Two recent court decisions in Illinois and New York have found that commonly used auto-renewal provisions in letters of credit do not create “evergreen” instruments (i.e., agreements that automatically renew indefinitely until one party terminates). For parties who have long relied on boilerplate renewal language to ensure their letters of credit are self-renewing for successive periods, these decisions serve as a cautionary reminder of the importance of precision drafting rather than blind reliance on forms.
In the Illinois case of People ex rel. Department of Natural Resources v. Regions Bank, the letter of credit in controversy was issued on December 12, 1985 for a one year term. The letter of credit stated that it would “automatically extend for an additional term of One (1) year unless [the issuing bank] provides at least ninety (90) days’ notice prior to the expiration date that it does not wish to extend the Letter of Credit for an additional period.” The bank never provided a notice of nonrenewal.
On June 16, 2016, the beneficiary of the letter of credit attempted to draw down on it, but the bank refused, claiming that the letter of credit had renewed for only a single, one year period and thus expired on December 12, 1987. The beneficiary argued that the automatic extension language was an evergreen clause and that the letter of credit had continued to renew for one year periods in the absence of the bank’s requisite notice of nonrenewal.
The court disagreed with the beneficiary and found that the letter of credit had only renewed for a single, one year term. The court reasoned that the automatic renewal language referenced “an” additional “term” in the singular, meaning the renewal was limited to a singular, one year extension rather than perpetual renewals. The court emphasized that the drafters “could have written ‘additional terms,’ in the plural, but they did not.”
The U.S. District Court for the Southern District of New York reached a similar conclusion in Starr Indemnity & Liability Company v. Midwest Mortgage Associates Corporation. The court examined a 2017 letter of credit issued by Midwest, which stated that it “is deemed to be automatically extended without amendment for one (1) year from the expiration date hereof or any future expiration date” unless notice of nonrenewal is provided by Midwest.
The beneficiary of the letter of credit made a draw request in April 2025, but Midwest rejected the request, stating that the letter of credit had expired. The beneficiary argued that the phrase “or any future expiration date” created an evergreen instrument that renewed year after year unless Midwest affirmatively terminated it, while Midwest interpreted the extension provision as providing for a single, one year renewal.
The Court agreed with Midwest and held that the letter of credit provided for only a single, one year extension. The Court reasoned that the phrase “any future expiration date” was insufficient to render the letter of credit evergreen and instead merely contemplated that the parties may later agree upon a new expiration date. The New York court distinguished cases involving language expressly referring to “additional one year periods” or similar recurring renewal terminology, which would more clearly demonstrate an intent to create an evergreen instrument.
These cases impart a practical lesson that parties who intend for a letter of credit to be evergreen should expressly state that extensions occur on a successive or recurring basis, and they should avoid use of singular phrasing such as “an additional term.” These decisions should also prompt parties to revisit existing letters of credit to confirm that any intended evergreen protection was actually achieved through the operative, drafted language.