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Prior History:Richter & Partners Inc. v. Clarica Life Insurance Company, 2001 Ont. Sup. C.J. LEXIS 1870; abstracted at 2002 Annual Survey 292.

Note:To secure the payment of a ten-year lease, Clarica Life Insurance, landlord, required Lava Systems Inc., tenant, to provide a CA$850,000 LC. When the tenant became insolvent and its Receiver disclaimed the lease, the Beneficiary drew the balance of CA$680,000. Receiver then sued Beneficiary to recover the amount drawn less the amount owed for two months unpaid rent. The trial judge ordered Beneficiary to account to the Receiver for the excess drawn under local real estate and bankruptcy law which limited recovery to only the rent actually owed. Beneficiary appealed, claiming that Receiver had no legal right to recover the funds which were property of the bank.

The Ontario Court of Appeal, Borins J.A., set aside the ruling of the trial court citing LeDain J. in Bank of Nova Scotia v. Angelica-Whitewear Ltd., 1 S.C.R. 59, 70-85 (1987): "A letter of credit is ... an autonomous contract between the issuer, normally a bank, and the beneficiary, normally a supplier ... . The funds paid are those of the issuer, not its customer ..." The appellate court noted that whether or not the bank has a claim against the Beneficiary was not before the court.

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