.R. 578, where the
Supreme Court held that the contract was not
enforceable by specific performance under section
4 of The Statute of Frauds [R.S.O. 1950, c. 371],
it did so on a finding that "the parties never
reached any agreement, oral or written, on the
quantity or description of the land to be retained
or the land to be conveyed" (at page 580). On
different facts, in Dynamic Transport Ltd. v. O.K.
Detailing Ltd., [1978] 2 S.C.R. 1072, the Supreme
Court held a land description sufficient, and Dick-
son J. [as he then was], stated that "On the issue
of certainty of description of the land, courts have
gone a long way in finding a memorandum in
writing sufficient to satisfy The Statute of
Frauds" (at page 1078). He also held that, in
seeking to determine whether the land description
causes any difficulty, it is open to consider the
conduct of the parties.
Here only a 5.12-acre strip of the 32-acre site
was zoned to permit apartment development and it
was this strip for which Mendlewitz negotiated.
The evidence shows that neither the vendor nor the
purchaser ever had any problem of identification.
Indeed, the amending agreement of September 9,
1969, built upon the original strip by further
enlarging it. On the facts in this case, the lack of a
precise metes-and-bounds description is not suffi
cient to render the land insufficiently identifiable.
I turn next to consider the question of the sale
itself. The agreement of purchase and sale was
dated October 29, 1968, for a closing date of
October 31, with payments of $20,000 on execu
tion of the agreement and $50,000 on closing. The
purchaser had until December 15 to search title.
In rough order of chronology, the soil tests were
carried on in 1968 and 1969, the consent of the
Committee of Adjustment to the issuance of the
deeds was issued on August 8, 1969, the subdivi
sion agreement was entered into in 1970 and the
plan of subdivision was registered on July 8, 1970,
the servicing of the land was completed in the
middle of 1970, the building permits for the pro
posed buildings were issued in September, 1970,
the statement of adjustments was calculated as of
September 10, 1970, and the deeds of title were
registered at about the same time.
The reason for a closing date which seems to be
out of synchronization with other elements of the
transaction was explained by the respondent in its
factum, (which explanation appears to be support
ed by the evidence) as follows:
Brampton's accountants advised that it would be advanta
geous for the sale of the property to close before November 1,
1968, (which was the day Brampton was to amalgamate with a
number of other corporations to form the Respondent), so that
the profit that would be realized on the sale could be offset for
income tax purposes against losses which had accumulated in
Brampton. (Under the Income Tax Act, as it then read, such
losses could not be carried forward to and utilized by the
amalgamated company.)
In the light of the recent Supreme Court of
Canada decision in Stubart Investments Ltd. v.
The Queen, [1984] 1 S.C.R. 536; 84 DTC 6305,
no question was raised as to the propriety of
Brampton's transaction, but the appellant with
considerable reason characterized October 31,
1968, as a "nominal" closing date.
The respondent nevertheless contends that a
property is sold when two conditions exist: (1)
beneficial ownership has passed under a binding
agreement of purchase and sale; and (2) the pur
chaser has obtained some possessory right which is
inconsistent with the vendor's exclusive control
over the property.
As to possession, the respondent rightly contend
ed that possession of land must be considered in
every case with reference to its peculiar circum
stances: Kirby v. Cowderoy, [ 1912] A.C. 599
(P.C.); Re Shantz and Hallman (1927), 60 O.L.R.
543 (C.A.). The respondent drew attention to the
right in the purchaser/mortgagor to demolish any
buildings situated upon the land and to commence
construction without such demolition and/or con
struction being deemed an act of waste so as to
cause the mortgage to be considered in default, a
right which the agreement of purchase and sale
specified in identical terms for both a third-party
mortgage and a mortgage back. However, these
rights arose only 30 days after building permits
were available and a plan of subdivision had been
registered. Not only did these events not in fact
take place until about the time of the registration
of the deeds in September, 1970, with the mort
gages being taken into account in the statement of
adjustments on September 10, 1970, but they were
clearly intended to constitute the balance of the
purchase price at the time of final adjustments and
registration of title deeds. They can hardly there
fore serve as evidence of a right of possession as of
the nominal closing date in 1968.
The provision in the agreement that the pur
chaser should at all times have access to the
construction site to enable him to carry out con
struction on the land is ambiguous in that it is
equally consistent with a right of mere access
rather than of exclusive legal possession, as owner.
