ASSIGNMENT OF PROCEEDS FROM ESTATE ENFORCEABLE AS COLLATERAL SECURITY

Rafael v. Allison 1987 CanLII 3232 (AB QB)

The legal remedies available under assignment are not extinguished even if legal action has been taken under a promissory note dealing with the same obligation, so long as the debt continues to exist. The Alberta Court of Queen’s Bench held that interest rate on an assignment continued to be enforceable even though the plaintiff had previously pursued a legal claim on the non-payment of a promissory note for the same amount. An assignment of monetary proceeds can exist as a collateral security for debt.

Drafters should ensure that if collateral security is given for an obligation in the form of an assignment that the assignment is enforceable independently of the primary security.

Rafael v. Allison (1987) (AB QB) dealt with a promissory note, and an assignment that covered the same obligation. In 1981, the defendant executed both the promissory note, and the assignment of proceeds to be received out of the administration of an estate, for a principal sum of $31,000 dollars with 15 per cent interest rate for the administration. When the plaintiff received no money under the assignment, he pursued legal action based on the promissory note. Several years later, a judge ruled that the assignment was valid. At issue in the trial was whether the rights under assignment had merged into the rights under the promissory note. The court ruled that although the plaintiff initially pursued his claim under the promissory note, the assignment represented collateral security on the debt. As long as the debt continued to exist, the remedies available through the assignment were enforceable. The court ruled that the plaintiff was entitled to the 15 per cent interest under the assignment.

To read the full case on CanLII, click here.