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Legal Status of Comfort Letters in South Africa - Essay Example

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This essay declares that a comfort letter is generally defined as a document issued by a parent company which is primarily aimed to encourage a lending institution to issue credit to another company which is usually a subsidiary of the maker or issuer…
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Legal Status of Comfort Letters in South Africa
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Legal Status of Comfort Letters in South Africa

Download file to see previous pages... According to the report in the Kleinworth Benson case, the court said that in order to determine whether the comfort letter created an enforceable obligation on the part of the maker or issuer, legal construction of the words or language used in the comfort letter should be made. If the words or language strongly suggest that the comfort letter is promissory in nature which is evident on the face of the letter itself, the maker or issuer is obliged to perform an obligation under the comfort letter. In this case, the court held that the comfort letter is not enforceable because the terms only represented it was the “practice” of the company to provide financial support and with no indication in the letter that the policy would continue in the future.From this paper it is clear that if the maker or issuer does not intend to be binded by the comfort letter, he or she must include a disclaimer or a clear statement on the face of the letter that he or she does not intend to give rise to any legal obligation whatsoever. Otherwise, in the absence of the disclaimer, the comfort letter is intended to be legally enforceable. This view somehow was utilized by a court in deciding a case in 2002 when it held that the plaintiffs’ reliance on the comfort letters was unjustifiable because the disclaimer language expressly stated that they were ‘not to be used, circulated, quoted, or otherwise referred to for any purpose, including but not limited of the purchase or sale of securities”. ...Download file to see next pagesRead More
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