The lettre d’intention (letter of intent, also called letter of comfort or comfort letter) is a mechanism commonly encountered in the business world, particularly within corporate groups. Yet its precise legal nature and the actual scope of the commitment it represents are often poorly understood. Is it a mere moral statement or a genuinely binding obligation? This article aims to demystify the letter of intent under French law, explain its characteristics, its legal value, and the practical consequences for businesses that use them or benefit from them. A proper understanding of this tool is essential to secure your commercial and financial relationships. Article 2322 of the French Civil Code defines it concisely as « the undertaking to do or not to do something having as its object the support provided to a debtor in the performance of its obligation toward its creditor ».

What exactly is a letter of intent?

Definition and context of use

In the legal sense relevant here, the letter of intent is a document by which a third party, called the confortant (the party providing comfort), expresses its intention to support a debtor, the conforté (the party receiving comfort), so that the latter can meet its commitments toward a creditor. The confortant thereby reinforces the creditor’s confidence in the debtor. It must not be confused with the « letters of intent » sometimes exchanged during the negotiation phase of a contract (pre-contractual discussions), which aim to frame those discussions without necessarily creating an obligation to conclude the contract.

Its use developed in France from the 1970s onward, inspired by Anglo-Saxon practice (the « letter of comfort »). Its natural habitat is intra-group relationships: a parent company sends a letter to a bank to support its subsidiary’s credit application. The objective is clear — to reassure the lender about the subsidiary’s ability to repay, thanks to the implicit or explicit support of the parent company. The perceived value of the letter then largely depends on the reputation and financial strength of the confortant.

A variable legal nature: watch out for the pitfalls

Not all letters labeled as « letters of intent » produce the same legal effects. It is essential to distinguish between several situations.

Some letters may express only a purely moral commitment, a kind of « gentlemen’s agreement ». The confortant signals its support without assuming any legally enforceable obligation. The absence of a direct legal sanction does not mean a total lack of effectiveness: breach of such a commitment can seriously damage the commercial reputation of the confortant.

At the opposite extreme, a letter of intent may, through its drafting, be analyzed as a disguised cautionnement (suretyship — a personal guarantee where the guarantor undertakes to pay the debtor’s debt if the debtor defaults). This is the case where the confortant clearly undertakes to substitute itself for the debtor in the event of default, for instance by promising to pay in its place. French case law does not hesitate to requalify such instruments. For example, a letter by which a parent company undertook, if necessary, to substitute itself for its subsidiary to meet its commitments was analyzed as a cautionnement (Com. 21 Dec. 1987, no. 85-13.173). The consequence of such requalification is the application of the entire legal regime governing suretyship, which can result in the nullity of the instrument if it does not comply with the formal or authorization requirements specific to cautionnement.

Between these two extremes lies the true letter of intent in the legal sense: one that creates a legally binding commitment, yet distinct from a suretyship. The confortant assumes real obligations, but without promising to pay another’s debt. The French Cour de cassation (Supreme Court for private law matters) confirmed its validity as early as 1987 (Com. 21 Dec. 1987, no. 85-13.173). It is regarded as a unilateral contract: only the confortant is bound, but acceptance by the beneficiary creditor is necessary for the contract to be formed.

What obligations does a letter of intent create?

The core commitment: to do or not to do

The fundamental distinction between a valid letter of intent and a suretyship or autonomous guarantee lies in the nature of the confortant‘s obligation. Whereas a surety or guarantor undertakes to pay a sum of money (an obligation to give), the confortant undertakes to perform an action (an obligation to do) or to refrain from an action (an obligation not to do). It never promises to pay the debtor’s debt directly. If it ends up paying money, it will be as damages in compensation for the harm caused by the breach of its obligation to do or not to do.

Obligations to do can vary. The most common involve a parent company undertaking to maintain its shareholding in the subsidiary, or to ensure that the subsidiary has the financial means necessary to meet its payments when due. Other examples include: monitoring the subsidiary’s cash flow or management, covering a cash shortfall, or providing a replacement guarantee in the event of the subsidiary’s sale. Sometimes the wording is more general, such as undertaking to « do what is necessary for » the subsidiary to honor its commitments.

As for obligations not to do, the main one is the undertaking not to sell one’s stake in the subsidiary, or not to reduce it. One could also envisage an undertaking not to change the registered office or the legal form of the subsidiary.

