In both commercial practice and personal life, individuals and entities often provide written assurances, some driven by emotion, others by commercial necessity. These may take the form of simple personal letters, letters of comfort, or explicit guarantees, and are often used to establish relationships, secure financing, or provide comfort to potential investors or creditors.
However, such letters can sometimes give rise to legal consequences. A letter intended merely as a comfort letter may, in substance, be treated as a guarantee, while a document described as a “guarantee” may, upon judicial scrutiny, be treated as a mere comfort letter or even a “love letter” (pun intended) devoid of legal enforceability.
This article examines these scenarios, focusing on judicial interpretations and the factors that determine the legal enforceability of such letters.
“Love Letters”
A love letter is an expression of love in written form and may range from a short and simple message of affection to a lengthy explanation and description of one’s feelings. Historically, love letters were considered a distinct epistolary art and, in some traditions, even taught as a skill at the beginning of the eighteenth century, as noted for instance in Richard Steele’s Spectator. Today, however, the usage of such letters has significantly declined. In fact, the lengthy, ink-stained explanation of feelings has, in many cases, been traded for the “romantic efficiency” of a double-tap on Instagram.
Letters of Comfort
According to Ramanatha Aiyar’s Advanced Law Lexicon, a letter of comfort is a written document that indicates one party’s intention to try to ensure that another party complies with the terms of a financial transaction without guaranteeing performance in the event of default.
Guarantees
Under Indian law, guarantees are specifically defined and regulated by Sections 126–147 of the Indian Contract Act, 1872 (“Contract Act”). Section 126 provides that “a contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default.”
Let us now consider a few scenarios, where a “love letter” was given as a “guarantee,” a comfort letter became a legally binding guarantee, and a document explicitly labelled as a “guarantee” surprisingly turned out not to be one.
Scenario A:
Consider a scenario involving a classic love triangle wherein Raj, a faithful friend, harbored an unrequited love for Rani, who was hopelessly devoted to Ranjan. In a moment of passion, Raj addressed a letter to Rani titled a “Guarantee” stating that “I love you so much that I hereby guarantee that in the event of Ranjan’s failure to execute the sacrament of marriage with you, I shall marry you myself.” However, Ranjan, the oblivious object of desire, who, in a classic twist of irony, ended up marrying a third person. Rani now demanded a specific performance from Raj as a guarantor for Ranjan.
Scenario B
Assume a situation wherein, at the behest of Company C, Company A addressed a letter to Company B titled “Letter of guarantee” stating that “if Company C is not able to fulfil its obligations, Company A will ensure Company C complies”. On default by Company C, Company B sued Company A alleging that Company A had acted as a guarantor.
Scenario C:
In this scenario, again at the behest of Company C, Company A addressed a letter to Company B titled “Comfort letter,” stating that” if Company C is not able to fulfil its obligations, Company A will satisfy those obligations“. Following a default by Company C, Company B sued Company A in its capacity as a guarantor.
Judicial Interpretations and Analysis
The following judicial precedents shed light on how courts approach the distinction between guarantees, letters of comfort and similar instruments:
The House of Lords, in Moschi v. LEP Air Services[1], observed, per Lord Diplock that whether any particular contractual promise is to be classified as a guarantee, so as to attract all or any of the legal consequences depends upon the words in which the parties have expressed the promise.
In Yes Bank v. ZEEL[2], when the Bombay High Court was determining whether a letter of comfort creates contractual obligations, it referred to the principles of Banque Brussels Lambert SA v. Australian National Industries Ltd and observed that the role and conduct of each party to a commercial contract must be taken into consideration while interpreting the contract. The Court further noted that an unstamped letter of comfort, if intended as a guarantee, would also be an indicator of its nature as a guarantee.
Conversely, in Intesa Sanpaolo v. Videocon Industries Ltd[3], interpreted a Patronage Letter as guarantee and in substance held that if a letter serves as a security document essential to the granting of a loan, its enforceability cannot be questioned solely based on its form or nomenclature.
