Date: 20010622
Docket: 1418-IT-G
BETWEEN:
CAROLE LECLERC,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
P. R. Dussault, J.T.C.C.
[1] This is an appeal from an assessment made under section 160 of the Income Tax Act (the "Act"). By that assessment, the Minister of National Revenue ("the Minister") determined that the appellant's tax liability was $32,721, which was the amount of the benefit she allegedly received when her spouse transferred an immovable property to her on January 28, 1987, even though he had a tax liability greater than that amount at the time. The appellant argued that the property was not acquired for consideration lower than its fair market value.
[2] In assessing the appellant, the Minister assumed the facts set out in subparagraphs (a) to (g) of paragraph 6 of the Reply to the Notice of Appeal. Those subparagraphs read as follows:
[TRANSLATION]
(a) the appellant and Yves Crête were spouses on January 28, 1987, and had been since the late 1970s;
(b) on January 10, 1983, Mr. Crête purchased an immovable property located at 185 Côte d'Azur in Chicoutimi (hereinafter "the property");
(c) on January 28, 1987, by notarial instrument, Mr. Crête transferred the property to the appellant in return for her assuming the mortgage of $40,279 remaining on the property;
(d) the property's fair market value on January 28, 1987, was $73,000;
(e) the appellant therefore received a benefit of $32,721 when the transfer was made;
(f) when the transfer was made on January 28, 1987, the appellant and Mr. Crête were not dealing with each other at arm's length;
(g) at the time of the transfer, Mr. Crête owed Revenue Canada $209,217.03;
[3] No witnesses were heard. By consent, counsel for the parties filed the documents relevant to this case.
[4] The first document (Exhibit A-2) is a notarized marriage contract between Yves Crête and Carole Leclerc that was received by Roland Huot on September 30, 1975. Clause 3o-(b) of the contract reads as follows:
[TRANSLATION]
3o- In consideration of the future marriage, the future husband makes an irrevocable gift inter vivos, in full and absolute ownership, from the date the marriage is celebrated, to the future wife, who accepts:
(a) . . .
(b) of THIRTY-FIVE THOUSAND DOLLARS ($35,000.00), which shall become payable on the future husband's death. However, the future husband reserves the right to pay the said amount in whole or in part at any time during the marriage, either by paying money or by transferring movable or immovable property to the future wife.
. . .
[5] The second document (Exhibit A-1), entitled [translation] "Gift", is a notarial instrument received by Marcel Claveau on January 28, 1987. It concerns the property located along Chemin Côte d'Azur that is referred to in subparagraph 6(b) of the Reply to the Notice of Appeal. The instrument begins with the following clause:
[TRANSLATION]
THE DONOR hereby gives the following immovable property with the usual legal warranties, free and clear, and with immediate possession, to the donee, who accepts it:
. . .
[6] The following is stated next under the heading [translation] "Consideration":
[TRANSLATION]
THIS GIFT is therefore made for and in consideration of the undertaking by the donee to assume the full balance of a mortgage that was originally for FORTY-THREE THOUSAND FIVE HUNDRED DOLLARS ($43,500.00) and that is owed to Bernard Boivin under the following instrument:
. . .
[7] The third document (Exhibit A-3) is a notarial instrument received by Hubert Claveau on October 30, 1997, which claims to be a rectification of the deed of gift received by Marcel Claveau on January 28, 1987. It is entitled [translation] "Rectification and Acquittance". The following is stated under the heading [translation] "Agreements":
[TRANSLATION]
4.- The said "CONSIDERATION" clause in the above-mentioned deed published as number 466,297 neglected to mention that the said gift was made by the party of the first part to the party of the second part, who accepted it, for the following consideration as well:
In addition, the said gift is made for and in consideration of the performance of article 3(b) of the parties' marriage contract signed on the thirtieth of September nineteen seventy-five (1975/09/30) before notary Roland HUOT as number 14,801 of his minutes and published at the registry office of the registration division of Chicoutimi on the first of October of the same year (1975/10/01) as number 292,051, which article provides for a gift inter vivos of THIRTY-FIVE THOUSAND DOLLARS ($35,000.00) payable by the party of the first part to the party of the second part.
5.- ACCORDINGLY, the "CONSIDERATION" clause in the deed of gift entered into by the party of the first part, Yves CRÊTE, in favour of the party of the second part, Carole LECLERC, which was signed before notary Marcel CLAVEAU on the twenty-eighth of January nineteen eighty-seven (1987/01/28) as number 25,495 of his minutes and published in Chicoutimi on the first of September of the same year (1987/09/01) as number 466,297, ought to read as follows:
CONSIDERATION
(a) THIS GIFT is therefore made for and in consideration of the undertaking by the donee to assume the full balance of a mortgage that was originally for FORTY-THREE THOUSAND FIVE HUNDRED DOLLARS ($43,500.00) and that is owed to Bernard BOIVIN under the following instrument:
. . .