Obligation of means or obligation of result: a decisive distinction

For a long time, French case law distinguished — within letters of intent creating an obligation to do or not to do — according to the intensity of the commitment: is it an obligation de moyens (obligation of means, i.e. best-efforts obligation) or an obligation de résultat (obligation of result, i.e. strict obligation to achieve a specific outcome)?

In the case of an obligation of means, the confortant undertakes only to use all reasonable efforts to reach a given objective (for instance, making its « best efforts » to ensure that the subsidiary has sufficient cash). The creditor must then prove that the confortant failed to implement the promised means in order to trigger its liability.

In the case of an obligation of result, the confortant promises the achievement of a specific outcome: typically, that the debtor will be able to pay its debt. An undertaking to ensure sufficient cash for the subsidiary has often been interpreted as an obligation of result (see e.g. Com. 17 Dec. 2002, no. 00-11.566; Com. 17 May 2011, no. 09-16.186). Here, the mere default of the debtor is enough to establish the confortant‘s fault, except in cases of force majeure.

This distinction had considerable importance before the 2006 reform of security interests law. In particular, it determined the burden of proof and, above all, the application of the rules requiring prior authorization by the board of directors in sociétés anonymes (French public limited companies): only letters creating an obligation of result were considered « guarantees » subject to that authorization. The interpretation of the wording used (« do what is necessary », for instance) gave rise to judicial hesitations, a source of legal uncertainty (compare Com. 23 Oct. 1990, no. 89-12.924 and Com. 26 Jan. 1999, no. 97-10.003, then Com. 26 Feb. 2002, no. 99-10.729).

Since the Ordinance of 23 March 2006, Article 2287-1 of the Civil Code expressly classifies the letter of intent as a sûreté personnelle (personal security interest, i.e. a personal guarantee). This statutory classification tends to make the means/result distinction less decisive for certain issues, such as prior authorization (since any security interest is a guarantee within the meaning of the Commercial Code). It remains relevant, however, for assessing the confortant‘s fault and the burden of proof.

How is a letter of intent formed and extinguished?

The validity conditions to check

Like any contract, the letter of intent must meet the validity conditions of French general contract law. The consent of the parties (the confortant and the beneficiary creditor) must be freely and knowingly given. The capacity to contract is required. The object of the confortant‘s obligation (the performance to do or not to do) must be determined or determinable, possible and lawful. The question of the cause (the legal reason for the commitment, a now-abolished concept under the 2016 contract reform, but still relevant for older agreements) gave rise to little practical debate. The economic interest of the operation for the group is generally sufficient to justify it. Finally, the letter of intent is a consensual act: no particular formalism, in particular no handwritten wording as in the case of cautionnement, is required for its validity.

Additional conditions apply when the confortant is a company. The commitment must comply with the corporate purpose (objet social), although this requirement has limited reach in limited-liability companies (SARL, SA, SAS), where the company is bound even by acts falling outside its corporate purpose, unless the third party’s bad faith is proven. Compliance with the corporate interest (intérêt social) is also a condition, but its breach does not entail nullity of the commitment vis-à-vis third parties in SARLs and probably in joint-stock companies.

A key point for sociétés anonymes (and by extension SAS and SCA): Article L. 225-35 of the Commercial Code requires prior authorization from the board of directors or supervisory board for « sureties, endorsements and guarantees » given by the company. Since the letter of intent is now classified as a personal security interest, this authorization is required regardless of the intensity of the obligation (means or result). The authorization must precede the signing of the letter, be capped in amount and valid for a maximum period of one year (even if the letter itself covers a longer period). Lack of authorization does not result in the nullity of the letter, but in its unenforceability against the company: the creditor cannot rely on it against the company. The liability of the director who signed without authorization is difficult to establish on that sole basis.

The end of the commitment: when is the letter of intent extinguished?

The confortant‘s commitment comes to an end according to the general rules of French obligations law. If a fixed term was set, the arrival of that term extinguishes the obligation for the future. If the duration is open-ended, the confortant (like the creditor) may terminate it unilaterally, subject to giving reasonable notice.

