Confirmed Standbys with Auto Extension Clauses

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Editor’s Note: This query generated an exchange of emails among a group of DCW Editorial Advisory Board members whose responses follow. 

Query:

I would appreciate thoughts on the following: Issuer issues a standby letter of credit with an auto renewal clause, which permits a drawing by beneficiary without documentation if issuer sends out a notice of intent not to renew. Confirming bank confirms the credit by enclosing the credit instrument and also stating that beneficiary can draw under the confirmation if confirmer sends out the notice of intent not to renew the confirmation. Issuer does not send notice of intent not to renew, but confirmer does. Beneficiary draws and confirmer honors. Issuer objects to reimbursement demand because it did not send out notice of non-renewal. Issuer takes the position that drawing could not occur even under confirmation if issuer did not send out notice of non-renewal. Confirmer asserts that its confirmation is independent and does not need to track exactly the terms of the credit as issued. Was beneficiary entitled to draw against confirmer even though issuer never sent out notice? Is confirmer entitled to reimbursement from issuer?

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