2001 Construction of Terms of Contract

2001 Construction of terms of contract -- Sewage mains and standard of road construction

2251 Formation -- Consideration

3 [2251] CONTRACT Formation – Consideration – Payment of a smaller sum for a

larger sum due – Estoppel – Debt - Agreement to pay lesser sum in settlement

- Whether agreement available as a defence - Estoppel.

Summary :

The plaintiff claimed the sum of $3,592 from the defendant arising from

transactions relating to the letting of premises. The defendant alleged that there

was a general settlement of all outstanding claims between him and the plaintiff

under which he had agreed to pay and had paid the sum of $2,000. The plaintiff

agreed that he had received the sum of $2,000 but denied that it was an overall

settlement and he in support of his contention pleaded that since that settlement he

had obtained judgment by default against the defendant in the sum of $2,256.96

and had been paid this sum.

Holding :

Held: (1) on the facts there was an agreement for the payment of $2,000 by the

defendant to the plaintiff in settlement of all outstanding claims between them; (2)

the defendant can rely on this agreement as a defence to the claim; (3) the

defendant was not estopped from setting up the defence, despite the fact that he did

not avail himself of it in the earlier action.

Digest :

William Teo's House and Estate Agencies v Chan Eng Swee [1965] 2 MLJ 89

High Court, Penang (Hepworth J).

2252 Formation -- Construction

3 [2252] CONTRACT Formation – Construction – Contract - Construction - Credit

card arrangement - Whether binding - Whether subject to execution of formal

contract.

Summary :

This was an application for summary judgment under the Rules of the Supreme

Court 1957, O 14. The plaintiffs claimed a sum of $704,762.51 for the sale and

supply of aviation fuel to an aircraft belonging to the defendants, at various

airports, including Kuala Lumpur, for the period between June 1971 and

September 1971. On 25 November 1971, the plaintiffs filed their statement of

claim, and simultaneously applied for and obtained an order of attachment, before

judgment, against the defendants' aircraft. On 27 November 1971, the said order

was set aside, and this formed the subject matter of a counterclaim for defamation

against the plaintiffs. The defendants admitted that the fuel was supplied, but

denied all liabilities. They contended that they were liable to pay at the price

thereof, ab initio, to be fixed when a formal contract came to be made and executed

on or about two weeks from then. Prior to the establishment of a proposed formal

contract, the arrangement arrived at between the parties was contained in three

letters and five credit cards. Thus, the court had to construe, inter alia, the meaning

of the three letters to determine the nature of the arrangement arrived at between

the parties.

Holding :

Held, allowing the application: (1) there were no triable issues. This was simply a

case of construction of certain documents which passed between the parties; (2) the

counterclaim was to form the subject matter of a separate action. It is settled law

that a counterclaim cannot be maintained unless it is shown that the relief claimed

is sufficiently connected with or allied to the subject matter of the principal claim

as to make it necessary in the interests of justice that it should be dealt with along

with the claim. Thus, a counterclaim for libel cannot be maintained in a claim for

money lent; (3) there was an immediate binding contract based on the credit card

arrangement. The letters were not expressed in such a way as to show clearly that

the execution of a formal contract was made a condition precedent to the existence

of a binding arrangement. There were no words appropriate for introducing a

condition or stipulation. Per Raja Azlan Shah J: 'It is, I think, right that an order

under O 14 should be made only if the court thinks it is a plain case and ought not

to go to trial. If one simply has a short matter of construction with a few documents,

the court, on summary application, should decide what in its judgment is the true

construction. There should be no reason to go formally to trial where no further

facts could emerge which would throw any light upon the letters that have to be

construed.'

Digest :

Esso Standard Malaya Bhd v Southern Cross Airways (Malaysia) Bhd [1972] 1

MLJ 168 High Court, Kuala Lumpur (Raja Azlan Shah J).

2253 Formation -- Contract for sale of property

3 [2253] CONTRACT Formation – Contract for sale of property – Parties entered

agreement to make sale and purchase agreement of property – Parties to

transaction, property price and essential terms identified – Correspondence

between parties did not reflect intention of parties that there should be no

concluded contract until a formal sale and purchase agreement had been

executed – Whether an 'open contract' – Whether enforceable as if it was

embodied in document with all attendant solemnity – Whether court could

imply terms into contract for sale to give it effect

Digest :

Charles Grenier Sdn Bhd v Lau Wing Hong [1996] 3 MLJ 327 Federal Court,

Kuala Lumpur (Anuar CJ (Malaya).

See CONTRACT, Vol 3, para 2208.


3 [2254] CONTRACT Formation – Contract for sale of property – Parties signed

memorandum of understanding ('MOU') – Purchaser paid deposit of 1% of

purchase price – Balance of 9% to be paid upon signing of formal sale and

purchase agreement on a certain date – Purchaser failed to sign formal sale

and purchase agreement on date specified – Vendor sold property to third

party – Purchaser claimed specific performance of contract based on MOU –

Whether MOU resulted in a legally binding contract – Whether MOU only an

agreement to negotiate

Summary :

This was an action brought by the plaintiff ('the purchaser') against the defendant

('the vendor') for specific performance of a contract of sale and purchase of a house

('the property'), based on a memorandum of understanding ('the MOU'). In

accordance with the MOU, the purchaser paid a deposit of 1% of the purchase

price and further agreed to pay another 9% upon signing of a formal sale and

purchase agreement on or before 8 October 1993. In pursuance of this so-called

agreement, the purchaser entered a private caveat over the property. The purchaser

did not sign the formal sale and purchase agreement on 8 October 1993 as stated in

the MOU, but on 11 October 1993. The vendor did not sign the formal sale and

purchase agreement on the ground that it was not signed by the purchaser within

the time period as stipulated in the MOU. The vendor then sold the property to

another party, who were the interveners in these proceedings. The purchaser

argued that upon signing the MOU, a binding contract came into existence. The

vendor's contention was that there was no binding contract between the parties for

the following reasons: (i) the MOU by itself was not a legally binding contract for

the sale and purchase of the property; and (ii) even if it was, as time was the

essence of the agreement, the purchaser's failure to sign the formal sale and

purchase agreement on or before 8 October 1993, as required by the MOU, entitled

the vendor to terminate the agreement. In the originating summons commenced by

the vendor - which matter was consolidated with the main civil suit - the vendor

applied to this court for the removal of the caveat entered by the purchaser.

Holding :

Held, dismissing the plaintiff's claim and ordering that the caveat be removed: (1)

in cases dealing with preparatory agreements where the intention of the parties

plays a crucial role in determining its effect, each case must be decided on its own

facts. In each case, it is the duty of the court to determine not only the nature of the

document, but also the true intention of the parties at the time the document was

executed - whether the parties intended to be bound by any contract immediately,

or only on the fulfilment of certain conditions, eg the execution of a formal

contract; (2) in certain exceptional cases where the intention of the parties is

clearly established, an immediately binding contract may come into force, even

though a formal agreement is to be executed subsequently; (3) considering the

MOU as a whole, and in particular, the objective of the MOU, the 'genesis of the

agreement' and the intention of the parties at the time of the signing, the MOU was

not a legally binding agreement, and as such, unenforceable; (4) a legally binding

agreement could only come into force upon the execution of the formal sale and

purchase agreement, by which time the parties would have considered all aspects

of the sale in detail, and a formal agreement prepared by the solicitors to cover all

these aspects of the sale for execution. Until the execution of the formal agreement

- as there is no binding contract between the parties - the parties are at liberty to

resile from the so-called agreement without any legal consequences flowing from

such an action. Such clearly appeared to be the intention of the parties at the time

of the signing of the MOU, and that certainly is the effect of the MOU in law; (5)

and (ii) the nature of the subject matter or the surrounding circumstances are such

that the time specified for the performance is of the essence; (6) where there is no

express provision in the contract making time of the essence, the court will then

have to consider the nature of the property, the surrounding circumstances and the

nature of the contract to determine whether time was intended by the parties to be

the essence of the contract; (7) the MOU expressly stipulated that a formal sale and

purchase agreement had to be executed and the sale transaction completed 'on or

before 8 October 1993'. However, the mere stipulation of a date fixed for

completion in a contract does not by itself make time to be of the essence of the

contract. The nature of the property and the surrounding circumstances would still

have to be considered. Considering the MOU as a whole, it appeared that time was

the essence of the contract; (8) even if the MOU was regarded as a binding contract,

the failure on the part of the purchaser to pay the balance of the purchase price and

to execute the sale and purchase agreement within the stipulated time entitled the

vendor to repudiate the contract; (9) under s 56 of the Contracts Act 1950, in a

contract for the sale of land, time is of the essence in two main situations: (i) where

the intention of the parties was such that time was of the essence of the contract for

the fulfilment of their respective obligations;since there was no binding contract

between the purchaser and the vendor under the MOU, or that even if there was

one, the purchaser was in breach of the contract in not fulfilling the conditions

stipulated in the MOU, the purchaser had no caveatable interest in the property.

Digest :

Abdul Rahim bin Syed Mohd v Ramakrishnan Kandasamy (Wan Ahmad Azlan bin

Wan Majid & Anor, Interveners) and another action [1996] 3 MLJ 385 High Court,

Kuala Lumpur (Visu Sinnadurai J).


3 [2255] CONTRACT Formation – Contract for sale of property – Parties signed

MOU – Whether intention of parties to be bound immediately upon signing of

MOU or upon signing of formal sale and purchase agreement

Digest :

Abdul Rahim bin Syed Mohd v Ramakrishnan Kandasamy (Wan Ahmad Azlan bin

Wan Majid & Anor, Interveners) and another action [1996] 3 MLJ 385 High Court,

Kuala Lumpur (Visu Sinnadurai J).


2256 Formation -- Contract of hire purchase

3 [2256] CONTRACT Formation – Contract of hire purchase – Hire-purchase

agreement - Agreement void ab initio - Lack of offer and acceptance.

Summary :

In this case, the appellant had let a motor car to the respondent under a hire-

purchase agreement. The respondent fell into arrears with the payment and the

appellant brought an action for the balance outstanding under the hire-purchase

agreement. The respondent denied the whole claim and sought the protection of the

Hire Purchase Act 1967 (Act 212). He alleged that the appellant had (a) failed to

comply with s 4(1) of the Act by failing to give him a written agreement consisting

of a summary of his financial obligations under the proposed hire-purchase

agreement as set out in the Second Schedule to the Act, (b) failed to supply him

with a copy of the hire-purchase agreement within 14 days of its execution, an

obligation imposed under s 5(1) of the Act. The President of the Sessions Court

found that both the provisions of ss 4(1) and 5(1) of the Act had been breached and

he dismissed the claim. On appeal, Abdul Razak J held that on the evidence the

appellant had complied with the provision of s 5(1), but he held that the appellant

had violated s 4(1). The learned judge therefore held that the appellant had failed to

prove that it had entered into a valid and proper agreement with the respondent. He

therefore dismissed the appellant's claim. The appellant appealed.

Holding :

Held: the appellant's claim was rightly dismissed as the condition precedent

imposed by s 4(1) of the Hire Purchase Act had not been complied with. The

learned judge was right in describing the agreement as void ab initio for lack of

offer and acceptance. The written offer signed by the respondent without the

condition precedent being fulfilled was not an offer recognised by the Hire

Purchase Act and as such there could not be acceptance by the appellant of a non-

existent offer.

Digest :

Affin Credit (Malaysia) Sdn Bhd v Yap Yuen Fui [1984] 1 MLJ 169 Federal Court,

Kuala Lumpur (Abdul Hamid, Mohamed Azmi and Syed Agil Barakbah FJJ).

2257 Formation -- Contract of insurance

3 [2257] CONTRACT Formation – Contract of insurance – Payment of insurance

premium does not amount to acceptance of proposal - Risk to commence on

issuance of policy - No concluded contract.

Summary :

In this case, one Azian bte Borhanuddin had completed a document entitled

'Application for Life Assurance' in the insurance company (AIA). The form of

proposal ended with a declaration signed by Azian which provided that 'The

assurance herein applied for shall not take effect unless and until a policy is issued

and delivered to me ...'. On 2 December 1977, a cashier's receipt for the first

premium in favour of Azian was issued. At the back of the receipt it was printed

that 'said receipt is issued only for the account of the payer, and the company is in

no way committed thereby to the acceptance thereof ...'. No policy was issued and

unfortunately Azian died in an aircrash on 4 December 1977. A claim was filed on

the insurer by her father and the other administrators of the estate. The insurer

repudiated liability on the ground that there was no concluded contract.

Holding :

Held: (1) receipt of the amount of $118 does not amount to a waiver of the

understanding between Azian and AIA set out in the declaration that the assurance

applied for was not to take effect until a policy was issued and delivered to Azian

and the first premium actually paid in full; (2) there is no evidence to show as to

how much the premium was and what the $118 represented; (3) there was no

concluded contract of insurance between her and AIA and accordingly the claim

failed.

Digest :

Borhanuddin bin Haji Jantara & Ors v American International Assurance Co Ltd

[1986] 1 MLJ 246 High Court, Kuala Lumpur (George J).

2258 Formation -- Contract through correspondence

3 [2258] CONTRACT Formation – Contract through correspondence – Breach –

Offer and acceptance of quotation - Subject to formal agreement - Whether

binding contract - Variation - Mistake - Authority - Breach - Damages.

Summary :

The respondent, Kaolin (Malaysia) Sdn Bhd ('Kaolin'), asked the appellant, Ng

Brothers Construction ('Ng Construction'), to submit a quotation for the

construction of a clay factory complex for Kaolin. Ng Construction by letter dated

15 December 1969 gave a quotation which was accepted by Kaolin by letter dated

27 December signed by its Production Assistant, stating that a formal agreement

would be signed later. Ng Construction claimed that the exchange of the two letters

had created a binding contract and that Kaolin by letter of 6 January 1970 had

purported to determine the contract. Ng Construction therefore claimed damages

for breach of contract. Kaolin maintained that as no formal agreement was signed,

there was no binding contract between them. The sessions court dismissed the suit

of Ng Construction, holding that there was no binding contract. Ng Construction

appealed.

Holding :

Held, allowing the appeal: (1) on acceptance by letter dated 27 December 1969 of

the quotation in the letter of 15 December, there was a contract binding on both

parties. Any subsequent disagreement between the parties on any proposal to vary

the terms of the contract did not affect the contract; (2) Kaolin's letter of 27

December 1969 had been issued with authority; (3) in the circumstances, Kaolin

was in breach of the contract. Ng Construction was therefore entitled to damages

assessed at $10,000 and costs.

Digest :

Ng Brothers Construction v Kaolin (Malaysia) Sdn Bhd [1985] 1 MLJ 245 High

Court, Kuala Lumpur (Wan Hamzah J).


3 [2259] CONTRACT Formation – Contract through correspondence – Damages –

Offer and acceptance - Correspondence between the respective parties -

Whether there was a contract - Remedies available.

Summary :

In this case, the main issue for decision was whether there was a contract for the

sale of a certain piece of land. The plaintiffs are the executors and trustees of the

estate of Tan Tye Chek (the deceased) who died on 22 May 1981. This action was

brought against the defendants, Paya Terubong Estate Sdn Bhd. The plaintiffs

claimed that through a series of correspondence made between the plaintiffs and

defendants a contract was concluded.

Holding :

Held: (1) in the present case, through the crucial letters a contract was concluded;

(2) in the circumstances of the present case, nominal damages should be awarded

for the plaintiff.

Digest :

Tan Geok Khoon & Gerard Francis Robless v Paya Terubong Estate Sdn Bhd

[1988] 2 MLJ 672 High Court, Penang (Edgar Joseph Jr J).


3 [2260] CONTRACT Formation – Contract through correspondence – Whole of

the correspondence must be taken into consideration – Contract by

correspondence - whole of the correspondence must be taken into

consideration.

Summary :

This was a claim for damages for breach of 'a contract for failure to take delivery

of logs'. It was argued for the plaintiffs that the parties had by the exchange of five

telegrams effected a binding contract. Subsequent to the exchange of these

telegrams there were letters in which, inter alia, the method of payment was

discussed. Eventually the defendants wrote to the plaintiffs informing them that

they considered the transaction unsuccessful. The question was whether there was

a binding contract.

Holding :

Held: (1) where a contract is to be found in letters, it is necessary to take the whole

of the correspondence into consideration to ascertain whether the parties have

come to a binding agreement; (2) in this case, the parties were still in a state of

negotiation and the defendants were justified in withdrawing their offer.

Digest :

Lau Brothers & Co v China Pacific Navigation Co Ltd [1965] 1 MLJ 1 High Court,

Sibu (Lee Hun Hoe JC).


3 [2261] CONTRACT Formation – Contract through correspondence – Whole of

the correspondence must be taken into consideration – Contract evidenced by

correspondence - Whole correspondence to be looked into.

Summary :

The respondents claimed damages from the appellant for breach of a contract to

supply 2,000 tons of MLH logs to them. To prove the existence of the contract the

respondents relied on the correspondence between the parties which included: (i)

the appellant's offer to supply logs at $37 per ton; (ii) the respondents' acceptance

of the offer, and that they required 2,000 tons of logs; (iii) the appellant's

instructions that payment should be by letter of credit. The appellant subsequently

withdrew his offer to sell at $37 per ton, and made a new offer of $40 per ton

which was refused by the respondents. The appellant in his defence denied that

there was a concluded contract between them. In an appeal from the judgment of

the High Court awarding $6,000 damages to the respondents,

Holding :

Held, dismissing the appeal: (1) where a contract is to be deduced from a set of

documents it is necessary to look into the whole of the correspondence between the

parties to see if the parties have come to a binding agreement; (2) in this case the

trial judge was right in holding that there was a binding contract between the

parties.

Digest :

Lau Sieng Nguong v Hap Shing Co Ltd [1969] 1 MLJ 190 Federal Court, Kuching

(Azmi LP, Ismail Khan CJ (Borneo).

2262 Formation -- Frustration

3 [2262] CONTRACT Formation – Frustration – Contract for sale of land - Booking

application signed - Defendant not called upon to execute sale and purchase

agreements - Whether there was a binding contract - Breach of contract - Plea

of frustration.

Summary :

In this case, the plaintiff had paid to the defendant booking fees for the purchase of

two houses to be constructed by the defendant and the parties had signed a booking

application which contained the terms and conditions of booking. The defendant

did not call upon the plaintiff to execute sale and purchase agreements and the

houses had not in fact been erected. The plaintiff brought an action for breach of

contract. The defence was that there was no binding contract between the parties

and if there was such contract, it had been frustrated.

Holding :

Held: (1) there was a binding contract between the defendant and the plaintiff

which had been reduced to writing in the form of the booking application and

which both parties have signed, in which one of the undertakings on the part of the

defendant was that it should get its solicitors to prepare the sale and purchase

agreement, which undertaking the defendant was bound to perform; (2) on the facts,

it was clear that the defendant could sell the sub-lots agreed to the plaintiff, as they

had not been required to be reserved for bumiputras, and therefore the contract was

not frustrated; (3) in the circumstances of this case, damages was the appropriate

and adequate remedy.

Digest :

Rajeswari Thedshanamurthy v Kin Nam Realty Development Sdn Bhd [1983] 1

MLJ 88 High Court, Kuala Lumpur (Wan Hamzah J).

2263 Formation -- Goods sold and delivered - Balance of account - Erroneous invoices - Replacement invoices - Whether defendants contracted with

plaintiff or another company.

3 [2263] CONTRACT Formation – Goods sold and delivered - Balance of account -

Erroneous invoices - Replacement invoices - Whether defendants contracted

with plaintiff or another company.

Summary :

The plaintiff, a Brunei limited company, sued the defendant firm ('ADM') for the

sum of $550,740.06, being balance due to the plaintiff for goods supplied to it at its

request. The goods supplied were shipped on various dates between 25 October

1982 and 24 October 1983 and invoices and bills of lading were produced in

evidence. The defendants were awarded three contracts with Brunei Shell for the

supply of chemicals. The plaintiff was to supply the goods to the defendants, who

would then remit to the plaintiff any payments which they received from Brunei

Shell. The plaintiff's main witness was one Mr Kwok, a director both of the

plaintiff, Polynesia Offshore Supplies Brunei ('the Brunei company') and Polynesia

Offshore Supplies SB ('the Sarawak company'). The plaintiff company through its

new accountant, Mr Chung, subsequently discovered that 19 invoices were

erroneously issued in the name of the Sarawak company instead of the Brunei

company. Also the prices were too low. Accordingly, Kwok telephoned the

manager of ADM (the defendant firm) asking him to disregard the 19 erroneous

bills and telling him that these would be replaced with a fresh set of invoices under

the Brunei company's letterhead. Kwok said that the manager agreed and soon

thereafter Chung forwarded a new set of invoices in the name of the Brunei

company to the defendants. No written confirmation of the telephone call was sent

to ADM. The defence did not dispute the amount claimed. The defendants said

they purchased the goods from the Sarawak company, not from the Brunei

company. The issue is with whom was ADM in contract. In favour of the

defendants are the 19 invoices in the name of the Sarawak company. But, against

the defendants, Mr Shawaludin as managing director of ADM, wrote a letter to

Brunei Shell authorizing it to make payments to the Brunei company.

Holding :

Held: (1) the plaintiff has established that all the transactions relating to the three

Shell contracts took place, so far as ADM is concerned, with the Brunei company

(the plaintiff), and not with the Sarawak company; (2) the plaintiff is entitled to

payment for $550,740.06 with costs and interest at 6% from judgment till payment.

Digest :

Polynesia Offshore Supplies (B) Bhd v Awang Damit & Anor [1986] 1 MLJ 438

High Court, Bandar Seri Begawan (Roberts CJ).

2264 Formation -- Implied term

3 [2264] CONTRACT Formation – Implied term – Trade usage – Contract for

printing and publishing - When contract came into existence - Offer and

acceptance - Quotations - Printing orders - Whether there is trade usage that

printer retains ownership of films - Whether trade usage reasonable.

Summary :

In this case, the appellants were a company carrying on the business of publishing

books and the respondents were a firm of printers. There was a business

relationship between the appellants and the respondents. The appellants paid all the

printing charges except a disputed sum of $500 which they claimed was an

overcharge by the respondents. They also withheld payment of the extra charges

claimed by the respondents for reproducing film positives used in the printing of

the books because the respondents claimed ownership of the films. The

respondents sued the appellants for the sum of $500 which they alleged was the

balance of printing charges and a further sum of $28,052 as extra charges for

reproducing the film positives, whose ownership was disputed. Harun J who heard

the case in the High Court gave judgment for the respondents. The appellants

appealed. There were two issues in the case: (a) whether or not the appellants were

bound to pay the disputed sum of $500 to the respondents, and (b) whether the

respondents were entitled to the payment for the extra charges, that is, the

reproduction charges without giving up ownership of the film positives to the

appellants.

Holding :

Held, allowing the appeal: (1) the learned judge's finding and order as regards the

sum of $500 were clearly erroneous and could not be supported by the evidence as

he took no account at all of the admissions made by the respondents that the

disputed item was an overcharge; (2) the starting point in the formation of

contracts between the parties was the printing orders because these orders were

offers, their confirmation by the respondents constituted acceptance and therefore

brought into existence the contracts between them. Consequently the film

ownership clause contained in the quotations was completely irrelevant and as such

formed no part of the contracts at all; (3) it was for the respondents to prove that

there was a trade usage by which reproduced film positives belonged to printers

who reproduce them, although their reproduction costs are borne by the customers.

In this case the alleged trade usage was not sufficiently proved; (4) the basis of the

alleged trade usage seemed unreasonable because it conflicted with the ordinary

sense of justice commonly understood by reasonable men in that a person who

pays for an article or for making it should be entitled to it and not be deprived of its

ownership for which he has paid or is required to pay.

Digest :

Preston Corp Sdn Bhd v Edward Leong & Ors [1982] 2 MLJ 22 Federal Court,

Kuala Lumpur (Suffian LP, Salleh Abas and Abdul Hamid FJJ).

2265 Formation -- Memorandum of understanding

3 [2265] CONTRACT Formation – Memorandum of understanding – Allegation of

breach – Whether memorandum was a legally binding document or merely an

agreement to negotiate – Whether memorandum to be subject to a formal

contract to be executed by both parties – Whether memorandum gave

enforceable rights to parties – Effect of lock-out provision

Summary :

The parties entered into a memorandum of understanding (`the MOU') as

individual shareholders. The defendants were in control of a public listed company,

UCM Industrial Bhd (ÙCM') and the plaintiffs claimed to have control over

various companies. UCM itself was not a party to the MOU. The MOU could be

divided into two parts: (i) it prescribed the introduction of profitable companies

(`the target companies') to be injected into UCM; and (ii) the intended sharing of

benefits consequent to the injection. The plaintiffs essentially claimed for

compensation based on the alleged breaches of the MOU and to that extent,

according to the plaintiffs, the MOU was a legally binding contract. The

defendants contended that the MOU was not a legally binding document, thus there

was no enforceable right that could be claimed by the plaintiffs. The plaintiffs

contended that the first part of the MOU gave them enforceable rights against the

defendants. The defendants' failure to consider the nomination of the target

companies and the consequent failure to enter into bona fide negotiations in respect

of the sale and purchase agreement with the target companies, were prescribed in

the MOU. Further to that, the plaintiffs alleged that there were various mala fide

acts done by the defendants relating to negotiations with third parties despite the

express lock-out provision of the MOU. The issue was whether the MOU was a

legally binding contract, and if not, whether the first part of the MOU did give

enforceable rights to the plaintiffs.

Holding :

Held, dismissing the claim with costs: (1) the label attached to a document was not

the criteria in construing whether such document had legal effect or not. The court

would have to determine from its language and any other admissible evidence the

document's true nature and purport; (2) from the opening paragraphs of the MOU,

it appeared that the parties intended the MOU to be subject to a formal contract to

be executed by both parties after the finalization of the terms and conditions. Until

such time, the MOU was not intended to be legally binding on the parties.

Furthermore, in respect of the takeover by UCM of the target companies allegedly

in control of the plaintiffs, there would be the necessity of getting approval from

some relevant authorities as well as the board of directors and shareholders of

UCM and the target companies. This need for approval appeared in some clauses

of the MOU. Thus, the MOU was clearly an agreement to contract or an agreement

to negotiate; (3) in considering the first part of the MOU, which the plaintiffs

contended gave them enforceable rights, the particulars provided by the plaintiffs

were insufficient for the defendants to enter into negotiations. Thus, it could not be

said that the defendants were at fault. Therefore, it did not give enforceable rights

to the plaintiffs as claimed by them; (4) a lock-out provision had to have all the

necessary elements, including time. Even though time was prescribed in the MOU,

it became no more the essence as there were a lot of uncertainties which could not

be resolved within the prescribed time. That being the case, the plaintiffs could, at

the most, stipulate for reimbursement for reasonable costs in relation to

investigation and negotiation, and not compensation as was the case here.

Digest :

Lim Hong Liang & Anor v Tan Kim Lan @ Tan Kim Leng & Anor [1997] 5 MLJ

157 High Court, Kuala Lumpur (Haidar J).

2266 Formation -- Offer and acceptance

3 [2266] CONTRACT Formation – Offer and acceptance – Contract for sale and

purchase of leasehold property – Sellers equitable mortgagees of property –

Whether offer was to purchase legal and equitable title – Whether purported

acceptance on terms of equitable title constituted counter-offer – Whether

binding contract concluded

Summary :

The appellants were the debenture holders of one Motor & Leasing Pte Ltd ('the

Company'), as well as the equitable mortgagees of the Company's interest in the

demised property, a leasehold estate owned by the Jurong Town Corporation

('JTC'). JTC had granted the Company a licence to enter upon the demised property

under a Building Agreement. As a result of the Company's subsequent defaults, the

appellants appointed receivers and managers under the debenture. The receivers

then entered into negotiations with the respondents to sell the appellants' interest in

the demised property. Eventually, the respondents signed the appellants' standard

form letter of offer which read, 'We ... hereby offer to purchase the above JTC

leasehold property'. The next day, the appellants' solicitors purported to accept the

respondents' offer upon the following terms: '... On completion our client will

execute an Assignment of their rights in the Building Agreement made between

(JTC and the Company)'. The respondents then refused to proceed with the sale of

the demised property, claiming that what they had offered to purchase was a legal

lease, and that as such the appellants' purported acceptance relating to an equitable

lease amounted to a counter-offer which they were entitled to reject. They also

claimed, alternatively, that the receivers in selling the property were agents of the

Company, pursuant to the debenture, and not of the appellants, and thus that the

appellants were not the true vendors of the property; further, that under the terms

of the debenture the appellants had, by appointing receivers, divested themselves

of their powers of sale as equitable mortgagees. The trial judge, deciding in the

respondents' favour, held that although the appellants were entitled to enter into the

contract as undisclosed principals of the receivers, and had not divested themselves

of their powers of sale as equitable mortgagees, there had been no consensus ad

idem between parties on the interest to be conveyed such as would give rise to a

binding contract. The appellants appealed on this substantive finding against them,

and the respondents in turn brought a respondents' notice against the initial two

findings made against them by the trial judge.

Holding :

Held, dismissing the appeal and the respon-dents' notice: (1) an offer to sell or to

purchase a leasehold property refers to the whole legal and equitable leasehold title

in the property unless otherwise provided; (2) the offer made by the respondents

had been to purchase the 'JTC leasehold property'. The respondents had not been

told that a legal lease had not been issued. Therefore, they were entitled to assume,

by virtue of s 3(6) of the Conveyancing and Law of Property Act (Cap 61), that

this had been done, and what they had in law offered to purchase was a legal lease

of the demised property. Accordingly, the appellants, in agreeing to sell their

equitable rights in the property under the Building Agreement, had not effected a

binding acceptance of the respondents' offer, and no contract for the sale of the

appellants' interest in the property had been concluded thereby; (3) even if it were

not, the appellants were entitled to enter into any contract concluded by the

receivers by virtue of the doctrine of undisclosed principal; (4) the receivers,

although appointed as agents of the Company under the debenture, had also been

appointed by the appellants as agents under the equitable mortgage to sell the

latter's interest in the demised property, and had been acting in this capacity in their

negotiations with the respondents to sell the property. It was clear from the offer

letter that the appellants were the true vendors of the property;further, on a proper

reading of the terms of the debenture, it was clear that the appellants had expressly

preserved their power of sale as equitable mortgagees in the event of receivers

being appointed under the debenture. This power of sale was exercisable by the

appellants independently of the debenture.

Digest :

Hongkong & Shanghai Banking Corp v San's Rent-A-Car Pte Ltd [1994] 3 SLR

593 Court of Appeal, Singapore (Karthigesu and LP Thean JJA and Goh Joon

Seng J).

2267 Formation -- Option to purchase

3 [2267] CONTRACT Formation – Option to purchase – Existence of a valid

contract – Option provides for the signing of formal agreement –

Correspondence between parties on terms of agreement – Suggestions of

amendments and additions by one party accepted by the other – Inclusion of

co-purchaser into terms of agreement not objected by vendor – Refusal of

vendor to sign formal agreement – Whether a valid contract had come into

existence

Summary :

The plaintiffs by way of a summons-in chambers applied for specific performance

of a sale and purchase agreement (the agreement) of a piece of land (the land). The

first plaintiff obtained an option through the defendant's agent (the agent) to

purchase the land from the defendant for RM328,000 and as a consideration, the

first plaintiff paid half of the deposit amounting to RM6,000 to the agent. On 27

March 1995, the defendant's solicitor presented several written amendments and

additions to the first plaintiff's solicitor to be included in the agreement. This was

done by the plaintiff. Subsequently, the first plaintiff sent four copies of the

agreement signed by the plaintiffs together with the balance of the deposit to the

defendants. The defendant refused to continue with the transaction and refused to

sign the agreement and cash the cheque. The defendant objected to the application

and submitted that the following issues must be tried: (i) whether it was the option

or the unsigned agreement which should be applicable; (ii) whether the default said

to have been committed by the defendant should refer to the default of the terms of

the option or the agreement; and (iii) whether the defendant was bound by the

agreement.