(b) In addition, the said gift is made for and in consideration of the performance of article 3(b) of the parties' marriage contract signed on the thirtieth of September nineteen seventy-five (1975/09/30) before notary Roland HUOT as number 14,801 of his minutes and published at the registry office of the registration division of Chicoutimi on the first of October of the same year (1975/10/01) as number 292,051, which article provides for a gift inter vivos of THIRTY-FIVE THOUSAND DOLLARS ($35,000.00) payable by the party of the first part to the party of the second part.
ACCORDINGLY, the party of the second part, Carole LECLERC, gives the party of the first part, Yves CRÊTE, a full and final acquittance for the THIRTY-FIVE THOUSAND DOLLARS ($35,000.00) owed to her under article 3(b) of the marriage contract signed by them before notary Roland HUOT on the thirtieth of September nineteen seventy-five (1975/09/30) as number 14,801 of his minutes and published at the registry office of the registration division of Chicoutimi on the first of October of the same year (1975/10/01) as number 292,051.
6. This deed of rectification and acquittance shall be retroactive to the twenty-eighth of January nineteen eighty-seven (1987/01/28).
7. No novation or derogation in favour of anyone whatsoever shall result from this agreement. In all other respects, the parties ratify, for all legal purposes, each and every agreement and declaration in the deed published as number 466,297.
[8] Article 8 of the same instrument deals with the intervention of Marcel Claveau, who had drafted the instrument of January 28, 1987, and states:
[TRANSLATION]
8.- INTERVENTION
INTERVENING HEREIN IS:
Marcel CLAVEAU, honorary notary, born in Chicoutimi on the twenty-sixth of February nineteen twenty-two (1922/02/26), residing at 1097 Rue Jacques-Cartier Est in Chicoutimi, province of Quebec G7H 2B2,
WHO declares that he has read this deed and who confirms that it fully reflects the parties' intention on the twenty-eighth of January nineteen eighty-seven (1987/01/28), the date they signed the deed of gift received by the intervener as number 25,495 of his minutes.
[9] The initial assessment under section 160 of the Act was made against the appellant on October 20, 1997, 10 days before the notarial instrument was signed. In response to the appellant's notice of objection and the reappraisal of the property, a reassessment reduced the amount at issue to $32,721 (see Exhibit I-1).
[10] Counsel for the appellant argued that the gift by marriage contract and thus the transfer of property occurred in 1975. From that time on, Yves Crête owed the appellant $35,000. According to counsel for the appellant, the instrument of January 28, 1987, as rectified by the instrument of October 30, 1997, does not constitute a gift or transfer but records the execution of a gift and the giving of an acquittance to the debtor. In support of his position, counsel for the appellant referred, inter alia, to the decision by Pinard J. of the Trial Division of the Federal Court of Canada in Furfaro-Siconolfi v. The Queen, [1990] 2 F.C. 3, 90 DTC 6237.
[11] Counsel for the respondent argued that the decision in Furfaro-Siconolfi is not applicable here because it was clear in that case that, when the appellant received $30,000 from her spouse, she gave him an acquittance for that amount, which he had promised to pay her under their marriage contract.
[12] Counsel for the respondent expressed the view that, insofar as the appellant is arguing that the notary made a mistake or omitted a fact that he had the task of observing, specifically the consideration for the transfer of the property, then the improbation procedure should have been used. With respect to that point, he relied on article 2821 of the Civil Code of Québec and on the decision in Vallée v. Corriveau, [1947] B.R. 674. Counsel for the respondent drew a distinction between this type of mistake by a notary, which requires improbation, and a mistake as to the truth of the statements in an authentic act, a distinction that was recognized by the Supreme Court of Canada in Charron-Picard v. Tardif, [1961] S.C.R. 269.
[13] Counsel for the respondent also noted that the instrument of January 28, 1987, was read to the parties, as is stated therein, and that they waited nearly 10 years before requesting a rectification of what is being presented as an oversight by the notary with regard to their true intention when they signed the instrument. He also pointed out that the rectification occurred 10 days after the initial assessment was made against the appellant under section 160 of the Act.
[14] Finally, counsel for the respondent argued that, if the Court's view is that improbation is not necessary, what is involved here is what he called [translation] "retroactive tax planning", which has been rejected by this Court, inter alia in Cartier v. The Queen, [1999] T.C.J. No. 336, the facts of which were somewhat similar to those of this case.
[15] I agree with counsel for the respondent. Insofar as it is argued that there was a mistake or oversight by the notary and that the consideration referred to in the instrument of January 28, 1987, is incorrect and does not reflect the parties' intention as they expressed it at that time, it is necessary to proceed by way of improbation.
