Bank cleared of damages in loan dispute

A recent court decision has cleared TD Bank of damages despite the bank breaching a small business loan agreement. The Ontario Superior Court of Justice ruled that the breach caused none of the borrower’s $8.8 million damages claim.

The case, TD Bank v. 1633092 Ontario Ltd., began when a fire destroyed the Tosh Steakhouse restaurant in Arnprior, Ontario, in April 2014. The owners, Matthew and Haley Rooney, sought a $350,000 Canada Small Business Financing Act loan from TD to help rebuild the restaurant.

TD gave conditional approval in April 2015 and final approval that November, but a dispute followed over how much of the loan TD had to advance. The bank ultimately funded only 55.11 percent of submitted leasehold-improvement receipts, rather than the full $350,000 the Rooneys expected.

An earlier summary judgment ruling, upheld on appeal, already found that TD had negligently breached its loan contract with the Rooneys by failing to advance the full amount. The Rooneys and their companies sought a combined $8,833,776 in damages, covering losses to their business, personal claims, and debts owed to other creditors.

The court preferred the evidence of TD’s business valuation expert over the Rooneys’, finding their own expert’s damages estimate relied on an unrealistic 16 percent future profit margin. The court found that the estimated value of the Rooneys’ business at the relevant date fell to nil once adjustments were made.

Justice Robert Smith found that TD’s funding shortfall was not the cause of the restaurant’s failure to reopen. Instead, the court pointed to the fire, the money tied up in a failed restaurant expansion, and insufficient fire insurance proceeds once other creditors were paid.

The judge also dismissed claims that TD committed the tort of deceit over a separate interest-rate reduction on Haley Rooney’s home equity line of credit. Personal guarantees signed by Matthew Rooney, Haley Rooney, and their company were upheld and were not discharged by TD’s breach.

TD Bank’s original claim against the defendants succeeded, with the court ordering the defendants to repay the outstanding loan balance, the home equity line of credit, and related credit card debts. The court also granted TD possession of the mortgaged property with the right to sell it under power of sale.

The ruling is a reminder that a proven breach doesn’t hand a borrower an automatic damages award. The burden still falls on the borrower to show that the breach, not their own business decisions, actually caused the loss. This decision may have implications for lenders and borrowers in similar situations, as it highlights the importance of proving causation in breach of contract cases, particularly in investor relations.

The court’s decision was based on the specific facts of the case. Similar cases will be decided on their own merits.

It’s likely that the ruling provides some guidance for lenders and borrowers on the importance of carefully drafting loan agreements and understanding the potential risks and liabilities involved.