Exploring The Boundaries Of The "Independence Principle"

Much has been written recently about the impact of a bankruptcy filing on the right of a nondebtor landlord to draw on a letter of credit posted as security for the tenant’s obligations under a lease of nonresidential real property. The focus of recent court rulings and commentary, however, has generally been directed to various restrictions, such as the statutory cap placed on damage claims under commercial leases, on the lessor’s ability to apply the full amount of the proceeds of a letter of credit to the lessee’s obligations, notwithstanding the common-law "independence principle" that, as a general rule, operates to make a lessor’s remedies under a letter of credit inviolate in the event of a bankruptcy filing by the lessee.