This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 587.— In the fall of the year a firm of lumbermen make application to a bank for advances to be made during the ensuing winter, to enable them to carry on lumbering operations.
The firm sign a written request, addressed to the bank, which reads, in effect, as follows:
" We request you to advance us such money as may be necessary to enable us to get out about ten million feet of lumber during the season 1900-1901; in consideration of the advances so to be made, we agree to give you security upon the logs or the timber or the product thereof, and to furnish you, upon demand, with a cove receipt therefor, or other security under the Bank Act."
At the time that this request is made, no money is advanced.
During the winter, notes of the firm are discounted by the bank, and at different times during the season, as logs are drawn on to the shores of a certain lake, cove receipts and security under section 74 of the Bank Act are given.
At the time the notes are negotiated there is no delivery of the security or written promise.
The written promise is anterior to any advance. The cove receipts are not contemporaneous with the negotiation of the notes, but subsequent.
Is this method of procedure within the provisions of sections 73, 74 and 75 of the Bank Act ?
Answer.—The form, although somewhat general in its terms, would, we think, be sufficient to support the after acquisition of the security mentioned in it. The logs or timber which could be taken as security would be limited to the 10,000,000 feet of lumber or thereabouts "got out" by the customers during the season of 1900-1901, and the debt for which the security might be taken would be limited to advances made within the terms of the promise.