The Rural Voice, 1995-06, Page 16CANADIAN
CO-OPERATIVE
WOOL GROWERS
LIMITED
Now Available
ADVANCE PAYMENTS
600 to 800 per pound
Skirted Fleeces
Well -Packed Sacks
For more information contact:
WI NGHAM
WOOL DEPOT
John Farrell
R.R. 2, Wingham, Ontario
Phone/Fax 519-357-1058
INSURANCE
Farms &
Rural Property
Specialists
Percy Morris
Insurance Brokers Ltd.
Serving the community
for over thirty years
899 3rd Ave. E.
Owen Sound
519-376-2666
12 THE RURAL VOICE
Agrilaw
What 'on demand' means
What does your promise to pay your
bank "on demand" mean? Is your bank
required to give you time to raise the
money? Is your bank obliged to
continue to honour cheques drawn on
your operating line while you arrange
for replacement financing?
For the farmer trying to harvest a
crop or feed livestock, these questions
are all of vital concern in the face of a
demand for payment by the bank.
Without some period of time following
the demand to arrange financing, and
without a line of credit to cover current
expenses in the interim, the farmer
faces disaster. Since most, if not all, of
the farm's assets will have been
pledged to the bank for security, the
farmer cannot continue to operate the
farm without the bank's support during
the period required to raise the funds to
pay out the bank,
It is clear that the bank, having made
demand, cannot proceed to realize upon
its security without providing the debt-
or with a reasonable time to meet the
demand. The amount of time which is
reasonable in any particular case will
depend upon a number of factors
including the amount of the loan, the
risk to the bank of losing the security,
the length of the relationship between
the farmer and the bank, the character
and reputation of the farmer, the
potential ability of the farmer to raise
the money required in a short period,
and, the circumstances surrounding the
demand for payment. For example, in
a case decided by the Ontario Court of
Appeal, Kavcar Investments Ltd. v.
Aetna Financial Services Ltd., a hard-
ware company had provided a demand
debenture to the finance company from
whom it had obtained financing.
Simultaneously with the making of the
demand for payment, the finance com-
pany appointed a receiver who took
possession of the assets of the hardware
company approximately three hours
later. However, the finance company
did permit the hardware company a
period of six weeks to discharge its
indebtedness before proceeding with a
sale of the hardware company's assets.
In finding the finance company liable
for the damages suffered by the
hardware company resulting from the
precipitous termination of its business,
the court stated:
"... The law in Canada at the
present time requires that a debtor,
following a proper demand for pay-
ment, must be allowed a reasonable
time to raise the necessary funds to
satisfy the demand. What consti-
tutes reasonable time will depend
upon the circumstances, but will
generally be of very short duration.
In addition, it is clear ... that the
debtor need not ask for a reasonable
time to pay. Reasonable time must
be given by the creditor, whether or
not asked for by the debtor."
Thus, apart from the notice require-
ments under the Farm Debt Review
Act, a bank intending to realize upon
security has a legal obligation to
provide the farmer with a reasonable
period of time to satisfy its demand for
payment. Whether the bank is required
to continue to extend its credit facilities
to the farmer during this period depends
upon whether the farmer's loan is still
within its margin requirements or, even
if not, whether the bank has developed
a practice of allowing the farmer to
operate his account in overdraft beyond
the normal credit limits. Provided the
loan is within the margin requirements,
or any overdraft is within the limits
which the bank has permitted, the bank
has a legal obligation to continue to
finance the farmer for a reasonable time
until other financing can be arranged.
In another Ontario case, Thermo -
King Corp. v. The Provincial Bank of
Canada, the bank had permitted the
plaintiff company to maintain an over-
draft in its current account which varied
from time to time. The bank's refusal
to honour a cheque drawn by Thermo -
King on its account resulted in Thermo -
King losing the benefit of a contract
with its supplier. The court found that,
had the bank honoured the cheque, the
overdraft created in the account would
have been within the overdraft limits
which the bank had permitted during
the course of its dealings with Thermo -
King. As a result, the court held that
the bank had no right to refuse to
honour Thermo -King's cheque and the
bank was liable for the damages
suffered by Thermo -King.
On the other hand, in the absence of
an express agreement or an agreement
which can be inferred from the course
of business, the bank is not required to