Holding :

Held, allowing the application: (1) as the important terms had been fixed and

agreed between the parties, a valid contract had existed and was binding upon both

parties although the option provided for the necessity that the parties sign a sale

and purchase agreement on or before the appointed date and the respective rights

of the parties should any party fail to sign the agreement. It was also clear that the

agreement of the parties on the sale of the land was not subject to the requirement

that the agreement be signed by the parties; (2) as regard the agreement, the facts

showed that the solicitors of both parties had dealt with each other on the draft and

on the acceptance of the amendments and additions suggested by the defendant's

solicitor, a conclusive draft had existed. The sale and purchase contract of the land

was valid and binding on the defendant although he had refused to sign the

agreement. Although the defendant was willing to compensate the plaintiff in the

event of the former's default to sign the agreement, specific performance could still

be ordered in accordance with s 19 of the Specific Relief Act 1950. The terms of

the agreement also bound the defendants because the conclusive draft contained

not only the amendments and additions suggested by the defendant's solicitors but

also terms suggested by the plaintiff that the defendant did not object including the

insertion of the first plaintiff's wife as a purchaser of the land. Alternatively,

specific performance could also be ordered on the option; (3) the plaintiffs had

paid to the defendant 10% of the purchase price (including the cheque of the

balance of the deposit in the defendant's possession) according to the terms of the

contract. From the facts, the defendant had refused to continue with the sale

without reasonable excuse; the defendant had also failed to rebut the presumption

of law under s 11(2) of the Specific Relief Act 1950. The plaintiffs had performed

and was always ready to perform their duties under the contract.

Digest :

Teo Kwong Chia & Anor v Mariam bte Ismail Civil Suit No S1-22-326-95 High

Court, Kuala Lumpur (Mohd Noor J).


3 [2268] CONTRACT Formation – Option to purchase – Sale of land and house -

Option to purchase - Option exercised - Binding Contract.

Summary :

In this case, the appellant gave an option to the respondent to purchase her property

in Kuala Lumpur. The respondent exercised the option by letter delivered to one

Teo Teo Sen at the appellant's house. Subsequently, the letter was returned to the

respondent. The respondent applied for specific performance of the contract. Wan

Hamzah J held in the High Court that the respondent had validly exercised the

option and that there was a binding contract between the parties. He granted

specific performance of the contract. The appellant appealed.

Holding :

Held: (1) there was no reason to differ from the finding of the learned trial judge

that the respondent did exercise the option by tendering the 10% deposit but this

was rejected by the appellant; (2) on the question of law, the learned judge was

correct in holding that the appellant had failed to show that there were matters to

be discussed between her and the respondent and which had to be embodied in a

formal sale and purchase agreement.

Digest :

Voo Syun Mui v Yap Mooi Mooi [1984] 2 MLJ 48 Federal Court, Kuala Lumpur

(Salleh Abas Ag LP, Abdul Hamid and Syed Agil Barakbah FJJ).


3 [2269] CONTRACT Formation – Option to purchase – Whether there was

unqualified acceptance of terms

Summary :

This is the plaintiff's application for the following orders: (1) a declaration that

there was no concluded contract for the sale of several parcels and pieces of land

(the lands) between the plaintiff and the defendant; (2) an order under s 327 of the

National Land Code 1965 that all the several private caveats entered by the

defendant against the lands be removed; and (3) a consequential order for an

inquiry into the damages sustained by the plaintiff as a result of the defendant's

caveats to be assessed by the courts. The sole issue before the court was whether

the defendant had a registrable interest under s 323(1)(a) of the National Land

Code to enable the defendant to continue with the caveats entered by it in respect

of the lands. This in turn hinged on the question of whether there had been a

concluded contract for the sale of the lands between the plaintiff and the defendant.

The defendant offered to purchase the lands from the plaintiff at RM35,000 per

acre, which offer was accepted by the plaintiff. The plaintiff then informed the

defendant of the payment schedule and the conditions precedent which were to be

incorporated into a formal sale and purchase agreement. These were confirmed in a

letter sent by the plaintiff to the defendant dated 27 March 1995. On 31 March

1995, the plaintiff's solicitors forwarded a draft sale and purchase agreement (the

agreement) to the defendant's solicitors. By a letter dated 11 April 1995 (P9), the

defendant made various suggestions, counter-proposals, alterations and additions

to the essential terms of the agreement, including, inter alia, changing the plaintiff's

stakeholders to the defendant's stakeholders.

Holding :

Held, granting the declaration: (1) on a true and proper construction of P9, it did

not constitute an absolute and unqualified acceptance of the terms and conditions

offered by the plaintiff in the agreement. Section 7 of the Contracts Act 1950 (the

Act) provides that an acceptance must be absolute and unqualified; (2) as there was

no unqualified acceptance of the terms of the agreement, the offer lapsed and the

plaintiff was entitled to withdraw from the said sale and purchase as it did vide a

letter date 2 May 1995. Section 5(1) of the Act provides that a proposal may be

revoked at any time before the communication of its acceptance is complete as

against the proposer; (3) further, as the offer by the plaintiff was that the sale was

to be subject to 'such terms and conditions as shall be determined or advised by

[their] solicitors', it was void for uncertainty under s 30 of the Act; (4) since the

total purchase price was well above RM75,000,000, the parties were reasonably

expected to enter into a definite sale and purchase agreement setting out various

terms and conditions positively and clearly and to be properly documented. The

defendant's counter-proposal to alter the stakeholding arrangement amounted to the

introduction of a fresh term which was not accepted by the plaintiffs; (5) no

deposit having yet been made by the defendant to the plaintiff, the clear and

undisputed facts of the case point to the conclusion that this case falls into the

category of 'subject to contract' cases. In such cases, it will generally be construed

that the parties are still in the process of negotiation and do not intend to be bound

until a formal contract is exchanged; (6) the defendant therefore had no caveatable

interest to maintain. The said caveats were ordered to be removed and an inquiry as

to damages held.

Digest :

New Selangor Plantations Sdn Bhd v Talam Management Services Sdn Bhd

Originating Summons No 24-507-1995 High Court, Shah Alam (Low Hop Bing J).

2270 Formation -- Option to purchase - Whether there was concluded contract.

3 [2270] CONTRACT Formation – Option to purchase - Whether there was

concluded contract.

Summary :

The plaintiffs were dealers in sugar and the defendants were dealers in rice. The

plaintiffs alleged that the defendants had entered into a contract through their

factory manager with the plaintiff company to purchase and accept from the

plaintiffs 500 bags of sugar and that they failed to take delivery according to the

contract. In this action, the plaintiff company claimed damages for breach of

contract. There was conflicting evidence as to whether a contract had been entered

into between the two companies through their agents. The defendant company

gave evidence to the effect that their factory manager had no authority to purchase

goods or place orders or otherwise enter into commitments on behalf of the

company and that sugar was not used by the defendants in the milling of rice which

was their main business.

Holding :

Held: (1) there was no evidence to show that there had been a contract for the sale

and purchase of sugar; (2) assuming that there was a concluded contract, the

defendant company could not be held liable on it because the factory manager had

neither express nor implied authority to act as agent for the defendant company to

enter into such a contract.

Digest :

Heng Wan Co Ltd v Selangor Rice Mill Co Ltd [1967] 2 MLJ 44 High Court,

Kuala Lumpur (Gill J).

2271 Formation -- Person excluded by Committee of a Turf Club - Person buying ticket for entry into premises - Whether he had a legal right to enter

the premises.

3 [2271] CONTRACT Formation – Person excluded by Committee of a Turf Club -

Person buying ticket for entry into premises - Whether he had a legal right to

enter the premises.

Summary :

The appellant brought an action for damages for injury to his good name and

reputation by reason of the respondent causing him to be wrongfully evicted by the

police from the public enclosure of the Sarawak Turf Club. The committee of the

club had made an order excluding the appellant from the premises under its control.

The appellant, however, bought a ticket and entered the premises. After a report to

the police, the appellant was asked by the police to leave and he did so.

Holding :

Held: (1) the committee had a discretion to exclude any person from its premises;

(2) as the appellant had not disclosed his identity when he purchased the ticket, no

valid contract was formed and the appellant was a trespasser; (3) the removal of

the appellant was not effected either by the respondent or by the turf club.

Digest :

Anthony Read v Henry Ong [1967] 1 MLJ 197 Federal Court, Kuching (Barakbah

LP, Azmi CJ (Malaya).

2272 Formation -- Practice and Procedure - Application for summary judgment - Whether issues of fact and law to be tried - Rules of the Supreme

Court 1957, O 14.

3 [2272] CONTRACT Formation – Practice and Procedure - Application for

summary judgment - Whether issues of fact and law to be tried - Rules of the

Supreme Court 1957, O 14.

Summary :

The respondent had brought an action against the appellant and another person for

the sum of $64,824 alleged to be due on a contract under which the respondent did

some construction work for the appellant and the other person. The appellant and

the other person were the partners of International Trade Exhibition Enterprise and

the respondent had agreed to construct stalls and other structures at an international

trade fair. There was a balance of $64,824 due on the contract and the appellant

and his partner issued three cash cheques for $10,000 each but the cheques were

dishonoured. The respondent then commenced action and applied for summary

judgment under O 14 of the Rules of the Supreme Court 1957. The appellant and

his partner in opposing the application said that they had entered into an earlier

contract with Kee Nam Importers and Exporters and that the contract relied on by

the respondent was between the respondent and Kee Nam Importers and Exporters

and that the partnership firm was never a party to that contract. The learned senior

assistant registrar took the view that there were triable issues as to the contract

under which the work was done and the proper party to be sued and she dismissed

the respondent's application. On appeal to the High Court the appeal was allowed,

the learned judge holding that the contract was between the respondent and the

appellant's partnership firm. The appellant appealed to the Federal Court.

Holding :

Held, dismissing the appeal: there could not be any dispute as to what the proper

contract was. The contract was between the respondent and the appellant's firm. In

the circumstances, there were no triable issues and the appellants were not entitled

to be granted leave to defend.

Digest :

Tan Yok Kim v Lee Wai Mun [1976] 2 MLJ 66 Federal Court, Kuala Lumpur

(Gill CJ (Malaya).

2273 Formation -- Probate and Administration - Receiver of estate appointed by court - Application for leave to begin proceedings against receiver -

No binding agreement - Leave refused.

3 [2273] CONTRACT Formation – Probate and Administration - Receiver of estate

appointed by court - Application for leave to begin proceedings against

receiver - No binding agreement - Leave refused.

Summary :

In this case, the appellant as executrix of the estate of her late husband, Ling Liong

Chin, applied for liberty to begin proceedings against the receiver of the estate of

Haji Mohamed Eusoff bin Mohamed Yusoff for specific performance of an alleged

agreement based on an offer to sell two pieces of land belonging to the estate made

by the receiver and the administrators to her late husband and accepted by him.

Leave was refused in the High Court and the appellant appealed.

Holding :

Held: the appellant had not shown that there was a valid and binding agreement of

sale entered into as alleged by her and the learned judge was correct in holding that

this was not a proper case for the grant of leave.

Digest :

Re Haji Mohamed Eusoff, deceased; Kok Su Win v Ng Koon Mee [1981] 2 MLJ

77 Federal Court, Ipoh (Raja Azlan Shah CJ (Malaya).

2274 Formation -- Reciprocal promises

3 [2274] CONTRACT Formation – Reciprocal promises – Condition precedent

Summary :

A clause in an option providing that if the purchaser fails to complete the purchase

money within the stipulated time the agreement becomes null and void and the

advance forfeited, cannot be construed as a condition precedent because the

contract is already complete. But when the purchaser clearly indicates that he does

not intend to pay the purchase money in full the vendor is entitled to consider the

contract at an end.

Digest :

Chee Ah Yew v Tuan Man [1924] 5 FMSLR 36 High Court, Federated Malay

States (David JC).

2275 Formation -- Sale and purchase of goods through broker

3 [2275] CONTRACT Formation – Sale and purchase of goods through broker –

Agent of purchaser – Purchase order of broker on terms different from those

made by purchaser – Whether concluded contract – Mitigation of loss –

Reasonable steps taken – Burden of proof on defendant

Summary :

The defendants, a company incorporated in France, bought timber through one

Jean-Marie Plasman ('Plasman') who was an independent timber broker. The

defendants in January 1990 had telexed Plasman an order to purchase 750m3 of

Palapi sawn timber. Plasman on the same day telexed Woodwork Investment Co

Pte Ltd ('Woodwork') an order on behalf of the defendants ('Plasman's order'),

which was passed on to the plaintiffs, a related company of Woodwork. The

plaintiffs had accepted Plasman's order and sent the defendants a timber sales

confirmation note ('TSC 4016') restating Plasman's order. However, the price and

terms of payment under the defendants' order were different from Plasman's order.

The defendants did not sign or return the TSC 4016. Nevertheless, because the

timber was required to be delivered promptly, the plaintiffs sent the timber without

receiving the signed TSC 4016. The timber arrived at Nantes and was discharged

on the wharf. The defendants refused to accept the timber, contending that there

was no concluded contract because the terms of their order were different from

Plasman's order. The plaintiffs commenced proceedings for recovery of the sum of

US$85,786.67 for the said goods plus warehousing and other charges and interest.

Pending the hearing, the plaintiffs sold the goods to another buyer to mitigate their

loss.

Holding :

Held, allowing the claim: (1) the defendants are bound by the terms of Plasman's

order. This is because Plasman as a broker in placing the Plasman's order was

acting as the agent of the defendants; (2) alternatively, if TSC 4016 amounted to an

offer from the plaintiffs to the defendants, the same had been accepted by the

defendants as implied from their conduct. The initial dispute raised through Sociätä

Gänärale's telex of 12 September 1990 was 'quality and prices of goods are

contested'. Nowhere did the defendants deny the existence of a contract. It is thus

clear that until the filing of their defence the defen-dants acted on the basis that

there was a contract, otherwise there would not have been the need to cancel it. If

the defendants were really of the view that there was no contract under TSC 4016

especially after they had purportedly cancelled all contracts on 3 May 1990, there

was no reason for DW1 to inspect the said goods after the arrival of the 'Pan

Express' on 8 May 1990; (3) from the circumstances of the facts in the present case,

TSC 4016 (if it was not an acceptance of Plasman's order on behalf of the

defendants) was accepted by the defendants as a valid contract between them and

the plaintiffs; (4) as the contract is embodied in TSC 4016 the said goods shipped

and the documents presented were conforming. By their unilateral cancellation of

the same, the defendants had wrongfully repudiated the contract and are liable to

the plaintiffs for their loss; (5) the court was also satisfied that the plaintiffs have

taken reasonable steps to mitigate loss. In any case the burden of proof that the

plaintiffs have not done so is on the defendants and the defendants have not

discharged this burden.

Digest :

Sinotani Wood Pte Ltd v Rougier Sylvaco International SA [1994] 3 SLR 338

High Court, Singapore (Goh Joon Seng J).

2276 Formation -- Sale and purchase of land

3 [2276] CONTRACT Formation – Sale and purchase of land – Vendor entered into

agreement to sell land – Vendor had not executed necessary documents

subsequent to execution of agreement – Whether purchaser could apply for

specific performance of agreement – Whether agreement was valid despite

vendor's failure to execute necessary documents

Digest :

Chan Thiam Teng v Ban Swee Heng Sdn Bhd [1992] 2 MLJ 583 High Court,

Johore Bahru (James Foong J).

See COMPANIES AND CORPORATIONS, Vol 3, para 429.

2277 Formation -- Seal

3 [2277] CONTRACT Formation – Seal – Whether seal is necessary for contract

made by corporation – Contracts Act 1950, s 10(2)

Digest :

Chin Chen Fui v Majlis Perbandaran Sandakan & Anor Suit No S 164 of 1985

High Court, Sandakan (Ian Chin J).


2278 Formation -- Subject to contract

3 [2278] CONTRACT Formation – Subject to contract – Correspondence - Whether

there was concluded contract - Term "Subject to contract" - Expression of

desire of parties as to manner in which transaction already agreed to will in

fact go through.

Summary :

In this case, the appellants wrote to CH Williams, Talhar & Wong Sdn Bhd on 1

March 1976 as follows: 'I confirm, subject to contract, that the lowest price I am

willing to sell the said property is $5.40 per square foot in Singapore currency, the

sale and purchase to be completed latest by March 24, 1976. Ten per cent deposit

to be paid within the course of the next few days if your buyer Mr Yeo Ah Tee

agrees to the price and the terms.' There were further negotiations and eventually

Messrs CH William, Talhar & Wong Sdn Bhd wrote on 3 March 1976 to confirm

the sale: 'We refer to our telephone conversation this afternoon in which you have

kindly accepted our client's (Mr Yeo Ah Tee) further offer regarding the above,

with vacant possession at a price of $5.20 per square foot for $454,391.60 cents

ringgit, four hundred and fifty-four thousand three hundred and ninety-one dollars

and cents sixty only. The sale is to include all buildings, plant and machinery and

all ancillary facilities etc. We have received further instructions to inform you that

our client has appointed Messrs Ting Poi Tak & Co of 30 Jalan Laksamana as his

solicitors to deal with all legal matters pertaining to the above sale. Messrs Ting

Poi Tek & Co will communicate direct with you regarding the sale.' The appellants

in this case refused to complete the agreement and the respondent applied for

specific performance. In his statement of claim, the respondent averred that there

was a concluded contract and this was specifically admitted by the appellants in

their statement of defence. The appellants in their defence stated that the sale was

subject to contract and that they had informed the respondent's solicitors that they

did not wish to sell the property. Wan Yahya J ordered that the agreement of sale

be specifically performed and carried into execution. The appellants appealed.

Holding :

Held: on the evidence and the exhibits in this case it was the intention of the

parties to come to a definite and complete agreement on the subject of the sale and

the mere fact that a written agreement had to be drawn up and executed by them

did not necessarily mean that there was no legally binding and enforceable

agreement. A legally binding and enforceable agreement was concluded on 3

March 1976 and the learned judge had not erred either in law or fact in arriving at

the finding that he did.

Digest :

Lim Keng Siong & Anor v Yeo Ah Tee [1983] 2 MLJ 39 Federal Court, Kuala

Lumpur (Salleh Abas CJ (Malaya).


3 [2279] CONTRACT Formation – Subject to contract – Letter of offer to purchase

land – Deposit land – Terms of formal sale and purchase agreement not

agreed – Whether parties bound

Summary :

The appellant was the registered proprietor of a piece of land ('the land') that the

respondent wanted to purchase. By a letter dated 1 April 1993 ('the offer letter'),

the respondent offered to buy the land from the appellant. The offer letter also

suggested several terms and conditions, inter alia, that: (i) the purchase price was

RM9m; (ii) RM180,000 was to be paid to the appellant as deposit; (iii) the

appellant could forfeit the deposit if the respondent failed to execute a formal sale

and purchase agreement within seven days after the terms of the sale and purchase

agreement had been agreed upon by both parties within 30 days from the date of

receiving the letter of offer; and (iv) if the appellant failed to execute the formal

sale and purchase agreement within the said period, the deposit would be refunded

to the respondent immediately. By a letter dated 3 April 1993, the appellant

informed the respondent that it had received the respondent's deposit of

RM180,000 and had also accepted the respondent's offer. The respondent then

submitted the first draft of the sale and purchase agreement for the appellant's

approval. However, the respondent had asked for an extension of time from 3 May

1993 to 15 May 1993 'for the parties to agree on the terms of the sale and purchase

agreement' as the respondent's representative had gone overseas. The appellant

agreed to extend the time period to 18 May 1993. The respondent then asked for a

second extension of time on the ground that its representative was still overseas.

The appellant refused, and informed the respondent that the appellant would

execute its right to forfeit the deposit as the time period had expired without the

terms of the agreement being agreed upon. The respondent accordingly made an

application for summary judgment under O 14 of the Rules of the High Court 1980

('RHC') against the appellant for the return of the deposit. During the hearing, the

respondent alleged that the letter of offer contained the words 'subject to contract'.

The judicial commissioner found that there was no triable issue, and allowed the

respondent's application. The appellant appealed, contending that the question of

whether or not an agreement existed was a triable issue, because there was no

mention that the letter of offer was subject to contract in the respondent's statement

of claim.

Holding :

Held, dismissing the appeal with costs and ordering that the deposit money be

returned to the respondent: (1) in an O 14 application, the court has to be satisfied

on the affidavit evidence that the defence has not only raised an issue, but also that

the said issue is triable. The determination of whether or not an issue is triable

depends on the facts or the law arising from each case as disclosed in the affidavit

evidence before the court; (2) in an O 14 application, the duty of a judge does not

end as soon as a fact is asserted by one party, and denied or disputed by the other

in an affidavit. Where such assertion, denial or dispute is equivocal, or lacking in

precision or is inconsistent with undisputed contemporary documents or other

statements by the same deponent, or is inherently improbable in itself, the judge

has a duty to reject such assertion or denial, thereby rendering the issue not triable.

Unless this principle is adhered to, a judge would not be able to exercise his

discretion judicially in an O 14 application; (3) or (ii) whether it is a mere

expression of the desire of the parties as to the manner in which the transaction

already agreed to will in fact go through. In case (i), there is no enforceable

contract because the condition is unfulfilled or because the law does not recognize

a contract to enter into a contract. In case (ii), there is a binding contract and

reference to the more formal document may be ignored; (4) the court found that

from the respondent's statement of claim, there was no contract between the

respondent and the appellant. The letter of offer from the respondent not only

commenced with the words 'subject to contract' but also mentioned the conditions

to be complied with before an agreement was entered into. From the pleadings and

affidavits, it appeared that both parties had not agreed to the terms of the formal

sale and purchase agreement. The agreement could only be executed if both parties

agreed to the terms contained therein; (5) when the words 'subject to contract' are

used, the courts tend to give effect to those words unless there is strong evidence to

the contrary. Therefore, an agreement which is made 'subject to contract' is of no

legal effect; (6) generally when an arrangement is made 'subject to contract', it will

be construed to mean that the parties are still in a state of negotiation and do not

intend to be bound unless and until a formal contract is made; (7) this principle was

important in this case since there was a dispute as to the existence of a contract

between the appellant and the respondent. If the letters relied as constituting a

contract contemplates the execution of a further contract between the parties, it is a

question of construction whether the execution of the further contract: (i) is a

condition or term of the bargain;since there was no contract between the appellant

and the respondent, this meant that the judgment of the judicial commissioner was

right when he held that there was no triable issue.

Digest :

Kapital Raya Sdn Bhd lwn Bloomville Corp Sdn Bhd [1996] 3 MLJ 522 Court of

Appeal, Kuala Lumpur (Ahmad Fairuz, Shaik Daud dan Siti Norma Yaakob JJCA).


3 [2280] CONTRACT Formation – Subject to contract – Vendor's telex offer for

sale of land accepted by purchaser – No express term that the offer or

acceptance was subject to the preparation of a formal contract – No inference

that parties intended the offer or acceptance to be subject to a contract being

executed – Parties, subject matter, price and terms of payment identified in

the offer – Whether the telex offer was subject to terms to be drawn up and

agreed to by the parties – Whether parties bound by the bargain on the terms

agreed

Summary :

The first and second defendants were the registered co-proprietors of a piece of

land (`Lot 5020'). On 12 January 1979, the defendants made an offer via telex (`the

telex offer') to sell Lot 5020 for the sum of RM350,000 to the plaintiff. The

plaintiff was to confirm the offer on or before 15January 1979. On 15 January

1979, the plaintiff and the first defendant (acting for himself and the second

defendant) discussed the sale of three other lots together with Lot5020 for the

additional price of RM120,000 making a total of RM470,000 for all four lots. This

led to the drawing up of a letter of offer (`the second offer') by the defendants'

solicitors for the sale of all four lots. After the second offer had been drawn up, the

first defendant decided not to proceed with the offer, upon which the plaintiff then

relied on and accepted the original telex offer. A cheque for the sum of RM47,000

being earnest money was enclosed with the letter of acceptance and was duly

acknowledged by the solicitors for the defendants. The plaintiff claimed for the

specific performance of the agreement with the defendants for the sale of Lot 5020.

The defendants argued that: (i) the telex offer was subject to terms to be drawn up

and agreed to by the parties; and (ii) they had already withdrawn the telex offer

when they proceeded with the negotiations with the plaintiff to sell Lot5020

together with three other lots.

Holding :

Held, dismissing the plaintiff's claim: (1) it was a matter of construction whether

the agreement reached between the parties was subject to any further terms to be

drawn up and agreed between the parties, ie whether it was `subject to contract'. In

this case, the telex offer and the letter of acceptance did not state in any specific

term that the offer or acceptance was subject to the preparation of a formal contract

and neither could any inference be drawn that the parties had intended this to be so.

The parties, the subject matter, the price and the terms of payment had been

identified with sufficient clarity in the telex offer. So was the letter of acceptance

which stated in no uncertain terms that the plaintiff was accepting the offer.

Therefore, the parties were bound absolutely by the bargain on the terms agreed; (2)

a counter-offer involved the introduction by the offeree of material variation of the

terms of an offer of the same subject matter. In this case, by proposing to purchase

all four lots, the plaintiff had not only varied the terms but also the subject matter

of the original offer and in doing so, it had in fact made a counter-offer. This had

diverted the mind of the first defendant away from his original telex offer, such

that it could be legitimately assumed that he was no longer minded to keep the

telex offer open, the effect of which was the same as if he had withdrawn that offer;

(3) (obiter) for the acceptance of the original offer to be effective, there had to be a

fresh offer on exactly the same term as in the original telex offer. As there was no

evidence to indicate this, the receipt with the endorsement stating that the sum of

RM47,000 was received, by itself, would not be sufficient evidence that a fresh

offer had been made.

Digest :

Malayan Flour Mills Bhd v Saw Eng Chee (Administrator of the estate of Saw

Cheng Chor, deceased) & Anor [1997] 1 MLJ 763 High Court, Ipoh (Kang Hwee

Gee J).


3 [2281] CONTRACT Formation – Subject to contract – Whether contract

constituted by letters between parties - Acceptance conditional on formal

contract being drawn up - Submission that correspondence did not contain all

terms of contract - Failure to complete contract - Caveat entered against land.

Summary :

In this case, the appellant claimed specific performance of a contract for the sale of

land which he claimed was embodied in an exchange of letters between the parties.

The respondents had failed to complete the contract and the first appellant had

lodged a caveat against the land. The respondents had applied for the removal of

the caveat. The learned trial judge heard both applications and he allowed the

respondents' application with costs and ordered the removal of the caveat,

dismissed the appellants' application under O 14A with costs and then went on to

further order the dismissal of the appellant's action out of court with taxed costs.

The appellant appealed.

Holding :

Held: (1) the learned judge had no power in an application for summary judgment

to dismiss the action. All that was open to him to do in regard to the appellant's

application for summary judgment under O 14A was to give the respondents

unconditional leave to defend; (2) it clearly appeared from the facts and the

circumstances of this case that there were in fact highly triable issues in the matter

and the learned judge should therefore have given the respondents unconditional

leave to defend.

Digest :

Diamond Peak Sdn Bhd & Anor v Tweedie [1980] 2 MLJ 31 Federal Court,

Penang (Raja Azlan Shah CJ (Malaya).

2282 Formation -- Survey as preliminary to mining operations

3 [2282] CONTRACT Formation – Survey as preliminary to mining operations –

Whether completed contract – Power of attorney - Contract by attorney -

Whether contract under power of attorney

Summary :

The defendant on payment of a sum of $5,000 obtained a power of attorney from

one Sze Chok Pang concerning all his present and future estate, right, title and

interest in the land which formed the subject matter of a prospecting permit issued

to the said Sze Chok Pang. The defendant further paid a sum of $15,000 to a

person with whom Sze Chok Pang had entered into an agreement relating to the

permit to have the agreement cancelled. The defendant and Sze Chok Pang at a

joint interview with the plaintiffs arranged with the plaintiffs to carry out a

prospecting survey of the land. The plaintiffs were aware that the permit was in the

name of Sze Chok Pang and that the defendant had power of attorney in respect of

it. In a claim by the plaintiffs against the defendant for their professional fees and

disbursements as mining engineers, the defendant pleaded, inter alia, that there was

no completed contract but only an arrangement under which the plaintiffs were to

provide an estimate for a contract. {bb]Held: the arrangement was a completed

contract to survey and the defendant must therefore pay the amount claimed to the

plaintiffs.

Digest :

Vallentine, Dunne & Associates Ltd v Andrew SH Chang [1963] MLJ 220 High

Court, Kuala Lumpur (Gill J).

2283 Formation -- Terms

3 [2283] CONTRACT Formation – Terms – Fraud – Contract relating to land -

Specific performance - Purchase of undivided share in land subject to letters

of administration - Whether purchasers are co-purchasers in a joint venture

or mere agent and principal - Distribution of estate under Muslim Law -

Private caveat - Assignment of rights - Forfeiture of deposit - Specific

performance - Lien - Allegation of fraud - Duty of administrators to obtain

best possible price - Damages for breach of contract - Failure of consideration

and duty to refund - Parties bound by their pleadings - Onus of proof upon

those alleging fraud - Duty of counsel as officer of the court.

Summary :

In this case, the court had to consider the effect of an agreement executed by the

beneficiaries of the estate of the deceased with the two plaintiffs in these two joint

actions. The court had also to consider whether the relationship between the said

two plaintiffs was that of a principal and agent or whether they were co-purchasers

in a joint venture.

Holding :

Held: (1) no binding contract was ever made between the parties and it is not for

the court to make one for the plaintiffs; (2) the evidence shows both parties were

under a misapprehension as to what precisely they were selling and at what price;

(3) the terms of the contract were clearly too uncertain to be enforced; (4) the

caveat lodged by the first plaintiff must be removed as the third co-owner of the

land in question had no dealings whatsoever with the plaintiff and there was no

reason why the third co-owner should ever have been encumbered with the caveat;

(5) as there was no binding contract, the claim for damages must also fail; (6) as

the moneys, totalling $11,000, had been given for a consideration that had failed,

the moneys must be refunded; (7) the claim that the assignment by the second

plaintiff to the first plaintiff was unconscionable and should be set aside had not

been proved and must also fail.

Digest :

Abdul Malik bin Abdul Majid v Asnah bte Hamid & Anor; Dagang bin Bachik v

Abdul Malik bin Abdul Majid [1985] 2 MLJ 459 High Court, Malacca (Shankar J).

2284 Formation -- Terms

3 [2284] CONTRACT Formation – Terms – Whether imposition of condition

precedent amounted to counter-offer – Whether fundamental points agreed

upon – Whether court can import reasonable terms in areas not agreed upon

to make agreement effective

Summary :

The applicant ('Macey') entered into negotiations with the second respondent,

Metroplex Development Sdn Bhd ('Metroplex'), for the sale and purchase of an

estate ('the land') owned by Macey. The letter of offer from Macey included terms

regarding the purchase of the land as a going concern requiring the purchaser to

take over the estate workers and the time for payment of the purchase price.

