The appellant Bank sued the respondent purchaser on a series of promissory notes issued as part of a deferred payment scheme for the purchase of equipment.
The Bank had participated in negotiating the terms of the notes, which included an agreement to exchange them for new notes if delivery schedules changed.
When the purchaser refused to exchange the notes due to a dispute over the equipment, the Bank sued on the original notes, claiming to be a holder in due course.
The Supreme Court of Canada held that the Bank was not a holder in due course because it had notice of the defect in title (the restrictions on negotiability).
As a holder for value, the Bank took the notes subject to the equities, and its right to recover had to await the outcome of arbitration between the purchaser and the vendor.
