When advances are made to facilitate operations extending over a season or for a certain period of time, as, for instance, in a lumber or grain business, it is obvious that the bulk of the security will be brought into existence in great part by the use of the bank's money. A general written promise to give security (Figure 49) must, therefore, be obtained before any advance is made, and pledges or assignments of goods should be obtained as often as any property constituting the security can be described or located. In addition to "the promise" a bank generally obtains an undertaking from the customer (Figure 50) regarding the insurance of the goods in question, and an agreement as to the sale of the goods in case of default in payment, etc. Furthermore, each note form refers to the general promise and supplements it (Figure 52). Casual loans are made on another form of note (Figure 53), the promise being original and therefore calling for particulars of goods and location.
It must always be borne in mind that the "promise" is not in itself security; it is simply a contract to give security, and can only be enforced as a contract: in other words, it is an equitable assignment, in contradistinction to the pledge which is a legal assignment or transfer of property actually existing. The "promise" confers upon the bank no legal title to the property mentioned in it, and until a legal transfer in form of a pledge is made, the borrower, if dishonest, may sell, mortgage or otherwise deal with the goods intended to be the bank's security. The penal provisions of the Bank Act are not applicable to equitable assignments. It is important, therefore, to obtain a legal assignment as soon and as often as there are goods capable of being transferred. Under a "promise" the bank is not entitled to priority over unpaid vendors, unsecured creditors, or, in fact, to any greater rights than the customer himself.
It is important to remember that when a promise to give security does not exist, a bank cannot, except under the substitution clause of Section 88, claim any right to, or security upon, any other goods than those pledged at the time of the advance, and even these must be specially described so as to be distinguished from others.
Care should be taken to have the written promise include each class of product on which it is at all likely that the bank may be asked to lend during the season, and all places where the customer is likely to store or warehouse goods.
If a customer desires to obtain advances upon goods of a different nature from those covered by the original promise, or if the goods, whether of the same nature or not, are stored in places not mentioned in the original promise, then a fresh promise should be taken for the amount of advances required under the new conditions, and a separate account should be opened, thru which must pass the proceeds of all advances made in accordance with the terms of the second promise. Under such circumstances, the proceeds of the advances made under one promise must on no consideration be used to repay advances made under the other.