This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 334.— A sells to B & C certain goods, receiving a deposit thereon. B and C apply to their bankers for a loan to make a further payment, offering to hypothecate to the bank said goods, as security. The bank, being given to understand that the purchase was complete, received the hypothecation from B and C in the presence of A, the banker explaining to A the nature of the security he was taking, A making no objection. The following day A gave B and C a bill of sale, and B and C gave (innocently, so far as intention to defraud the bank is concerned), a chattel mortgage on the goods to A. Could A, under the circumstances, be stopped from proceeding under his lien ahead of the bank's hypothecation ?
Suggested Answer.—Presuming the goods were and could be legally hypothecated under section 74 of the Bank Act—A as an unpaid vendor might have protected himself by disclosing the fact to the bank. The claim of the bank under hypothecation would be prior to the chattel mortgage.