The scenario described involves the question of whether the letter written by Mulungushi Sugar PLC to

ABSA bank creates a legally binding contract with regards to Chishamba Co Ltd’s loan and whether ABSA
bank can recover the loan amount plus interest after the liquidation of the subsidiary company.

To analyze the contractual obligations and liabilities in this agreement, it is necessary to consider the
formation of a contract, the elements required for a valid contract, the intention of the parties, and the
principles of agency law. Additionally, the concept of estoppel and the doctrine of privity of contract will
also be relevant in this situation.

1. Formation of a Contract:

For a contract to be formed, there must be an offer, acceptance, consideration, intention to create legal
relations, and certainty of terms. In this case, it can be assumed that ABSA bank provided an offer in the
form of the loan facility, and Mulungushi Sugar PLC accepted this offer on behalf of its subsidiary
company, Chishamba Co Ltd, through the letter. Therefore, the first element of contract formation
appears to be present.

2. Intention to Create Legal Relations:

The next crucial element is the intention of the parties to create legal relations. Generally, in commercial
transactions like this, it can be presumed that both parties intend to create legal obligations. However,
Mulungushi Sugar PLC claims that the letter was not intended to create legal obligations. To determine
the intention, the courts will look at the objective evidence of the communication between the parties
and context.

In this case, the letter was written by Mulungushi Sugar PLC, not for its own benefit, but on behalf of its
subsidiary company, Chishamba Co Ltd. The purpose of the letter was to ensure that Chishamba Co Ltd
can meet its liabilities to the bank. This suggests that both parties understood that legal obligations
would be created as a result of the letter. The fact that ABSA bank relied on the letter in granting the
loan further strengthens this argument. Therefore, the intention to create legal relations is likely to be
established.

3. Agency:

Since the letter was written on behalf of Chishamba Co Ltd by its parent company, Mulungushi Sugar
PLC, the principles of agency law become relevant. An agency relationship involves one party (the
principal) giving authority to another party (the agent) to act on its behalf. In this case, Mulungushi
Sugar PLC acted as an agent for Chishamba Co Ltd in dealing with ABSA bank. Hence, any actions or
representations made by Mulungushi Sugar PLC generally bind its subsidiary, which includes the letter
issued to ABSA bank.
 4. Estoppel:

Even if there were doubts about the intention to create legal relations or the existence of a valid
contract, the principle of estoppel may come into play. Estoppel prevents a party from going back on its
representations if the other party reasonably relied on those representations to its detriment. In this
case, ABSA bank relied on the letter from Mulungushi Sugar PLC to grant the loan. If Mulungushi Sugar
PLC were to argue that the letter does not create a legal obligation, it could be seen as a breach of
estoppel, as ABSA bank would suffer a detriment by extending the loan based on the letter.

5. Doctrine of Privity of Contract:

One potential issue in this scenario is the doctrine of privity of contract. This principle generally states
that only the parties to a contract can enforce the terms of that contract. However, in certain
circumstances, exceptions exist to allow third parties to enforce contractual rights. It is plausible that
ABSA bank, as a party relying on the letter issued by Mulungushi Sugar PLC, could be seen as an
intended beneficiary of the contract between Mulungushi Sugar PLC and Chishamba Co Ltd. As such,
ABSA bank may have rights to enforce the terms of the letter and seek recovery of the loan amount plus
interest.

Having considered these elements and principles, it appears that there is a strong case for the letter to
be construed as creating a legally enforceable contract between Mulungushi Sugar PLC and ABSA bank.
Mulungushi Sugar PLC, by issuing the letter, represented that it intended to ensure Chishamba Co Ltd
would meet its liabilities to the bank. This representation was reasonably relied upon by ABSA bank,
leading to the grant of the loan. Therefore, ABSA bank should be able to recover their money plus
interest, given the circumstances outlined.

It Is important to note that jurisdiction and specific contract provisions may affect the outcome. Legal
advice should be sought to assess the situation based on the relevant laws and regulations in the specific
jurisdiction where the agreement and its enforcement take place.

