Comfort Letter Case Study Example | Topics and Well Written Essays - 1000 words

Comfort Letter - Case Study Example 1In the suit, Kleinwort Benson, or KB for brevity, proposed to extend a loan to MMC Metals Ltd or Metals for short, which is a subsidiary of Malaysia Mining Corporation (or Malaysia Ming). In the process of the lending proposal, KB requested from Malaysia Mining a letter to the effect that the latter would assure KB that Metals would pay the liability when it became due. At first, KB wanted to ask for a guarantee from Malaysia Mining. In essence, KB desired a situation that if Metals could not settle the debt, Malaysia Mining, as the parent company, would be under legal obligation to be subrogated into the shoes of Metals, the subsidiary. Malaysia Mining did not heed the call of KB. In lieu of the letter supposedly clearly defining the mother company as a guarantor of the debt of Metals, Malaysia Mining wrote a prudently crafted letter where it was stated that it was the policy of the company (Malaysia Mining) to ensure that Metals would always be in a capacity to pay back what was b orrowed from KB. The carefully worded correspondence is now the so-called comfort letter at issue. When Metals became troubled with insolvency owing to the predicaments of the tin industry because of the problematic world market, KB claimed payment from Malaysia Mining for the obligation of Metals. KB charged that Malaysia Mining had made a promise to prevent going into a situation where it could not pay its debts. The question now is whether or not Malaysia Mining is liable to KB on the basis of the language set forth in the comfort letter. The court that finally ruled the case answered in the negative. In this paper, independent views are hereby conveyed regarding the matter. The facts have to be analyzed in sufficient detail. At the outset, it is undisputed that KB requested from Malaysia Mining a documentary guarantee whereby the latter would have been bound by the accountability of its subsidiary. From this act and notion alone, it was readily clear that without that guarantee, KB was not holding on anything as would make Malaysia Mining a co-debtor or co-borrower of Metals. It was precisely because of this vacuum that KB asked for a written commitment from Malaysia Mining for the latter to give an assurance for the payment of the loan in the possibility that Metals would not be able to pay the debt. Malaysia Mining refused and the refusal manifestly exhibited the position of the parent corporation that it did not opt to become a co-borrower of its subsidiary or to stand as its guarantor. When KB pushed through with the loan covenant, it took the risk of probably failing to collect from Metals. When indeed Metals was not able to settle the liability, there was no reason to make Malaysia Mining legally responsible to tender payment based on the comfort letter which it sent to KB because, in the first place, there was nothing in the comfort letter making or even presuming Malaysia Mining to be so liable. Going to the language used by Malaysia Mining, the ruling in its favor became more convincing when it declared no commitment to pay for and in behalf of Metals by refusing to sign a guarantee. It simply made known a policy which was not a promise or a pledge. To make a comparison, one who says it is his policy to be honest is different from when he promises to be honest. A policy of the state for space exploration is not a promise for definite courses of action to explore the space. Neither