Letter of credit unaffected by tenant’s bankruptcy

▤ Summary

In so finding, the Court of Appeal overturned the decision of the motion judge that limited the landlord’s recovery to the three-months’ accelerated rent claim allowed by section 136(1)(f) of the Bankruptcy and Insolvency Act (“BIA”). The lower court judge decided that the Landlord’s allowable draw on the LC was limited to the amount of its three-months’ accelerated rent claim under section 136(1) of the BIA. While the case law pulled in several directions, the Court looked to its previous decisions in Lava Systems Inc. (Receiver & Manager of) v. Clarica Life Insurance Co. (2001), [2002] O.J. The Court acknowledged that Crystalline Investments, although overturning Cummer-Yonge and directing that disclaimer should not relieve third parties of their contractual obligations, did not specifically examine whether its reasoning, which dealt with assignors and guarantors, was equally applicable to landlords on letters of credit. The Court of Appeal disagreed, finding that the context of the Lease required that the term “promptly” mean payment of rent when due – namely the first date of each calendar month.

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First Reference

$1M to $5M