The legal value of the letter of comfort : a study in jurisprudence and case law

Abstract

This study deals with the "Letter of Comfort" as an instrument highly used in commercial dealings. The common practice here is that a mother company issues such a letter informing a third party that its affiliate company is in a good financial position, and is able, therefore, to meet its obligations under a contract. This letter, in turn, encourages the third party to contract with the affiliate company. As a general rule, the Letter of Comfort is supposed to be bondless to the mother company, in the sense that it does not embody a bill or guarantee. However, it appears that in a number of cases courts consider that this letter has a legal value, depending always on the language and the drafting of the letter, the circumstances under which it has been issued, and finally the nature of consideration. In most Arabian legal systems, the Letter of Comfort can find its legal justification and conceptualization under the Doctrine of the Promise on Behalf of Others. Finally some results and recommendations have been made.