Canadian Law:

Andrew was a Saskatchewan farmer.The credit union held a security agreement, duly registered,giving it a security interest in his herd of cattle and in the proceeds if they were sold.Andrew's cattle contacted a severe disease, and they were destroyed under a government order.The government order included a provision saying that any farmer whose cattle were destroyed under it was entitled to compensation.Andrew requested that the government cheque be made jointly payable to the credit union and himself.The cheque was mistakenly made payable to only Andrew, and he used it to buy a term deposit at the bank.He then negotiated a loan at the bank, and the bank took a charge against the term deposit as security.He used the cheque to get a term deposit (where he gets the money back at the end of the term)

The bank manager knew that Andrew's cattle had been destroyed under the government order and that he was entitled to compensation.When he brought in the cheque, the bank manager asked Andrew if it was the compensation payment.Andrew said it wasn't(a lie, but does it matter?), and that the credit union had no legal interest in the cheque.The bank manager believed him, and didn't make any further enquiry.

When the credit union found out that Andrew had received the cheque, it demanded that the bank hand over the money.It argued that its claim had priority over the bank's.

Which lender (Bank or Credit Union) is entitled to the money?Explain why.