A letter of comfort in contract law is a document that provides assurance to a party in a contractual agreement. It is not a legally binding agreement but serves as a form of security for the recipient. The letter of comfort is often used in situations where one party requires additional assurance before proceeding with the contract.
In a letter of comfort, the sender typically agrees to provide financial assistance or support to the receiver if the need arises. This assistance could come in the form of a loan, guarantee, or insurance. The letter is usually addressed to the party who requires the reassurance and is not intended to be a liability for the sender.
One of the primary purposes of a letter of comfort is to encourage the receiving party to move forward with the contract. Sometimes, a party may be hesitant to enter into a contract because of the risks involved. In such cases, a letter of comfort can provide the needed reassurance, making the contract more appealing.
Another purpose of the letter of comfort is to protect the interests of the sender. By providing a letter of comfort, the sender can safeguard its reputation and relationship with the recipient. In case of a default by the recipient, the sender can take steps to ensure that the recipient fulfills its obligations under the contract.
It is important to note that a letter of comfort is not a legally binding agreement. It does not create any contractual obligations between the parties. This is because the letter does not contain any consideration or legal intent. However, the recipient may be able to use the letter as evidence in a legal dispute.
In summary, a letter of comfort is an assurance document that provides additional security in a contractual agreement. It is not a legally binding agreement, but it can help to encourage the receiving party to enter into a contract while also protecting the interests of the sender.