Article

Factual Summary: The LC contained two clauses regarding the expiry of the LC. The first clause, which the parties characterized as an "evergreen clause",stated

IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE DEEMED AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR ONE YEAR, FROM THE EXPIRATION DATE HEREOF, OR ANY FUTURE EXPIRATION DATE, UNLESS AT LEAST 30 DAYS PRIOR TO SUCH DATE WE SHALL NOTIFY YOU IN WRITING BY REGISTERED MAIL OR OVERNIGHT COURIER THAT WE ELECT NOT TO EXTEND THIS LETTER OF CREDIT FOR ANY SUCH ADDITIONAL PERIOD. UPON RECEIPT OF SUCH NOTICE YOU MAY DRAW HEREUNDER BY MEANS OF YOUR SIGHT DRAFT ON OURSELVES FOR AN AMOUNT NOT EXCEEDING THE AVAILABLE AMOUNT OF THIS LETTER OF CREDIT.A subsequent clause, described as the "expiry clause" provided "WE HEREBY AGREE WITH YOU THAT DRAFTS DRAWN UNDER AND IN ACCORDANCE WITH THE TERMS OF THIS CREDIT WILL BE DULY HONORED UPON PRESENTATION AND ELIVERY OF THE DOCUMENTS AS SPECIFIED IF PRESENTED AT CHEMICAL BANK COMMERCIAL LETTER OF CREDIT DEPT, 55 WATER STREET NEW YORK, NY 10041, ON OR BEFORE JUNE 02, 1993 BUT NOT BEYOND JUNE 2, 1994."

The issuer did not provide any notice of non-renewal and the beneficiary drew on 9 March 1998. When the issuer dishonored on the ground that the LC had expired on 2 June 1994, the beneficiary brought this action, alleging wrongful dishonor. The trial court granted summary judgment in favor of the issuer. On appeal, affirmed.

Legal Analysis:

1. Evergreen Clauses; Defined:. The court acknowledged the definition of an evergreen clause given in Molter Corp. v. Amwest Surety Ins. Co., 267 Ill App. 3d 718 (Ill. App. Ct. 1994), "as a 'term in a letter of credit providing for automatic renewal of the credit.'"

2. Interpretation:. Noting that "[g]eneral rules of contract construction apply with equal force in interpreting letters of credit", the court concluded that "contracts must be read as a whole without focus on an isolated phrase."

3. Interpretation of Evergreen Clauses:. The beneficiary argued that the two clauses were ambiguous and should be construed against the drafter. The court rejected this argument, concluding that the two clauses were not inconsistent. The court interpreted the "evergreen clause" to continue up to but not after the date in the expiry clause. At that date, "the expiry provision became paramount" because it was the more specific of the two clauses.

The court concluded that such an interpretation gave "meaning to both clauses by llowing for the automatic extension ..., and [termination of the issuer's] obligation under the letter on [the expiry date]."

Comment:

1. While the court properly looks at the LC as a whole, it is not correct to say that all doctrines of contract interpretation apply to LCs.

2. While the decision was correct, as a matter of precaution, the LC could have been drafted more clearly to indicate the linkage between the two clauses. The addition of the phrase "and in any event" to the expiry clause, for example, would have highlighted the absolute date for expiration

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