This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 589.— (1) Section 74 of the Bank Act appears to deal only with wholesale manufacturers, wholesale purchasers or shippers. Can a bank take from others security of the same kind and upon similar terms as if a private person were making the advance? (2) Can a bank take security of a different kind than that mentioned in section 75 from the class dealt with by section 74, i.e., wholesalers, etc.? (3) Can a bank take security in the form prescribed in section 73 from persons who are not wholesalers or shippers? (4) Can a bank take security for future advances from wholesalers, etc., in the form of a chattel mortgage? (5) Need a bank register chattel mortgages for protection against other creditors ?
Answer.— (1) A bank cannot take security such as that described in section 74, except from persons that come within the descriptions contained in the first and second clauses.
(2) (3) A bank can take security under section 73 or section 68 from any debtor, whether he comes under the descriptions in section 74 or not.
(4) A bank cannot take security by way of chattel mortgage for future advances, except possibly as suggested below.
(5) A bank's rights under chattel mortgage are precisely the same as the rights of other parties, and they must register securities if they are to be good against other creditors.
It is probable that the security taken under section 74 might be in the form of a chattel mortgage. On this point we think the view expressed in La Banque d'Hochelaga v. Merchants Bank of Canada case, referred to on page 382, Volume II. of the Journal, is sound:
" I agree with the contentions of the plaintiff's counsel that in lending money to the classes of persons and upon the security of the goods mentioned in s. 74, the bank is not limited to taking security in the form set out in the schedule, but may take it in any manner known to the law. The section is directed chiefly to transactions of a certain nature. It occurs among a number of provisions defining the powers of banks and the nature of the business which they may transact. There was in the more general section (64) a qualified prohibition against lending upon such security, and section 74 empowers the bank to lend to certain persons upon certain security otherwise prohibited by section 64. The clause as to the form is permissive only, and was probably designed for the convenience of banks, that they might draw up such securities for themselves without a solicitor's assistance, and feel that a long mortgage was unnecessary. That clause cannot, I think, control the general enabling powers contained in the earlier portions of the section. It is true that I interpret section 64 as meaning that, except as authorized by the Act, a bank shall not lend on certain security. But this has to do with the substance and not with the forms of transactions, and if no form were authorized it could not be said that the earlier part of section 74 would be inoperative."
It should, however, be said that expressions made use of elsewhere, where the point was not directly involved, indicate that there may be a difference of opinion in the courts respecting this matter.