Parties to a letter of credit following the Ninth Circuit’s opinion in Golden West Refining v. SunTrust Bank, 538 F.3d 1233 (9th Cir. 2008) may be surprised to learn some letters of credit are not necessarily “perpetual.”

In Golden West a letter of credit with a one-year term contained language that said the term “shall be deemed automatically renewed without amendment for additional one year periods.” SunTrust argued that the letter of credit expired after five years because based on this language it was “perpetual” under UCC § 5-106(d) which provides that a letter of credit that “states that it is perpetual” expires five years from issuance. The Court disagreed and held that a letter of credit must actually use the word “perpetual” to be considered perpetual under the UCC.

Following Golden West, parties that want their letter of credit to expire after five years should use the word “perpetual,” but parties that want their letter of credit to be perpetual as the word is commonly understood should state that the letter of credit automatically renews.