Can informal talks stand in for a clear and executed assignment clause in a contract?

June 01, 2017


KJM Leasing Ltd. v. Toronto-Dominion Bank 1989 CanLII 4646 (SK QB)

A conditional, incomplete or vague assignment clause will not be enforced by the courts even between a subsidiary and parent company. A parent company that seeks to rely on the assignment of a contract cannot base its legal rights on the informalities that exist between it and the subsidiary.

Drafters should ensure that assignment clauses are clearly drafted, and actually executed by the parties.

In KJM Leasing Ltd. v. Toronto-Dominion Bank (1989) (SK QB), the applicant sought to rely on a contract between its subsidiary and Smith in order to obtain priority over the respondent, Toronto- Dominion, in accordance with the then applicable Saskatchewan property legislation. DSL, the applicant’s parent company, sold the equipment in question to Smith. The applicant registered a financing statement, but the Vendor’s Assignment and the assignment of the conditional sales contract were never executed. The applicant’s arguments relied upon the informalities that existed between the subsidiary and parent corporations and the fact that there was a proposed assignment in the contract, which they argued was valid although it had remained unsigned. The court held that as between the parent and the subsidiary, the assignment could have occurred, but because the parent and the applicant failed to take the steps required to complete the assignment, the applicant was not entitled to priority under the PPSA. Therefore, the court ruled that they did not have priority over the defendant in its claim for the equipment.

To read the full case on CanLII, click here.