Metroplex discovered that some of the titles of the land were endorsed as Malay

reservation land and insisted that the removal of the endorsements be a condition

precedent suggested certain changes to the time for payment of the purchase price.

Macey argued that the land did not fall within the definition of 'Malay holdings'

under s 2 of the Malay Reservation Enactment (FMS Cap 142) ('the Enactment')

and, as such, the approval of the Ruler-in-Council under s 8 of the Enactment was

not necessary. Macey also refused to accept the deposit contending that no

agreement had been reached between the parties. Metroplex and the third

respondent, as a partner of the first respondent real estate agency involved in the

deal, immediately lodged caveats against the land claiming that since the

fundamentals of the contract such as the parties, the property and the price had

been agreed upon, there was a concluded contract and the court could infer

reasonable terms into the contract in the areas not agreed upon. Macey filed this

application seeking, inter alia, a declaration that there was no concluded contract.

Holding :

Held, allowing the application: (1) there had been no complete acceptance of all

the terms contained in Macey's offer. Metroplex had left in abeyance the issues

regarding the taking over of the estate workers and the time for the payment of the

purchase price and had instead raised the Malay reservation issue. This subject

matter was a new term which had to be agreed upon by the parties; (2) when land

in a Malay reservation area is registered in the name of a non-Malay prior to the

creation of the Malay reservation, the non-Malay can transfer or charge the land to

any non-Malay without the approval of the Ruler-in-Council. Since the land had

never been registered in the name of any Malay proprietor, the endorsement on the

titles under s 6(vi) of the Enactment was erroneous; (3) the matters relating to the

parties, the property and the price might represent fundamentals in a contract but,

within these and arising from these, were many equally important and essential

terms that had to be agreed upon before an agreement could be conclusive. The

insistance on the removal of the endorsements on the titles as a condition precedent

was a major term which had to be agreed upon by the parties. Since Macey had

rejected this term, there was no concluded contract. The court could not import

reasonable terms in order to make the agreement effective as the fundamental

question relating to the title of the land and the time for payment had not been

agreed upon.

Digest :

Syarikat Macey Bhd v Nightingale Allied Services (sued as a firm) & Ors [1995] 2

MLJ 411 High Court, Shah Alam (James Foong J).

2285 Formation -- Terms and conditions

3 [2285] CONTRACT Formation – Terms and conditions – Breach – Damages –

Contract for sale of land - Booking application signed - Defendant not called

upon to execute sale and purchase agreements - Whether there was a binding

contract - Breach of contract - Plea of frustration.

Digest :

Rajeswari Thedshanamurthy v Kin Nam Realty Development Sdn Bhd [1983] 1

MLJ 88 High Court, Kuala Lumpur (Wan Hamzah J).


2286 Formation -- Terms and conditions

3 [2286] CONTRACT Formation – Terms and conditions – Plaintiff signed a sales

order – Whether sales order is a complete and concluded contract entered

into by the parties

Summary :

The plaintiff made an order to purchase a Lotus Esprit Turbo ST car. A sales note

No 2630 was signed by the plaintiff wherein the sale price, inclusive of excise and

customs duty, was stated to be M$330,000. Later, the plaintiff was informed that in

addition to the M$330,000 purchase price, he had also to settle the customs and

excise duty on the Lotus amounting to M$440,000. The plaintiffs refused to pay

maintaining all along that the M$330,000 stated in the sales order was the agreed

price, inclusive of customs and excise duty. The defendant then refunded the

deposit of M$60,000, which the plaintiff accepted on a 'without prejudice' basis.

The plaintiff then demanded by letter that the sales note be specifically performed

by the delivery of the Lotus within 30 days of the date of the letter, failing which

legal proceedings would follow. The defendant wrote back maintaining that the

price of the Lotus was not M$330,000 but M$770,000 inclusive of the customs and

excise duty of M$440,000 and that the plaintiff was fully aware of this fact. An

interlocutory judgment was entered against the defendant. The defendant appealed

to set aside the judgment.

Holding :

Held, dismissing the appeal with costs: (1) on the face of it, the sales note is clear

and unambiguous. It describes the particular model of the car to be purchased, the

purchase price inclusive of import tax has been stated to be M$330,000. The sale

has been agreed to by both the plaintiff and defendant as seen from their signatures

in the note. As there appeared to be nothing incomplete or inconclusive about the

sales note, there is a legal and binding contract to purchase and sell the Lotus based

on the terms as stated in the note itself; (2) by returning the deposits to the plaintiff

the moment it realized that the plaintiff was not about to stump out another

M$440,000 to take delivery of the Lotus, the defendant has acknowledged that it

was repudiating its contractual obligations under the sales note.

Digest :

Tunku Hamman bin Tunku Sulong v City Car Plaza Sdn Bhd Suit No D2-22-1967-

90 High Court, Kuala Lumpur (Siti Norma Yaakob J).

2287 Formation -- Whether agreement has been reached between parties - Contract not signed - Whether there is a binding contract.

3 [2287] CONTRACT Formation – Whether agreement has been reached between

parties - Contract not signed - Whether there is a binding contract.

Summary :

In this case, the High Court on an ex parte application by the plaintiffs, a private

limited company incorporated in Singapore, had ordered a Mareva injunction

restraining the defendants from removing from the jurisdiction of the court,

pledging, giving them away by security or otherwise disposing or in any way

dealing with any of the asset or assets in which they or any of them were

beneficially interested in so far as they do not exceed the sum of $876,337.92. The

second defendant applied that: (a) the plaintiffs' writ of summons and statement of

claim be dismissed on the ground that it disclosed no reasonable cause of action

against the said defendants; (b) the order for the Mareva injunction be dismissed;

(c) the plaintiffs do provide suitable security for the due performance of the order

of court in lieu of their undertaking to the court; and (d) the plaintiffs do provide

security for costs. An application was also made by third parties for an order that

the applicants be given leave to intervene in the proceedings and that the order for

the Mareva injunction made against the second defendants be varied. The

plaintiffs' claim was based on an agreement between the plaintiffs and the

defendants. The terms of the agreement had been agreed upon but the contract

between them had not been signed. The second defendant was a director of the first

defendant company.

Holding :

Held: (1) from the evidence the parties had concluded their negotiations and an

agreement had been reached on the terms and conditions of the contract. The only

thing that had not been done was the signing of the contract which had been

prepared by the lawyer. In the circumstances a contract had been concluded

between the plaintiffs and the defendants. The second defendant was a party to the

contract in addition to the first defendant; (2) there are two requirements to be

satisfied before a Mareva injunction is granted by the court. First the plaintiff must

show that he has a good arguable case, and second the plaintiff must produce

evidence that the defendant had assets within the jurisdiction and that there is a risk

of the assets being removed before the judgment is satisfied. As the plaintiffs have

satisfied both these requirements, this is an appropriate case to grant a Mareva

injunction; (3) as the plaintiffs are resident in Singapore and have no assets within

jurisdiction this is a suitable case to require the plaintiffs to provide the security for

due performance of the order of court in lieu of the plaintiffs' undertaking to the

court as to damages. It is also appropriate that the plaintiffs should provide security

for costs; (4) leave should be given to the third parties to intervene and as they

have shown that they have to pay legitimate debts, the order for the Mareva

injunction should be amended to allow the debts to be paid.

Digest :

Ace King Pte Ltd v Circus Americano Ltd & Ors [1985] 2 MLJ 75 High Court,

Kuala Lumpur (Zakaria Yatim J).

2288 Formation -- Whether agreement to make agreement resulted in a contract

3 [2288] CONTRACT Formation – Whether agreement to make agreement resulted

in a contract – Whether answer depended on intention of parties which was

reflected by correspondence exchanged between them and objective aim of

transaction

Summary :

The appellant ('the vendor'), who was the registered proprietor of two shophouses

('the property'), engaged the services of a firm of estate agents ('the estate agents')

to search for a purchaser for the property at the price of RM450,000. In November

1989, the estate agents found the respondent as the purchaser ('the purchaser'). The

estate agents communicated with the vendor's solicitors, who accepted the

purchaser's offer of RM450,000 on behalf of the vendor, with the condition, inter

alia, that the purchaser pay a 10% deposit by 28 November 1989 and the balance

purchase price within three months from execution of the sale and purchase

agreement ('the first letter'). On 28 November 1989, the estate agents sent the 10%

deposit in the form of a cheque to the vendor's solicitors, together with a letter

confirming the purchaser's offer to purchase the property 'subject to the sale and

purchase agreement' ('the second letter'). However, on 29 November 1989, a third

party had caused to be issued a writ from the High Court against the estate agents

and the vendor seeking, inter alia, specific performance of an agreement made on

either 24 or 26 November 1989 for the sale of the property to them. The third party

had also obtained an ex parte injunction restraining the vendor from entering into

any agreement for the sale of the property to any other person. The vendor took the

position that the agreement it had with the purchaser, if any, had been rendered

impossible of performance, and informed the purchaser accordingly. On 29

October 1994, he took out a summons claiming a declaration to the effect that if

there was an agreement between it and the purchaser, such agreement had been

frustrated by the grant of the injunction. The High Court judge dismissed the

application. The vendor appealed to this court, contending that the agreement to

sell was subject to contract, and that there was no contract concluded between the

purchaser and him. It was argued that the phrase 'subject to the sale and purchase

agreement' appearing in the first letter showed that the parties were still negotiating,

and that there were many terms which they had not agreed upon. The issues before

the court were: (i) whether there was a valid and enforceable agreement between

the vendor and the purchaser; and (ii) if the answer was in the affirmative, whether

that agreement had been frustrated by the grant of the injunction in question.

Holding :

Held, dismissing the appeal: (1) an agreement to make an agreement does not

result in a contract. It is for the court in each case to construe the correspondence

exchanged between the parties and to say whether that is the result intended by the

parties. If the court reaches an opposite conclusion, then there is an enforceable

contract; (2) the law leans in favour of upholding bargains and not in striking them

down; (3) the court had examined the two letters that passed between the parties,

and was unable to find that the parties intended that there should be no concluded

contract until a formal sale and purchase agreement had been executed by them.

On the contrary, the court found their objective intention to be travelling in quite

the opposite direction. They had identified the parties to the transaction, the

property, the price and the terms they considered essential with sufficient clarity.

Such an agreement was termed an 'open contract'. It was enforceable as if it was

embodied in a document with all the attendant solemnity. In order to give it effect,

the law will, acting out of necessity, imply terms into the contract for sale in order

to make it work; (4) the phrase 'subject to the sale and purchase agreement' relied

on by the vendor did not point to an intention that no contract was to come into

existence until a formal sale and purchase agreement had been prepared and

executed. Rather, it was, when read in the context of the correspondence and the

objective aim of the transaction, indicative of an intention to merely formalize the

agreement already concluded between the parties; (5) since the injunction came

after the contract between the vendor and the purchaser had been made, it had no

effect upon the transaction that had already been concluded. Further, there was

material in the record provided that reasonably supported the inference that the

purchaser was really an innocent party who had entered into a contract with the

vendor without any notice whatsoever of the alleged transaction on the basis of

which the injunction was obtained. In these circumstances, there was no

impediment to an application by the vendor to have the injunction dissolved so that

the sale to the purchaser may be proceeded without any further delay.

Digest :



2289 Formation -- Whether draft deed of settlement constituted concluded agreement

3 [2289] CONTRACT Formation – Whether draft deed of settlement constituted

concluded agreement – Intention of parties – No agreement on essential terms

– Third party rights and interests involved – Claim by plaintiff for specific

performance of contract – Principles applied

Summary :

The plaintiff and the two defendants are the children of one Datuk Low, deceased,

who during his lifetime set up Hock Hai Plantations Sdn Bhd ('the holding

company') as well as several subsidiary companies. All three parties to this suit had

different percentage shares in the holding company. After the demise of Datuk

Low, the three parties were the only directors of the companies. However, due to

differences between the first defendant and his two sisters as to the control of the

companies, communication was no longer possible. In order to resolve this

problem, by splitting up the companies and dividing the various properties, the

services of three mediators ('the mediators') were obtained but not in the nature of

formal arbitration. A series of five meetings were held between 10 November 1990

and 9 February 1991 by all the parties concerned. The records of the meetings were

prepared by one of the mediators ('Low') and, except for the final meeting, the said

records were approved by the parties. Following the meetings, the mediators on or

about 3 June 1991 produced a draft deed of settlement ('the draft') for approval and

acceptance by the parties. By letter dated 7 June 1991 the first defendant informed

the mediators that the draft was unacceptable because the accounts were not

completed. By letter dated 11 June 1991, the first defendant's solicitors informed

Low that the draft was incomplete and not final and the arrangement was void for

illegality under s 67 of the Companies Act 1965 ('the Act'). By letter dated 12

August 1991 they informed the plaintiff and the second defendant that the draft

was unacceptable as it was not a legally binding agreement and for reasons given

to Low. The first defendant suggested a meeting between the parties. The plaintiff

and the second defendant replied by joint letter and said, 'the arbitration is an

ongoing process pending finalization' and that they would await the outcome of the

arbitration. By letter dated 22 August 1991, Low, on behalf of the mediators,

forwarded to the parties an 'arbitration award' for confirmation by the parties. The

first defendant's solicitors terminated the mediators' authority on 23 August 1991.

The plaintiff commenced this action claiming, inter alia, a declaration that the

contents of the draft truly reflected a binding agreement between the parties as to

the distribution of the properties set out therein and effectively an order for specific

performance of that agreement. The first defendant denied the plaintiff's claim as

well as the allegation that he had initiated the proposed division, but averred that

he was merely involved in placing an approximate valuation of the businesses. The

first defendant contended that all the discussions, meetings and negotiations were

held with a view to producing a final settlement approved by all the parties, and

until approved, there existed no obligation on his part and that in any event, the

draft was superseded by the draft award issued by the arbitrators. Further, even if

there were a concluded agreement in terms of the draft, it was void for illegality

under s 67 of the Act. The second defendant's defence was not a defence at all but

it consisted of a dissertation in support of the plaintiff's claim.

Holding :

Held, dismissing the action: (1) and though the parties may have agreed on all the

cardinal points of the intended contract, yet if some particulars essential to the

agreement still remain to be settled afterwards, there is no contract. The parties in

such a case are still only in negotiation (per Lord Blackburn in Rossiter v

Miller(1878) 3 App Cas 1124); (2) one of the most important of the essentials that

had to be agreed was the price, whether in cash or in kind or by the exchanging of

properties, which the first defendant was to receive for his share of the portfolio.

After the five meetings, and from the welter of discussion and exchanges, oral and

in writing, one salient feature emerges and it is that there was no agreement as to

the price; (3) the plaintiff and the first defendant were still at odds then over the

auditing of the accounts. The matters could not be resolved and the parties

continued to be at arm's length of one another. There was therefore no concluded

contract arising at the end of the fifth meeting; (4) it was admitted that there was

no authority to arbitrate, only to mediate. It had to follow that the plaintiff and the

second defendant could then await nothing more than mediation, which in truth

was nothing more than negotiation; (5) only broad principles of distribution had

been settled. The portfolio here was large, and a proper valuation of each and every

asset of the portfolio had yet to be done; (6) so vast and varied was the portfolio, so

complicated were the questions of law and accounting in arriving at a proper

valuation of the properties and payment to the parties, whether in case or in kind,

that no court would order specific performance assuming that there was a

concluded contract between the parties. Specific performance of a contract will not

be ordered where it involves a degree of watching and supervision by the court

which is altogether impracticable; (7) further, the portfolio included properties,

rights and interests of a number of persons other than the parties. There was no

evidence that these persons were made aware of these proceedings. The plaintiff

would appear to have breached the basic rule of audi alteram partem. No judicial

order can be made affecting the rights of a person unless a reasonable opportunity

has been given to him to show why it should not be made; (8) even if there were

agreement on the essential terms, in any event, the parties intended that there was

to be no concluded contract until a formal document incorporating terms that were

fully and comprehensively set out and agreed was executed; (9) so long as the

parties are only in negotiation, either party may retract;upon a consideration of all

the facts and circumstances of the case, the parties fall into the third of the three

classes of the cases referred to in Masters v Cameron 91 CLR 353, namely, that the

intention of the parties is not to make a concluded bargain at all unless and until

they execute a formal contract. The first defendant was therefore at liberty to

withdraw from the negotiation at any time.

Digest :

Lau Chee Eng v Lau Boon Kean & Anor Civil Suit No 22-33-1991 High Court,

Muar (Richard Talalla J).

2290 Formation -- Whether letter constituted concluded agreement

3 [2290] CONTRACT Formation – Whether letter constituted concluded agreement

– Whether 'subject to contract' – Intention of parties

Summary :

The respondent, YC Chin Enterprises Sdn Bhd ('YC Chin') had entered into

negotiations to construct low-cost houses and shophouses ('the project') for the

workers of the appellant, Ayer Hitam Tin Dredging Malaysia Bhd ('AHTD').

AHTD wrote a letter to YC Chin on 19 September 1984 ('the letter'), accepting

their proposals in respect of the project, subject to certain terms and conditions,

one of which was the terms and conditions in the letter were to be constituted in an

agreement between YC Chin and AHTD and that appropriate indemnity clauses in

favour of AHTD be incorporated in the agreement. In reliance upon the letter, YC

Chin proceeded to perform some of their obligations stated therein, although no

formal agreement in writing had been executed, Subsequently, AHTD instructed

YC Chin to cease all work, stating their intention to discontinue negotiations and

that any work done had been entirely at YC Chin's risk. AHTD contended that the

work had been done before the coming into being of any contract and that the letter

was part of ongoing negotiations for a future agreement. On the other hand, YC

Chin submitted that all essential terms had been agreed and all that remained to be

done was to put the terms into the form of a contract. The trial judge found that

there was a contract and allowed YC Chin's claim for breach. AHTD appealed. The

primary issue was whether there was a concluded contract between AHTD as

employer and YC Chin as contractor.

Holding :

Held, allowing the appeal: (1) the existence of an agreement depends upon the

intention of the parties, who must be ad idem. It may be inferred from the language

used, the parties' conduct having regard to the surrounding circumstances and the

object of the contract. The court will generally apply an objective or reasonable

man test; (2) merely because the parties contemplate the preparation of a formal

contract, that would not prevent a binding contract from coming into existence

before the formal contract is signed. However, when an arrangement is made

'subject to contract' or 'subject' to the preparation and approval of a formal contract',

it will generally be construed to mean that the parties are still negotiating and do

not intend to be bound until a formal contract is exchanged; (3) having regard to

the fact that the letter did not contain details such as what 'the appropriate

indemnity clauses' were, together with its vital qualifying clause, 'subject to the

following terms and conditions', the present case fell within the principle

in Crossley v Maycock (1874) LJ Ch 379 that if an agreement is made subject to

certain conditions, then until those conditions are accepted, there is no enforceable

final agreement; (4) on its true construction, the letter did not constitute a contract

binding in law but was only a record of terms which were agreed as a basis for the

negotiation of a contract. It was a letter of intent, ie an expression in writing of a

party's present intention to enter into a contract at a future date; (5) since the

plaintiff had commenced the preliminary works, with the knowledge but not

necessarily the consent of the defendant, the liability of the defendant would be on

a quantum meruit basis not exceeding RM300,000, having regard to para (v) of the

letter; (6) (obiter) the proposition in Kam Mah Theatre v Tan Lay Soon [1994] 1

MLJ 108 must be read keeping in mind the vital qualifying clause there that the so-

called deposit fell to be refunded if no agreement was signed. It does not detract

from the principles that: (i) an informal contract without any express details may

be binding; (ii) a bargain with essential terms, though a formal document is to be

drawn up with further terms, is still a bargain; and (iii) where there is a definite and

complete agreement, the reservation in respect of a formal document only means

that it should be put into proper shape and in legal phraseology with any subsidiary

terms necessary for insertion in a formal document.

Digest :

Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin Enterprises Sdn Bhd [1994] 2

MLJ 754 Supreme Court, Malaysia (Abdul Hamid Omar LP, Edgar Joseph Jr and

Mohamed Dzaiddin SCJJ).

2291 Formation -- Whether telex constituted complete agreement

3 [2291] CONTRACT Formation – Whether telex constituted complete agreement

Summary :

'The failure of the plaintiffs to disclose the correct information in their ex parte

application is a good ground to discharge the attachment order': per Zakaria Yatim

J. In support of their ex parte application for order of attachment before judgment

under s 19(1)(c) on the ground that the defendants, with intent to obstruct or delay

the execution of any judgment to be obtained, were removing or have removed

assets, the plaintiffs alleged in their affidavit that the defendant company had a

paid-up capital of $2.00. The defendants in their affidavit stated that the paid-up

capital was $200,000.00 The plaintiffs in their affidavit in reply changed their story

and stated that the authorized capital of the defendant company was $25,000.00.

Holding :

Held: The plaintiffs had failed to disclose the true facts by making inaccurate

statements in their affidavit in support of the ex parte application and the order

should be set aside.

Digest :

Serply Sdn Bhd v Protexa Drilling (M) Sdn Bhd [1984] 2 MLJ 237 High Court,


2292 Formation -- Whether telex messages constituted concluded agreement

3 [2292] CONTRACT Formation – Whether telex messages constituted concluded

agreement – Condition precedent

Summary :

In this case, one Hiswara of PT Bina Alam, an Indonesian firm, had agreed to buy

fertilizer from a Rumanian company but he had arranged with Phillips Petroleum

International Inc (Phillips) to be the buyers in their name. Hiswara instructed,

unknown to each other, Phillips and the second appellants to find vessels for

carrying the fertilizer. Phillips instructed Stolt-Nielsen, and the second appellants

instructed the respondents. The respondents negotiated with the ship brokers

Polfracht Sydney to charter vessels from the first appellants in the belief that the

charterers were Phillips. They conducted the negotiations by telex. A contract of

affreightment was eventually drawn up and this was sent to Phillips for signature.

The manager of Phillips refused to sign the contract. The first appellants then sued

Phillips and the respondents claiming damages from Phillips for breach of the

contract of affreightment and in the alternative, damages from the respondents for

breach of warranty of authority. The respondents in turn joined the second

appellants, Hai Nguan, as third parties claiming an indemnity from them on the

ground that in purporting to contract on behalf of Phillips, they had acted on the

instructions of the second appellants. Choor Singh J in the High Court dismissed

the action of the first appellants against Phillips holding that the respondents had

no authority to act on their behalf. He concluded that a complete agreement had

been reached between the respondents and Polfracht Sydney and accordingly held

that the respondents were liable in damages to the first appellants for breach of

warranty of authority; but he dismissed the third party proceedings of the

respondents against the second appellants, holding that the respondents had not

been authorized by the second appellants to enter into the contract on behalf of

Phillips. The damages payable by the respondents to the first appellants were

assessed at US$253,658. The respondents appealed to the Court of Appeal, which

allowed the appeal. They held first that no concluded agreement had resulted from

the telex exchange between the respondents and Polfracht Sydney, with the result

that the respondents were under no liability to the first appellants for breach of

warranty of authority. They further held that the second appellants had authorized

the respondents to contract with the first appellants on behalf of Phillips. The effect

of this was that if the respondents had been liable to the first appellants, the

respondents would have been entitled to be indemnified by the second appellants.

They ordered the second appellants to pay the costs of the third party proceedings

both in the Court of Appeal and in the High Court (see [1982] 1 MLJ 53). The first

appellants appealed with leave from the decision of the Court of Appeal that the

respondents were under no liability to them for damages for breach of warranty of

authority and the second appellants appealed against their decision that they had

authorized the respondents to contract on behalf of Phillips and so must pay the

costs of the third party proceedings.

Holding :

Held: (1) the decision of the Court of Appeal that there was no complete

agreement between the respondents and Polfracht Sydney could not be sustained

and therefore the respondents were liable in damages to the first appellants for

breach of warranty of authority; (2) having considered the evidence and the

judgment of the trial judge, their Lordships have come to the conclusion that the

Court of Appeal were fully justified in coming to a different conclusion from the

trial judge on the question whether the respondents had been authorized by the

second appellant to act on behalf of Phillips; (3) with all respect to the trial judge,

their Lordships having considered the contemporary documents, concluded in

agreement with the Court of Appeal that the probabilities pointed overwhelmingly

to the conclusion that the respondents were authorized by the second appellants to

contract on behalf of Phillips; (4) the respondents must pay to the first appellants

the sum of US$253,658 with interest and the second appellants must indemnify the

respondents in respect of these sums.

Digest :

Grace Shipping Inc & Anor v CF Sharp & Co (Malaya) Pte Ltd [1986] SLR 32

Privy Council Appeal from Singapore (Lord Bridge of Harwich, Lord Brandon of

Oakbrook, Lord Oliver of Aylmerton, Lord Goff of Chieveley and Sir Ivor

Richardson).

2293 Fraud -- Contract - Sale and Purchase agreement - Deposit allegedly paid by appellant under agreement for purchase of house - Claim for

return of deposit against respondent - Respondent alleging fraud against appellant - Onus of proof on respondent.

3 [2293] CONTRACT Fraud – Contract - Sale and Purchase agreement - Deposit

allegedly paid by appellant under agreement for purchase of house - Claim

for return of deposit against respondent - Respondent alleging fraud against

appellant - Onus of proof on respondent.

Summary :

In the court below, the appellant sued the respondent for the return of a sum of

$6,000 which he claimed he had paid the respondent as a deposit under a sale and

purchase agreement dated 3 January 1979 for the purchase of a terrace house. By

his defence, the respondent denied both the execution of the agreement and the

receipt of the deposit. He contended that he was absent from Malaysia from 17

November 1978 to 22 January 1979 and could not have entered into transaction

with the appellant on 3 January 1979. He, however, admitted that he had sold the

property to one Mr Chung. At the trial it became clear that what was alleged was

not fraud on the part of the appellant but fraud on the part of an unknown third

party who had impersonated the respondent and entered into the transaction

concerned with the appellant.

Holding :

Held, allowing the appellant's claim: (1) once prima facie evidence was adduced

by the appellant that it was the respondent who executed the agreement and

received the deposit of $6,000 the onus shifted to the respondent to prove his

allegation of impersonation. The respondent had failed to discharge this onus; (2)

where fraud in the form of a criminal offence is alleged, even in civil proceedings,

a higher standard of proof than that in ordinary matters is required; (3) and (c) the

staleness of the case called for a finality to this unfortunate litigation; (4) a retrial

should not be allowed for three separate reasons: (a) had there been no

misreception and wrongful rejection of evidence, the learned President would have

entered judgment for the appellant; (b) to allow a retrial would enable the

respondent who was represented by counsel of considerable experience in the court

below, to have a second opportunity to prove his case;the appellant should only

recover the $6,000 deposit by way of refund together with interest thereon, at the

agreed rate of 12% pa, from the date of service of the summons to the date of

judgment and thereafter at the agreed rate of 8% pa until date of realisation.

Deposit by way of security for costs of the appeal should be refunded to the

appellant and costs to him in the present court and the court below.

Digest :

Nahar Singh v Pang Hon Chin [1986] 2 MLJ 141 High Court, Penang (Edgar

Joseph Jr J).

2294 Fraud -- Specific performance

3 [2294] CONTRACT Fraud – Specific performance – Land Law - Agreement for

purchase of land and house with housing developer - Condition that vendor

shall not without prior approval of purchaser subject the land to any other

further encumbrance - Vendor charging the land without approval of

purchaser - Foreclosure proceedings instituted by chargee - Application for

specific performance of sale and purchase agreement - Application for

injunction to restrain respondents from proceeding with sale of land -

Allegation of fraud to defeat indefeasible title of chargee - Application for

interim injunction allowed.

Summary :

In this case, the appellant had entered into a sale and purchase agreement with the

first respondent, a housing developer, for the purchase of a house for $163,910 and

had paid a total sum of $74,410 towards the purchase price. It was provided in the

agreement that after the execution of the agreement the vendor shall not without

the prior approval of the purchaser subject the land to any further encumbrance.

The first respondent, however, charged the land to the second respondent. When

the first respondent failed to repay the loan to the second respondent, the second

respondent instituted foreclosure proceedings and the Senior Assistant Registrar of

the High Court directed the sale of the land. The appellant applied for: (a) an order

of specific performance of the sale and purchase agreement, (b) an injunction to

restrain the respondents from proceeding with the sale of the land and (c) a

declaration that the charge registered was void wholly or in respect of the lot

agreed to be sold to the appellant. The appellant applied for an interim injunction

to restrain the respondents from selling the land by public auction. The learned

judge dismissed the application. The appellant appealed.

Holding :

Held, allowing the appeal: in this case the appellant had a perfectly legitimate right

to pursue his remedy. He has paid a substantial sum of the purchase price. He has

also alleged fraud and has set out particulars of the fraud allegedly perpetrated

against him by the first and second respondents and he seeks to defeat the

indefeasible title of the second respondent on these grounds. He is also asking for

specific performance of the sale and purchase agreement against the first

respondent. In the circumstances he should be allowed an opportunity to prove his

allegations.

Digest :

Lai Soon Cheong v Kien Loong Housing Development Sdn Bhd & Anor [1986] 2

MLJ 369 Supreme Court, Kuala Lumpur (Wan Suleiman, Hashim Yeop A Sani

and Wan Hamzah SCJJ).

2295 Fraud -- Specific performance

3 [2295] CONTRACT Fraud – Specific performance – Whether option agreement

was obtained by fraud so as to render it unenforceable – Contracts Act 1950, s

17

Summary :

The appellant's claim was for an order for specific performance of an option

agreement dated 5 January 1977 (`the option agreement'), allegedly given by the

respondent's deceased husband (`Mr Chan') in respect of a fruit plantation (`the

orchard'). The orchard was also the subject matter of an earlier business

arrangement between the two parties as represented by a lease agreement (`the

lease agreement'), entered by them in 1971 for a period of 15 years. The option

agreement was thus executed during the currency of the lease agreement to run

over a period of nine years until the expiry of the lease in 1986. The respondent's

contention was that the purported option was obtained by fraudulent means and

was therefore null and void and unenforceable, and that the late Mr Chan during

his lifetime was under no obligation to complete the option agreement. Fraud and

other defences in the alternative were pleaded in the statement of defence,

including false representations, non est factum and failure of consideration. The

main issue for determination in this appeal was whether, on the various findings of

fact made by the learned trial judge against the appellant, it would be sufficient to

prove that the option agreement was obtained by fraud so as to render it

unenforceable. A further issue in this case was in relation to the burden of proof of

fraud in civil proceedings.

Holding :

Held, dismissing the appeal: (1) the motive and opportunity for the appellant to

commit fraud on the late Mr Chan by means of the option document was clear,

self-evident and based on the following factors, namely: (i) the close business

friendship between the late Mr Chan and the appellant which started in 1968 when

the appellant first became interested in developing the land in dispute into a fruit

plantation; (ii) on 4 July 1971, the property was leased to the appellant for 15 years

at a nominal rent of RM350 per year whereby Mr Chan practically got no income

at all from his land for 15 years, but in return, out of jungle land he would reap the

benefit of being the owner of a valuable orchard. Mr Chan became curious to know

the current value of his up-and-coming orchard and as such, it was easy for the

appellant to exploit the situation fully by fraudulently misrepresenting that the so-

called option document was not for the purpose of sale by him but merely to enable

him to test the property market. Further, the fact that prior to the issue of the writ,

neither Mr Chan nor members of his family had used in any of their letters the

word `cheating' or `fraud' was not by itself fatal. What the court had to decide was

whether in the totality of the oral and documentary evidence, there was fraud as

defined in s 17 of the Contracts Act 1950. In this case, there was motive and

opportunity to commit fraud; (2) the basis of the remedy of specific performance

lay in equity and as such, where - as in this case - the appellant did not come with

clean hands, then the court was entitled to refuse the remedy in order to protect the

respondent from being a victim of sharp practice; (3) whether the allegation of

fraud in civil proceedings concerned criminal fraud such as conspiring to defraud,

misappropriation of money or criminal breach of trust, it was settled law that the

burden of proof was the criminal standard of proof beyond reasonable doubt and

not on the balance of probabilities. An allegation of criminal fraud in civil or

criminal proceedings could not be based merely on suspicion or speculation.