The scenario described involves the question of whether the letter written by Mulungushi Sugar PLC to
ABSA bank creates a legally binding contract with regards to Chishamba Co Ltd’s loan and whether ABSA
bank can recover the loan amount plus interest after the liquidation of the subsidiary company.

To analyze the contractual obligations and liabilities in this agreement, it is necessary to consider the
formation of a contract, the elements required for a valid contract, the intention of the parties, and the
principles of agency law. Additionally, the concept of estoppel and the doctrine of privity of contract will
also be relevant in this situation.
 1. Formation of a Contract:

For a contract to be formed, there must be an offer, acceptance, consideration, intention to create legal
relations, and certainty of terms. In this case, it can be assumed that ABSA bank provided an offer in the
form of the loan facility, and Mulungushi Sugar PLC accepted this offer on behalf of its subsidiary
company, Chishamba Co Ltd, through the letter. Therefore, the first element of contract formation
appears to be present.

2. Intention to Create Legal Relations:

The next crucial element is the intention of the parties to create legal relations. Generally, in commercial
transactions like this, it can be presumed that both parties intend to create legal obligations. However,
Mulungushi Sugar PLC claims that the letter was not intended to create legal obligations. To determine
the intention, the courts will look at the objective evidence of the communication between the parties
and context.

In this case, the letter was written by Mulungushi Sugar PLC, not for its own benefit, but on behalf of its
subsidiary company, Chishamba Co Ltd. The purpose of the letter was to ensure that Chishamba Co Ltd
can meet its liabilities to the bank. This suggests that both parties understood that legal obligations
would be created as a result of the letter. The fact that ABSA bank relied on the letter in granting the
loan further strengthens this argument. Therefore, the intention to create legal relations is likely to be
established.

3. Agency:

Since the letter was written on behalf of Chishamba Co Ltd by its parent company, Mulungushi Sugar
PLC, the principles of agency law become relevant. An agency relationship involves one party (the
principal) giving authority to another party (the agent) to act on its behalf. In this case, Mulungushi
Sugar PLC acted as an agent for Chishamba Co Ltd in dealing with ABSA bank. Hence, any actions or
representations made by Mulungushi Sugar PLC generally bind its subsidiary, which includes the letter
issued to ABSA bank.

4. Estoppel:

Even if there were doubts about the intention to create legal relations or the existence of a valid
contract, the principle of estoppel may come into play. Estoppel prevents a party from going back on its
representations if the other party reasonably relied on those representations to its detriment. In this
case, ABSA bank relied on the letter from Mulungushi Sugar PLC to grant the loan. If Mulungushi Sugar
PLC were to argue that the letter does not create a legal obligation, it could be seen as a breach of
estoppel, as ABSA bank would suffer a detriment by extending the loan based on the letter.
 5. Doctrine of Privity of Contract:

One potential issue in this scenario is the doctrine of privity of contract. This principle generally states
that only the parties to a contract can enforce the terms of that contract. However, in certain
circumstances, exceptions exist to allow third parties to enforce contractual rights. It is plausible that
ABSA bank, as a party relying on the letter issued by Mulungushi Sugar PLC, could be seen as an
intended beneficiary of the contract between Mulungushi Sugar PLC and Chishamba Co Ltd. As such,
ABSA bank may have rights to enforce the terms of the letter and seek recovery of the loan amount plus
interest.

Having considered these elements and principles, it appears that there is a strong case for the letter to
be construed as creating a legally enforceable contract between Mulungushi Sugar PLC and ABSA bank.
Mulungushi Sugar PLC, by issuing the letter, represented that it intended to ensure Chishamba Co Ltd
would meet its liabilities to the bank. This representation was reasonably relied upon by ABSA bank,
leading to the grant of the loan. Therefore, ABSA bank should be able to recover their money plus
interest, given the circumstances outlined.

It Is important to note that jurisdiction and specific contract provisions may affect the outcome. Legal
advice should be sought to assess the situation based on the relevant laws and regulations in the specific
jurisdiction where the agreement and its enforcement take place.