The extinction of the main guaranteed obligation (for example, the subsidiary’s repayment of the loan) also has an impact. Since the letter of intent aims to secure performance of that obligation, if the obligation disappears (payment, prescription, annulment of the main contract, etc.), the creditor no longer suffers any harm from a potential breach by the confortant. Liability therefore can no longer be triggered. This is not an « accessory » extinction as with cautionnement, but rather the disappearance of one of the conditions of liability.

What happens if the link between the confortant and the conforté disappears after the letter is signed (for instance, the parent company sells its subsidiary)? In principle, that fact alone does not release the confortant from its commitments. The disappearance of the original motive (the shareholding link) does not affect the validity of the contract already formed. Allowing the confortant to escape its obligations merely by selling its stake would be too easy. It is therefore prudent, for the confortant, to expressly stipulate in the letter that its commitment is conditional on the maintenance of that link.

What are the consequences in the event of a problem?

The confortant’s liability in case of non-performance

If the confortant fails to comply with the obligations to do or not to do set out in the letter (for example, it sells its shareholding despite having undertaken to maintain it, or it fails to provide the promised financial support), it incurs contractual liability toward the beneficiary creditor.

However, this liability is triggered only if the following conditions are met:

  1. A fault: the confortant did not perform its obligation (or did not deploy all the required means, in the case of an obligation of means).
  2. A loss suffered by the creditor: typically, non-payment of the debt by the supported debtor.
  3. A causal link between the fault and the loss: the creditor must prove that it was indeed the confortant‘s breach that caused or contributed to the debtor’s default. This link is not always easy to establish, particularly where the obligation was not to sell one’s shares.

If liability is established, the confortant will be ordered to pay damages. The amount aims to fully compensate the loss suffered by the creditor. It may equal the amount of the unpaid debt, but may also be lower (if the creditor contributed to the damage through its own fault, or if the confortant merely deprived the debtor of a chance) or even higher (if the non-payment caused the creditor additional harm). The rule that a cautionnement cannot exceed the principal debt (Art. 2290 of the Civil Code) does not apply here.

Possible lines of defense

The confortant sued for liability may raise several defenses. It can first challenge the existence of any fault on its part, in particular by proving that it deployed all the means required by an obligation of means. It may also invoke force majeure (an external, unforeseeable and irresistible event that prevented it from performing its obligation, such as a serious threat to its own financial survival if it supported the subsidiary, or the seizure of funds it had made available by another creditor) or the contributory fault of the creditor.

Concerning defenses based on the relationship between the creditor and the principal debtor (nullity of the main contract, payment already made, prescription of the debt, etc.), the confortant cannot raise them directly as a surety would (since the letter of intent is not accessory to the main debt). However, if those defenses remove the creditor’s loss, the confortant‘s liability can no longer be triggered for lack of harm to compensate.

On the other hand, the confortant can never invoke the bénéfice de discussion (right to compel the creditor to pursue the principal debtor first) or the bénéfice de division (right to compel the creditor to split its claims among several guarantors). These mechanisms are specific to cautionnement.

The confortant’s recourse after paying

Where a confortant has compensated the creditor following the enforcement of its liability, does it have any recourse against the supported debtor it indirectly « helped »? The law is silent on this point.

The majority view among legal scholars accepts that the confortant has a personal recourse against the supported debtor. This recourse could be based on gestion d’affaires (a quasi-contract known in common law systems as negotiorum gestio — managing another’s affairs without a mandate): the confortant managed the conforté‘s affairs by paying in its place, even if via damages. It could also rest on a more general theory of personal security interests. It would allow the confortant to claim reimbursement from the debtor of the sums paid to the creditor.

The question of a subrogation-based recourse is more debated. Subrogation allows a person who pays another’s debt to step into the initial creditor’s shoes and benefit from all of its rights and guarantees against the debtor (former Art. 1251, new Arts. 1346 et seq. of the Civil Code). Yet the confortant pays a debt that is personal to it (its debt of damages), not the debt of the conforté. Despite the broad interpretation of subrogation adopted by case law for other guarantors, it is doubtful that it applies to a confortant who pays not in performance of its main obligation, but as a sanction for its breach. The personal recourse route seems more fitting.

The letter of intent is a useful but complex instrument. Imprecise drafting or a poor understanding of its implications can lead to significant consequences. To secure your commitments or analyze the scope of a letter of intent you have received or signed, our firm is at your disposal to provide tailored advice.

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