However, where the allegation of fraud was entirely founded on civil fraud and not

on criminal conduct or offence, a balance of probability was applicable. In this

case, since the allegation of fraud was purely civil in nature and not based on or

connected with a criminal offence, the civil standard was applicable.

Digest :

Ang Hiok Seng @ Ang Yeok Seng v Yim Yut Kiu (Personal representative of the

estate of Chan Weng Sun, deceased) [1997] 2 MLJ 45 Federal Court, Johor Bahru

(Chong Siew Fai CJ (Sabah & Sarawak).

2296 Fraud -- Standard of proof

3 [2296] CONTRACT Fraud – Standard of proof – Allegation of fraud was civil in

nature – Whether the burden of proof of civil fraud was on the balance of

probabilities – Contracts Act 1950, s 17

See contract, para V [43].

Digest :

Ang Hiok Seng @ Ang Yeok Seng v Yim Yut Kiu (Personal representative of the

estate of Chan Weng Sun, deceased) [1997] 2 MLJ 45 Federal Court, Johor Bahru

(Chong Siew Fai CJ (Sabah & Sarawak).

2297 Fraudulent misrepresentation -- Invoice for sale of printing machine stated money paid as deposit

3 [2297] CONTRACT Fraudulent misrepresentation – Invoice for sale of printing

machine stated money paid as deposit – Vendor knew representation as to

deposit was false as no deposit was paid – Representation induced finance

company to enter into hire purchase agreement with hirers

Summary :

The first to fourth defendants were partners of Inter-Print which carried on a

printing business. The fifth defendant carried on business as XLC Agency which

supplied a printing machine to Inter-Print. Inter-Print acquired the printing

machine as hirers under a hire purchase agreement with the plaintiff. In this action,

the plaintiff claimed damages against the fifth defendant for fraudulent

misrepresentation in relation to the supply of the machine. The plaintiff contended

that Inter-Print and XLC Agency proposed a hire transaction under which the

plaintiff would purchase the machine from XLC Agency for S$500,000 and the

plaintiff as owner of the machine would enter into a hire purchase agreement with

Inter-Print as hirers for the sum of $300,000. The invoice issued by XLC Agency

stated that the price was S$500,000 and that a deposit of S$200,000 had been paid,

leaving a balance of S$300,000 to be paid by hire purchase instalments.

Holding :

Held, allowing the claim: (1) the fifth defendant represented to the plaintiff that

Inter-Print had paid her a deposit of S$200,000 for the purchase of the machine.

The representation was made by the invoice; (2) the truth was that there was no

deposit of S$200,000 paid by the first defendant or Inter-Print for the purchase of

the machine; (3) there was no agreement between the first defendant or Inter-Print

and XLC Agency for the purchase of the machine by Inter-Print for S$500,000.

There was no arrangement for payment of a deposit of S$200,000 by the Inter-

Print and the first defendant did not pay any part of that on his own behalf or on

behalf of Inter-Print. The representation that Inter-Print had paid XLC Agency

S$200,000 as a deposit for the purchase of the machine was false and the fifth

defendant knew that it was false when she made the representation; (4) the

representation that Inter-Print had paid XLC Agency a deposit of S$200,000 for

the purchase of the machine was of such a nature as would induce the plaintiff to

purchase it from XLC Agency for S$500,000 and to enter into a hire purchase

agreement with Inter-Print with respect to it. There would be judgment for the

plaintiff against the fifth defendant for fraudulent misrepresentation for damages to

be assessed.

Digest :

Singapura Building Society Ltd v Chia Yew Seng & Ors Suit No 502 of 1995—

High Court, Singapore (Lim Teong Qwee JC).

2298 Fraudulent misrepresentation -- Summary judgment

3 [2298] CONTRACT Fraudulent misrepresentation – Summary judgment – Civil

Procedure - Summary judgment - Application for - Whether plaintiff's claim

based on agreement secured by fraudulent misrepresentation - Whether

triable issues raised - Merits of application - Rules of the High Court 1980, O

14.

Summary :

The plaintiff was a logging contractor and the first and second defendants were

limited companies. The third, fourth and fifth defendants were directors and

guarantors of the first and second defendant companies. By a deed made between

the plaintiff and the first and second defendant companies, in consideration of the

plaintiff agreeing to forbear from further pursuing certain civil actions against them,

the first and second defendant companies agreed to pay the plaintiff a sum of $3m.

A cash payment of $50,000 was made but subsequent cheque payments were

dishonoured. The plaintiff proceeded to apply for a summary judgment under O 14

of the Rules of the High Court 1980 against the defendants, contending that the

defendants had wilfully failed and neglected to pay the plaintiff the said sum. The

defendants denied wilful failure or neglect and contended that the agreement was

secured by fraudulent misrepresentation.

Holding :

Held, dismissing the application: this is not a proper case where summary

judgment under O 14 should be granted. The defendants have an arguable case or

have raised triable issues in their defence.

Digest :

Koh Siak Poo v Perkayuan OKS Sdn Bhd [1988] 3 MLJ 224 High Court, Kuala

Lumpur (Zakaria Yatim J).

2299 Frustration -- Bailee for reward

3 [2299] CONTRACT Frustration – Bailee for reward – Custom – Towing of logs -

Failure to deliver logs - Alleged custom relating to lost logs - No satisfactory

proof of custom - Defences of act of God and frustration - Bailee for reward -

Burden of proof - Damages.

Summary :

The plaintiff and the defendant had entered into a verbal contract whereby the

defendant agreed to tow the plaintiff's logs from Sungei Sugut to his log pond at

Sandakan. The defendant towed a total of 82 logs but only 11 logs were delivered.

The plaintiff claimed damages for the loss. The defences of the defendant were (a)

act of God and (b) frustration. It was alleged that the logs were lost in a storm at

sea. It was also alleged that there was a custom in Sandakan whereby the towing

contractor would only pay to the log owner $25 for every log lost during the

journey from Sungei Sugut to Sandakan.

Holding :

Held: (1) the storm which was encountered was not violent enough to be regarded

as an act of God; (2) in a towing contract of this nature a storm must be expected

and would have to be guarded against and therefore the defence of frustration must

fail; (3) the defendant was a bailee for reward and as in this case he had not

discharged the burden of proving that the loss occurred without any negligence or

default or misconduct of himself or any of his servants, the plaintiff was entitled to

claim for the loss of the logs from the defendant; (4) the alleged custom had not

been satisfactorily proved in this case and the plaintiff was entitled to the value of

the logs not delivered.

Digest :

Khoo Than Sui v Chan Chiau Hee [1976] 1 MLJ 25 High Court, Kota Kinabalu

(Seah J).

2300 Frustration -- Cancellation of project

3 [2300] CONTRACT Frustration – Cancellation of project – Whether project

fundamental to performance of supply contract – What amounts to

frustration – Radical change in the character of the obligation

Summary :

The defendants were sub-contractors of Turner (East Asia) Pte Ltd ('Turner'), who

were the main contractors employed by Gateway Land Pte Ltd in a development

project known as the Gateway Project. By a sub-contract, the defendants agreed to

carry out and complete certain sub-contract works. In performance of part of their

obligations under the sub-contract, the defendants agreed to buy from the plaintiffs

and the plaintiffs agreed to supply to the defendants ('the supply contract') certain

equipment. Subsequently, the defendants telexed the plaintiffs to suspend all

manufacture/delivery of the equipment. The plaintiffs informed the defendants that

they would not agree to an indefinite suspension of the contract and required the

defendants to reply as to when they could accept delivery of the equipment. The

defendants failed to reply and as a result, the plaintiffs commenced proceedings for

damages for breach of contract against the defendants. The assistant registrar gave

unconditional leave to the defendants to defend the action. The plaintiffs appealed

to the High Court. The defendants' main contention was that they were prevented

from accepting the equipment purchased from the plaintiffs because of the

termination of the sub-contract between the defendants and Turner, which event,

being beyond the control of the defendants, amounted in law to frustration of the

supply contract. The defendants submitted that the supply contract needed for its

foundation the continuing existence of the Gateway Project and that the

cancellation of the Gateway Project had frustrated the supply contract.

Holding :

Held, allowing the appeal: (1) taking into account the additional facts disclosed in

Suit No 3599 of 1985 (in which the defendants had sued Turner for payment of

sums payable under the sub-contract), frustration as a defence was not available to

the defendants on the ground, firstly, that the defendants' reason for not accepting

delivery of the equipment was that Turner had terminated the main contract and

had stopped work and not because the Gateway Project had ceased to exist. Also,

any default of Turner in respect of their obligations under the sub-contract was a

contingency which had been provided for in cl 21 of the subcontract. Secondly, in

the circumstances of this case, counsel's argument that the continued existence of

the Gateway Project formed the basis of the supply contract had no factual or legal

basis; (2) in the court's view, the nature of the supply contract and the surrounding

circumstances could not justify a court in implying that the continued existence of

the Gateway Project was fundamental to the performance of the supply contract by

either party; (3) the main contract was not frustrated but merely breached. The

determination of the main contract led to the determination of the sub-contract by

its own terms. It follows that the sub-contract could not have been frustrated. That

being the case, there was no basis for arguing that the supply contract was

frustrated.

Digest :

MTU Asia Pte Ltd v Brightside-Woh Hup [1987] SLR 391 High Court, Singapore

(Chan Sek Keong JC).

2301 Frustration -- Contract to repair

3 [2301] CONTRACT Frustration – Contract to repair – Bailment contract valid –

Breach – Damages

Summary :

In this case, the plaintiff, a miner, had sent a Deutz engine to the defendant, an iron

founder for certain specified repairs just before the Japanese invasion. He claimed

damages for detinue and for the value of the engine on its non-return on the ground

that he had bailed the said engine to the defendant.

Holding :

Held: (1) the contract to repair was frustrated and discharged without breach or

default on either side and the rights of the parties would have to be adjusted

accordingly; (2) the defendant did not detain the engine. The detention, if any, was

by the Japanese or as a result of their proceedings, the defendant was therefore not

liable in detinue; (3) the ancillary contract of bailment did not necessarily fall with

the main contract of repair and the defendant was in breach of his duty under the

contract of bailment to give notice to the plaintiff of his loss of control of the

engine about December 1943. There must therefore be an award in damages to the

plaintiff.

Digest :

Chong Kin Voon v Kwan Cheong & Co [1950] 3 MC 31 High Court, Kuala

Lumpur (Taylor J).

2302 Frustration -- Correct test of frustration

3 [2302] CONTRACT Frustration – Correct test of frustration – Frustrated

Contracts Act (Cap 33, 1970 Ed) – Law Reform (Frustrated Contracts) Act

1943 (UK) – Frustration - Impossibility of performance - Claim for refund of

money paid under agreement - Frustrated Contracts Act (Cap 33), s 2(1) -

Law Reform (Frustrated Contracts) Act 1943 (UK), s 1.

Summary :

The defendant in this case was the tenant of premises known as Nos 110/112

Orchard Road, Singapore. He paid a monthly rent of $215 to the owners of the

property. By an agreement dated 21 November 1968, the defendant had agreed to

permit the plaintiffs to display for sale at the premises goods, wares and

merchandise belonging to the plaintiffs in return for commission of 2[1/2]% on all

goods sold to be calculated every six months or if the amount of commission so

payable for the same period fell below the sum of $9,000, the plaintiffs were to

make it up to that sum. The contract was for ten years and there was no provision

in the contract for earlier termination. Evidence revealed that the defendant took no

part in the business of the plaintiffs. Instead, he consistently throughout the whole

period up to 31 December 1975 received the sum of $1,500 per month from the

plaintiff. On 23 May 1975 the Collector of Land Revenue by notice of possession

served on the defendant's landlord, took possession of the premises. He did not

take physical possession of the premises until 31 December 1977. In the meantime

the plaintiffs continued to occupy the premises and to pay the defendants $1,500

per mensem until 31 December 1975 when they stopped upon discovering that the

premises had vested in the state as far back as 23 May 1975. The main issue before

the court was the date on which the contract was frustrated. The plaintiffs claimed

that it was frustrated on 23 May 1975 and the defendant argued that the contract

was frustrated on 31 December 1977.

Holding :

Held: (1) the agreement of 21 November 1968 was a device to conceal a

subtenancy agreement between the parties at the monthly rent of $1,500. The

agreement was drawn up to circumvent the application of the Control of Rent Act

1966 (Act 56/1966) which prohibits a tenant from collecting from his subtenant

more than 110% of the rent which he himself pays to his landlord; (2) the correct

legal test for deciding whether a contract has been frustrated is whether the

contract which the parties made is, on its true construction, wide enough to apply

to the new situation: if it is not, then it is at an end; (3) in this case, whatever rights

the defendant had in the premises were extinguished on 23 May 1975 when the

state became the owner of the premises; (4) the footing on which the agreement

was entered into was gone and the contract clearly was frustrated.

Digest :

Singapore Woodcraft Manufacturing Co (Pte) Ltd v Mok Ah Sai 1978 High Court,

Singapore (Choor Singh J).

2303 Frustration -- Delay

3 [2303] CONTRACT Frustration – Delay – By injunction – Whether injunction to

restrain completion of agreement constitute frustration of the agreement

Summary :

The first application was by the defendant ('the bank') to strike out the plaintiff's

statement of claim whereas the second application was by the plaintiff for

judgment under O 14, Rules of the High Court 1980 for declaratory relief and

under O 18 for specific performance. The plaintiff was the owner of several pieces

of land ('the lands'). On the strength of charges created over the lands, several

loans/banking facilities had been granted to various borrowers, one of which was

Monsia Investments Pte Ltd ('Monsia'). All the borrowers defaulted in their

obligations to the bank under the various loans/banking facilities whereupon a

redemption agreement ('the agreement') was entered into between the plaintiff and

the bank. The agreement provided for the redemption of the lands from the bank

upon payment of a total sum of RM20m. RM2m was to be paid upon execution of

the agreement (which was accordingly paid) and the balance of RM18m on the

expiration of 15 months from the date of the agreement; a bank guarantee of that

amount was to be delivered to the bank on or before six months from the date of

the agreement. Subsequently, the plaintiff's request for extension of time was

refused. At the time the agreement was entered into, the bank had already

commenced proceedings to have the land sold ('the foreclosure proceedings'). At

the same time, Monsia, which was one of the borrowers, obtained an ex parte

injunction restraining the bank and the plaintiff from proceeding with or

completing the agreement. On appeal to the Supreme Court, Monsia's proceedings

was stayed. The bank argued that the present action was res judicata due to the

earlier foreclosure proceedings instituted by the bank. The bank also argued that

the agreement did not preclude the bank from claiming more than RM18m, ie the

full amount due under the charges if there should be default by the plaintiff of its

obligations under the agreement. The bank also argued that time was of the essence

of the agreement and that the injunction in the Monsia suit had frustrated the

agreement. The bank also contended that no specific relief should be granted to the

plaintiff.

Holding :

Held, dismissing the bank's summons and granting the plaintiff's application: (1)

the decision in the foreclosure proceedings did not preclude the plaintiff from

filing and proceeding with the present action; (2) the maximum sum recoverable in

any proceeding by the bank cannot be greater than RM18m. The agreement

replaced the charges recited in it and once it was entered into, the effect was to

denude those charges of any legal effect; (3) reading the agreement as a whole and

taking into account the surrounding circumstances and the factual background

including the genesis and the objective aim of the transaction, it is clear that the

parties did not intend time to be of the essence. The requirement to pay interest in

the event of default is an indicia that time is not of essence; (4) the benefit of the

bank was not lost by the delay in performance occasioned by the injunction; (5)

after taking into account all matters operating against the plaintiff in the context of

specific relief (delay, unclean hands, acceptance of breach) the court nevertheless

would exercise its discretion in the plaintiff's favour; (6) the order of stay granted

by the Supreme Court had the automatic effect of putting an end to the injunction

as well. No application to dissolve the injunction was necessary.

Digest :

Kuala Lumpur Landmark Sdn Bhd v Standard Chartered Bank [1994] 2 MLJ 559

High Court, Kuala Lumpur (Anuar J).

2304 Frustration -- Disappointed expectations

3 [2304] CONTRACT Frustration – Disappointed expectations – Whether contract

can be frustrated on ground of disappointed expectations – Whether non-

performance of agreement attributable to defendant's own fault – Satyabrata

Ghose v Mungeeram Bangur & Co AIR 1954 SC 44 (cited) Naihati Jute Mills Ltd

v Khyalivam AIR 1968 SC 522 (cited)

Summary :

P sued D for the balance of the fees due to them for management services rendered

to D in respect of a housing project. P obtained judgment in default of appearance

against D which was set aside on the application of D. D filed their defence

contending, inter alia, that P did not perform the services as alleged in their

statement of claim. P had, at the request of D, arranged for a loan from Bank

Rakyat for D's housing project. The bank had held back the disbursement of the

loan for the project and D had contended that the contract in question had been

frustrated with the result that they were not liable to pay P the fees which would

otherwise be payable under the contract. In due course, P applied for leave to enter

final judgment against D under O 14 of the Rules of the High Court 1980.

Alternatively, P sought to strike out the defence of D pursuant to O 18 r 19 or

under the inherent jurisdiction of the court. Upon their application being dismissed

by the senior assistant registrar, P appealed to the High Court.

Holding :

Held, allowing the appeal: (1) in the instant case, there was no doubt that P had

rendered the services which D requested them to do. P had therefore performed

their part of the bargain pursuant to the agreement entered into by the two parties.

That being so, D could not now say that they were not liable to pay P the fees

which were properly due to the latter; (2) in the instant case, the doctrine of

frustration cannot avail D as the non-performance of the loan agreement was

attributable to D's own fault. In any event, no contract can be frustrated on the

ground of disappointed expectations nor can a court absolve a party from liability

to perform a contract merely because the performance becomes more onerous; (3)

for the above reasons, the court was satisfied that D had no defence at all let alone

a reasonable defence to the claim of P.

Digest :

Lim Hua Ti t/a Amsco Merchant Bankers Trust v Syarikat Bekerjasama

Perkampungan Alam Shah, Kelang Bhd Suit No P 246 of 1981 High Court, Kuala

Lumpur (Lim Beng Choon J).

2305 Frustration -- Employment contract

3 [2305] CONTRACT Frustration – Employment contract – Employee absent from

work due to detention order – Whether contract of employment frustrated

Summary :

The plaintiff, during his employment by the defendant, was placed under detention

for two years under the Emergency (Public Order and Prevention of Crime)

Ordinance 1969. While under detention, the plaintiff requested that the defendant

allow him to return to work after the detention. The defendant refused and, instead,

terminated his service for failing to report for duty. The plaintiff sued for wrongful

dismissal. The defendant claimed that the plaintiff's contract of employment had

been frustrated by reason of his detention.

Holding :

Held, allowing the plaintiff's claim: (1) the defendant terminated the plaintiff's

contract on the ground that he had been absent from work. There was no mention

of frustration in their correspondence, although it was pleaded in the defence; (2)

since the plaintiff's service was terminated on the ground of being absent from

work and his absence was not self imposed, the defence of frustration could not be

sustained. The plaintiff had therefore been wrongfully dismissed; (3) the quantum

of damages was confined to what the plaintiff could have earned if not for the

breach of contract, up to the time he could find new employment.

Digest :

Subramaniam v Esso Malaysia Bhd [1990] 3 MLJ 118 High Court, Seremban

(Mustapha Hussain J).

2306 Frustration -- Employment contract

3 [2306] CONTRACT Frustration – Employment contract – Japanese occupation

Digest :

V Kandiah v Government of the Federation of Malaya [1952] MLJ 97 High Court,

Kuala Lumpur (Wilson J).


2307 Frustration -- Frustration of contract - Impossibility of performance - Claim for return of money paid in advance.

3 [2307] CONTRACT Frustration – Frustration of contract - Impossibility of

performance - Claim for return of money paid in advance.

Summary :

This was a claim for the specific performance of an agreement dated 5 December

1941 or alternatively the refund of the deposit of $500. On 5 December 1941, the

plaintiffs paid the sum of $500 to the defendant as deposit for the purchase of

premises at No 7 Jalan Mahdali and was given a receipt for the money. The war

came and the transaction between the parties could not be completed, as the

plaintiff was in fear of his life at the hands of the Japanese and as for a

considerable period land transfers were prohibited by the Japanese.

Holding :

Held: (1) in the circumstances it was impossible for the plaintiffs to perform their

part of the contract within a reasonable time and therefore the contract was

frustrated; (2) applying the principle laid down in the Fibrosa case [1943] AC 32,

the plaintiffs were entitled to a refund of the deposit of $500.

Digest :

Kung Swee Heng & Anor v Paritam Kaur [1948] MLJ 170 High Court, Kedah

(Hill J).

2308 Frustration -- Illegality

3 [2308] CONTRACT Frustration – Illegality – Housing Developers (Control &

Licensing) Rules 1970 – Contract for purchase of land and house -

Application for sub-division of land - Special condition imposed that portion

of land reserved for bumiputra - Whether contract discharged by frustration -

Building contracts entered into by person not proprietor of land - Issue not

pleaded - Whether breach of rules affects validity of contracts - Housing

Developers (Control and Licensing) Rules 1970, rr 11 & 17 - Contracts Act

1950, s 24.

Summary :

This was an appeal from the decision of George J reported in [1983] 1 MLJ 335.

The appellant in this case had proposed to develop two pieces of land in Kuantan

into a housing estate. One of the pieces of the land belonged to him and the other

belonged to a company, the Futo Trading Company. The appellant invited

members of the public to book the lots and booking applications were signed. All

the lots were booked before approval for conversion and sub-division of the land

was obtained. When the appellant applied for conversion and sub-division, this was

granted subject to the condition that a number of the lots should be reserved for

bumiputra. The appellant decided not to build any of the houses and action was

brought by some of those who had booked the lots claiming specific performance

of the contract. At the trial the appellant contended that he was not liable as the

booking did not constitute a binding contract and that even if it did so, the contract

was rendered not only impossible of performance but also illegal by the imposition

of the special condition. George J overruled the appellant's arguments and gave

judgment in favour of the plaintiffs in the case in the form of damages. The

appellant appealed. On the appeal, counsel for the appellant did not raise the issue

whether acceptance of the booking constituted a binding contract between the

appellant and the purchasers (the ruling of the trial judge in this issue being

unassailable).

Holding :

Held: (1) to invoke the doctrine of frustration the appellant must show that the

completion of every one of the contracts was in substance a different obligation

from what had previously been agreed to, ie a new agreement altogether. In this

case, the substance remained the same. Each of the contracts was and still is for the

sale of houses which the appellant agreed to build. The special condition imposed

by the Pahang state government in no way changed the substance of the appellant's

agreement with its purchasers; (2) it was no defence for the appellant to say that

the special conditions were completely unexpected because under the law the state

government could even refuse the application altogether. The appellant had no

good reasons to expect that its application would be approved at all. As it took the

risk so it must pay for it; (3) in regard to the land owned by Futo Trading Company,

there was a breach of the Housing Developers (Control and Licensing) Rules 1970

but the question whether non-compliance with the rules rendered the contracts

illegal by virtue of s 24 of the Contracts Act was not pleaded by the appellant and

there was no proper factual basis upon which a ruling could be made; (4) in any

case there is nothing illegal about the consideration or object of the contracts

because they are only contracts for the sale and purchase of houses. The rules

therefore do not affect the validity or otherwise of the contracts which the

developer has signed with the purchasers; (5) the appeal must be dismissed and the

ruling of the learned judge that the respondents are entitled to damages only

instead of specific performance confirmed.

Digest :

Kin Nam Development Sdn Bhd v Khau Daw Yau [1984] 1 MLJ 256 Federal

Court, Kuala Lumpur (Salleh Abas CJ (Malaya).

2309 Frustration -- Impossibility

3 [2309] CONTRACT Frustration – Impossibility – Chargee and chargor entered

into redemption agreement allowing chargor to redeem land within stipulated

time – Third party obtained injunction restraining completion of redemption

agreement – Whether redemption agreement rendered impossible to be

performed by injunction – Contracts Act 1950, s 57(2)

Summary :

P granted loans to Y and SH Sdn Bhd which were secured by the registration of

two charges over D's land. Y and SH Sdn Bhd defaulted in the payment of the

loans and P applied for order for sale of D's land. D alleged that P had entered into

a redemption agreement with D whereby D was to deliver to P a bank guarantee

within a stipulated time. Subsequently, however, in another writ action, MI Ltd

sued both P and D. MI Ltd obtained an interim injunction restraining D from

completing in any manner whatsoever the redemption agreement. MI's interim

injunction was subsequently extended until the trial of the writ action. D argued

that by reason of the redemption agreement P was precluded from applying for

foreclosure of D's land. D also alleged that P's foreclosure action constituted a

repudiation of the redemption agreement which D accepted. D further averred that

P's foreclosure action was tantamount to a colourable devise to circumvent MI

Ltd's injunction. P however contended that because of MI Ltd's injunction, the

redemption agreement had been frustrated.

Holding :

Held, allowing application for order for sale: (1) since the redemption agreement

was created after P had applied for foreclosure of D's land, P had not waived its

right to proceed with the foreclosure action by entering into the redemption

agreement. The redemption agreement was only meant to give a breathing space

for D to redeem its land within a specified time; (2) the redemption agreement had

been rendered impossible to be performed because of the injunction obtained by

MI Ltd. The very essence of the redemption agreement had been frustrated as its

performance would be a radical change of its original terms and conditions; (3) P's

statutory right of foreclosure emanating from ss 256 and 257 of the National Land

Code 1965, could not be taken away unless P was precluded from exercising such

right contractually. The contractual hinderance in this case, namely, the redemption

agreement suspending P's right of foreclosure, had been frustrated by MI Ltd's

injunction. As such P could proceed with its foreclosure proceedings.

Digest :

Standard Chartered Bank v Kuala Lumpur Landmark Sdn Bhd [1991] 2 MLJ 251

High Court, Kuala Lumpur (Lim Beng Choon J).


3 [2310] CONTRACT Frustration – Impossibility – Conversion of the condition of

premises – Whether failure to obtain conversion rendered contract legally or

physically impossible of performance – Contracts Act 1950, s 57(2)

Digest :

Ho Weng Leong v Ng Kee Chin [1996] 5 MLJ 139 High Court, Johor Bahru

(Abdul Malik Ishak J).



3 [2311] CONTRACT Frustration – Impossibility – Destruction of premises by fire

– Compensation agreement between landlord and tenant - Destruction of

premises by fire - Whether compensation agreement was frustrated in law.

Summary :

The respondent was a tenant or licensee of a piece of land and a structure erected at

No 40-A Tannery Lane. The appellants subsequently became the owners of the

said land (the premises). In 1977 the appellants commenced legal proceedings

against the respondent to recover possession of the premises on the ground that the

respondent was a mere licensee and alternatively on the ground that even if the

respondent was a tenant, she was not entitled to the protection of the Control of

Rent Act (Cap 266, 1970 Ed). The respondent defended the action which was

compromised after negotiations by an agreement dated 13 September 1979 (the

compensation agreement). Under the compensation agreement the respondent

agreed to vacate and deliver up vacant possession of the premises to the appellants

on or before 30 June 1980, in consideration of which the appellants agreed to pay

$200,000 less certain arrears of and future licence fees. Under cl 2 of the

compensation agreement, the appellants agreed to pay a sum of $20,000 to the

respondent on signing of the agreement and the balance of the compensation on

delivery of vacant possession of the said premises. On 5 January 1980, before the

respondent could leave the premises, a fire which started from a neighbouring site

completely destroyed the structure. Despite demands, the appellants refused to pay

the balance. The respondent forfeited the sum of $20,000 paid and claimed for the

full sum of $167,142 under the compensation agreement. The appellants refused to

pay on the ground that the compensation agreement was frustrated in law. The

appellants appealed from an order of the High Court whereby judgment was given

for the respondent against the appellants for the sum of $155,142 with interest and

costs and the appellants' claim against the respondent in Suit No 541 of 1980 was

dismissed.

Holding :

Held, dismissing the appeal: (1) the destruction of the structure was not due to the

fault of either party. The parties, when framing the compensation agreement, had

not present in their minds the possibility of such a disaster and had made no

express stipulation with reference to it; (2) the learned trial judge rightly paid

attention to the contents of the negotiations leading to the making of the

compensation agreement; (3) the doctrine of frustration does not apply in this case

and the appeal should be dismissed.

Digest :

Chiang Hong Pte Ltd v Lim Poh Neo t/a Tai San Plastic Factory 1984 Court of

Appeal, Singapore (Wee Chong Jin CJ, Kulasekaram and Chua JJ).


3 [2312] CONTRACT Frustration – Impossibility – Performance – Legislation –

Tenancy of premises - Specific performance - Monthly letting - Damages -

Frustration of contract.

Summary :

The court will not decree specific performance of an agreement for a monthly

tenancy. If such an agreement is frustrated or rendered impossible of performance

by reason of the coming into force of the Rent Restriction Ordinance 1939, no

damages will be recoverable by either party in respect of the period of such

frustration.

Digest :

Abdul Kader v Shaw Brothers Ltd [1940] MLJ 270 High Court, Straits Settlements

(Pedlow J).

Annotation :

[Annotation: See also the case of Singapore Woodcraft Manufacturing Co (Pte)

Ltd v Mok Ah Sai [1978-1979] SLR 516; [1979] 2 MLJ 166.]


3 [2313] CONTRACT Frustration – Impossibility – Performance – No control over

third party

Summary :

A contract between A and B by which A agrees to indemnify B for losses

occasioned to him by the interference of a third party over whom he (A) has no

control, is not void, as being impossible of performance by A by reason of such

third party persisting in interfering with B.

Digest :

Caudersah & Co v Mohamed Eusoff & Co [1887] 4 Ky 158 High Court, Straits

Settlements (Wood J).


3 [2314] CONTRACT Frustration – Impossibility – Performance – Scrips cannot be

delivered from England

Summary :

A contracted through a broker with B, in Singapore, for the purchase of 2,000

shares in the Pahang Corp Ltd. At the date for completion, some of the scrips,

being in England, could not be delivered.

Holding :

Held: it was no excuse for the non-performance of a condition, that it is impossible

for the obligor to perform it, if the performance be, in its nature, possible.

Digest :

Fraser & Co v Tan Hay Seng [1889] 1 SLJ 143 High Court, Straits Settlements

(Goldney J).

