Legal Blog

Stretch

At the start of this New Year, we bring you the most interesting defence of the past year. It was raised in Toronto-Dominion Bank v. Solferino Café Inc., a 2009 decision of the Ontario Superior Court of Justice.

Humdrum 

The facts were not unusual. Two partners opened a business, a “can’t fail” gelato shop.

Two bank loans financed the business: the first was a $194,000 loan under the Canada Small Business Financing Act and the second was a $50,000 demand loan. Each partner was fully liable for the second loan and liable for $48,500 of the first loan.

The partners had a falling out; one left and opened a competing café. Of course, the original business failed; the landlord distrained and sold the equipment and furniture; and the bank demanded payment and ultimately brought its action against the partners.

Self Rep 

The partner who continued the business defended the action without a lawyer – sort of. He actually was a lawyer, although not a litigation lawyer, and presumably thought he could perform an adequate job defending himself. He was wrong.

The partner had a number of complaints about the bank:

1.   The bank allowed the amortisation period on the small business loan to be 5 years rather than 10 years. Accordingly, the monthly payments were too high and put crippling pressure on the business. The bank should have known better, even if the partner, an inexperienced businessman, did not. Translation: I am a lawyer, but do not understand the concept of a high payment rather than a low one.

2.   When the bank did extend the amortisation period to 10 years, it should have done so retroactively. The relief was only partial and insufficient. Translation: Thanks for the help, but I want more.

3.   The bank ought to have known that cash flow from a gelato business would vary throughout the year, but instead kept the same payment schedule even during the winter. Translation: The bank should have known that ice cream sells better in the summer than in the winter, but I did not.

4.   The bank knew that the partners were not experienced business people and therefore ought to have provided business advice. Translation: the bank should conduct a business acumen test before lending money.

5.   The bank moved too slowly to seize and sell the business’ furniture and equipment and therefore the landlord got it instead. Translation: save me from myself, regardless whether your security documents state that you do not have to do so.

Cause of Action 

The partner had a hard time claiming that he did not understand his possible liability. He also had an uphill (straight up) battle to show that the bank was anything other than his banker. He had to demonstrate that the bank was his investment advisor before that defence would be successful and the facts did not warrant that finding. Indeed, he specifically complained that the bank did not advise him. Accordingly, he had to, and did, devise another defence; one that was ingenious.

He asserted that there should be “the imposition of a new form of professional negligence, being that of a ‘reasonable and professional banker’.” Aside from the silliness of the assertion, the lawyer (acting for himself) did not plead this new tort in his statement of defence. He made it up as he went along.

The judge therefore held that the statement of defence contained no defence at all; the facts the partner asserted in the motion provided detail, but did not remedy the deficiency in the pleading. The judge granted summary judgment for the amount due plus costs. The exercise was another valiant, but useless, time-consuming and costly, effort to forestall the inevitable.