First Principles of Business Law

2.8. Letters of comfort

Read the facts and the question and then choose the best answer.

A writes to B Bank: "C has asked me to lend her $10,000, but I am worried that she may not be able to repay me. Is she creditworthy?"

B Bank writes to A: "C has no other debts and has always repaid her loans promptly. We are sure she is creditworthy."

Does B Bank have the intention to be legally bound by contract to A if C fails to repay the debt?

(a) Yes. A written letter like this is a guarantee that is legally binding on the writer.

(b) No. What B Bank has written does not amount to a legally binding promise to guarantee payment of C's debts.