2315 Frustration -- Lease

3 [2315] CONTRACT Frustration – Lease – Failure to obtain licence to use

premises as intended under lease agreement – Whether a lease agreement can

be frustrated

Summary :

The plaintiff leased by way of a lease agreement a four-storey building to the

defendant. The defendant in this consolidated action applied to be released from

performing the agreement and for the return of the deposit paid under the

agreement. Clause 2(viii) of the agreement provided that the building was to be

used as supermarket and departmental store, warehouse and office and all purposes

ancillary thereto. Clause 2(x) provided that the defendant may apply for a written

consent from the plaintiff to rent or assign the building to third parties and such

consent shall not be unreasonably withheld. The agreement also provided that the

defendant shall be responsible to obtain the appropriate licence from the municipal

council ('the council') to carry out the business of a supermarket and departmental

store on the premises. The council rejected the defendant's application for the

licence on 22 July 1984 but only informed the defendant of the rejection on 12

February 1988. The plaintiff had on 20 December 1984 written a letter to the

council confirming that the building would not be used as a supermarket. The

defendant alleged that the plaintiff had played an active role to frustrate the

agreement and submitted that the plaintiff's refusal to perform the agreement was a

breach of the condition of the agreement and even if such refusal was not a breach

of the condition of the agreement, it was a breach that went to the root of the

contract between them and had therefore prevented the defendant from enjoying

the facilities that they were entitled to under the agreement. The defendant also

pleaded that the performance of the lease had become, without any fault on the part

of the defendant, impossible and the lease was thus frustrated. The plaintiff

submitted that the doctrine of frustration does not apply to a registered lease. The

plaintiff also contended that the building was not only leased as a supermarket and

departmental store but the building may also be used as 'warehouse' and 'office'.

The defendant also tendered as documentary evidence the projected trading and

profit and loss accounts of the defendant company ('the accounts') as estimates for

the year 1985 to support the claim for loss of profit. The exhibits, however, were

neither checked nor confirmed by the auditor of the company.

Holding :

Held, dismissing the plaintiff's claim and allowing the defendant's counterclaim: (1)

having regard to the correspondence of the parties, the facts of the case and the

agreement as a whole, in particular, cl 2(x) read together with cl 2(viii), it was

clear that the words 'warehouse' and 'office' were used in close relation to the use

of the building as a supermarket and departmental store. Such 'warehouse' and

'office' were intended to be a part of the business of the supermarket; (2) the

plaintiff had not acted honestly and truthfully when signing the agreement. The

responsibility to obtain the licence rested with the defendant but the plaintiff ought

to have disclosed to the defendant that he had written to the council to confirm that

he would not use the building as a supermarket. Although the rejection by the

council was based on policy, the plaintiff should have informed the council that

they had leased the building for 15 years to the defendant to be used as a

supermarket. As the plaintiff did not show that their correspondence with the

council had not jeopardized the defendant's opportunity to obtain the licence, it

may be concluded that the plaintiff's action amounted to a breach of their

contractual obligations under the lease and had thus prevented the defendant from

enjoying the benefits under the lease. Therefore, the plaintiff ought not be allowed

to claim any rent under the lease; (3) based on ss 227 and 230 of the National Land

Code (Act 56/1965) and the facts of the case, it was clear that the lease was already

in force. The conduct of the defendant after the registration of the lease when the

application for licence was rejected showed that the defendant had treated himself

as having possession of the building as provided in the agreement; (4) a lease

agreement may be frustrated. In this case, the agreement was impossible of

performance because of frustration. The conflict between the intended use of the

building (as stipulated in the agreement) and the policy of the council had

frustrated the agreement. The defendant was released from performing the

agreement and the plaintiff was ordered to return the deposit to the defendant; (5) it

is a well-established rule of evidence that when documentary evidence is tendered,

primary evidence of the said document must be adduced except in cases under s 65

of the Evidence Act 1950. This was not complied with when the defendant

tendered the accounts. Therefore, the preparation of the accounts was not

satisfactory. The claim for damages under this heading was rejected.

Digest :

Teng Aik Sdn Bhd v Gama Holdings (M) Sdn Bhd Civil Suit No 821 of 1985 High

Court, Seremban (Faiza Tamby Chik J).

2316 Frustration -- No fundamental or radical change in circumstances

3 [2316] CONTRACT Frustration – No fundamental or radical change in

circumstances – Contract capable of being performed – Agreement for

teacher training - Condition that after training teacher would be placed on

UTS scale - Abolition of UTS on coming into force of Abdul Aziz scheme -

Whether contract frustrated - Contract capable of being performed - No

fundamental or radical change in circumstances - Contracts Act 1950, s 57(2).

Summary :

In this case, the appellants were a group of 86 vocational school teachers who were

successful in their application for teacher training. One of the conditions of the

offer which was accepted was that the teachers would on completion of the course

be accepted as teachers on the UTS scale. By the time they completed their course

of training the UTS scale had been abolished and the Abdul Aziz scheme came

into force. The appellants were offered salaries under the Abdul Aziz scheme. The

appellants claimed that they should have been paid salaries and allowances under

the UTS scheme. The respondent pleaded that as the recruitment of teachers into

the UTS scheme had been discontinued the offer to employ them under the UTS

scheme had become frustrated. The learned trial judge dismissed the claim of the

appellants and they appealed to the Federal Court.

Holding :

Held: (1) where after a contract has been entered into there is a change of

circumstances but the changed circumstances do not render a fundamental or

radical change in the obligation originally undertaken to make the contract

something radically different from that originally undertaken, the contract does not

become impossible and it is not discharged by frustration; (2) in this case it is

wrong to say that the contract was not capable of being performed and it was not

therefore frustrated. On the acceptance of the Abdul Aziz recommendations the

government put into force an improved salary scale and this was applicable to the

appellants. Thus the UTS scheme was abolished and ceased to apply to the

appellants. After that the appellants were given a higher commencing salary and a

more favourable scale than that of the UTS scale.

Digest :

Ramli bin Zakaria & Ors v Government of Malaysia [1982] 2 MLJ 257 Federal

Court, Kota Bharu (Suffian LP, Lee Hun Hoe CJ (Borneo).

2317 Frustration -- Premature determination of main contract

3 [2317] CONTRACT Frustration – Premature determination of main contract –

Whether this frustrates supply contract – Disappearance of substratum –

Radical change of circumstances

Digest :

Pioneer Concrete (S) Pte Ltd v Turner (East Asia) Pte Ltd Suit No 2011 of 1986

High Court, Singapore (Rubin JC).


2318 Frustration -- Purpose

3 [2318] CONTRACT Frustration – Purpose – Intervention of third party

frustrated purpose of contract

Digest :

Peter Gomez v Brentnall Beard & Co (S) Pte Ltd 1984 High Court, Singapore

(Rajah J).


2319 Frustration -- Sale and purchase of HDB flat

3 [2319] CONTRACT Frustration – Sale and purchase of HDB flat – Flat became

part of redevelopment scheme and compulsorily acquired – Whether contract

frustrated – Whether vendors could refuse to complete sale – Whether

purchasers entitled to specific performance and/or compensation

See land law, para II [76].

Digest :

Tay Ah Poon & Anor v Chionh Hai Guan & Anor [1997] 1 SLR 369 High Court,

Singapore (Lai Siu Chiu J).

2320 Frustration -- Sale and purchase of motor car

3 [2320] CONTRACT Frustration – Sale and purchase of motor car – Failure to

deliver motor car – Failure to apply for import licence of motor car –

Whether contract frustrated

Summary :

The plaintiff sued the defendant for breach of contract in connection with his

unsucessful purchase of a Honda Prelude motor car. The plaintiff's case was that

the defendant failed to deliver one unit of the Honda Prelude motor car which was

the subject-matter of the contract. Plaintiff now sought for specific performance of

the contract. The defendant on the other hand argued that: (i) the contract excluded

him from being sued; (ii) the contract had become impossible to perform due to the

cancellation of the import licence; and (iii) if liable, that damages should be

sufficient relief. However, he argued that relief should not be allowed as the

plaintiff failed to plead it.

Holding :

Held, allowing the claim: (1) the defendant had not proved on the balance of

probabilities that it was due to an event beyond his control that he could not supply

the subject-matter of the contract; (2) the defendant also failed to establish on the

balance of probabilities any of the elements necessary to bring into play the

exemption clauses of the contract; (3) the application for an import licence

submitted by the defendant to the Director-General of Customs Department did not

include a Honda Prelude. There was therefore no merit in the defence of frustration

or the impossibility of performance; (4) bearing in mind the lapse of time and the

fact that the defendant had ceased to trade in Honda cars, damages ought to be paid

to the plaintiff instead of specific performance.

Digest :

Chin Tai Kong v Chin Koi Ting Civil Suit No S 196 of 1983—High Court,

Sandakan (Richard Malanjum J).

2321 Frustration -- Sale and purchase of property

3 [2321] CONTRACT Frustration – Sale and purchase of property – Compulsory

acquisition – Whether doctrine applicable – Whether contract frustrated –

Land Acquisition Act (Cap 272, 1970 Ed), ss 5 & 18

Summary :

On 29 April 1983 the respondent ('the vendor') granted an option in writing to the

appellant ('the purchaser') to purchase a piece of land known as 74 King's Road

('the property'). The purchase price was S$2,138,200 of which 5% amounting to

S$106,910 was paid by way of an option fee. On 12 May 1983 the purchaser

exercised the option and another 5% was paid, and a sale and purchase agreement

was thereby made ('the agreement'). The sale was subject to the Singapore Law

Society's Conditions of Sale 1981 and was also subject to the title of the property

being in order and free from encumbrances. Completion did not take place on the

stipulated date of completion, 7 July 1983. On 13 July 1983 the vendor's solicitors

sent to the purchaser's solicitors a notice to complete within 21 days under

condition 2 of the Law Society's Conditions. On the same day there was made

under s 5 of the Land Acquisition Act (Cap 272, 1970 Ed) ('the Act') a declaration

that the property was to be compulsorily acquired and on 19 July a notification of

the declaration was published in the Gazette. On 1 August 1983, the purchaser's

solicitors wrote to the vendor's solicitors stating, among other things, that in view

of the declaration in the Gazette the purchaser did not intend to carry on with the

purchase and requested the refund of the 10% deposit. In response the vendor, by

her solicitors' telex dated 5 August 1983, stated that the 21-day notice had expired

and as the purchaser did not intend to complete, the 10% deposit had been forfeited.

On 7 August 1984, the vendor commenced an action against the purchaser

claiming the balance of the purchase price and in response, the purchaser

counterclaimed the refund of the deposit. Possession of the property was taken by

the Collector on 28 May 1985 under s 16 of the Act. Following that on 1 June 1985

an entry in the Registry of Deeds was made pursuant to s 18 of the Act. The

learned judicial commissioner who tried the action (see [1992] 2 SLR 516) upheld

the vendor's claim. On appeal, three main issues were raised: first, whether the

doctrine of frustration is capable of being applied to a contract for the sale of land;

secondly, if the answer to the first question is in the affirmative, whether in this

case the agreement was frustrated by the compulsory acquisition of the property

under the Act, and thirdly, whether by reason of the compulsory acquisition, which

had already commenced, the vendor could on completion convey to the purchaser a

good title to the property.

Holding :

Held, allowing the appeal: (1) for instance, there may be what is commonly

referred to as a 'frustration of purpose'; (2) frustration is capable of being applied to

a contract for the sale of land. There is nothing in principle that 'repels' the

application of the doctrine of frustration to such contracts; (3) in order to decide

whether the contract in question has been frustrated, the court must focus on (i) the

terms and conditions of the contract made between the parties read in the light of

the nature of the contract and the surrounding circumstances, and (ii) the event

supervening, and consider whether the agreement is, on its true construction, wide

enough to apply to the new situation; (4) further, the legal title to a property

acquired rests in the state only upon the procedures prescribed by s 18 being

completed; (5) the agreement has not provided for the event of compulsory land

acquisition. From the nature of the property the purchaser obviously purchased it

for a commercial purpose. It was obviously not contemplated that compulsory

acquisition by the government would occur. There was no indication known to the

purchaser on which he ought to have known that such an event would take place;

(6) (reversing Michael Hwang JC) in deciding that the compulsory acquisition did

not frustrate the agreement, the basis of the trial court's decision was that the date

fixed for completion fell prior to the Collector of Land Revenue taking possession

of the property and the vesting of the title thereof in the state, and that as of that

date the vendor was able to convey the land to the purchaser and accordingly the

agreement was not frustrated by the fact of compulsory acquisition; (7) however,

once a declaration is made the process of acquisition has started and its progress

will lead almost with absolute certainty to divesting the owner of his title to the

land and vesting it in the state. Technically until the entry or notification is made in

the relevant register under s 18 of the Act, the owner retains the title to the land

and is able to transfer his title to the purchaser and until possession is taken by the

Collector the owner is also able to give possession of the land to the purchaser.

However, in considering whether a contract for the sale of land has been frustrated

by compulsory acquisition which has begun, it is not sufficient to have regard

purely to such technical aspects of the transaction. Regard must be had to the

practical impact the compulsory acquisition has on the land; (8) the reality is that

the purchaser had bargained not only for the legal estate but for the use of the

property. What he would get would be an estate which was 'unusable and

unsaleable'. What was even more catastrophic in this case was that the purchaser

would receive as compensation for the land he had purchased (if he had completed

the purchase) a sum representing the value as determined under the Act which was

far below the market value of property. Giving some sense of reality to the whole

situation it cannot truly be said that the purchaser would on completion get what he

had bargained for; (9) as for the vendor's two objections, the first being that the

purchaser have been at fault in delaying completion, breach by the purchaser can

only prevent frustration where there is a causal link between the breach and the

event which is alleged to be frustrating. In this case, it cannot be said that the

purchaser was in any way responsible for the compulsory acquisition of the

property; (10) the second objection was that the compulsory acquisition was a

possibility in Singapore in 1983 and should have been foreseen by the purchaser.

The court was of the opinion that the relevance of foreseeability to the doctrine of

frustration was not free from doubt and held that the rigid insistence on the fact

that the event ought to have been foreseen could not be an adequate solution; (11)

under s 2(2) of the Frustrated Contracts Act (Cap 115), the deposit paid to the

vendor is recoverable from her, and the proviso which applies only to 'expenses

incurred' has no application; (12) it should be noted that the doctrine of frustration

is not limited in its application to circumstances where the supervening event

destroys or render non-existence the subject matter of the contract. In other words,

non-existence of the subject matter of the contract is not the only circumstance

where frustration can occur. There may well be 'such a change in the significance

of the obligation' to justify frustration;(affirming Michael Hwang JC) in Singapore

compulsory acquisition of land under the Act is a process rather than an act, and it

begins with the declaration under s 5 and ends with the entry or notification under s

18;(reversing Michael Hwang JC) having regard to the compulsory acquisition, the

vendor could not on completion convey to the purchaser a good title. The

supervening event had resulted not merely in a defect in the title, but had effected a

change in the nature or duration of the title. The title had become no longer one as

provided in the agreement - be it fee simple or in perpetuity - but a defeasible one

which within a short period of time would rest in the state, as it did. Giving the

matter a sense of reality, what the purchaser would have got had he completed the

purchase would not be a good and marketable title, but a defeasible and unsaleable

one.

Digest :

Lim Kim Som v Sheriffa Taibah bte Abdul Rahman [1994] 1 SLR 393 Court of

Appeal, Singapore (Karthigesu and LP Thean JJA and Warren LH Khoo J).


3 [2322] CONTRACT Frustration – Sale and purchase of property – Failure to

complete – Declaration of acquisition of property issued on day of notice to

complete – Whether contract frustrated – Law Society's Conditions of Sale

1981, condition 29 – Land Acquisition Act (Cap 272, 1970 Ed), ss 3, 5, 6, 8, 10,

16, 17, 18, 33, 40 & 48

Summary :

On 29 April 1983, in consideration of the sum of S$106,910, the plaintiff granted

an option in writing to the defendant to purchase a piece of land for the sum of

S$2,138,200. The option was exercised on 12 May 1983 by the payment of a

further sum of S$109,910. The sale was subject to the Singapore Law Society's

Conditions of Sale 1981 ('the LSCS') and to the title of the property being in order

and free from encumbrances. The date fixed for completion was 7 July 1983. As

completion did not take place, the plaintiff's solicitors, on 13 July 1983, gave the

defendant a 21-day notice to complete under condition 29 of the LSCS. On the

same day, a declaration was issued under the Land Acquisition Act (Cap 272, 1970

Ed) ('the Act') that the land was required for a public purpose. On 1 August 1983,

the defendant indicated that he did not intend to complete the purchase on the

ground that cl 5 of the agreement entitled him to take this position, that the

agreement had been frustrated as the Presidential declaration and the notification in

the gazette prevented the plaintiff from conveying the property, and that the notice

to complete was not valid as it was dated the same day as the date of the

declaration for acquisition. The defendant also argued that the purchase price had

been agreed upon the basis of a common belief that the property was suitable for or

capable of redevelopment, and as the property had become liable to compulsory

acquisition before the option date, the acquisition by the government entitled the

defendant to rescind the contract for mutual mistake. The defendant requested for

the refund of the 10% deposit. The plaintiff's solicitors joined issue with these

contentions and claimed to forfeit the deposit. On 23 August 1984, the Collector of

Land Revenue awarded the compensation of S$450,000 to the plaintiff and took

possession of the property on 28 May 1985. Entry of the government's title under s

18 of the Act in the Registry of Deeds was made on 1 June 1985. The plaintiff

commenced this action, claiming for the difference between the purchase price and

the compensation awarded, plus interest and costs; alternatively, for damages for

breach of contract. The defendant, in his defence, elaborated on his earlier grounds

for terminating the contract. He argued that under condition 29(2) of the LSCS, the

notice to complete was only valid if the party giving the notice was 'ready, able and

willing to complete'. As the plaintiff's interest had, by virtue of the declaration or

notification in the gazette, been converted into a right to compensation, she was

precluded from completing the sale of the property and was, accordingly, not ready,

able and willing to complete. As performance of the contract had become

impossible and the agreement was frustrated, the plaintiff was unable to pass good

title to the property or a title free from encumbrances, the defendant was released

from further performance of the contract. Alternatively, he argued that the contract

had become impossible to perform or was frustrated because there had been a

radical change in the subject matter of the contract. The defendant's other line of

defence was a right to rescind based on his reliance on the plaintiff's solicitors'

alleged misrepresentation on the possibility of obtaining planning approval for

development of the property. The existence of such a misrepresentation was denied

by the plaintiff's witnesses.

Holding :

Held, allowing the claim: (1) under the Act, compulsory acquisition is a process

rather than an act, which begins with the declaration under s 5 and ends with the

entry or notification under s 18. The landowner is not divested of his legal or

beneficial interest in the subject land until after possession has been taken under s

16 and the procedures described in s 18 have been carried out. It is the act of entry

or notification in the appropriate register under s 18 which marks the moment

when title passes to and is vested in the state. The plaintiff, as the owner of the

property could, therefore, deal with the property and transfer the property, even

though a declaration under s 5 had been gazetted; (2) a notification under s 5 of the

Act does not immediately deprive a landowner of his interest in the subject land so

as to preclude him from completing a sale and purchase agreement already entered

into but not completed. The combined effect of ss 16, 17 and 18 of the Act is that

the vesting of property in the state is deferred until the acts described in s 18; (3)

the remarks of the Privy Council in Re Robinson's [1980] 1 MLJ 255 which

suggested that title to the property vested in the state upon the gazetting of the s 5

declaration was only obiter dicta and must be understood in the context of the

problem it was confronted with, viz the interpretation of s 33 of the Act, in

particular, the word 'acquisition'. There is no reason to disagree with the actual

decision of the Judicial Committee that, in the context of s 33(1), the word

'acquisition' means the date of the gazette notification under s 5 of the Act. All this

means, however, is that for purposes of s 33(1), the reference point for computing

the six-month period is the beginning of the acquisition process (s 5) rather than

the end (s 18). It does not mean that the subject land vests in the state as soon as

the acquisition process begins. Further, it is inconceivable that the Judicial

Committee would have intended in this one sentence to disapprove

of Hillingdon [1952] Ch 627 or to assert a different legal position from that stated

inHillingdon without at least some reference to that case, the Australasian cases or

the Indian cases; (4) section 20 of the State Lands Encroachment Act (Cap 286,

1970 Ed) ('the SLEA') deems lands that are gazetted as state land for the purposes

of the SLEA, but does not purport to lay down a general definition for all purposes

or to supplement the powers of acquisition under the Act. A landowner who holds

the land at the date of the s 5 declaration could not be held to be an unlawful

occupant of such land. He will only be an unlawful occupant after title has vested

in the state under s 18. Section 20 of the SLEA would not of itself entitle the state

to enter upon the land to dispossess the person who was the lawful owner at the

time of the s 3 or s 5 declaration, or any person claiming under such landowner; (5)

the word 'encumbrance' covers all subsisting third party rights such as leases,

rentcharges, mortgages, easements, restrictive covenants, and also statutory

liabilities which are not merely potential or imposed on all property generally. But

a statutory liability which first attaches to the property after the date of the contract

must be borne by the purchaser for the risk is on him. A notice of intended

acquisition such as a declaration under s 5 of the Act is not an encumbrance within

the conveyancing meaning of that term; (6) generalized definitions of 'good title'

cannot be applied literally, as the courts have generally tried to describe, rather

than to define, good title and have decided whether particular defects can be shown

to affect the vendor's title on a case-by-case basis rather than attempting all-

embracing definitions. It is also important to identify the mpletion. The effect of

the declaration under s 5 may be to diminish the value of the property but that does

not impeach the vendor's title. The plaintiff, therefore, could give a good and

marketable title despite the s 5 declaration as it does not destroy the subject matter

of the contract; (7) as the declaration under s 5 did not vest title in the state and the

vendor was still capable of conveying title to the purchaser, the declaration under s

5 did not destroy the subject matter of the contract for sale and purchase of the

property; (8) the plaintiff's witnesses' account of the circumstances leading to the

granting of the option was more credible than the defendant's. On the balance of

probabilities, the defendant failed to prove that the plaintiff's solicitors said the

words which allegedly formed the misrepresentation relied upon by the defendant.

Furthermore, there was no evidence in support of the defendant's claim that he had

relied on the misrepresentation. In any case, since the defendant's repudiation of

the contract had been accepted by the plaintiff, he could no longer rescind the

contract on the ground of misrepresentation as the contract no longer existed. As

the defendant was precluded from rescinding the contract, he was also precluded

from relying on the misrepresentation as a defence; (9) the defendant's application

to amend his pleadings was not allowed as the application was made too late. The

application should have been made, at the latest, before the defence witnesses gave

evidence. Secondly, the amended pleading itself was totally unsatisfactory as it

gave rise to ambiguity which could only be resolved by further and better

particulars or redrafting of the proposed amendment. If the amendment were

allowed, its ambiguity might have led to an application to strike out the pleading as

affording no reasonable defence to the claim; (10) the legal position as to the

vendor's duty of disclosure in contracts relating to land is controversial. Mere non-

disclosure of some defect in the property known to the vendor is not

misrepresentation. A vendor is only required to disclose defects in his title which

are latent and not patent. A threat of acquisition of real property is not a defect in

title which will entitle a purchaser to rescind the contract. Hence, even if there

were a duty to disclose latent defects in title, the fact that there had been a fire on

the property would clearly not amount to a threat of acquisition as there was no

evidence that any authority had, prior to 29 April 1983, threatened to acquire the

property. No duty of disclosure could accordingly be implied in this case; (11) the

court disallowed the plaintiff's claim for interest under the agreement. After the

termination of the contract, the plaintiff could only be entitled, if at all, to

discretionary interest. Although it had not been expressly pleaded, the court had

the discretion to award this interest under s 9 of the Civil Law Act (Cap 43). This

discretion is unfettered, subject only to the caveat that it must be exercised

judicially. In exercising this discretion, the court usually has regard to the

underlying philosophy of the provision, ie to compensate the aggrieved party who

has been unjustly deprived of the use and benefit of the money wrongfully

withheld from him. Hence, although the court would normally award discretionary

interest almost as a matter of course, under the said principle, there are many

instances where no interest or interest for shorter periods or at lower rates is

awarded. Due to the exceptional circumstances of this case, viz that the plaintiff

had in effect received a windfall while the defendant had incurred a devastating

loss, justice does not require any further sums to be paid by the defendant.

Digest :

Sheriffa Taibah bte Abdul Rahman v Lim Kim Som [1992] 2 SLR 516 High Court,

Singapore (Michael Hwang JC).


3 [2323] CONTRACT Frustration – Sale and purchase of property – Land

compulsorily acquired by government – Whether doctrine of frustration

applicable – Whether acquisition of land radically change obligations of

parties under the contract – Whether appellant entitled to claim any right to

compensation payable to respondent

Summary :

The appellant was the registered proprietor of a [1/2] share in a certain piece of

land ('the land'). The other [1/2] share formed the asset of the estate of one Hatijah

bte Hj Jusoh ('the deceased'). In December 1979, the respondent - in her capacity

as the administratrix of the deceased's estate - entered into a sale and purchase

agreement with the appellant to sell the deceased's [1/2] share of the land at a

purchase price of RM40,000 ('the agreement'). The appellant paid to the

respondent a sum of RM4,000 representing 10% of the purchase price. In March

1980, a kadi's certificate was issued distributing the [1/2] share of the land in the

estate of the deceased to the respondent and baitulmal in the proportion of a [1/2]

share each, resulting in the respondent and baitulmal having a [1/4] share each in

the land. In May 1994, the whole land was acquired by the government.

Compensation was awarded to the appellant for his [1/2] share of the land, and the

respondent for her [1/4] share of the land. The appellant filed an application

claiming for the compensation due to the respondent less the balance of the

purchase price due under the agreement. The respondent contended that the

agreement had been frustrated because of the compulsory acquisition of the whole

land by the government, and it was impossible to perform the agreement. The trial

judge upheld this contention and ordered that the compensation payable to the

respondent for her [1/4] share of the land be paid out to her less the sum of

RM4,000 being the 10% deposit to be refunded to the appellant. The appellant

appealed. The principal issue raised in this appeal was whether the doctrine of

frustration applied so as to discharge the parties from their obligations under the

agreement.

Holding :

Held, dismissing the appeal: (1) the doctrine of frustration, as statutorily

recognized by s 57(2) of the Contracts Act 1950 ('the Act'), was applicable in this

case. The acquisition of the land had radically changed the obligation of the

respondent to sell her [1/2] share of the land to the appellant, as what was agreed

and intended by the parties and affirmed by the agreement was a transfer of a [1/2]

share of the land from the respondent to the appellant by way of a sale; (2) when

the land was compulsorily acquired and compensation awarded, the subject matter

of the agreement ceased to exist and performance of the agreement became

impossible. For that reason, the compulsory acquisition of the land had frustrated

the agreement so as to discharge both the appellant and the respondent of their

obligations under the agreement; (3) since the subject matter of the agreement had

been taken away and replaced by way of compensation, the appellant could not

claim such compensation as being due and payable to him because the basis of the

appellant's claim was dependent on the agreement. Since the agreement was void

under s 57(2) of the Act, the appellant could not claim any right to such

compensation. At most, under s 66 of the Act he was entitled to be refunded the 10%

deposit he had paid to the respondent.

Digest :

Lee Seng Hock v Fatimah bte Zain [1996] 3 MLJ 665 Court of Appeal, Kuala

Lumpur (Shaik Daud, Siti Norma Yaakob and Ahmad Fairuz JJCA).


3 [2324] CONTRACT Frustration – Sale and purchase of property – Vendor

entered contract for sale of property with purchaser – Third party claimed

vendor had earlier entered agreement to sell property to them – Application

for specific performance – Third party thereafter obtained ex parte injunction

restraining vendor from entering into any agreement for sale of property to

any other person – Whether contract between vendor and purchaser had been

frustrated

Digest :




2325 Gaming or wagering contract

3 [2325] CONTRACT Gaming or wagering contract

Summary :

On 18 May 1934, the defendant gave an order to the plaintiff, an exchange and

share broker and commission agent, for the purchase of 30 tons of rubber. The next

day the plaintiff sent to the defendant an advice note of the purchase. The plaintiff

stated in evidence that he had placed the order with Messrs Lewis and Peat as

agent for the defendant, though he had represented himself as principal because of

the defendant's expressed wish not to have his name disclosed. The plaintiff now

claimed from the defendant the sum of $4,018 by way of indemnity under a

contract of agency. The defendant pleaded that (i) the transaction between him and

the plaintiff was an agreement by way of a wager and was therefore unenforceable

and (ii) the plaintiff exceeded his authority in purporting to act as principal with

Messrs Lewis and Peat.

Holding :

Held: (1) the evidence sufficiently disclosed a relationship of principal and agent

between the defendant and plaintiff in respect of the transaction. The contract

between Messrs Lewis and Peat and the plaintiff acting as agent of the defendant

was not a gaming or wagering transaction. Neither the plaintiff nor Messrs Lewis

and Peat were therefore gaming. As it required two parties to make a transaction

one of gaming, the transaction here could not amount to such even if the defendant

was gaming; (2) the scope of the plaintiff's authority extended to entering into

transactions as principal because the defendant had instructed the plaintiff to

withhold his name.

Digest :

Baker v Sharma [1937] 3 MC 15 High Court, Kuala Lumpur (Thomas CJ).

Annotation :

[Annotation: Distinguished in Mizrahie v Stanton Nelson & Co Ltd [1958] MLJ

97.]

2326 Gaming or wagering contract -- Bills of exchange - Suit on cheques - Cheques given in payment of gaming transactions - Whether enforceable -

Bills of Exchange Ordinance 1949, ss 29(3) and 30(1) - Contracts (Malay States) Ordinance 1950, s 30(1) - Gaming - Difference between English

and Malayan laws - Civil Law Ordinance 1956, s 26(1), (2), (3) and (4).

3 [2326] CONTRACT Gaming or wagering contract – Bills of exchange - Suit on

cheques - Cheques given in payment of gaming transactions - Whether

enforceable - Bills of Exchange Ordinance 1949, ss 29(3) and 30(1) - Contracts

(Malay States) Ordinance 1950, s 30(1) - Gaming - Difference between English

and Malayan laws - Civil Law Ordinance 1956, s 26(1), (2), (3) and (4).

Summary :

In an action based on a contract, it is for the plaintiff to prove consideration. In an

action on a negotiable instrument, consideration is presumed and it is for the maker

or the indorser of the instrument if he wishes to defend the action to prove that

there was no consideration. Where at any stage of its history there has been

consideration for a bill and there is no question of illegality of consideration then it

can be sued on and if the original drawer is sued it is for him to prove that at no

time has there been consideration. In Malaya there is no distinction between

wagering on games and other types of gaming and in every case the question of

gaming is to be considered in the light of the local statutes which correspond to the

English Gaming Acts of 1845 and 1892.

Digest :

Ong Guan Hua v Chong [1963] MLJ 6 Court of Appeal, Kuala Lumpur (Thomson

CJ, Hill and Good JJA).

2327 Goods sold and delivered -- Enjoyment of goods

3 [2327] CONTRACT Goods sold and delivered – Enjoyment of goods – Contracts

Act 1950 (Act 136), s 71 – Sale of goods - Claim for goods sold and delivered -

Goods not delivered to alleged buyer but to another address at direction of

salesman - Whether salesman agent of buyer - Whether goods delivered to

salesman as agent for the buyer - Contracts Act 1950, s 71.

Summary :

In this case, the respondent was a wholesaler dealing in steel saws, tools and other

hardware products and the appellant was one of its customers. The respondent sued

the appellant for goods sold and delivered but when it appeared in evidence that

the goods were not delivered to the appellant but were delivered on the direction of

the salesman to another address, the respondent amended the statement of claim to

read as follows: (a) The plaintiff's claim against the defendant is for the recovery of

$140,036.13 for goods sold and delivered as evidenced by invoices Nos C2038,

C1950, C1226, C1057, C1271, C2198 and C2947 by the plaintiff to Tan Boon

Soon as agent for the defendant. (b) Further or alternatively, the plaintiff delivered

the said goods to the said Tan Boon Soon as agent for the defendant not intending

to do so gratuitously and the defendant enjoyed the benefit thereof. Accordingly,

by virtue of s 71 of the Contracts Act 1950 (Act 136) the defendant is liable to pay

for the same. The learned trial judge gave judgment for the respondent as claimed

but when the appeal was lodged, no written grounds of decision were given.

