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Note: In this case, a producer of pre fabricated building panels, leased robotic welding equipment. As partial security, Lessee caused a standby LC for US$600,000 to be in favor of Financial Lessor.

International Hi-Tech Industries Inc., (Lessee), entered into a purchase and leaseback agreement for FANUC Robotics Canada Ltd (Manufacturer). The equipment was to be purchased by GE Capital (Financial Lessor) and leased back to Lessee. As partial security for its obligations, Lessee obtained a US$600,000 standby LC issued by Merrill Lynch payable to Financial Lessor. When Lessee ceased payments on the lease, alleging that the equipment was defective, Financial Lessor drew on the LC and was paid. Lessee sued Manufacturer for breach of contract and sued Financial Lessor for fraud. The British Columbia Supreme Court, Balance, J., concluding that here was no fraud on the part of Manufacturer or Financial Lessor, allowed Financial Lessor to recover under the recourse agreement.

[JEB]

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