This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 565.— A bank has discounted for A a note endorsed by B. A assigns to B a mortgage to secure him for his endorsement, which mortgage B subsequently assigns to the bank as collateral security to the note. At its maturity A requests the bank to renew it, holding the mortgage as security and releasing B. Would the bank have a valid security in the mortgage under the circumstances, and would B have any claim on or interest in the mortgage?
Answer.—B would have no claim if he were released from his liability as endorser. Whether the bank's security would be good would depend on the nature of the assignments to B and the bank. If it had been assigned to B expressly to indemnify him against his liability as endorser, then the assignment would cease to have any effect as soon as this liability came to an end, and the bank could not hold the mortgage by virtue of any rights derived from this assignment. It might have a valid claim because of its agreement with A, but in order to make the matter right the latter, whose property the mortgage is, should, by proper instrument, confirm the bank's right to hold it as security.