Holding :

Held: (1) in this case the respondent had completely failed to establish that the

delivery was due for the appellant and that the appellant enjoyed the benefit of the

delivery. The claim under s 71 of the Contracts Act 1950 has therefore not been

made out; (2) the onus of proving that the salesman had made the fullest disclosure

and had obtained the informed consent of both the respondent and the appellant

rested with the respondent. On the evidence adduced at the trial the respondent had

failed to discharge the burden; (3) the evidence showed that the respondent or its

principal officer had no knowledge of the wrongdoings of the salesman until the

end of November or early December 1978. The appellant denied all knowledge of

the relevant transactions and no inference of informed consent could validly be

drawn without proof of knowledge by clear and cogent evidence. A fortiori to draw

such an inference against the appellant in business matters would be most

dangerous.

Digest :

Goh Soon Ann v Sandvik Malaysia Sdn Bhd [1984] 1 MLJ 121 Federal Court,

Kuala Lumpur (Salleh Abas CJ (Malaya).

2328 Goods sold and delivered -- Sale of goods - Buyer in arrears of monthly instalments - Counterclaim - No clear evidence of counterclaim -

Dismissal of counterclaim.

3 [2328] CONTRACT Goods sold and delivered – Sale of goods - Buyer in arrears of

monthly instalments - Counterclaim - No clear evidence of counterclaim -

Dismissal of counterclaim.

Summary :

In this case, the plaintiffs claimed $137,376.44 for goods sold and delivered to the

defendants. Payment was to be made in specified monthly instalments to the end

that the whole amount would have been settled by December 1981. However, none

of the instalments were paid. The writ and the statement of claim were served on

the defendants on 12 June 1982. When a statement of defence was not filed and

delivered within the 14 days after appearance had been entered the plaintiffs

entered judgment in default of defence on 12 August 1982. On 1 September 1982,

a summons was taken out by M/s Hisham, Sobri and Kadir who had on that day

filed a notice of their appointment as solicitors for the defendants. By that

summons, the defendants sought to have the default judgment set aside and asked

for leave to properly enter an appearance to the writ and for leave to file a defence.

They also asked for a stay of execution of the default judgment. The summons was

heard and disposed of in chambers on 10 November 1983 and dismissed with costs.

On 9 December 1983, a firm of solicitors called M/s Chooi & Ong filed a notice of

change of solicitors giving notice that they had taken over the conduct of the

matter for the defendants. On 3 January 1984, they filed an application seeking an

extension of time so that the defendants could pursue with an appeal to have the

default judgment set aside.

Holding :

Held, dismissing the appeal: the application failed because the defendant company

had not disclosed a bona fide reasonable defence.

Digest :

East Asiatic Company (M) Bhd v Kamanis Sdn Bhd [1985] 2 MLJ 227 High Court,

Kuala Lumpur (George J).

2329 Goods sold and delivered -- Sale of goods - Claim for price of goods - Evidence of account book regularly kept in the course of business -

Evidence Act 1950, s 34.

3 [2329] CONTRACT Goods sold and delivered – Sale of goods - Claim for price of

goods - Evidence of account book regularly kept in the course of business -

Evidence Act 1950, s 34.

Summary :

In this case, the respondent claimed the sum of $5,283.25 for goods sold and

delivered to the appellants. To support its case the respondent produced its book of

account kept by it to record its transactions with several customers including the

appellants. Evidence was given that the goods were ordered and delivered to the

appellants' premises and that the entries in the account book were entered from the

invoices. The learned trial judge gave judgment for the respondent and the

appellants appealed.

Holding :

Held, dismissing the appeal: (1) the book of account was regularly kept in the

course of business and referred to a matter into which the court had to inquire and

were therefore admissible under s 34 of the Evidence Act 1950 (Act 56); (2)

corroboration of the entries in the book of account were to be found in the book of

account itself, in the admission by the appellants which tallied with the first four

entries relating to them and in the oral evidence relating to the order and the supply

of the goods.

Digest :

Sim Siok Eng & Anor v Poh Hua Transport and Contractor Sdn Bhd [1980] 2 MLJ

72 Federal Court, Kuching (Chang Min Tat FJ, Salleh Abas FJ and Charles Ho J).

2330 Government contracts -- Crown Suits Ordinance

3 [2330] CONTRACT Government contracts – Crown Suits Ordinance

Summary :

A claim for loss sustained by the Crown, by reason of the breach by the defendant

of his contract - although such loss may be calculated and found by the officers of

the Crown to be a particular sum - is not a claim for an 'ascertained sum', within s 2

of the Crown Suits Ordinance XV of 1876; but a claim for 'damages or account'

within s 3. Where an information and writ of summons for such a sum, was filed

and issued under s 2,

Holding :

Held: the defendant was quite right to apply, by summons-in-chambers and before

applying for leave to defend, for an order to set aside such proceedings as being

irregular, and the summons was set aside with costs. The writ of summons, in form

C 1 of the said ordinance is intended to be used in cases falling within both ss 2

and 3: but at the time of issue, ought to be so adapted as to meet the provisions of

the particular section under which it is issued, by striking out the alternative

sentences which apply to the other section.

Digest :

Attorney General v Chew Sin Yong & Anor [1890] 4 Ky 680 High Court, Straits

Settlements (Wood J).

2331 Government contracts -- Singapore Harbour Board

3 [2331] CONTRACT Government contracts – Singapore Harbour Board – Short

delivery – Statutory powers – Public authorities protection - Limitation of

action - Singapore Harbour Board acting as warehousemen - Short delivery

from godown - Acting for benefit of public within statutory powers - Public

Authorities Protection Ordinance (Cap 14) as amended by Ordinance No 19

of 1939, s 2(1)(2) - Singapore Ports Ordinance (Cap 149).

Summary :

The appellants claimed damages for breach of contract of bailment. They said that

they were the consignees of a cargo of 3,960 loose rubber tyres which arrived in

Singapore on 4 July 1946 from Bombay. They alleged that the respondent board

received the full number of tyres into their godown but delivered to the appellants

17 tyres short. The appellants on 1 August 1946 notified the respondent board of

the loss of 17 tyres and on 19 June 1948 the writ was issued. The respondent board

which was a statutory body incorporated by the Ports Ordinance (Cap 149)

contended that under the Ordinance they have powers to manage the Singapore

harbour and carry on the business of warehousemen and as the action against them

was for an act done in pursuance of the Ports Ordinance it was not maintainable

because it was not commenced within six months after the alleged act, neglect or

default complained of as required by s 2 of the Public Authorities Protection

Ordinance. Brown J held that the respondent board had not discharged their burden

of proving that the loss of the tyres was not due to any fault of theirs and the

respondent board could not claim the protection of the Public Authorities

Protection Ordinance as they were dealing with the appellants as individuals in the

course of an implied contract, which was an incident in carrying on their business

as warehousemen. The Court of Appeal in allowing the appeal held that the board

were directly performing their duties as dock owners under the Ports Ordinance

and were entitled to protection under the Public Authorities Protection Ordinance.

On appeal to the Privy Council,

Holding :

Held, dismissing the appeal: the board had, under the powers conferred on them,

elected to carry on the activities of wharfingers and warehousemen themselves;

such activities were essential to the proper running of the port for which they were

responsible, and so constituted one of the main purposes for which they had

received their powers. The board were, accordingly, entitled to the protection of

the ordinance.

Digest :

Firestone Tire & Rubber Co (SS) Ltd v Singapore Harbour Board [1952] MLJ 145

Privy Council Appeal from Singapore (Lord Normand, Lord Tucker, Lord Asquith

of Bishopstone and Lord Cohen).

2332 Guarantee -- 'Conclusive evidence' clause

3 [2332] CONTRACT Guarantee – 'Conclusive evidence' clause – Certificate stating

quantum of indebtedness issued under guarantee – Certificate to be

conclusive as to debt – Date at which certificate should be given – Effect of

certificate

Summary :

D and two others guaranteed the outstanding liabilities of C, a company. When C

defaulted, P (the bank) demanded payment on the guarantee. P applied for

summary judgment to be entered against D for the sum of $1.25m together with

interest at 8% and costs. D was granted unconditional leave to defend after an

appeal to a judge in chambers. P applied to have D's defence struck out as

disclosing no defence. The affidavit in support of this application exhibited a

certificate dated 27 March 1989 certifying the amount due by C to P as at 16

August 1986. The assistant registrar struck out the defence. D appealed. The main

ground of appeal was that the certificate relied on by P was not in accordance with

cl 6(c) of the guarantee under which it had been issued, in that it purported to

certify the amount owing at a date prior to the date of the certificate.

Holding :

Held, dismissing the appeal: (1) in business and in commerce there are many

instances when provisions are inserted into contracts by which the contracting

parties agree that a designated person will have the power to issue a certificate as

evidence of a fact, and the issue by him of the certificate is then conclusive

evidence of that fact as between the parties. The widespread use by banks of

'conclusive evidence' clauses in loan documentation has arisen simply because of

the dictates of commerce and has been supported by the assumption that money

institutions, which are themselves closely regulated by the law, are completely

honest and reliable; (2) in the absence of fraud or obvious error on the face of it, a

certificate issued under a 'conclusive evidence' clause is conclusive of both the

liability and the amount of the debt. Any mistakes in the figures can be remedied

by subsequent proceedings; (3) there is nothing wrong with issuing a certificate

stating the amount due at some date before the date of the certificate. This does not

affect the conclusiveness of the certificate as to the debt owing as of the date stated

in the certificate. If necessary, updated certificates can be issued later when the

action comes for trial.

Digest :

Bangkok Bank Ltd v Cheng Lip Kwong [1989] SLR 1154 High Court, Singapore

(Yong Pung How J).


3 [2333] CONTRACT Guarantee – 'Conclusive evidence' clause – Clause

incorporated into guarantee – Effect of clause in legal proceedings against

guarantor

Summary :

D appealed against the decision of the senior assistant registrar in giving leave to P

to enter final judgment against them. D contended that they have succeeded in

raising triables issues and accordingly should be given unconditioned leave to

defend.

Holding :

Held, dismissing the appeal: (1) in the instant case, D had, by a letter, admitted to

the debt owed by them to P. Accordingly, the denial by D that they did not owe P a

debt could not be entertained; (2) furthermore, the statement given by P as regards

the actual amount due from D was conclusive in view of the existence of a

'conclusive evidence' clause in the letter of guarantee; (3) as D had not succeeded

in raising any triable issues, the court accordingly dismissed the appeal by D.

Digest :

Bank Bumiputra Malaysia Bhd v Ahmad Marzuki bin Mat Zain & Ors Civil Suit

No 23-456-86 High Court, Ipoh (Abdul Malek J).


3 [2334] CONTRACT Guarantee – 'Conclusive evidence' clause – Effect of

certificate issued pursuant to clause in legal proceedings against guarantor –

Certificate issued conclusive evidence of amount due under guarantee

Summary :

D appealed against the decision of the senior assistant registrar in allowing P's

application for final judgment to be entered against them for the sum in question. D

also applied for a stay of execution pending disposal of their appeal to the Supreme

Court. D had raised, inter alia, the following issues which they contended were

triable issues: (i) whether they were guarantors and/or principal debtors; (ii)

whether the principal sum was payable from the date of demand or the date of

guarantee; (iii) whether interest was payable from the date of demand or the date of

guarantee.

Holding :

Held, dismissing the appeal: (1) having regard to the letter of guarantee, D were

guarantors as well as principal debtors in view of cl 10 of the guarantee; (2) the

principal sum and interest were payable from the date of the guarantee in view of

cl 1 of the guarantee; (3) in the instant case, the conclusive evidence clause

contained in the guarantee meant that a certificate given pursuant to the clause was

conclusive upon the parties of the amount and existence of the principal debtor's

indebtedness; (4) in the instant case, as D had failed to show that they have a good

defence to P's claim or that a difficult point of law is involved or that there is a

dispute as to the facts which ought to be tried, the learned judge was of the view

that no leave to defend ought to be given to D. D's application for a stay of

execution was, however, allowed by the learned judge.

Digest :

Bank Bumiputra Malaysia Berhad v Perbadanan Kemajuan Negeri Perak [1989] 1

MLJ 502 High Court, Ipoh (Abdul Malek J).


3 [2335] CONTRACT Guarantee – 'Conclusive evidence' clause – Presence of such

clause in guarantee – Effect of such clause in legal proceedings against

guarantor

Digest :

Development & Commerical Bank Bhd v Abdullah bin Ismail & Anor Kod No

D2-23-130-88 High Court, Kuala Lumpur (Siti Norma Yaakob J).


2336 Guarantee -- 'Principal debtor' clause

3 [2336] CONTRACT Guarantee – 'Principal debtor' clause – Effect of such clause

on liability of guarantor – Whether necessary for demand to be made –

Whether issuance of writ a demand in itself

Digest :

Bank Kerjasama Rakyat Malaysia Bhd v Bank Pembangunan Malaysia Bhd Civil

Suit No 23-56-87 High Court, Kuala Lumpur (Siti Norma Yaakob J).

See contract, Vol 3, para xxx.


3 [2337] CONTRACT Guarantee – 'Principal debtor' clause – Liability of guarantor

– Whether presence of such clause obviates necessity for creditor to make

demand

Summary :

P sued D2, a guarantor, pursuant to a letter of guarantee wherein D2 undertook to

make payment upon written demand of all sums due to P under a hire purchase

agreement and to indemnify P against all loss, damage or expense which P may

sustain by reason of D1's breach of the hire purchase agreement. D1 had obtained

an excavator on hire from P. P's application for summary judgment was dismissed

by the senior assistant registrar and P appealed to the High Court. D2 contended,

inter alia, that P had failed to comply with s 16 of the Hire Purchase Act 1967, that

there was delay in filing the ord 14 application by P and that no proper demand

was given to him.

Holding :

Held, allowing the appeal: (1) in the instant case, the Hire Purchase Act 1967 was

not applicable as the equipment hired was not one of those listed in the First

Schedule to the Act; (2) P had given a reasonable explanation as to why the

application for summary judgment was only made six months after D had filed

their statement of defence. In any event, D had not been in any way prejudiced by

the delay . Moreover, averments in the statement of defence had all been rebutted

by P in their affidavit in support of the ord 14 application and no purpose would be

served if the matter was allowed to proceed to trial when it could be dealt with

summarily; (3) the presence of a principal debtor clause in the guarantee obviated

the necessity for P to make a demand. The guarantee in the instant case was no

longer a collateral agreement and as such there was no need for a demand as the

issuance of the writ was a demand in itself; (4) as all the issues raised by D had

been determined by affidavit evidence, the learned judge, accordingly, allowed P's

appeal.

Digest :

Credit Corp (M) Bhd v Choi Sang & Anor Civil Suit No C2-24-5650-86 High

Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2338] CONTRACT Guarantee – 'Principal debtor' clause – Whether guarantor

liable in all situations where principal debtor liable

Summary :

In 1987, the plaintiffs obtained judgment for payment of an amount in Singapore

currency against the defendants under a guarantee and subsequently registered the

judgment in the High Court of Malaysia. Under the procedural rules of that court,

the judgment debt was converted into its equivalent in Malaysian currency at the

rate of exchange prevailing at the date of the judgment in Singapore. This amount

was paid but due to the fluctuations in the foreign exchange rate, this was

substantially less than the judgment debt in Singapore currency. The plaintiffs then

brought this action for the shortfall by again suing on the guarantee, relying on cl

16F of their agreement with the principal debtor which provided that such an

action would constitute a cause of action independently of any other judgment on

the agreement, and contending, on various grounds, that this clause was

incorporated into the guarantee agree-ment.

Holding :

Held, dismissing the claim: the clause in the guarantee deeming the defendants to

be a principal debtor, commonly known as the principal debtor clause, on its true

construction, only had the effect of enabling the plaintiffs to treat the defendants as

the principal debtor in the circumstances set out in the clause. It did not have the

effect of turning the defendants from their position as guarantors to a position of

indemnifiers so that the plaintiffs could hold them responsible for everything for

which the principal debtors might be held liable under the principal agreement. The

other guarantee provisions were also not wide enough to bring into their ambit cl

16F of the principal agreement, which clause was the foundation of the plaintiffs'

claim.

Digest :

NM Rothschild & Sons (Singapore) Ltd & Ors v Rumah Nanas Rubber Estate Sdn

Bhd [1994] 2 SLR 160 High Court, Singapore (Warren LH Khoo J).


3 [2339] CONTRACT Guarantee – 'Principal debtor' clause – Whether presence of

such clause in guarantee obviates necessity to make demand on guarantor

before proceedings instituted – Whether issuance of writ a demand in itself

Summary :

P had obtained judgment in default of defence against D3 who had guaranteed the

repayment of all sums due under certain overdraft facilities granted by P to D1. D3

applied to have the judgment set aside on the ground that he had merits on his

defence. D3 contended, inter alia, that the overdraft facilities never benefited D1 as

they were utilized for the benefit of a third party. Accordingly, under such

circumstances, the guarantee which he executed lacked consideration and as such

was void. D3 also contended that there was no proper notice of demand made on

him as he was only served with a carbon copy of the notice. It was further

contended that the guarantee was void under s 97 of the Contracts Act 1950 since

only two out of the four sureties identified by P had executed the guarantee.

Holding :

Held, dismissing the application: (1) from the documentary evidence, namely, P's

letter of offer, D1's resolution and the guarantee, it was very clear that D1 had

benefited from such credit facilities. There was, accordingly, no merit in D3's

contention that the guarantee lacked consideration; (2) in the instant case, cl 4 of

the guarantee contained a principal debtor clause. It is now settled law that the

presence of such a clause in a guarantee obviates the necessity for a creditor to

make a demand to a guarantor as the guarantee is no longer a collateral agreement

and that the issuance of the writ is a demand in itself. Accordingly, the fact that D3

had been served with only a carbon copy of the notice was immaterial to establish

his liability under the guarantee by virtue of the presence of cl 14 in the guarantee

itself; (3) in the instant case, the guarantee in question was not invalid under s 97

of the Contracts Act 1950 as there was no evidence to show that it was a condition

precedent to D3 executing the guarantee that the other two persons who did not

sign the guarantee should also stand as sureties; (4) in the instant case, D3 was

guilty of inordinate delay in filing the present application which was made almost

ten months since the date of the judgment. As D3 had not explained the delay, the

learned judge expressed doubts about the sincerity of the application.

Digest :

Perwira Habib Bank Malaysia Bhd v Floorwall Furnishing Sdn Bhd & Ors Kod

C23-2092-86 High Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2340] CONTRACT Guarantee – 'Principal debtor' clause – Whether presence of

such clause obviates necessity of creditor sending notice of demand to

guarantor – Whether service of writ and statement of claim itself ample notice

of demand having been made – [

Summary :

P had sued D8 as a guarantor pursuant to a guarantee agreement executed between

the parties. Judgment in default of appearance was obtained by P against D8. D8

applied to set aside the default judgment on the ground that no notice of demand

had been served on her.

Holding :

Held, dismissing the application: (1) in the instant case, the letter of demand was

only carbon copied to D8 and it is well settled that this is not a proper demand in

law; (2) however, the guarantee in question contained a principal debtor clause and

it is well settled law that the presence of such a clause in a guarantee obviates the

necessity of the creditor sending a notice of demand to the guarantor. Service of

the writ and statement of claim itself on the guarantor is ample notice of such a

demand having been made; (3) as D8 had no merits at all to defend the suit, the

court dismissed her application to set aside the default judgment.

Digest :

Arab Malaysia Finance Bhd v Kemajuan Mugiland Sdn Bhd & Ors Suit No C3236

of 1985 High Court, Kuala Lumpur (Siti Norma Yaakob J).

2341 Guarantee -- PP v Tan Koon Swan [1987] 1 MLJ 18 (refd)

3 [2341] CONTRACT Guarantee – PP v Tan Koon Swan [1987] 1 MLJ 18 (refd)

Summary :

The plaintiffs and Oversea-Chinese Banking Corp Ltd granted certain loan

facilities to one Freelin Investment Pte Ltd. The defendants were one of the

guarantors under the loan agreement. In the present case, the plaintiffs sought the

amounts due under the guarantee. Summary judgment was obtained by the

plaintiffs. The defendants appealed. The defendants raised various issues.

Holding :

Held: none of the defences raised on behalf of the defendants constituted a triable

issue.

Digest :

NM Rothschild & Sons (Singapore) Ltd & Ors v Rumah Nanas Rubber Estates

Sdn Bhd [1988] SLR 313 High Court, Singapore (Thean J).

Annotation :

[Annotation: Affirmed on appeal. See [1989] SLR 141; [1990] 1 MLJ 257.]

2342 Guarantee -- Additional guarantee

3 [2342] CONTRACT Guarantee – Additional guarantee – Block discounting

agreement – Time of execution of guarantee – Plaintiff did not inform

defendant of dealer's default – Whether guarantee given without

consideration

Summary :

The fourth defendant is sued on a guarantee whereby he agreed to indemnify the

plaintiff against all losses which the plaintiff may sustain by reason of the plaintiff

continuing to make available facilities under a block discounting agreement to

Industrade ('the dealer'). The dealer defaulted on its obligations to the plaintiff. The

plaintiff sought to recover its losses by enforcing the guarantee which the fourth

defendant had executed. The dealer had since been wound up by an order of court.

The plaintiff failed in its application to have final judgment against the fourth

defendant. The plaintiff appealed.

Holding :

Held, allowing the appeal and entering judgment for the plaintiff: (1) it is clear

from cl 2.5 of the guarantee executed by the fourth defendant, that it is an

additional guarantee and the consideration for it is the continuing availability of

facilities to be rendered by the plaintiff to the dealer under the block discounting

agreement; (2) the consideration for the guarantee is plainly and clearly spelt out in

cl 1 and there is, therefore, no basis for the fourth defendant to allege that there is

no consideration given for the guarantee; (3) in his capacity as director, the fourth

defendant is assumed to be aware of the affairs of the dealer and to that end, he

cannot now in an attempt to dispute his liability, question the omission of the

plaintiff to inform him of the default of the dealer at the time he executed the

guarantee.

Digest :

BBMB Kewangan Bhd v Meor Safari bin Meor Yusoff & Ors Suit No D2-22-

1392-91 High Court, Kuala Lumpur (Siti Norma Yaakob J).

2343 Guarantee -- Agreement to compromise

3 [2343] CONTRACT Guarantee – Agreement to compromise – Whether plaintiff's

rights reserved – Effect of guarantee – Whether guarantor discharged

Summary :

The plaintiffs, Balfour Williamson & Co Ltd ('the UK company'), a company

incorporated in the United Kingdom, is a confirming house. In the other action, the

plaintiffs are a Singapore company ('the Singapore company') within the group.

For a commission, they attended to the confirmation of purchases of their clients.

They delivered the documents of title to the principal in exchange for usance bills

of exchange duly accepted by the principal. The defendant and her brother were at

all material times directors and significant shareholders of two companies, namely,

Golden Lady (Malaysia) Sdn Bhd ('the principal') which is incorp-orated in

Malaysia, and Golden Pte Ltd, a company incorporated in Singapore. These

companies had local factories. They required credit facilities to finance purchases.

The plaintiffs' group of companies provided the finance which would have been

repaid with commission and the usual charges by the principal after they had

turned the goods into account. The facility letter was accepted by the principal on

whose behalf Lee Lip Chong, the defendant's brother, signed the acceptance of the

terms and conditions thereof. All the personal and corporate guarantees were

signed by the sureties concerned. Later, the plaintiffs agreed to increase the

confirming facility to M$560,000 (£100,000). No fresh guarantees were sought nor

obtained from the personal and corporate sureties. It is common ground that 24

bills of exchange drawn by the plaintiffs and accepted by the principal were

outstanding and they total the sums claimed in these proceedings. Most of the

principal's acceptances were signed by the defendant. The principal failed to pay

the bills on the due dates and the plaintiffs commenced these proceedings against

the defendant in Singapore. At the same time, the plaintiffs also commenced

proceedings in the High Court in Johore Bahru against the principal. The Johore

Bahru proceedings were compromised and settled. The defendant personally

attended the hearing and the negotiations which led to the compromise. In these

consolidated actions, the plaintiffs claimed against the defendant the sum, interest

and 'extension commission' defined as 'additional commission' in the confirming

facility letter entered into between the plaintiffs and the principal. In the second

action, the UK company, claimed against the defendant the sums and commission.

The claims are made against the defendant as a surety under a guarantee in writing

dated 5 April 1974 and signed by the defendant in favour of the plaintiffs. The

defendant had joined two of the co-sureties as third parties for contribution and

indemnity. The defences common to both actions briefly summarized were as

follows. Firstly, the defendant's guarantee did not cover the facilities granted by the

plaintiffs to the principal. The defendant argued that the continuing nature of the

guarantee would be spent and the guarantee would no longer operate once the

original agreement for the confirming facilities, subject to variations of the limits

and the other terms, had been terminated and a new agreement had come into

existence. Secondly, the defendant, in the alternative, asserts that there has been a

variation of a material term without her consent and that she was therefore

discharged from all liability under the guarantee. It was said that it was part of the

agreement that the plaintiffs would obtain a 'cross' guarantee from a related

company to guarantee or indemnify the defendant, and the plaintiffs, in having

failed to obtain it, had varied a material term of the principal agreement and had

accordingly discharged the defendant as the surety. Thirdly, it was claimed that the

plaintiffs had recently settled with the principal in an action in the High Court in

Johore Bahru, by reason of which the liability of the defendant has been discharged

or extinguished.

Holding :

Held, giving judgment to the plaintiffs: (1) the court agreed with the construction

of the guarantee as canvassed on behalf of the plaintiffs. The contention of the

defendant is materially flawed in two respects. Firstly, it does not give any or any

sufficient effect to the express provisions of the guarantee. The guarantee in this

case extends to any liability arising out of the series of transactions within its scope

and the series of transactions may be created by a contract or a series of contracts

for the confirming transactions. Liability, if any, attaches under the guarantee so

long as the transactions are of the type mentioned in the guarantee, and they are

between any one or more companies within the group of companies contractually

defined on the one hand and the principal obligor on the other, whether or not the

transactions had arisen out of a single contract. Secondly, to accede to the

construction put upon the guarantee by the defendant would be tantamount to

ignoring the essential feature of the guarantee, which is to guarantee a series of

future transactions as described. The changes in the 1977 facility letter were those

commercially to be expected and they did not in any material respect alter the

nature of the transactions so as to take them out of the ambit of guarantee; (2) the

second construction point was the defendant's submission that the words 'cross

guarantee of Golden Pte Ltd' meant that the plaintiffs had agreed to obtain the

corporate guarantee to guarantee, back-to-back so to speak, the personal guarantors.

It was contemplated that there would be cross-corporate guarantees. In the court's

view, that was all that the expression was meant to convey; (3) if a creditor,

without having received full payment, agrees to discharge the debtor from any

further liability, the guarantor will be absolutely discharged; (4) it is settled law,

however, that although an unconditional release of the debtor discharges the

guarantor, the creditor's rights against the guarantor may in certain circumstances

be preserved despite the release. One such circumstance is where, in the agreement

between the creditor and the debtor, it is expressly agreed that the creditor's rights

against the guarantor is preserved; (5) there was in this case sufficient consensual

assent on the part of both the prin-cipal and the defendant, as the guarantor, that the

liability of the defendant, if any, would be preserved and that it was left to the

court to determine liability; (6) the court accepted the evidence that in all

probability, the plaintiffs would not have settled with the principal if they were

required to give up their recourse against the defendant; (7) further, the plaintiffs

also relied on the provision in cl 2 of the guarantee which provided that the

guarantee would continue to bind the defendant notwithstanding 'any ... other

indulgence of whatsoever nature which may be' granted by the plaintiffs. The

plaintiffs' contention that this provision is another circumstance under which the

defendant was not relieved of her liability under the guarantee, notwithstanding the

compromise agreement, was accepted; (8) judgment was thus given against the

defendant in the sums claimed by the two plaintiffs less the sum of M$200,000

received by the plaintiffs apportioned in the ratio which their respective claims

bore one with the other. The defendant was also ordered to pay the costs of the

proceedings to the plaintiffs.

Digest :

Balfour Williamson (Singapore) Pte Ltd v Joyce Lee Yon Yin; Chee Ming & Anor

(Third Parties) [1989] SLR 569 High Court, Singapore (Lai Kew Chai J).

2344 Guarantee -- Assignment

3 [2344] CONTRACT Guarantee – Assignment – Defendant agreed to guarantee

and indemnify owner – Hirer defaulted on hire purchase agreements – Owner

assigned all interests, rights and title to plaintiff – Whether assignment valid

Summary :

Under two guarantee and indemnity agreements dated 15 March 1984,the

defendant had agreed to guarantee and indemnify TKSB the payment by TVCB of

all sums due and payable under two hire purchase agreements entered into between

TKSB and TVCB on the same date. The hirer, TVCB, had defaulted on the hire

purchase agreements on 1 August 1985 and on 28 March 1985 respectively, and on

15 November 1985 had surrendered the vehicles involved to TKSB. On 10 May

1986, TKSB had assigned to the plaintiff by way of absolute assignment in writing

all its interests, rights and title under the said guarantee and indemnity agreements.

Notice of this assignment was given to the defendant only on 8 March 1991. By

summons-in-chambers filed on 19 December 1991, the plaintiff had asked for final

judgment against the defendant for M$273,115.27, interest at a rate of 18% pa,

solicitor-client's costs and alternatively for the defence to be struck out. The senior

assistant registrar granted the prayers on 27 May 1992. The defendant appealed.

Holding :

Held, allowing the appeal with cost: (1) the hire purchase agreements entered into

by TKSB and TVCB had come to an end on 15 November 1985 when TVCB

delivered the vehicles to TKSB as cl 8 of the said agreements reads 'The Hirer may

at any time before the final payment hereunder falls due determine this agreement

by delivering up the goods to the Owner at the Owner's address stated herein.'; (2)

consequently, the assignment of the guarantee and indemnity agreements to the

plaintiff on 10 May 1986 cannot be valid in the circumstances as it is after the date

of the termination of the hire purchase agreements; (3) s 4(3) of the Civil Law Act

1956 cannot apply here since the date of the notice to the defendant on 8 March

1991 is some five and a half years after the purported termination of the relevant

hire purchase agreements on 15 November 1985, which also amounts to inordinate

delay and raises a triable issue on the facts of this case for which summary

judgment should not have been given by the learned senior assistant registrar.

Digest :

UMW Industries (1985) Sdn Bhd (previously known as UMW (Malaya) Sdn Bhd)

v Chang Too Sang Civil Suit No D5-22-1220-1991 High Court, Kuala Lumpur

(Abdul Malek J).

2345 Guarantee -- Assignment

3 [2345] CONTRACT Guarantee – Assignment – Notice of assignment to be given

within reasonable time – Civil Law Act 1956, s 4(3)

Summary :

The second defendant was sued on a guarantee dated 15 March 1982, wherein he

guaranteed payment of rentals due from the first defendant on a hire-purchase

agreement of the same date with a third party, who eventually assigned the

agreement to the plaintiff. The present proceedings were commenced by the

second defendant for the judgment in default entered against him to be set aside.

