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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 NHW became insolvent, Applicant sought a declaration from the court stating that the letter of credit was held in trust by NHW for the benefit of Applicant and never became property of the bankrupt estate.

Applicant claimed that its intention was to create a trust as is evidenced by the LC, the purpose of which is only to cover the guarantee of the stucco exterior of the project, and a letter from NHW, dated five days after the written contract, stating the LC would be returned if no claims were made within five years. Applicant also attested that he was informed that the LC would be returned to Applicant in five years barring any claims of non-performance.

The British Columbia Supreme Court, Satanove, J., dismissed the request. The court found this evidence to be 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 obligation's." 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."

The court noted that there must be an interest on the part of the creator of a trust that funds are to be the property of the trustee/beneficiary and not the trustee. It concluded that the evidence proffered by Applicant is not enough to negate the inference of ownership by NHW in the contract.

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