diff --git a/compiler/vm.nim b/compiler/vm.nim
index 8271857370..312a2085b8 100644
--- a/compiler/vm.nim
+++ b/compiler/vm.nim
@@ -273,7 +273,7 @@ proc cleanUpOnException(c: PCtx; tos: PStackFrame):
                           abstractPtrs)
                        else: nil
       #echo typeToString(exceptType), " ", typeToString(raisedType)
-      if exceptType.isNil or inheritanceDiff(exceptType, raisedType) <= 0:
+      if exceptType.isNil or inheritanceDiff(raisedType, exceptType) <= 0:
         # mark exception as handled but keep it in B for
         # the getCurrentException() builtin:
         c.currentExceptionB = c.currentExceptionA
diff --git a/tests/vm/trgba.nim b/tests/vm/tmisc_vm.nim
similarity index 77%
rename from tests/vm/trgba.nim
rename to tests/vm/tmisc_vm.nim
index 923ea1b2e8..6eb3dd6273 100644
--- a/tests/vm/trgba.nim
+++ b/tests/vm/tmisc_vm.nim
@@ -2,6 +2,8 @@ discard """
   output: '''[127, 127, 0, 255]
 [127, 127, 0, 255]
 '''
+
+  nimout: '''caught Exception'''
 """
 
 #bug #1009
@@ -34,3 +36,16 @@ proc ABGR*(val: int| int64): TAggRgba8 =
 const
   c1 = ABGR(0xFF007F7F)
 echo ABGR(0xFF007F7F).repr, c1.repr
+
+
+# bug 8740
+
+static:
+  try:
+    raise newException(ValueError, "foo")
+  except Exception:
+    echo "caught Exception"
+  except Defect:
+    echo "caught Defect"
+  except ValueError:
+    echo "caught ValueError"