On appeal from Superior Court of New Jersey, Law Division, Morris County, L-627-99.
Before Judges Baime, Carchman and Lintner.*fn1
The opinion of the court was delivered by: Carchman, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This appeal requires us to reconcile two assertedly disparate clauses contained in a letter of credit (the letter). The first clause, referred to as an "evergreen" clause, provides for annual automatic renewal of the letter of credit without notice. The second clause, referred to as the "expiry" clause, provides a fixed termination date for the letter. Judge Stephen F. Smith, Jr., in the Law Division, held that the expiry clause governed and granted summary judgment in favor of defendant Chase Manhattan Bank (the bank*fn2). We agree with his conclusion, and affirm.
The underlying facts are not in dispute. On June 3, 1992, the bank issued an irrevocable letter of credit in the principal amount of $355,000 to Hankin Environmental Systems, Inc., naming Laurentian Casualty Company of Canada as beneficiary. Laurentian was thereafter acquired by plaintiff AXA Assurances, Inc., which succeeded Laurentian as beneficiary under the letter. The letter contains two separate clauses which frame the issue on this appeal. The evergreen clause provides:
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.
The expiry clause, however, provides a specific expiration date:
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 DELIVERY 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. [(emphasis added).]
The bank took no action under the evergreen clause. On March 9, 1998, plaintiff requested a draw on the letter. The bank refused the request, claiming the letter had expired. Plaintiff then filed a complaint alleging wrongful dishonor of the letter, and theorizing that the evergreen clause supported the continued validity of the letter. On cross-motions for summary judgment, Judge Smith determined that the clauses were not inconsistent with one another and that the more general evergreen clause was limited by the expiry provision. He granted defendant's motion for summary judgment and dismissed the complaint. This appeal followed.
A letter of credit is as "a bank's agreement to honor written demands for payment at the request of another upon compliance with specified conditions." New Jersey Bank v. Palladino, 77 N.J. 33, 40 (1978). See also Chase Manhattan Bank v. Equibank, 550 F.2d 882, 885 (3d Cir. 1977) (defining letters of credit generally). An "evergreen clause" is defined "as a '[t]erm in a letter of credit providing for automatic renewal of the credit.'" Molter Corp. v. Amwest Surety Ins. Co., 642 N.E.2d 919, 921 (Ill. Ct. App. 1994) (quoting J. Dolan, The Laws of Letters of Credit, at G-15 (2d ed. 1984)). "An evergreen clause in a letter of credit reflects the parties' intent to make credit available for an indefinite period of time." Ibid. (citing B.E.I. Int'l, Inc. v. Thai Military Bank, 978 F.2d 440, 442 (8th Cir. 1992)).
General rules of contract construction apply with equal force in interpreting letters of credit. See Palladino, supra, 77 N.J. 33, 46. Other jurisdictions have adopted a similar rule. See, e.g., United Shippers Co-op. v. Soukup, 459 N.W.2d 343, 345 (Minn. Ct. App. 1990); Sports, Inc. v. Sportshop, Inc., 783 P.2d 1318, 1319 (Kan. Ct. App. 1989); Willow Bend Nat. Bank v. Commonwealth Mortgage Corp., 722 S.W.2d 12, 13 (Tex. App. 1986); First Nat. Bank of Atlanta v. Wynne, 256 S.E.2d 383, 386 (Ga. Ct. App. 1979); New York Life Ins. Co. v. Hartford Nat. Bank & Trust Co., 378 A.2d 562, 565 (Conn. 1977). Several federal courts have also applied general contract principles in construing the terms of letters of credit. See, e.g., Mutual Export Corp. v. Westpac Banking Corp., 983 F.2d 420, 423 (2d Cir. 1993); Bank of North Carolina, N.A. v. Rock Island Bank, 570 F.2d 202, 207 (7th Cir. 1978); Data General Corp. v. Citizens Nat'l Bank, 502 F. Supp. 776, 784-85 (D. Conn. 1980); West Virginia Housing Dev. Fund v. Sroka, 415 F. Supp. 1107, 1109-10 (W.D. Pa. 1976).
Particularly relevant here is the admonition that contracts must be read as a whole without focus on an isolated phrase. Wheatly v. Sook Suh, 217 N.J. Super. 233, 239 (App. Div. 1987). "'Individual clauses and particular words must be considered in connection with the rest of the agreement, and all parts of the writing and every word of it, will, if possible, be given effect.'" Krosnowski v. Krosnowski, 22 N.J. 376, 387-88 (1956) (quoting 9 Williston on Contracts § 46 (rev. ed. 1945)).
Against this basic framework, we examine the provisions in issue here. The evergreen clause provides for automatic renewal of the letter "for one year, from the expiration date hereof, or any future expiration date," provided that defendant did not give 30 days notice of non-renewal. If this were the sole provision in issue, we would have little difficulty concluding that this letter was renewable on an annual basis without limit absent notification by defendant of its intention not to renew. Such a reading, however, suggests no significance to ...