Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.


November 18, 1994


Appeal from the Circuit Court of the 12th Judicial Circuit, Will County, Illinois. No. 93 MR 16380. Honorable Thomas Ewert and Edward F. Masters, Judges Presiding

Released for Publication December 22, 1994.

Present - Honorable Kent Slater, Presiding Justice, Honorable Peg Breslin, Justice, Honorable Michael P. Mccuskey, Justice

The opinion of the court was delivered by: Mccuskey

Justice McCUSKEY delivered the opinion of the court:

The defendant, Amwest Surety Insurance Company (Amwest), appeals from a judgment of the circuit court of Will County granting summary judgment for the plaintiff, Molter Corporation (Molter).

The trial court's judgment declared that a letter of credit, issued to Amwest by the First National Bank of Joliet (Bank), had expired before Amwest tendered any drafts on it. On appeal, Amwest asserts that the letter of credit contains an "evergreen clause" which operated to renew the letter annually. As a result, Amwest contends that the letter of credit will not expire unless the Bank sends proper notice of its decision not to renew the letter. Because we agree with Amwest's contentions, we reverse the trial court's decision and enter judgment for Amwest.

Molter is a subcontractor which obtained a performance bond to ensure its general contractor of timely and workmanlike performance. Molter obtained this bond from Amwest. As a condition of the bond, Molter secured from the Bank an irrevocable letter of credit on June 5, 1990, naming Amwest as the beneficiary. The letter of credit contained an expiration date of November 5, 1990. It also contained a clause which provided as follows:

"It is a condition of this Letter of Credit that it shall be deemed automatically extended without amendment for one year from the present or any future expiration date hereof, unless forty-five (45) days prior to any such date we shall notify you in writing * * * that we elect not to consider this Letter of Credit renewed for any such additional period. * * *

We engage with you that all drafts drawn under and in compliance with the terms of this credit will be duly honored if presented at this office on or before November 5, 1990 or any automatically extended date, as hereinbefore set forth." (Emphasis added.)

On October 25, 1990, the Bank sent Amwest a notice (extension notice) extending the expiration date to January 5, 1991. The Bank has not sent Amwest any notice of cancellation.

On October 27, 1993, the general contractor filed a complaint against Molter and Amwest. The contractor set forth the following allegations in its complaint: (1) Molter had breached its agreement with the contractor; and (2) Amwest, as Molter's surety, was liable for the contractor's increased costs as a result of Molter's alleged breach. Consequently, Amwest attempted to draw on the letter of credit. On November 29, 1993, Amwest tendered to the Bank a draft demanding the full amount of the letter of credit. On December 7, 1993, the Bank dishonored the draft for unspecified reasons.

On December 20, 1993, Molter filed a complaint for declaratory judgment in the circuit court of Will County. The complaint asked the court for a declaration that the letter of credit had expired on January 4, 1992, before Amwest tendered a draft. On February 15, 1994, the trial court found the letter of credit was not ambiguous and held that it expired by its own terms on January 4, 1992. As a result, on March 7, 1994, the trial court entered summary judgment for Molter as a matter of law after determining that the Bank owed no obligation to pay under the letter of credit. Amwest's timely notice of appeal followed.

The first issue on appeal is whether the previously quoted language in the letter of credit is an "evergreen clause." We answer this question in the affirmative.

An evergreen clause is typically defined as a "term in a letter of credit providing for automatic renewal of the credit." (J. Dolan, The Law of Letters of Credit, at G-15 (2d ed. 1984).) Financial institutions devised such clauses to avoid a few States' prohibitions on extensions of credit which exceed one year's duration. Although most of those statutes have been repealed, the use of evergreen clauses persists due to custom and legitimate business concerns such as determining which party will bear the burden of renewing the letter of credit. (C. Aster & K. Patterson, A Practical Guide to Letters of Credit, at 40.) An evergreen clause places the burden of renewal on the issuer. Accordingly, the clause automatically renews the letter of credit unless the issuer notifies the beneficiary of its election not to renew prior to expiration. (Steiner, A Letter of Credit Primer for Real Estate Lawyers, 28 Real Prop. Prob. & Tr. J. ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.