The respondent also fails with respect to its
contention that there was a binding agreement of
purchase and sale under which beneficial owner
ship passed. The respondent defends this position
on an entirely subjective approach, viz., that the
parties to the agreement deliberately structured it
in an unusual manner so as to ensure that the
conditions specified in the agreement were subse
quent and not precedent.
Not only is the extrinsic evidence for this argu
ment too ambiguous and inadequate to establish it,
but the authorities indicate that the parties cannot
by their own intention make or unmake a condi
tion precedent, although they may waive it. Thus
in Turney v. Zhilka, [1959] S.C.R. 578, at pages
583-584 where in the absence of a power of waiver
the Supreme Court held, inter alia, that specific
performance could not be granted, Judson J., said:
The obligations under the contract, on both sides, depend upon
a future uncertain event, the happening of which depends
entirely on the will of a third party—the Village council. This is
a true condition precedent—an external condition upon which
the existence of the obligation depends. Until the event occurs
there is no right to performance on either side.
Dickson J., for the majority of that Court in
Barnett v. Harrison, [1976] 2 S.C.R. 531, at pages
558-560, makes it clear that only an express right
of waiver could allow a contracting party to have
specific performance after waiving a condition of
the contract as one intended only for his benefit.
Of course, there are express powers of waiver
with respect to the four of the five conditions in
the agreement here. I am much inclined to the
appellant's contention that a waiver cannot affect
the nature of a true condition precedent which
exists as an external requirement, but can only, as
and when exercised, constitute a performance of
the condition to bind both parties to the agree
ment. This would involve following the British
Columbia Court of Appeal in Hobart Investment
Corpn. Ltd. v. Walker et al., [1977] 4 W.W.R.
113 (B.C.C.A.) (per McIntyre J.A.) in preference
to Genern Investments Ltd. v. Back, [1969] 1 O.R.
694 (H.C.), and Dennis v. Evans, [1972] 1 O.R.
585 (H.C.), affirmed on other grounds by Ont.
C.A., (1972), 27 D.L.R. (3d) 680. On the facts in
the instant case, the waivers were never exercised
with respect to the four conditions of a plan of
subdivision, soil tests, building permits, and
CMHC approval. It follows then that, since most,
if not all of these were external conditions, the
right to performance did not occur as a result of
the purchaser's waiver of the requirement of the
conditions, but solely as a result of third parties'
actions which had the effect of fulfilling the condi
tions precedent, thus binding both parties to the
agreement.
Nevertheless, I prefer to rest my decision on the
existence of a fifth condition, which, although not
expressed to be a condition precedent, clearly is
one. It is set forth on page 7 of the agreement as
follows: "This agreement is subject to compliance
with the provisions of Section 26 of the Planning
Act, R.S.O. 1960 as amended." The relevant parts
of subsection 26(1) (as am. by S.O. 1960-61, c. 76,
s. 1; S.O. 1966, c. 116, s. 2) and section 32b (as
enacted by S.O. 1961-62, c. 104, s. 8; as am. by
S.O. 1966, c. 116, s. 5) of The Planning Act
[R.S.O. 1960, c. 296] are as follows:
26.—(1) The council of a municipality may by by-law desig
nate any area within the municipality as an area of subdivision
control and thereafter no person shall convey land in the area
by way of a deed or transfer on any sale, or mortgage or charge
land in the area, or enter into an agreement of sale and
purchase of land in the area or enter into any agreement that
has the effect of granting the use of or right in land in the area
directly or by entitlement to renewal for a period of twenty-one
years or more unless,
(a) the land is described in accordance with and is within a
registered plan of subdivision; or
(e) the consent,
(i) of the committee of adjustment of the municipality
under subsection 2a of section 32b, unless the area was
designated by order of the Minister under clause b of
subsection 1 of section 27, or
(ii) where there is no committee of adjustment with
approved rules of procedure or where the area was desig
nated by order of the Minister under clause b of subsection
I of section 27, of the Minister,
is given to convey, mortgage, charge or enter into an agree
ment with respect to the land.
326.—(l) The committee of adjustment, upon the applica
tion of the owner of any land, building or structure affected by
any by-law that implements an official plan or is passed under
section 30, or a predecessor of such section, or any person
authorized in writing by the owner, may, notwithstanding any
other Act, authorize such minor variance from the provisions of
the by-law, in respect of the land, building or structure or the
use thereof, as in its opinion is desirable for the appropriate
development or use of the land, building or structure, provided
that in the opinion of the committee the general intent and
purpose of the by-law and of the official plan, if any, are
maintained.