The second defendant argued that the letter of demand was not valid as it was

unsigned, sent by the plaintiff's solicitors, not the plaintiff, and that the words 'We

demand from you' were not apparent in the letter. He further argued that the deed

of assignment dated 18 January 1983 was also invalid as it was executed after the

hire-purchase agreement was terminated on 11 November 1982.

Holding :

Held, allowing the application: (1) the original letter of demand should have been

exhibited before the court to establish that the letter of demand sent to the second

defendant was improper. As that had not been done, the court held that the reliance

on an unsigned office copy failed to provide the second defendant with a defence;

(2) as the plaintiff's solicitors were acting as agents of the plaintiff, there was

nothing wrong with the solicitors sending the letter of demand on behalf of their

clients; (3) the absence of the words 'We demand from you' did not make the letter

of demand less effective as the letter was to be read and understood in its entirety;

(4) notice of the assignment was made known to the second defendant about two

years after the deed was entered into and three years after the agreement was

terminated. Although s 4(3) of the Civil Law Act 1956 does not provide a time for

which such notice should be given, it should be done within a reasonable time. The

inordinate delay on the part of the plaintiff provided the second defendant with a

defence.

Digest :

UMW Industries (1985) Sdn Bhd (formerly known as UMW (Malaysia) Sdn Bhd v

Sin Yew Lee Mining Sdn Bhd & Anor Civil Suit No C5790 of 1985 High Court,

Kuala Lumpur (Siti Norma Yaakob J).

2346 Guarantee -- Banker's guarantee

3 [2346] CONTRACT Guarantee – Banker's guarantee – Consideration – Contracts

Act 1950 (Act 136), ss 79, 80 – Interpretation of contracts – Limitation –

Building contract - Guarantee - Security deposit by bank - Consideration -

Whether there have been variations in building contract - Whether claim on

guarantee time-barred - Whether claim maintainable when liability of

principal not ascertained - Contracts Act 1950, ss 79, 80 & 86.

Summary :

In this case, a construction company was successful in a tender for pile foundation

and sub-structure for a building project. Under the contract, the construction

company agreed to carry out the works and agreed, as a condition precedent to the

commencement of any work, to deposit with the plaintiffs a cash amount or an

approved banker's guarantee equal to 5% of the contract sum. The construction

company obtained a banker's guarantee from the defendant bank and the work

commenced. The construction company subsequently got into financial difficulties

and had to abandon the work. The plaintiffs claimed the amount guaranteed in the

banker's guarantee from the defendant bank. Liability was denied on four main

grounds: (1) there had been variations in the building contract; (2) no consideration

for the guarantee had been given; (3) the claim was time-barred and (4) the liability

of the defendant was co-extensive with that of the construction company and since

the extent of the liability had not been ascertained, the claim was not maintainable.

Holding :

Held: (1) there had been no variation in the building contract as the plaintiffs had

an option to accept cash or the bank guarantee and the date of taking possession of

the work site was conditional on the fulfilment of the condition of giving the cash

or the bank guarantee; (2) in this case, there was consideration for the contract of

guarantee as the creditor-bank had done something for the benefit of the principal

debtor, as it enabled the principal debtor to commence work under the building

contract; (3) the plaintiffs had made a claim within the period of the guarantee and

their claim was not barred by limitation; (4) the defendant bank was not a party to

the main contract but only to the contract of guarantee. Its liability was co-

extensive with that of the construction company, ie to 5% of the contract sum,

though not to the whole of the contract sum.

Digest :

Perbadanan Kemajuan Negeri Selangor v Public Bank Bhd [1980] 1 MLJ 172

High Court, Kuala Lumpur (Mohamed Azmi J).


3 [2347] CONTRACT Guarantee – Banker's guarantee – Remisier agreement –

Guarantee of due performance of agreement – Restraint against calling on

bank guarantee – Serious question to be tried

Summary :

The plaintiff was a licenced dealer's representative under the Securities Industries

Act 1983 and the defendant was a stockbroking firm. The plaintiff entered into a

remisier agreement with the defendant which provides, inter alia, that the plaintiff,

upon the execution of the agreement, shall place with the defendant a sum of

$50,000 which shall be used to guarantee the due performance by the remisier of

the obligations and covenants under the agreement. This the plaintiff did by way of

a banker's guarantee, instead of cash, as permitted by the defendant. Subsequently,

the defendant wrote to the plaintiff informing him that there was a deficit in the

plaintiff's account and the plaintiff was asked to settle the amount, otherwise the

defendant would call upon the banker's guarantee. The plaintiff then applied for an

order that the defendant be restrained from calling, demanding or encashing the

banker's guarantee. The plaintiff alleged that the defendant, contrary to the KLSE

terms of trading and settlement, sold some shares he had purchased on the

instruction of his clients without his or his client's knowledge or consent; thus the

defendant repudiated the agreement, and therefore was not entitled to call on the

banker's guarantee. The defendant, on the other hand, alleged that the plaintiff had

wrongfully placed the purchase order for the shares and therefore the plaintiff

could not claim liability under the agreement.

Holding :

Held, granting the application: (1) the principle in [biEdward Owen's case [1978] 1

All ER 976 is not wrong. In that case, Lord Denning explained how he came to the

conclusion that performance guarantee stood on a similar footing as a letter of

credit. This still holds true in case of on demand guarantees; (2) in Kirames[1991]

2 MLJ 198, the words of the guarantee are very clear and unambiguous that it is

intended to be unconditional and payable on demand in writing. In no way can the

guarantee be read to incorporate the underlying contract as the obligation to pay is

only dependent on receiving a written demand and not on any terms of the

underlying contract; (3) in the present case there is no evidence that a demand has

been made on the guarantee but in its letter, the defendant had indicated that it

would draw down the banker's guarantee; (4) the banker's guarantee is not an

unconditional guarantee. In the circumstances the court should look at the

underlying contract; (5) there are serious questions to be tried regarding the

conduct of the defendant under the terms of the agreement. Until these questions

are decided at the trial, the defendants should be restrained from calling on the

banker's guarantee. The balance of convenience is in favour of the plaintiff.

Digest :

Nik Sharifuddin bin Nik Kadir v Mohaiyani Securities Sdn Bhd [1994] 3 MLJ 551

High Court, Kuala Lumpur (Zakaria Yatim J).


3 [2348] CONTRACT Guarantee – Banker's guarantee – Whether bank should pay

under banker's guarantee – Whether there was fraud

Summary :

The second defendant had appointed Abadi Transportation Sdn Bhd ('Abadi') to be

its general sales agent. The plaintiff provided the second defendant with two bank

guarantees issued by the first defendant bank ('the guarantees'). The guarantees

provided for the first defendant to pay the second defendant any sum owed by the

plaintiff to the second defendant under the general sales agency agreement ('the

agreement') upon a written demand accompanied by a certificate by the second

defendant certifying the sum due to the second defendant under the agreement. The

second defendant, by a letter of demand and a certificate, requested the first

defendant to pay under the guarantees. The plaintiff issued a writ claiming that the

guarantees were invalid. The plaintiff applied for an interim injunction to restrain

the first defendant from paying the second defendant under the guarantees. The

second defendant argued that the plaintiff had assumed all the rights and liabilities

of Abadi under the agreement. The second defendant further contended that the

first defendant should honour the guarantees in the absence of fraud, and any

dispute between the plaintiff and the second defendant was irrelevant. The plaintiff

alleged that the amount certified by the second defendant was in fact an amount

which was not covered by the guarantees.

Holding :

Held, allowing the application: (1) fraud in this context should be given a wide

rather than a narrow meaning. In the context, attempting to pull a fast one, could

come under fraud; (2) on the facts in this case there were a number of serious

issues to be tried; (3) there was sufficient material before the court to show that the

second defendant could be in financial difficulties. The second defendant was also

a foreign company. There was therefore some basis for the plaintiff's fears that if

the first defendant was allowed to pay the second defendant, in the event the

plaintiff's action succeeded there could be difficulties in recovering the amount

paid. The balance of convenience was accordingly for the granting of the

injunction until the disposal of the plaintiff's suit.

Digest :

Pelancongan Abadi Sdn Bhd v Ban Hin Lee Bank Ltd & Anor Civil Suit No D3-

22-493-91 High Court, Kuala Lumpur (VC George J).

2349 Guarantee -- Breach of contract

3 [2349] CONTRACT Guarantee – Breach of contract – Sale of pepper – Liability

of guarantor – Del credere agent

Summary :

In this case, the court held that the evidence established the liability of the second

defendant as guarantor under the contract.

Digest :

Chop Fah Loong v Chong Sze Kiat & Ors [1954] SCR 47 Supreme Court, Sarawak,

North Borneo and Brunei

2350 Guarantee -- Co-sureties

3 [2350] CONTRACT Guarantee – Co-sureties – Contribution from co-surety –

Summary judgment for contribution before liability to pay arose

Summary :

D were sued as guarantors of the debts of their company. They resisted the claim.

D joined T as third parties to the suit, claiming contribution from them as co-

sureties. D obtained summary judgment against T before judgment was granted

against them in the main action. T appealed.

Holding :

Held, allowing the appeal: (1) a surety can claim contribution from his co-sureties

only after he has paid a larger sum than his proportion of the debt to the creditor.

However, a surety may be entitled to quia timet declaratory relief before he makes

payment; (2) (c) where a surety admits a claim, he may obtain a declaration of his

right to contribution, the contribution to be made after he has paid the claim; (3)

relief may be granted in the following circumstances: (a) when a surety has paid

the creditor's claim, he is entitled to contribution from his co-sureties; (b) when the

creditor has obtained judgment against the surety, he may get a declaration of his

right to contribution, the contribution to be made after he has paid the creditor;in

the present case, the question of whether D's application for relief against T was

made before the right to do so had accrued should go to trial.

Digest :

Ban Hin Lee Bank Bhd v Gan Boon Wah & Ors Suit No 1254 of 1990 High Court,

Singapore (Kan Ting Chiu JC).

2351 Guarantee -- Co-sureties

3 [2351] CONTRACT Guarantee – Co-sureties – Failure of all sureties to sign

guarantee – Separate guarantee executed – Whether all sureties jointly and

severally liable

Summary :

P granted Wespack ('the company') overdraft facilities of S$130,000 on condition

that all the company's directors (D1-D7) executed personal guarantees for the

facilities extended. Only D1-D6 executed the guarantee, D7 was away from

Singapore. Later, before the company was allowed to draw on the facilities, D7

executed a separate guarantee. This second guarantee was identical to the first,

save that it was executed by the D7 only. The company sub-sequently went into

liquidation, and the P sued D1-D7 for payment on the ground that they were jointly

and severally liable under the two guarantees.

Holding :

Held, dismissing the claim: (1) P were not entitled to enforce the two guarantees

against D1-D7 because the first guarantee was not signed by D7 and the second

guarantee could not in law be regarded as an addendum to the first guarantee; (2) it

was a condition precedent that the first guarantee be executed by all the persons

named as sureties, and it was P's duty to see that it was executed by the proper

parties; (3) where a promise is intended to be made by several persons jointly, if

any one of those fail to enter the agreement, or to execute the instrument of the

agreement, there was no contract, and no liability was incurred by such of them as

had entered into the agreement; (4) if one of the intended co-sureties did not sign

the first guarantee, P must show that the co-sureties who signed it consented to

dispense with the execution of the guarantee by the co-surety who had not signed.

In the instant case the court found that D4 and D6 did not know that D7 had not

signed the first guarantee and did not consent to the same; (5) there was no

intention shown that the parties agreed to merge the two guarantees, and there was

no mention of a second guarantee in the first guarantee.

Digest :

Indian Bank v G Ramachandran & Ors [1991] SLR 684 High Court, Singapore

(Goh Phai Cheng JC).

2352 Guarantee -- Confirming house

3 [2352] CONTRACT Guarantee – Confirming house – Transaction not

moneylending transaction – Practice and procedure - Transactions entered

into by confirming house - Guarantee - Whether transaction entered into with

confirming house a moneylending transaction - Moneylenders Ordinance

1951, s 2 - Commercial law - Confirming house - Functions and obligations -

Transaction not moneylending - Moneylenders Ordinance 1951, s 2.

Summary :

In this case, certain transactions took place between the respondents, a London

confirming house and a Singapore company relating to the financing of purchases

of goods by the Singapore company. The appellants gave a guarantee to the

respondents with respect to those transactions. The respondents obtained judgment

in the Singapore High Court against the Singapore company and as the judgment

remained unsatisfied, they sued the appellants on the guarantee. The appellants in

their defence contended that they were not liable on the guarantee because the

transactions between the respondents and the Singapore company were in essence

moneylending transactions. The respondents applied for final judgment under O 14

and their application was granted by the assistant registrar. An appeal to the High

Court was dismissed and the appellants appealed to the Federal Court.

Holding :

Held: (1) confirming houses are a recognized institution in the promotion and

participation of export trade and their business being distinct, the transactions

entered into by them with the parties in the export trade could not be held to be

moneylending transactions; (2) the learned judge was correct in holding that the

appellants' statement of defence did not disclose any serious defence requiring trial.

There being no triable issue, the order under O 14 was correctly made.

Digest :

Ngui Mui Khin & Anor v Gillespie Bros & Co Ltd [1980] 2 MLJ 9 Federal Court,

Johore Bahru (Raja Azlan Shah CJ (Malaya).

2353 Guarantee -- Consideration

3 [2353] CONTRACT Guarantee – Consideration – Continuing guarantee –

Banking - Guarantee for overdraft facilities executed after grant of overdraft

- Whether consideration was past - Whether guarantee was a continuing

guarantee or invalid guarantee - Contract - Guarantee - Guarantee for

overdraft facilities executed after grant of overdraft - Whether consideration

was past - Whether guarantee was a continuing guarantee or invalid

guarantee.

Summary :

The first defendant company had been operating an account with the plaintiff bank

for overdraft facilities since 1980. A guarantee was executed by the second, third

and fourth defendants (who were directors of the first defendant company) jointly

and severally on 31 July 1981. Subsequently, the plaintiff bank filed a claim

against the defendants for a sum of moneys due and owing by the first defendant

under the account. The senior assistant registrar granted the plaintiff's application

under O 14 of the Rules of the High Court 1980. The defendants appealed against

the decision of the senior assistant registrar, arguing that there was delay on the

part of the plaintiff in filing its application to enter final judgment and that the

consideration for the guarantee was past consideration and therefore the guarantee

was not binding on the defendants.

Holding :

Held, dismissing the appeal: (1) the delay was apparently caused by the defendants

themselves in that they requested for time with the view of settling the account and

serving the interest accruing. The plaintiff gave them time but the defendants

unfortunately failed to honour their own proposal; (2) by the terms of the letter of

guarantee, the guarantee must be treated as a continuing guarantee because it

guaranteed not only the overdraft existing at the time but also those in the future.

Digest :

Development & Commercial Bank Bhd v Syarikat Farmco Sdn Bhd & Ors [1988]

3 MLJ 275 High Court, Kuantan (Lamin J).


3 [2354] CONTRACT Guarantee – Consideration – Continuing guarantee –

Contract - Guarantee - Guarantee executed after advance of credit facilities -

Whether consideration was past - Whether guarantee was a continuing

guarantee - Banking - Guarantee - Guarantee executed after advance of credit

facilities - Whether consideration was past - Whether guarantee was a

continuing guarantee.

Summary :

The third defendant, who was sued as a guarantor pursuant to two guarantees,

applied to set aside a judgment in default entered against him. He contended that as

the guarantees were executed after the credit facilities were advanced to the first

defendant, they contained past consideration and as such were not enforceable

against him. It was also submitted that the judgment in default was entered for

sums in excess of that claimed in the statement of claim.

Holding :

Held, dismissing the application: (1) a continuing guarantee, such as the one in this

case, includes guaranteeing not only facilities existing at the time of execution of

the guarantee but also facilities to be made in the future. As such, there is good

consideration given to both the continuing guarantees; (2) clause 8 of both

guarantees is a conclusive evidence clause, the effect of which is that any

statement issued by the plaintiff as to the amount due from the first defendant is

conclusive evidence of the third defendant's indebtedness as a guarantor. Such a

statement was issued by the plaintiff wherein the principal sum stated is less than

the total limits of the two guarantees; (3) the third defendant's tardiness in pursuing

his rights has greatly prejudiced the plaintiff as it had incurred expenses in

executing the judgment. The application to set aside is therefore dismissed.

Digest :

Perwira Habib Bank Malaysia Bhd v Fast Travel (M) Sdn Bhd & Ors [1988] 3

MLJ 210 High Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2355] CONTRACT Guarantee – Consideration – Continuing guarantee – Letter

of guarantee executed after loan fully disbursed to borrower – Whether past

consideration given by lender to guarantor

Summary :

This was an appeal from the decision of the deputy registrar granting the plaintiff

leave to sign final judgment against the first defendant. The plaintiff had granted a

term advance to one Haco Sdn Bhd, the repayment of which was to be guaranteed

jointly and severally by, inter alia, the first defendant. The defendants signed a

separate agreement with the plaintiff whereby they agreed to be joint and several

guarantors of the said loan. Haco failed to settle the term loan and the plaintiff

obtained judgment against it. The plaintiff then sought to recover the sum owed by

Haco from the defendants by sending a letter of demand to the first defendant.

Counsel for the first defendant submitted that as the agreement of guarantee was

executed after the term advance had been fully disbursed to Haco by the plaintiff, it

was thus given for a past consideration. The court had to decide: (1) whether the

purported consideration given by the plaintiff came within the act or forbearance

described as consideration in s 2 of the Contracts Act 1950 ('the Act'); and (2)

whether that consideration fell outside illustration (c) of s 80 of the Act.

Holding :

Held, dismissing the first defendant's appeal: (1) in cases of continuing guarantees,

consideration subsisted between the lender and the guarantor in respect of the loan

taken by the principal debtor, as the act or forbearance on the part of the lender

continued after the loan was disbursed; (2) in the present case, it was clear that

although the term advance had been fully disbursed to Haco before the execution

of the letter of guarantee, the relationship between the plaintiff and Haco subsisted

for so long as the advance remained outstanding. At the time the guarantee was

executed, it was still outstanding and thus still forebearing on the plaintiff; (3) the

act or forbearance therefore came squarely within the meaning of s 2(d) and fell

outside illustration (c) of s 80 of the Act. It also satisfied the proviso to s 26(b) of

the Act as, in the broader sense, it could be said that the guarantee was to

compensate the plaintiff 'who had already voluntarily done something' (by

providing the loan to Haco) for the first defendant.

Digest :

Malaysia Smelting Corp Bhd v Foong Weng Yee & Ors Civil Suit No 22-75-91

High Court, Ipoh (Kang Hwee Gee JC).


3 [2356] CONTRACT Guarantee – Consideration – Forbearance to sue

Summary :

The appellants in this case, save the sixth appellants, were directors of a company.

In May 1975, the company through the second appellant as the managing director

applied to the respondent, a bank, for overdraft facilities. These were granted to the

company. The company executed a debenture in the sum of $430,000. The first,

second and sixth appellants executed a guarantee in the sum of $430,000.

Subsequently, two years after the execution of the first guarantee, the company

executed a further debenture in the sum of $1 million. All the appellants executed a

guarantee for the same amount. The respondent claimed on the second guarantee.

The question in issue was whether there was a valid consideration for the guarantee.

The learned trial judge held that there was valid consideration for the guarantee

given by the appellants, as he held that there was a request for forbearance to sue

and there was forbearance in fact. The appellants appealed.

Holding :

Held, (Seah SCJ dissenting): the learned trial judge was entitled to hold that

forbearance could be inferred from the surrounding circumstances in this case and

that there was therefore consideration for the guarantee. On the evidence he was

not wrong to come to the conclusion which he did.

Digest :

Osman bin Abdul Ghani & Ors v United Asian Bank Bhd [1987] 1 MLJ 27

Supreme Court, Kuala Lumpur (Lee Hun Hoe CJ (Borneo).


3 [2357] CONTRACT Guarantee – Consideration – Guarantee for supply of

equipment – Guarantee enforced in respect of management fees

Summary :

On 21 April 1986, in consideration of the plaintiffs supplying wire rods and giving

credit to Universal Wire Mesh Pte Ltd ('Universal'), the defendants issued to the

plaintiffs a guarantee in which the defendants agreed to pay the plaintiffs on

demand in writing all sums in excess of the first S$100,000 which would become

due to the plaintiffs from Universal. Universal subsequently went into liquidation

and was unable to discharge its liability to the plaintiffs. An action was brought for

the recovery of the amounts due. The plaintiffs averred that the amount due as at

31 December 1986 was S$207,630.27 and pursuant to the terms of the guarantee,

claimed S$100,000. The defendants pleaded that there was no consideration given

by the plaintiffs for the guarantee. They also averred that of the sum of

S$207,630.27 alleged to be due, a sum of S$184,000 represented management fees

and that they were not liable for such management fees.

Holding :

Held, giving judgment to the plaintiffs: (1) none of the defences raised had any

merit; (2) the plaintiffs had adduced evidence which showed that after the issue of

the guarantee, the plaintiffs supplied and continued to supply iron rods to Universal

on credit. There was nothing to suggest that these supplies were not made by the

plaintiffs in reliance on the guarantee. It was clearly not arguable that no

consideration for the guarantee was past consideration; (3) the terms of the

guarantee were extremely wide and covered all sums in excess of the first

S$100,000 which were then or would thereafter become due to the plaintiffs from

Universal. There was nothing in the guarantee to suggest, or from which it could

be implied, that the guarantee would cover only the liability of Universal for the

goods supplied by the plaintiffs.

Digest :

Intraco Ltd v Wan Soon Construction Pte Ltd Suit No 738 of 1987 High Court,

Singapore (LP Thean J).


3 [2358] CONTRACT Guarantee – Consideration – Guarantee in consideration of

plaintiff continuing to give advances, credit or other accommodation –

Whether guarantee supported by consideration

Digest :

Bank of India v Dr Pravinchand P Shah Suit No 2324 of 1987 High Court,

Singapore (Kan Ting Chiu J).



3 [2359] CONTRACT Guarantee – Consideration – Letter guaranteeing repayment

of third party's debt in instalments – Forbearance to sue – Whether

forbearance to sue sufficient consideration for guarantor's undertaking to pay

debt

See contract, para IX [64].

Digest :

Imperial Steel Drum Manufacturers Sdn Bhd v Wong Kin Heng [1997] 2 SLR 695

High Court, Singapore (S Rajendran J).


3 [2360] CONTRACT Guarantee – Consideration – Past consideration – Continuing

guarantee – Whether guarantee unenforceable and invalid for want of

consideration

Summary :

D4 appealed against the decision of the senior assistant registrar in allowing P to

enter final judgment against him. D4 had guaranteed payment of all sums of

money due and owing by D1 to P under two loan facilities granted by P to D1. P's

claim was for the outstanding sum due and owing by D to P. Counsel for D4

submitted, inter alia, that the guarantee was given for a past consideration and as

such was void and unenforceable.

Holding :

Held, allowing the appeal: (1) in the instant case, the question of past consideration

did not arise. Since the guarantee was a continuing guarantee, the consideration

was a good consideration; (2) it was however not clear in the instant case whether

D4 was charged interest by P at the agreed rates as specified in the letter and offer.

There was no evidence to show whether the interest charged was that as specified

in the letter of offer or at a lesser or higher rate. The learned judge was of the view

that the instant case was not a plain and obvious case for an ord 14 judgment. In

the circumstances, D4's appeal was allowed.

Digest :

Public Bank Bhd v Tradikon Sdn Bhd Civil Suit No D4-23-2468-87 High Court,



3 [2361] CONTRACT Guarantee – Consideration – Past consideration – Whether

consideration for guarantee was past consideration because loans were

disbursed before execution of guarantee – Contracts Act 1950, s 80

Summary :

P granted loans to D1. D2-D4 guaranteed D1's repayment of the loans on demand

by P. The loans were disbursed in full to D1 before D2-D4 executed the letter of

guarantee. P demanded repayment of the loans from D2-D4. Upon the failure of

D2-D4 to repay the loans, P sued and applied for summary judgment against them.

The senior assistant registrar refused to allow P's application for summary

judgment against D2-D4. P appealed to the High Court. D2-D4 argued that the

consideration for the guarantee was past consideration because the loans had been

disbursed in full to D1 before the execution of the guarantee. Held, dismissing the

appeal: from the words of the letter of guarantee, no loan had been disbursed yet.

In this case, however, the consideration was past consideration because the loans

had been disbursed before the execution of the letter of guarantee. This case was

therefore not a proper one for summary judgment.

Digest :

Perwira Habib Bank Malaysia Bhd v Utara Realty Sdn Bhd & Ors Civil Suit No

C3-23-3100-86 High Court, Kuala Lumpur (Zakaria Yatim J).


3 [2362] CONTRACT Guarantee – Consideration – Past consideration – Whether

guarantee void – Construction of guarantee – Whether guarantors liable for

debts incurred before signing of guarantee

Summary :

D appealed against the decision of the senior assistant registrar giving them

conditional leave to defend. P had sued D on a guarantee which D contended was

void for past consideration. D had guaranteed the payment on demand of all

moneys and obligations of E Sdn Bhd due and owing to P up to a specified limit.

Holding :

Held, dismissing the appeal: (1) having regard to the terms of the guarantee, it was

the intention of the parties that D gave the guarantee not only for liabilities

incurred after but also before the signing of the guarantee; (2) in the instant case,

the senior assistant registrar was right in granting D conditional leave to defend as

there was doubt as to the bona fide of the defence.

Digest :

GBH Ceramics Sdn Bhd v How It @ Low Aik & Anor Civil Suit No D1-23-1249-

88 High Court, Kuala Lumpur (Anuar J).


3 [2363] CONTRACT Guarantee – Consideration – Whether past consideration

may constitute good consideration – Benefit given before execution of

guarantee must have been given 'at the desire' of the guarantor – Contracts

Act 1950, s 2(d)

Summary :

The plaintiffs sued the second defendant ('the defendant') for RM310,875.26 under

a guarantee dated 3 October 1986 ('the guarantee'), being money lent to the first

defendant. Judgment had been entered against the first defendant upon an O 14

application. The trial herein therefore only concerned the plaintiffs' claim against

the defendant. This issues which arose in this case were: (1) whether there was

consideration for the guarantee, viz whether the consideration for the guarantee

was past consideration; (2) whether undue influence had been exerted to procure

the guarantee; (3) whether the plaintiffs' failure to appoint a receiver for the first

defendant discharged the defendant from his liability under the guarantee; and (4)

whether the defendant had agreed to the terms stated in the guarantee ('exh P4').

Holding :

Held, allowing the plaintiffs' claim: (1) the case of Perwira Habib Bank (M) v

Saiyo [1991] 2 CLJ 1849 appears to dispense with the requirement that the

'something done' (the loan) must be 'at the desire' of the guarantor as laid down in s

2(d) of the Contracts Act 1950 ('the Act'). Such a result cannot be what the law had

intended; (2) in the case of a guarantee in respect of a loan that has already been

disbursed at the time of the execution of the guarantee, and where no further

money was advanced or intended to be advanced after the execution of the

guarantee, such guarantee can only be enforced against the guarantor if the loan

was given at the 'desire' of the guarantor. This is a requirement under s 2(d) of the

Act; (3) on the authorities and ss 2(d) and 80 of the Act, past consideration can still

be good consideration even if the benefit was not given at the time of the execution

of the guarantee in a one-off transaction provided the benefit that was given before

the execution of the guarantee was given 'at the desire' of the guarantor; (4) since

the defendant and his wife are the only directors of the first defendant and thereby

stood to benefit from the loan, albeit indirectly, and since the defendant, from the

letters produced in court, appeared to be in total charge of the first defendant, the

loan, it could be inferred, must have been 'at the desire' of the second defendant; (5)

the defendant did not appear to be a person who could be pushed into doing

something against his will. Further, on the evidence, he was virtually asking the

manager of the plaintiffs to see him at a coffee house and not the other way round.

He also had two months to ponder whether to sign the guarantee. On the facts, it

could not be true that the defendant was totally unprepared for the coffee house

meeting and it is equally untrue that he was there faced with the guarantee for the

first time and without sufficient time to consider the same; (6) the burden rests on

the defendant to prove undue influence, as the deeming provision of s 16(2) of the

Act does not apply here; (7) given the court's finding as to the defendant's character

and as regards the events in the coffee house, there could not have been undue

influence so as to dominate the will of the defendant; (8) 'a surety is also not

discharged if by a clause in the guarantee, he had agreed to the creditor dealing

with the security in the manner complained of' (Low Kee Yang, The Law of

Guarantees in Singapore and Malaysia at p 162). The court agreed with the

plaintiffs' counsel's argument that the defendant cannot complain about the very

thing which he had agreed by the provisions of the guarantee. There was therefore

no merit to this defence regarding the plaintiffs' failure to appoint a receiver; (9)

counsel for the defendant submitted that the plaintiffs had to prove that the

defendant had agreed to all the terms in exh P4 because the defendant had executed

exh P4 in blank, ie the 'RM288,000' limit of liability and the interest rate were not

stated at the time the defendant executed exh P4. The guarantee, in the absence of

fraud and misrepresentation, is still valid even though signed in blank. There is no

doubt as to the quantum under the guarantee and it is spelt out in cl 1 of the

guarantee, ie all sums of money due on any account of the first defendant.

Digest :

Hongkong and Shanghai Banking Corp v Syarikat United Leong Enterprise Sdn

Bhd & Anor [1993] 2 MLJ 449 High Court, Tawau (Ian Chin JC).

2364 Guarantee -- Construction

3 [2364] CONTRACT Guarantee – Construction – Banking - Guarantor sued for

principal debtor's debt on overdraft facilities - Interest rate on overdraft

increased without guarantor's consent or knowledge - Whether permissible by

terms of overdraft - 'Until further notice' - Meaning of.

Summary :

The second defendant, who was being sued as a guarantor, appealed against an O

14 judgment obtained by the plaintiff. The second defendant contended, inter alia,

that the increase in the rate of interest from 15% to 16% pa was made without his

consent and knowledge.

Holding :

Held, dismissing the appeal: (1) the term on the rate of interest payable states '15%

pa until further notice'. The words 'until further notice' can only mean that the rate

is subject to increase or decrease at the discretion of the plaintiff. There is no

provision as to prior notice or that the consent of the second defendant needs to be

sought before the plaintiff can exercise its right to revise the rate of interest; (2) cll

1 and 15 of the guarantee give the plaintiff the power to treat the second defendant

as a principal debtor and since the second defendant has not, until the appeal,

raised any objection to the amount claimed, he had not raised any triable issue as to

warrant upsetting the senior assistant registrar's order.

Digest :

Development & Commercial Bank Bhd v Tengku Noone Aziz bin Tengku

Mahmood & Anor [1988] 3 MLJ 228 High Court, Kuala Lumpur (Siti Norma

Yaakob J).


3 [2365] CONTRACT Guarantee – Construction – Civil procedure - Judgment in

default of appearance - Setting aside - Principles applicable - Laches - Bona

fides - Interest on judgment debts - Independent covenant to pay interest -

Doctrine of merger - Value of land - Reliance on common and public

knowledge by court - Rules of the High Court 1980, O 42 r 12 - Contract -

Guarantee - Surety liable as principal debtor as well - Notice of demand -

Service - Indulgence given to principal debtor - Security in the form of land

available - Whether action against surety premature - Misrepresentation -

Whether guarantee void.