[16] Article 1208 of the Civil Code of Lower Canada provides as follows:
A notarial instrument received before one notary is authentic if signed by all the parties.
[17] Article 2818 of the Civil Code of Québec states:
The recital, in an authentic act, of the facts which the public officer had the task of observing or recording makes proof against all persons.
[18] Moreover, article 2821 of that same code provides as follows:
Improbation is necessary only to contradict the recital in the authentic act of the facts which the public officer had the task of observing.
Improbation is not required to contest the quality of the public officer or witnesses or the signature of the public officer.
[19] Without a doubt, the decisions in Vallée v. Corriveau, supra, and Charron-Picard v. Tardif, supra, state the law applicable on that point. In his book Précis de la preuve,[1] Professor Léo Ducharme made a thorough review of the question of improbation. It is sufficient to refer to a few passages from that book. First, at page 87, paragraph 269, Professor Ducharme stated the following:
[TRANSLATION]
269. Article 2818 C.C.Q. sets out the basic principle as regards the probative force of a notarial instrument. According to that article, a notarial instrument makes proof of the facts which the notary had the task of either observing or recording. . . .
He continued as follows:
[TRANSLATION]
. . . the improbation procedure must be used to contradict the recital of the facts that the notary had the task of observing. This second rule is now clearly stated in article 2821 C.C.Q.
[20] He wrote the following at page 88, paragraph 274:
[TRANSLATION]
274. Second, the prohibition means that it is impossible, except by way of improbation, to show that the declarations attributed to the parties by the notary are not consistent with those that the parties wanted to appear in the instrument. It is therefore not possible, subject to the exception set out in the second paragraph of article 2821 C.C.Q., to prove the following facts without resorting to improbation: that the notary failed to insert into the instrument a clause that the parties asked the notary to include. . . .383
___________
383 Vallée v. Corriveau, [1947] B.R. 674: notary allegedly omitting a reservation clause concerning a timber right.
[21] He stated the following at pages 90-91, paragraph 279:
[TRANSLATION]
279. The prohibition against contradicting the recital in a notarial instrument of the facts which the notary had the task of observing is of public order.405 This means that the court must ensure, even of its own motion, that the prohibition is enforced.406 Except by way of improbation, it must not, inter alia, allow the testimony of the executing notary407 or an admission by the opposing party408 to be used to contradict such a recital.
___________
405 Continental Casualty Co. v. Combined Insurance Co. of America, [1967] B.R. 814, at p. 825; Lasalle v. Laperrière (1914), 20 R.L. 498 (Sup. Ct.), at p. 506.
406 See, however, Cormier v. Brunet, supra, note 117, in which the court, without there being any improbation, seems to have wrongly allowed a notary to testify that he had not fully read an instrument he had received in which he had stated the contrary.
407 Bélanger v. Courtemanche, [1966] R.L. 276 (Mun. Ct.): inadmissibility of the public officer's admission to contradict the account he gave in the instrument itself.
408 Balthazar v. Emond, supra, note 388. Contra: Rivest v. Lachappelle (1935), 38 R.P. 351. Compare: Taillefer v. Damien, [1970] C.A. 975. In that case, the Superior Court and the Court of Appeal, on a motion for a declaratory judgment, found that impersonation in a notarial instrument had been established because of the parties' admission thereof.
. . .
Improbation is necessary to contradict a notarial instrument even where the notary acted in good faith and the alteration was unintentional.409
___________
409 Vallée v. Corriveau, [1947] B.R. 674.
[22] He wrote the following at page 93, paragraph 286:
[TRANSLATION]
286. Under the Civil Code of Lower Canada, although improbation was traditionally seen mainly as a way of challenging the validity of an instrument, the courts,424 with the approval of academic commentators,425 recognized that the procedure could also be used to rectify it.
___________
424 For a review of the cases, see: P.Y. MARQUIS, "L'inscription de faux et la correction des actes notariés" (1989-90), 92 R. du N. 407.
425 R. COMTOIS, "Inscription en faux - contrat de mariage - rectification ordonnée par le juge" (1972-73), 75 R. du N. 410; J.-C. ROYER, La preuve civile, op. cit., note 7, No. 312, p. 178; P.Y. MARQUIS, loc. cit., note 424, pp. 424 et seq.
[23] Finally, at page 98, paragraph 299, he summarized the state of the law as follows:
[TRANSLATION]
299. . . . The state of the law as regards the correction of mistakes in a notarial instrument can be summarized in the following propositions:
- If a notary in good faith makes a mistake in expressing the will of the parties in his or her instrument, improbation is necessary to have the instrument either voided or rectified.