(2) In addition to its powers under subsection 1, the commit
tee, upon any such application,
(a) where any land, building or structure, on the day the
by-law was passed, was used for a purpose prohibited by the
by-law and such use has continued until the date of the
application to the committee, may permit,
(i) the enlargement or extension of the building or struc
ture, provided that the land, building or structure contin
ues to be used in the same manner and for the same
purpose as it was used on the day the by-law was passed,
and provided that no permission may be given to enlarge
or extend the building or structure beyond the limits of the
land owned and used in connection therewith on the day
the by-law was passed, or
(ii) the use of such land, building or structure for a
purpose that, in the opinion of the committee, is similar to
the purpose for which it was used on the day the by-law
was passed or is more compatible with the uses permitted
by the by-law than the purpose for which it was used on
the day the by-law was passed, provided that the land,
building or structure continues to be used in the same
manner and for the same purpose as is authorized by the
decision of the committee; ...
The respondent contends that the appellant was
not entitled to argue this condition since it was not
explicity pleaded in the statement of defence, but
for the reasons given above with respect to the
property description issue, I cannot accept this
contention. In the defence to the amended state
ment of claim the appellant pleaded the whole of
the original agreement, which it alleged "con-
tained numerous conditions precedent required to
be fulfilled prior to the date of sale". This, is
certainly a sufficient pleading of material facts
upon which to ground subsequent arguments as to
particular conditions, including the one under
discussion.
On the substance of the condition, it is true, as
the respondent contends, that no evidence was led
to show that the land in issue was within a munici
pally designated area of subdivision control so as
to trigger the operation of section 26 of The
Planning Act and, thus, the requirement that the
consent of the municipality's committee of adjust
ment under section 32b of that Act be obtained.
But the fact that the condition was specified as a
term of the agreement renders it unnecessary to
prove that such consent was required. The parties
have, by their agreement, made that a require
ment, presumably whether by law it was necessary
or not. Clearly, the condition as to compliance
with The Planning Act was a true condition prece-
dent in the terms of Turney v. Zhilka, the fulfill
ment of which depended entirely on the happening
of an external event in the control of third parties.
This is not a condition which according to the
terms of the agreement or by its very nature could
be waived. Thus, until the condition had been
fulfilled, the purchaser could not have required
specific performance of the contract on October
31, 1968.
In these circumstances, can the balance of the
purchase moneys after the $70,000 actually
received in 1968 be considered an "amount receiv
able" by the respondent in 1968 under paragraph
85B(1)(b) of the Income Tax Act?
The leading case is Minister of National Reve
nue v. John Colford Contracting Co. Ltd., [ 1960]
Ex.C.R. 433, appeal dismissed [1962] S.C.R. viii,
where it was held that progress payments actually
received were taxable income in the year received,
as were that portion of holdbacks where architect's
or engineer's certificates had been received even
though they were not payable in that taxation year
under the terms of the contract. Holdbacks where
no certificates had been received were held not to
be amounts receivable within the year under para
graph 85B(1)(b). Kearney J., stated the principle
of distinction as follows (at page 441):
In the absence of a statutory definition to the contrary, I think
it is not enough that the so-called recipient have a precarious
right to receive the amount in question, but he must have a
clearly legal, though not necessarily immediate, right to receive
it. A second meaning, as mentioned by Cameron J., is "to be
received," and Eric L. Kohler, in A Dictionary for Account
ants, 1957 edition, p. 408, defines it as "collectible, whether or
not due." These two definitions, I think, connote entitlement.
The respondent did not press, in oral argument,
its contention, based on Wilchar Construction Ltd.
v. R., [1982] 2 F.C. 489 (C.A.), that a taxpayer
may freely anticipate tax liability by paying tax in
advance so that it is unnecessary for me to com
ment upon or distinguish that case.
In summation, as I see it, the balance of the
purchase price neither was received nor did it
become receivable until the 1970 taxation year of
the respondent when the condition relating to com
pliance with The Planning Act was fulfilled, at
which time it was properly included in the compu
tation of the respondent's income for that year
pursuant to paragraph 85B(1)(b) of the Income
Tax Act.