The Karnataka High Court in United Breweries (Holding) Ltd. v. Karnataka State Industrial Investment and Development Corporation Limited and Others[4], found that a comfort letter which merely stated that the debtor company would meet its obligations and that the issuer would take reasonable steps to ensure efficient operations was more recommendatory in nature and did not constitute a guarantee.
The Supreme Court of India in China Development Bank v. Doha Bank[5], interpreted a document titled “deed of hypothecation” as a guarantee. The Court based this interpretation primarily on the specific language within the deed, rather than its nomenclature or surrounding context.
More recently, in UV Asset Reconstruction Company Limited v. Electrosteel Castings Limited[6], the Supreme Court, adopting a literal interpretation, held that a mere covenant to ensure financial discipline or infusion of funds does not satisfy the statutory requirements of Section 126 of the Contract Act. The Court also observed that a “see to it” guarantee does not include an obligation to enable the principal debtor to perform its own obligation.
In light of these precedents and principles of law, the three scenarios discussed above are analyzed as follows: –
Scenario A, the mere fact that Raj titled his letter a “Guarantee” does not render it legally enforceable as such. In substance, it remains a love letter. It does not meet the criteria for a legally enforceable contract or a contract of guarantee Sadly, for Rani, a judge may not enforce this promise, evincing that while love may be blind, the law certainly reads fine print.
In Scenario B, though prima facie the letter gave a semblance of a guarantee, it does not legally qualify as one due to its wording. The letter lacks any direct and unequivocal undertaking by Company A to perform or discharge Company C’s obligations in the event of default. Instead, it merely states that Company A will “ensure” that Company C fulfils its obligations. This is insufficient to meet the statutory criteria under Section 126 of the Contract Act, as it does not amount to Company A assuming those obligations upon itself.
In Scenario C, although the document is titled a “Comfort letter,” its substantive language aligns with Section 126 of the Contract Act, indicating that Company A has undertaken a direct obligation to perform the promise of Company C by agreeing to “satisfy” Company C’s obligations in the event of default. As such, Company A stands as a guarantor to Company B, regardless of the nomenclature used in the letter.
Observations
The above scenarios, read with the jurisprudence discussed, signify that the enforceability and interpretation of letters of comfort or guarantees under Indian law largely hinge on the substantive content and language used, which reflect the underlying intent of the parties, rather than the title, label, or form of the document. Accordingly, it is imperative for businesses to understand these distinctions in order to manage risk in commercial relationships and mitigate potential disputes in complex corporate transactions.
Issuers who do not intend binding commitments and want to ensure that a comfort letter is not misinterpreted as a guarantee should, among other things, ensure that: (a) the language used in a document does not inadvertently align with the language under Section 126 of the Contract Act; (b) the wording does not show the intention to be bound in the performance, negotiation, or termination of the debtor’s obligations; (c) there is no ambiguity that could allow the recipient to construe the letter as a legally enforceable agreement; and (d) there is clear contemporaneous correspondence clarifying that the comfort letter is not intended to operate as a guarantee.
Conversely, entities seeking binding commitments should ensure that a comfort letter is not rendered to be merely a “love letter” by: (a) including a clear and unambiguous language creating legal obligations; (b) expressly aligning the terms with Section 126 of the Contract Act if the document is intended to constitute a guarantee; (c) ensuring that the document is adequately stamped in accordance with the applicable Stamp Act (s); and (d) ensuring compliance with Section 179 of the Companies Act, 2013, if the borrower is a company.
*The Author is a commercial lawyer based in New Delhi
Views are strictly personal.
[1] [1973] KB AC 33
[2] 2020 SCC Online Bom 11763
[3] 2014 SCC OnLine Bom 1276
[4] [2011 SCC OnLine Kar 4012
[5] 2025 7 SCC 729
[6] Civil Appeal No. 9701 of 2024 ,2026 INSC 14