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Note: Applicant, 430872 B.C. Ltd., a builder, posted a letter of credit payable to New Home Warranty (NHW) as security for performance of a building contract. When Beneficiary became insolvent, various applicant/builders including the Applicant in the case at bar sought relief by separate applications to the court to cancel the LCs that they deposited. These applications were considered by various judges, who issued separate opinions. See, e.g., New Home Warranty of British Columbia Inc. (In re) 2002 Carswell BC 629 [Canada] abstracted at 2003 Annual Survey 240.

In the case at bar, the British Columbia Supreme Court, Satanove, J., dismissed the request. In issuing this ruling, the court noted that it was guided by prior cases.

As to Applicant's argument that the LCs were held as a constructive trust, the judge noted that "the onus is on the applicant to establish, among other things, its intention to create a trust at the time it delivered the Letter of Credit to New Home Warranty. This is an evidentiary issue and in the case before me, the applicant has fallen far short of meeting the evidentiary burden upon it."

The court noted that Applicant's contention that a trust existed was contradicted by the contract which states in part "letters of credit ... shall be deemed earned by NHW ... and shall be refunded ... to the Builder at the sole discretion of NHW upon completion of the Builder's obligations." It further provided that "[the written contract] constitutes the entire agreement between the parties and there are no representations, warranties, agreements, or contracts except as set forth or agreed to therein."

Applicant also argued that a letter from Beneficiary contained a promise to return the LC after five years if no claims were made, thus demonstrating the intent necessary to establish a trust. The court rejected this argument, because there was no evidence that Applicant required such a letter as a condition for supplying the LC, or supplied the LC conditionally upon this promise.

[JEB/ees]

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