- If the parties mislead the notary about the object of their contract and, as a result, the notarial instrument does not correctly reflect their agreement, improbation is not necessary to correct the instrument.
- Improbation is not necessary where there is a material alteration recognizable on its face.
(My emphasis)
[24] Moreover, in his book La preuve civile,[2] Professor Jean-Claude Royer stated the following at page 173, paragraph 303:
[TRANSLATION]
303 - . . . Thus, an action in improbation or incidental improbation is mandatory where a litigant wants to show that, contrary to the parties' declarations, a notary drafted a contract that was different in nature253 or failed to insert a clause.254
___________
253 Balthazar v. Emond, [1948] B.R. 596; Bostwick v. Beaudoin, [1926] S.C.R. 546, at p. 549 (improbation rejected for insufficient evidence).
254 Vallée v. Corriveau, [1947] B.R. 674.
[25] He continued as follows at pages 173-74, paragraph 304:
[TRANSLATION]
304 - Mistake by notary - As a general rule, an action in improbation or incidental improbation is necessary where the notary has, by mistake or inadvertently, made a material or intellectual alteration.257 The procedure is mandatory to prove that the notary made a mistake in describing an immovable property258 or to prove that the notary failed to insert a clause agreed on by the parties.259
(My emphasis)
___________
257 Supra, notes 253-55; infra, notes 258-59; Gendron v. Panneton, (October 30, 1972), St-François 38454 (Sup. Ct.), commented on by R. Comtois, "Inscription en faux - contrat de mariage - Rectification ordonnée par le juge" (1972-73), 75 R. du N. 410.
258 Albers v. Keinborg, [1994] R.D.I. 609 (Sup. Ct.); Larouche v. Lemieux (January 4, 1967), Chicoutimi 39070 (Sup. Ct.); R. COMTOIS, "Inscription en faux - Contestation de l'authenticité d'un acte notarié" (1968-69), 71 R. du N. 197.
259 Vallée v. Corriveau, [1947] B.R. 674.
[26] I will add that, in the area of taxation, the need for improbation was recognized in Giguère v. The Queen,[1992] T.C.J. No. 400. In that case, the appellant tried to argue that a notarized contract of sale did not reflect the reality of the transaction between him and his mother. Using counter-letters, he tried to show that the sale by his mother had actually been made to him and his brother in equal shares. Chief Judge Couture of this Court, as he then was, rejected that evidence on the ground that the appellant had not brought any improbation proceedings and that, in addition, the counter-letters could not be set up against the respondent.
[27] In the instant case, by the instrument of October 30, 1997, entitled [translation] "Rectification and Acquittance", the parties claimed that they were changing the consideration to reflect what their true intention had been at the time by referring to the payment of a $35,000 gift made by marriage contract in 1975 and an acquittance for the same amount. In fact, the parties went even further, since what was added completely changed the nature of the instrument, which was supposed to be a gift, at least in part, of the property in question. I refer again to the first clause of the instrument of January 28, 1987, which is entitled [translation] "Gift", as I noted earlier. It reads as follows:
[TRANSLATION]
THE DONOR hereby gives the following immovable property with the usual legal warranties, free and clear, and with immediate possession, to the donee, who accepts it:
. . .
[28] It is clear from this clause that the instrument was a deed of gift in itself, without any reference to any other instrument or agreement, which is obviously no longer the case if the rectification of October 30, 1997, is accepted. I cannot allow one of the essential elements and the very nature of the instrument of January 28, 1987, to be changed by a mere rectification. The improbation procedure should have been used, but it was not. The instrument must therefore be considered authentic. I refuse to consider the deed of rectification and acquittance of October 30, 1997, to be valid evidence that can change the nature and content of the instrument of January 28, 1987.
[29] This conclusion means that I do not have to deal with counsel for the respondent's alternative argument.
[30] Since the value of the property as established by the Minister is not contested, it is my view that the assessment under section 160 of the Act is correct.
[31] In light of the foregoing, the appeal is dismissed, with costs to the Respondent.
Signed at Ottawa, Canada, this 22nd day of June 2001.
|
"P. R. Dussault" |
J.T.C.C.
Translation certified true on this 7th day of January 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-1418(IT)G
BETWEEN:
CAROLE LECLERC,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 12, 2001, at Québec, Quebec, by
the Honourable Judge P. R. Dussault
Appearances
Counsel for the Appellant: Robert Tanguay
Counsel for the Respondent: Martin Gentile
JUDGMENT
The appeal from the assessment made pursuant to the Income Tax Act is dismissed, with costs to the Respondent, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 22nd day of June 2001.
|
"P. R. Dussault" |
J.T.C.C.
Translation certified true on this 7th day of January 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]