This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 415.— Would an instrument drawn in the form following be judged a valid promissory note in Canada, or would the pledge of collateral security included in the note bring it under decision rendered in Kirkwood v. Smith et al., cited in your January number? Also please state, if it is not a negotiable promissory note, whether a note drawn in this form would be perfectly binding as a contract between the bank and the promissors.
after date I promise to pay to the order of at the Bank, , for value received,
with interest at the rate of per cent. per annum.
Having deposited with the Bank, as collateral security
for the payment of this note and any other indebtedness due, or to become due, from to said bank or its assigns,
I hereby authorize the sale of said security at public or private sale or otherwise, and with or without notice, on the nonperformance of this promise (and said bank may become the purchaser thereof), and it is hereby agreed that if said security, in the opinion of said bank or of any of its officers, shall depreciate in value, said Bank or any of its
officers or assigns, may elect, without notice, that this obligation is due and payable on demand.
(It is further agreed that said bank shall have the right to hold and apply, at any time, its own indebtedness or liability to the maker hereof, as security for the payment of any liability due, or to become due, from the maker hereof).
Answer.—We think the form of note which you send would be held not a promissory note, under the decision in Kirkwood v. Smith. It is, however, a contract which would be binding between the bank and the parties.
The points in it which, in our opinion, bring it within the judgment referred to, are the inclusion of the provision that the bank may become the purchasers of the property, and of the agreement as to set off, etc. Both of these are clearly additions to what sec. 82 of the Act permits.
The provision as to the note becoming payable on demand under certain conditions, is also probably an addition not admissible in a promissory note, although this point may be open to question. There is no objection to including in a note any means for determining its date of maturity which complies with the Act, but we doubt whether the action of the payee, which is to be based on an opinion as to the depreciation in the value of the security, would be within the limits of what the law permits.
We might add that if the contract as to security were made separate from the promissory note—for instance, if the promise to pay were followed by the party's signature, and the contract which you have in your present form printed below the note and signed separately, so that you had two complete documents on the one page—you would probably accomplish all that you desire, and at the same time have a note which would be a negotiable instrument.