It remains to determine the respondent's posi
tion with respect to the $70,000 it had "received",
by October 31, 1968. The appellant argues that
the respondent's right to retain this money paid in
1968 is also dependent upon the contingency factor
and that it was not income within the test enun
ciated by Thorson J., in Robertson Ltd., Kenneth
B.S. v. Minister of National Revenue, [1944]
Ex.C.R. 170, at pages 182-183:
Is his right to it absolute and under no restriction, contractual
or otherwise, as to its disposition, use or enjoyment? To put it
in another way, can an amount in a taxpayer's hands be
regarded as an item of profit or gain from his business, as long
as he holds it subject to specific and unfulfilled conditions and
his right to retain it and apply it to his own use has not yet
accrued, and may never accrue? [Emphasis added.]
The Supreme Court of Canada came to a simi
lar conclusion in the cases of Diamond Taxicab
Assn. Ltd. v. Minister of National Revenue,
[1952] Ex.C.R. 331; [1952] C.T.C. 229, and
Dominion Taxicab Assn. v. Minister of National
Revenue, [1954] S.C.R. 82; [1954] C.T.C. 34,
where it held that the test of income was whether
it had become the absolute property of the taxpay
er rather than a deposit contingently received.
The respondent urges that paragraph 85B(1)(a)
has overruled this line of cases and that it includes
in income money that has not yet been earned. The
respondent does, to my mind, succeed in establish
ing that paragraph 85B(1)(a) cannot be limited to
amounts received on behalf of services not ren
dered or goods not delivered. The reading support
ed by the appellant does not satisfactorily take
account of the words "every amount received in
the year in the course of a business ... that, for
any other reason, may be regarded as not having
been earned in the year or a previous year", nor
does it explain "rent or other amounts for the
possession or use of land" in the application of
"rent or other amounts for the possession or use of
land" in paragraph (c) to paragraph (a) if the
latter is limited to receipts from goods and
services.
However, the appellant also contends that the
only deposits recognized as income by section 85B
are those contemplated by subparagraph
(1)(a)(ii), which both appellant and respondent
rightly agreed does not apply. Since this subpara-
graph admittedly deals with deposits, I must con
clude that Parliament did not intend that the
previous subparagraph should also do so. Section
85B therefore does not apply to the moneys paid by
the purchaser to the respondent in 1968.
On the Income Tax Act apart from section 85B,
the principle applied in Minister of National
Revenue v. Atlantic Engine Rebuilders Ltd.,
[1967] S.C.R. 477, would appear to be apposite.
In that case unredeemed deposits held at the end
of a tax year which were added by the Minister to
the taxpayer's income for the year were held not to
be income for the year. Cartwright J., for the
majority, surveyed the law as follows (at pages
479-480):
Section 4 of the Income Tax Act provides that, subject to the
other provisions of Part I of the Act, income for a taxation year
from a business is the profit therefrom for the year.
The question of substance in this case appears to me to be
whether in stating what its profit was for the year the respond
ent could truthfully have included the sum in question. To me
there seems to be only one answer, that it could not. It knew
that it might not be able to retain any part of that sum and that
the probabilities were that 96 per cent of it must be returned to
the depositors in the near future. The circumstance that the
respondent became the legal owner of the moneys deposited
with it and that they did not constitute a trust fund in its hands
appears to me to be irrelevant; the same may be said of moneys
deposited by a customer in a Bank which form part of the
Bank's assets but not of its profits. To treat these deposits as if
they were ordinary trading receipts of the respondent would be
to disregard all the realities of the situation.
The grounds upon which Thurlow J. based his decision
appear to me to be supported by the reasoning of the majority
in this Court in Dominion Taxicab Association v. Minister of
National Revenue, supra, at p. 85, where it is stated that as
each deposit was received by the Association and became a part
of its assets there arose a corresponding contingent liability
equal in amount. This was one of the grounds on which it was
held that the deposits formed no part of the profits of the
Association. Since that decision there has been no substantial
change in the wording of the sections of the Income Tax Act on
which the appellant relies.
What appears to me to be decisive is the fact that there is no
basis, having regard to the realities of the situation, on which
these deposits can properly be treated as ordinary trading
receipts of the respondent which it was entitled to include in
calculating its profits for the year.
In my opinion, nothing in the Income Tax Act requires these
deposits to be treated as profits of the respondent.
Admittedly, the likelihood of repayment of the
deposits was higher in the Atlantic Engine
Rebuilders case than it is in the instant case, but
the critical factor is the contingency itself. I would
therefore hold that the $70,000 on deposit is not
income received in 1968.
In the result, I would allow the appeal with
costs, set aside the judgment of the Trial Division
and restore the Minister's assessment of the
respondent's income tax for its 1972 taxation year.
URIE J.: I agree.
STONE J.: I agree.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.