Demand for Standby Letter of Credit
(Extend or Pay)

Summary

This template may be used by the beneficiary of a standby letter of credit to demand that the issuing bank either (1) extend the expiration date or (2) make payment to the beneficiary pursuant to the terms of the subject standby letter of credit. This template includes practical guidance and drafting notes. Pursuant to the terms of most standby letters of credit, a beneficiary will be required to present the original letter of credit, possibly an affidavit stating that a default of the underlying agreement has occurred, and a draft demanding payment when the beneficiary is exercising its right to collect from the issuing bank. The form of draft is usually attached as an exhibit to the letter of credit, so that the beneficiary precisely follows the prescribed format. While a standby letter of credit would more commonly require a sight draft demanding immediate payment, some standby letters of credit may call for a time draft, whereby the issuing bank will pay the amount at a defined future date. See Sight Draft for Commercial Letter of Credit and Time Draft for Commercial Letter of Credit for templates of these types of drafts. The applicant's payment under an underlying commercial contract between an applicant and beneficiary may be secured by a standby letter of credit. If such letter of credit expires before the contract has been fully performed, it likely would result in a default by the applicant. The beneficiary may draw upon the letter of credit upon its expiration unless the issuer of the letter of credit is willing to extend the letter of credit expiration date. For a letter of credit that has an imminent expiration date that will occur prior to full performance of the underlying contract, the beneficiary may use this template to make demand to the issuing bank to either extend or pay on the letter of credit. The issuing bank must then agree to extend the expiration date for a stated period of time or pay the beneficiary pursuant to the terms of the demand. Extend or pay demands on standby letters of credit are permitted by the International Standby Practices (International Chamber of Commerce Publication No. 590 (1998)) (ISP98) that often governs standby letters of credit. The capitalized terms used in this template should be conformed to the defined terms in the letter of credit or other relevant agreements between the parties. This template should be read in conjunction with Letters of Credit: Parties and Documentation and Letters of Credit: Purpose and Types. For a template of an agreement requesting the issuance of a letter of credit, see Letter of Credit and Reimbursement Agreement. For templates of standby letters of credit, see Irrevocable Standby Letter of Credit and Exhibits and Standby Letter of Credit for Commercial Transactions. For a full listing of related letter of credit content, see Letter of Credit Resource Kit and Trade Finance Resource Kit.