Summary :

The first defendant along with the other defendants had signed a joint and several

guarantee in favour of the plaintiff in consideration of the plaintiff granting a loan

to an incorporated company ('the borrower'). The loan was secured by a charge

over the borrower's land. Eventually, the plaintiff commenced legal proceedings

against the defendants in their capacity as sureties for the recovery of the debt.

Although served with the writ of summons and statement of claim, the first

defendant did not enter an appearance and so, on 18 March 1986, the plaintiff

obtained judgment in default of appearance against him. On 7 November 1986, the

first defendant was personally served with a bankruptcy notice and a copy of the

default judgment. On 23 January 1987, his solicitors wrote stating that they had

instructions to accept service of the creditor's petition. On 13 August 1987, when

the bankruptcy petition came on for hearing counsel for the first defendant

informed the court that an application to set aside the default judgment would be

filed but it was only on 9 February 1988 that the first defendant applied to have the

judgment set aside on the grounds: (a) the judgment was not regularly obtained in

that the plaintiff had entered judgment for a sum in excess of that which was

lawfully due to the plaintiff; and (b) in the alternative, if the judgment was

regularly obtained, he had a good defence on the merits. As regards ground (a), it

was contended that it was not legally permissible for the plaintiff to obtain

judgment for interest at the rate of 14% pa for the post-judgment period, regard

being had to the provisions of O 42 r 12 of the Rules of the High Court 1980 in

existence at the material time which provided for interest at the rate of 8% pa on

judgment debts. As regards ground (b), it was contended that (i) the plaintiff's

claim was premature in law; (ii) the plaintiff's claim was misconceived, frivolous

and an abuse of the process of the court; (iii) the plaintiff's claim for interest was

misconceived in law; and (iv) the guarantee was void and of no effect in that the

first defendant had been induced to execute the same by misrepresentation on the

part of the plaintiff that, notwithstanding the terms of the guarantee, the plaintiff

would only have recourse to the first defendant if, but only if, the plaintiff had to

recover from the borrower the amounts outstanding following enforcement of the

charge. It was contended that the plaintiff's suit was premature in law because it

had not been proved that service of a notice of demand dated 31 January 1985 had

been effected on the first defendant; alternatively, that the notice of demand was

null and void, having regard to a letter dated 19 February 1985 to the borrower's

solicitors granting an indulgence to the borrower. The notice of demand was

apparently received at the address for service of the first defendant given in the

guarantee by someone on behalf of a company known as Material Handling and

Engineering Sdn Bhd. It was also contended by the first defendant that a second

notice of demand dated 29 October 1985 addressed to him was also bad because

instead of giving a seven days' notice of demand to the borrower before giving a

notice of demand to the first defendant, the plaintiff's solicitors had sent the second

notice of demand to the borrower and all the defendants on the same day. It was

also argued that the plaintiff's letter of indulgence of 19 February 1985 to the

borrower's solicitors stating that the period of the loan was extended until 30

November 1985 contradicted the plaintiff's subsequent letter of 15 March 1985

stating that unless the instalment payments for principal and interest were paid by

31 March 1985, action would be taken to recover the loan and interest. The first

defendant also contended that as the plaintiff had obtained an order for sale of the

borrower's land and the sale was pending, the present suit was a useless piece of

litigation as the value of the land exceeded the judgment sum.

Holding :

Held, dismissing the application: (1) the covenant for the payment of interest was

not merely ancillary but was an independent covenant and was not extinguished in

the judgment, the doctrine of merger being inapplicable. The plaintiff was

therefore entitled to obtain judgment for interest at the contractual rate in respect of

the post-judgment period. The plaintiff had therefore not obtained judgment in

excess of that which was lawfully due; (2) the notice of demand had been properly

served in accordance with the provision of the guarantee regarding the mode of

service of notices and demands; (3) the first notice of demand to the first defendant

had not been nullified by the plaintiff's letter of 19 February 1985 to the borrower

granting the borrower an indulgence; (4) there was no contradiction between the

plaintiff's letter of indulgence dated 19 February 1985 stating that the period of the

loan was extended until 30 November 1985 and the plaintiff's letter of 15 March

1985 stating that unless the instalment payments were paid by 31 March 1985,

action would be taken to recover the loan and interest. In the final paragraph of the

letter of indulgence, it was stated categorically that the plaintiff had the right to

recall the loan if at any one time the borrower defaulted in the terms of repayment;

(5) the second notice of demand was not issued prematurely as the first defendant

was liable as a principal debtor and not merely as a surety so that once the

borrower was in default, the plaintiff could enforce the guarantee. The giving of

seven days' notice to the borrower before the bringing of proceedings against the

guarantor, assuming there was such a requirement, was mere surplusage and so

was of no consequence; (6) the provisions of the guarantee as a whole were such

that the plaintiff was not bound or required in law to realize the security before

enforcing the guarantee. Moreover, with regard to the value of the land, market

conditions justified the plaintiff's action in proceeding against the defendants. In

this connection, a judge is entitled to rely on what is common and public

knowledge when considering the rise or fall in the value of land; (7) in considering

an application to set aside a default judgment regularly obtained, the court can

quite properly take into account the conduct of the defendant apart from the

question of merits. In this case, the first defendant's conduct in attempting to

negotiate a settlement with the directors of the plaintiff and that too after receiving

a bankruptcy notice did nothing to help his defence that he had been induced by

misrepresentation by the plaintiff to sign the guarantee. Moreover, the first

defendant had been guilty of laches and his conduct had not been bona fide.

Digest :

Malaysia Building Society Bhd v Lim Kheng Kim & Ors [1988] 3 MLJ 175 High

Court, Penang (Edgar Joseph Jr J).


3 [2366] CONTRACT Guarantee – Construction – Contract - Guarantee - Liability

of guarantor - Whether liable for liabilities incurred before date of guarantee.

Summary :

In this case, the appellant gave a letter of guarantee to the respondent whereby the

appellant undertook to stand guarantee to the extent of one hundred thousand

dollars (RM100,000) only on behalf of Messrs Senibert Sdn Bhd. Messrs Senibert

Sdn Bhd had been sued for RM202,226.19 in respect of policies sold and premium

collected on behalf of the respondent. Judgment in default was entered against

them. In the same suit a claim was made against the appellant for the sum of

RM100,000 in terms of the letter of guarantee. The learned trial judge gave

judgment in favour of the respondent. The appellant appealed.

Holding :

Held: (1) the letter of guarantee could not be impugned on grounds of absence or

want of consideration; (2) a guarantor would only be liable for debts or liabilities

incurred after the date of the guarantee; (3) in this case therefore the order of the

learned trial judge would be varied to one of payment of such sum as may be found

due in respect of policies sold and premium collected after the date of the letter of

guarantee.

Digest :

Chew Soon Tat v Malaysia National Insurance Sdn Bhd [1977] 1 MLJ 241 Federal

Court, Kuala Lumpur (Ali Ag LP, Ong Hock Sim and Wan Suleiman FJJ).


3 [2367] CONTRACT Guarantee – Construction – Covered past and future

advances – Consideration – Past advances can be good consideration –

Facilities utilized by one not named in guarantee – Intention of parties

important – Companies Act 1965, s 294

Summary :

The plaintiffs granted credit facilities on 22 February 1983 of RM250,000 to a

company of which the defendants were its directors. On 18 March 1985, additional

credit of up to RM700,000 was granted to the company. The plaintiffs stated in this

offer that this offer was to supercede and cancel the plaintiffs' previous letter of

offer dated 22 February 1983. When the borrower company failed to repay the

plaintiffs, the latter took out a writ against the defendants as guarantors. Judgment

in default of appearance was entered. The defendants applied to set aside the

default judgment on the ground that they have a good defence on merits. They

contended that: (a) there was no consideration for the guarantee because the

overdraft facilities were given before the execution of the guarantee and there was

no evidence that money was released after the date of the guarantee; (b) the

overdraft facilities were utilized by another company, namely the sister company,

and not the company referred to in the guarantee; and (c) the company which they

guaranteed repayment for was wound up within six months of the creation of a

debenture in favour of the plaintiffs and thus attracted the operation of s 294 of the

Companies Act 1965. As such, the default judgment was invalid as it, inter alia,

included advances made before the execution of the debenture.

Holding :

Held, dismissing the application: (1) the guarantee in question covered both past

and future advances as its wordings were the same as those guarantees held by the

court to cover past and future advances. Besides, the circumstances surrounding

the execution of the guarantee showed that the parties intended it to be so; (2) in so

far as liability is concerned, even past advances can be good consideration

provided that they were at the 'desire' of the guarantors. Here, money was

disbursed before and after the execution of the guarantee. There was also evidence

to infer, the defendants being directors of the company, that the loan was at their

desire. There was therefore consideration for the guarantee; (3) bank statements

showed that the company had utilized the loan facility through its two accounts in

two different branches of the plaintiffs' bank. However, even assuming that the

sister company on occasions had to pay money into and out from the two accounts

for its own purposes and benefit, the quantum of liability under the guarantee

remained unaffected because the guarantee provided for the defendants to be liable.

Also, the defendants had agreed to the opening of the accounts for the use of the

sister company; (4) s 294 was only relevant if the plaintiffs were suing on the

debenture or had acted under it to recover any moneys due thereunder. Instead, the

plaintiffs were suing on the guarantee. Besides cl 7 of the guarantee expressly

provided for the guarantee not to be in any way prejudiced or affected by the said

debenture. Therefore, the alleged invalidity of the debenture under s 294 did not

reduce the amount the defendants were liable to pay under the guarantee. The

guarantee was also not in respect solely of the moneys due under the debenture.

Digest :

Sabah Bank Bhd v Ho Juan Hua & Anor [1993] 3 MLJ 113 High Court, Tawau

(Ian Chin JC).


3 [2368] CONTRACT Guarantee – Construction – Dispute as to limit of guarantee –

Court to give effect to intention of parties

Summary :

P had earlier obtained summary judgment against D2 and D3, the guarantors, for

the sum of M$3,946,554.23 with contractual rate of interest at 15.25% pa until

satisfaction and costs. D appealed to the learned judge against the judgment. D

submitted that the judgment sum should be for M$2.2 million which was the limit

of the amount of the guarantee. P submitted, however, to the contrary.

Holding :

Held, dismissing the appeal and reducing the judgment sum to M$2.2 million: (1)

the express mention of the words 'the guaranteed sum' in the guarantee taken

together with the other provisions therein would make the sum of M$2.2 million

the ceiling of the guarantee. Unless the court was driven irresistibly to a conclusion

of repugnancy with other clauses in the guarantee, the court should strive to give

effect to the intention of the parties if the words employed by them could give rise

to such an intention; (2) the learned judge agreed that interest should be at 15.25%

pa as claimed, having regard to the amended ord 42 of the Rules of the High Court

1980 which allows for contractual rate of interest for judgment sum instead of 8%

which was previously allowed.

Digest :

Bank Bumiputra Malaysia Bhd v Syarikat Sungei Lesong Sdn Bhd Civil Suit No

24-462-86 High Court, Ipoh (Peh Swee Chin J).


3 [2369] CONTRACT Guarantee – Construction – Extent of guarantors' liabilities –

Whether guarantors liable for debts incurred before signing of guarantee

Summary :

P in this suit filed an action against D1 and D2 claiming for M$458,749.84 and

M$193,064.77 respectively being the balance of the price of goods sold and

delivered to them. The claim against D3 to D6 was as guarantors by virtue of their

being the signatories to the guarantee in which they undertook, inter alia, to jointly

and severally pay P all moneys due from D1 and D2 up to a maximum of

M$200,000. Subsequently, P obtained final judgment for the sum of M$458,749.84

against D1 with interest but as against D3 to D6 final judgment was obtained

against them for the sum of M$26,811.27 only. The senior assistant registrar gave

unconditional leave to D to defend the claim for the balance sum being satisfied

that D3 to D6 had succeeded in raising several triable issues. P appealed to the

High Court against that part of the judgment in which the senior assistant registrar

gave D unconditional leave to defend.

Holding :

Held, allowing the appeal: (1) the term 'guarantee' means an accessory contract

whereby one party (the guarantor or surety) undertakes to be answerable for the

debt, default or miscarriage of another (principal debtor) who is primarily liable to

a third party (the creditor). It is immaterial, in the legal construction of the

guarantee, that the party signing it knew nothing of the circumstances or the

dealings between the debtor and creditor because generally a person signing such

an instrument must be taken to have intended that which the words themselves

naturally import having regard to the circumstances that exist, whether he has

taken care to make himself acquainted with the circumstances or not; (2) in the

instant case, the rights and liabilities of the parties depended upon the true

construction of the guarantee. Having regard to the plain meaning of the words

used in the guarantee, the learned judge was of the view that it was clearly within

the contemplation of the parties that the guarantors were to be liable for debts

incurred not only after but also before the signing of the guarantee. P's appeal was,

accordingly, allowed.

Digest :

Carlsberg Brewery Malaysia Bhd v Soon Heng Aw & Sons Sdn Bhd & Ors [1989]

1 MLJ 104 High Court, Kota Bharu (Idris J).


3 [2370] CONTRACT Guarantee – Construction – Guarantee - Claim under -

Extent of liability.

Summary :

The appellant, plaintiff in the action, and one Tan Tuan Boon, first defendant in the

action (now deceased), together with one SR Doshi, carried on business as

sharebrokers in a firm known as Chua & Co under a deed of partnership dated 1

June 1956. On 29 June 1967, the appellant gave notice of his retirement from the

partnership. On 14 July 1967, the first defendant elected, under cl 17 of the

partnership agreement, to purchase the appellant's share in the firm 'at the net value

thereof as ascertained by a single independent valuer if the parties agree upon one

or three independent valuers one to be appointed by each of the parties' to the

agreement. On 22 December 1967, the respondent bank, second defendants in the

action, guaranteed payment of the purchase price of the appellant's share to the

extent of $62,475. The appellant brought two actions, the first against the first

defendant and the third partner before the date of guarantee, and the second action

against the second defendants/respondents after the date of guarantee. Both actions

were in relation to the contract for sale and purchase of the appellant's share in the

business. However, both actions were compromised by an agreement which clearly

stipulated that it was being made under the partnership agreement for the purpose

of ascertaining the value of the appellant's share in the business. A valuer, as

required under cl 17 of the partnership agreement, was appointed under this

subsequent agreement. The third partner knew and approved of this appointment.

The valuer assessed the appellant's share at more than the amount guaranteed. The

fundamental issue between the parties depended upon the construction placed upon

the words of the guarantee and hence the liability of the second

defendants/respondents. The learned trial judge ([1971] 1 MLJ 190) gave judgment

for the appellant against the first defendant but dismissed his claim against the

second defendants/respondents as the agreement between the appellant and the first

defendant was made subsequent to the guarantee and therefore the appellant could

not rely upon the guarantee given by the second defendants/respondents in his

present claim which was based entirely on the agreement between him and the first

defendant and the award made by the adjudicator.

Holding :

Held, allowing the appeal: (1) the exact amount payable by the first defendant

under the contract of sale and purchase was not known at the date of the guarantee.

The guarantee itself provided that the amount payable was to be fixed or

ascertained by valuation as provided under the partnership agreement. The fact that

the subsequent agreement between the appellant and the first defendant had not

come into existence on the date of the guarantee was therefore entirely immaterial.

It was the contract for the sale and purchase of the appellant's share in the

partnership which was the basis for the guarantee which was limited to $62,475; (2)

a guarantee, like every other contract, must be construed reasonably; it must be

construed by the words used, but also with regard to the surrounding circumstances.

The guarantee in the present case had to be looked at with reference to the special

circumstances under which it was given.

Digest :

Chow Yoke Pui v Hongkong & Shanghai Banking Corp, Malacca [1971] 2 MLJ

100 Federal Court, Kuala Lumpur (Ong CJ (Malaya).


3 [2371] CONTRACT Guarantee – Construction – Guarantee - Joint and several

guarantee to the bank given by directors of company - New directors

appointed - Additional guarantee taken from new directors - Old directors not

discharged - Guarantor's liability is secondary but can become primary by

agreement - Guarantors can be sued even before a judgment had been

obtained against the principal debtor - Variation of contract - Surety not

discharged if agreement authorizes the creditor to vary the terms - Extension

of time to principal debtor - Surety is not discharged if the contract of

guarantee empowers the creditor to extend the time - Contract Act 1950, ss 81,

86 & 88.

Summary :

In this case, the defendant and three others were directors of Tuahbina Sdn Bhd.

The company had taken a loan from the plaintiff bank which was guaranteed

jointly and severally by the four directors. The directors subsequently sold their

shares to the knowledge of the bank and new directors of the company were

appointed in their place. Additional guarantees were taken from the new directors

for the company's indebtedness. In February 1983 the indebtedness of the company

to the bank amounted to $3,151,554. The bank sent a notice of demand to the

company and the guarantors. On 31 July 1984, the bank initiated action against the

defendants for recovery of the money under the letter of guarantees. On 8

September 1984, the court made an order for winding up of the company. The

bank applied for summary judgment against the defendants on the ground that

there was no defence to their action. The matter came before the senior assistant

registrar and he found that the defendants had shown no defence and ordered

summary judgment to be entered against them. The defendants appealed against

this order. They raised the following pleas: (1) the liability of a guarantor is

secondary and does not arise until the liability of the principal debtor has been

legally established; (2) directors who had signed the guarantee were only to be

liable thereon as long as they held office in the company as directors; (3) when the

bank took a fresh guarantee from the new directors it necessarily followed that the

defendants as old directors were absolved of their liabilities; (4) the bank

unilaterally varied the terms upon which the company was to repay its loan; and (5)

the bank was guilty of laches.

Holding :

Held: (1) the guarantee was so worded as to make the liability of the guarantors

primary and coextensive with the company; (2) the directors had signed the

guarantee in their personal capacity and they were liable on it even if they had

ceased to be directors; (3) a fresh guarantee was taken from new directors in

addition to the existing guarantee; (4) the agreement of guarantee was widely

worded and permitted the bank to vary the terms of guarantee; (5) the terms of the

guarantee empowered the bank to extend time to the company; (6) the decision of

the senior assistant registrar that summary judgment be entered against the

defendants for $2,235,000 with interest thereon at the rate provided by the

guarantee was affirmed.

Digest :

Chung Khiaw Bank Ltd v Soi Huan & Ors [1986] 1 MLJ 188 High Court, Johore

Bahru (Shankar J).


3 [2372] CONTRACT Guarantee – Construction – Liability of guarantors to repay

loan in the same manner as borrowers – Determining the 'money of payment'

Summary :

The defendants were guarantors of a loan made by the plaintiffs to four Malaysian

borrowers. The loan was for an equivalent amount in Eurocurrency of A$1.16m

which the borrowers required for the purchase of properties in Australia. In the

event of default, interest was payable at 4[1/2]% pa above deposit rate ('the

contractual interest'). The loan was eventually made in Swiss francs. The plaintiffs

applied for and obtained judgment for the outstanding principal sum and

contractual interest against the borrowers. The present action was brought by the

plaintiffs against the defendants on the ground that contractual interest was payable

after judgment and that the loan was to be repaid in Swiss francs and not

Australian dollars.

Holding :

Held, dismissing the defendants' appeal and allowing the plaintiffs' cross-appeal:

(1) parties to a transaction may always make their own arrangements regarding

money of account and money of payment. The loan agreement clearly provided

that the money of account and money of payment was the Swiss franc.

Consequently, the guarantors are liable to pay in Swiss francs; (2) the function of a

court presented with a claim for a contractual rate of interest higher than the

statutory rate is to construe the interest provision and characterize it as an ancillary

or independent term. In the instant case, the interest provision was expressed as an

independent term which would survive any judgment for the principal debt. The

plaintiffs were, therefore, entitled to judgment for interest at the contractual rate

until payment. Per curiam: The Sim Lim case [1981] 1 MLJ 280 was decided on an

incorrect reading of the Economic Life Assurance case [1902] AC 147. The

registrar's decision in that case had in effect introduced words into O 42 r 12 of the

Rules of the Supreme Court 1970 without justification.

Digest :

Wardley Ltd v Tunku Adnan & Anor [1991] SLR 721 High Court, Singapore

(Selvam JC).

Annotation :

[Annotation: Affirmed on appeal. See [1993] 1 SLR 337.]


3 [2373] CONTRACT Guarantee – Construction – Nature of guarantor's liability

under guarantee – Whether prior demand a condition precedent to creation of

liability in guarantor – Regard to be had to language of instrument and

nature of liability it creates

Digest :

Kwong Yik Bank Bhd v Transbuilder Sdn Bhd & Ors [1989] 2 MLJ 301 High

Court, Kuala Lumpur (Shankar J).



3 [2374] CONTRACT Guarantee – Construction – Overdraft facility – Extent of

guarantor's liability

Summary :

The letter of guarantee was executed by the defendant and witnessed by an

advocate and solicitor. Clause 4 of the guarantee, inter alia, provided that the

guarantee 'shall be a guarantee to the extent of RM200,000 for the purpose of

securing not only an equivalent amount but (subject always to the said limit of

RM200,000) the whole of the money or general balance ... with interest on the sum

claimable ...'. The company defaulted and the plaintiff applied for and obtained

summary judgment against the defendant. The defendant appealed, contending that

she did not sign the letter of guarantee and that if she was found to have so signed,

her liability under the terms of the guarantee did not exceed RM200,000.

Holding :

Held, allowing the appeal and giving the defendant leave to defend: (1) it was clear

that the defendant signed the letter of guarantee witnessed by an advocate and

solicitor. The defendant merely denied signing the letter of guarantee and denied

ever being a guarantor. A denial cannot be taken as a defence to establish a plea of

non est factum. The defendant must prove that when she signed the letter of

guarantee, she acted with reasonable care. The burden of proof was on the

defendant and it was a heavy one. There was thus no triable issue on the first

contention; (2) the interpretation of a clause in a guarantee is subject to its

wordings; (3) the court was of the opinion that under cl 4 of the guarantee, the

defendant's liability was limited to RM200,000. Interest at the agreed rate was

claimable. Thus the letter of demand served by the plaintiff on the defendant must

specify clearly the interest demanded. That could be done in a full trial; (4) the

defendant was thus given leave to defend the case.

Digest :

Malayan Banking Bhd v Hafsah bte Abdullah Civil Suit No 22-32-1992 High

Court, Malacca (Ariffin Jaka JC).

Annotation :

[Annotation: The judgment was delivered in Bahasa Malaysia.]


3 [2375] CONTRACT Guarantee – Construction – Plaintiff seeking to enforce

guarantee against defendant – Whether necessary to issue fresh demand to

defendant for balance sum outstanding before suit instituted

Summary :

P had granted a bridging loan to R Sdn Bhd to undertake a housing development

project. As security for the loan, R Sdn Bhd had charged the same piece of land to

P. In addition, D had signed a guarantee in favour of P in consideration of P

granting the above loan to R Sdn Bhd. When R Sdn Bhd defaulted in repayment of

the loan, P sought to enforce the guarantee against D. When the O 14 application

against D was pending, P had commenced foreclosure proceedings against R Sdn

Bhd. An order for sale was subsequently granted but the land could only be

auctioned off for a sum which was not sufficient to settle the amount due from R

Sdn Bhd in full. Before the senior assistant registrar, P failed in their application

for summary judgment under O 14. P then appealed to the High Court. In the

appeal, D contended that having regard to cl 7 of the guarantee, a fresh demand

should have been made for the balance outstanding and since this was not done, he

could not be held liable to meet payment for the balance of the loan. D also

contended that the doctrine of merger applied so as to discharge him from his

personal liability to make repayment. It was D's contention that since the order for

sale was a judgment, his personal liability under the guarantee had been

extinguished as it had merged with the order for sale.

Holding :

Held, allowing the appeal: (1) in interpreting a deed like a guarantee, due regard

must be given to the guarantee as a whole in order to ascertain the true meaning

and intention of the parties as expressed by the several clauses in the guarantee and

that the words and expression of each clause must be so interpreted to bring them

into harmony with the other provisions of the guarantee; (2) in the instant case,

having regard to the guarantee as whole, there was no necessity to issue a fresh

demand to D bearing in mind that the liability of D was established once there was

default on the part of R Sdn Bhd be it for the full loan outstanding or for the

balance of the loan outstanding. Accordingly, the demand made by P to D before

the foreclosure proceedings were commenced was a proper demand and to that end

a fresh demand was not necessary; (3) the doctrine of merger has no application to

proceedings to enforce a charge. That being the case, D could not plead merger as

a means of escaping liability under the guarantee.

Digest :

Hong Leong Finance Bhd v Yap Yong Seong @ Yap Eng Ching Civil Suit No

C23-858-86 High Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2376] CONTRACT Guarantee – Construction – Whether guarantee is in fact

contract of indemnity – Question of construction in each particular case –

Regard to be had to language of instrument and surrounding circumstances

Digest :

Siow Kwang Joon & Anor v Asia Commercial Finance (M) Bhd [1996] 3 MLJ 641

High Court, Johor Bahru (Abdul Malik Ishak J).



3 [2377] CONTRACT Guarantee – Construction – Whether guarantor can avail

himself of defence of counterclaim or set-off of debtor

Summary :

The appellant was one of four guarantors of a loan granted by the respondent.

When the principal debtor defaulted, the respondent sued the principal debtor and

the guarantors, including the appellant. Judgment was entered against, inter alia,

the appellant under the O 14 procedure. The appellant's appeal to the Supreme

Court was dismissed. Thereafter, the respondent filed a bankruptcy petition against

the appellant in August 1992. Upon service of the petition, the appellant filed a

notice by debtor of intention to oppose petition. At the hearing of the petition, the

appellant took a preliminary objection as to jurisdiction, which was peremptorily

dismissed. The main hearing on the petition and the notice to oppose was

adjourned. At the resumed hearing, the Deputy Registrar ruled that the notice to

oppose was wrong in law and dismissed the said notice. There being no further

objections to the petition, the Deputy Registrar proceeded to grant the receiving

and adjudication orders. The appellant appealed against both the decision to

dismiss the preliminary objection and the decision to allow the respondent's

petition. In the course of the appeal, the appellant filed an affidavit in September

1995, the admissibility of which was opposed by the respondent.

Holding :

Held, allowing the appeal: (1) if a judgment debtor wishes to raise issues other

than to cross-claim, set off or counterclaim in opposition to a bankruptcy petition,

he has to proceed by way of r 117 of the Bankruptcy Rules 1969 and file a notice

to show cause against the petitioning creditor accompanied by a summons-in-

chambers and an affidavit in support pursuant to r 18 of the rules; (2) and that the

failure to adduce such evidence beforehand was not due to indolence or a

lackadaisical attitude in the preparation of his case or insufficient preparation at the

pre-trial stage; (3) in this case, the reception of the evidence sought to be adduced

was not justified. The matters raised in the affidavit could have been obtained with

reasonable diligence before trial. Further, such evidence would not have an

important influence on the result of the case. The appellant's claim for

mismanagement was not quantified; (4) the afffidavit was not admissible as there

was inordinate delay in its filing; (5) the appellant, being a guarantor, could not

avail himself of the defence of counterclaim or set-off. A guarantee was to be

construed as a whole against the factual matrix of the background; (6) presentation

was synonymous with filing in relation to s 5(1)(d) of the Bankruptcy Act 1967

and the rules made thereunder, namely r 101; (7) r 101(2) of the Bankruptcy Rules

1969 did not apply as there had been no evidence of the place of business of the

appellant for the greater part of one year immediately preceding the presentation of

the petition; (8) the court had no jurisdiction to hear the petition pursuant to s

23(1)(b) of the Courts of Judicature Act 1964 as the appellant was resident in

Tawau; (9) reasonable care or diligence ought to be exercised in endeavouring to

obtain the evidence sought to be adduced earlier. A party seeking to adduce fresh

evidence ought to satisfy the court that he has made all reasonable, cogent and

positive efforts in pursuit of obtaining the best evidence to prove his case;on the

principle of forum conveniens, the court should decline jurisdiction to hear the

petition.

Digest :

Re Lim Hong Kee David [1995] 4 MLJ 564 High Court, Kuala Lumpur

(Kamalanathan Ratnam JC).

2378 Guarantee -- Continuing guarantee

3 [2378] CONTRACT Guarantee – Continuing guarantee – Agreement executed

after execution of guarantee – Whether guarantor discharged from liability

for payment of moneys due under agreement

Summary :

P sued D1 pursuant to two agreements entered into between the parties. D2-D4

were sued as guarantors pursuant to three letters of guarantee and indemnity

executed by them. In due course, P obtained summary judgment against D. On

appeal by D to the High Court, it was contended that summary judgment should

not have been entered as triable issues had been raised. On behalf of D4, it was

also contended that they were not liable for the payment of moneys due under the

second agreement as the said agreement was executed after the execution of the

guarantee.

Holding :

Held, dismissing the appeal: (1) in the instant case, the guarantee was a continuing

guarantee and the variations in the first agreement by the execution of the second

agreement did not discharge D4's liability under the guarantee for payment of

moneys due under the second agreement. In both agreements, the same parties

were involved, the subject matter was the same and both the agreements had to be

read together as forming a series of transactions between P and D1. To that end,

D4's liability was not limited to the amount due under the first agreement but to the

principal amount limited in the guarantee; (2) as there were no other triable issues

left to be tried and as whatever issues raised had been dealt with adequately by

affidavit evidence, the learned judge dismissed the appeal of D and confirmed the

order of the senior assistant registrar.

Digest :

Pembangunan Leasing Corp Sdn Bhd v WL Credit & Leasing & Ors Code No D2-

23-2198-87 High Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2379] CONTRACT Guarantee – Continuing guarantee – Construction –

Contract - Letter of guarantee - Continuing guarantee - Limitation of liability

- Bank allowing overdrafts exceeding limit - Whether contract varied - Other

guarantees accepted by bank - Contracts Act 1950, ss 86, 92.

Summary :

The appellant had given a letter of guarantee by which he agreed to guarantee up to

a limit of $75,000 the payment of all advances made by the respondent bank to the

Malaysia Timber and Granite Products Ltd. In pursuance of this guarantee the

respondent bank made advances to the company amounting to $534,408.74. The

respondent bank demanded payment from the company but no payment was made.

The respondent bank claimed the payment of the guaranteed sum of $75,000 from

the appellant. Judgment was given in favour of the respondent bank in the High

Court and the appellant appealed to the Federal Court. It was argued, inter alia, that

(1) by giving advances to the company considerably over the limit of $75,000

without consulting the appellant, the respondent bank had varied the contract

within the meaning of s 86 of the Contracts Act 1950 (Act 136) and therefore

discharged the appellant from his liability under the guarantee; (2) in addition to

the letter of guarantee signed by the appellant, the respondent bank had also

accepted guarantees given by the directors of the company and as a result the

appellant's guarantee became merged in those other guarantees and therefore the

appellant's liability had been discharged; (3) as a surety the appellant could have

recourse against the assets of the company but because of the further advances

made by the respondent bank the company had to go into compulsory liquidation

and so the appellant's remedy had been impaired.

Holding :

Held, dismissing the appeal: (1) the appellant in this case had signed a continuing

guarantee, guaranteeing the overdraft existing at the time when he signed the letter

of guarantee as well as overdrafts to be made in the future. The guarantee was not

limited only to the amount of the overdraft existing on the date of the letter of

guarantee. There was also a provision in the letter of guarantee empowering the

bank to make further advances to the company; (2) the letter of guarantee stated

that it was to be in addition to any collateral or other security held or to be held by

the bank; (3) the respondent bank had done nothing inconsistent with the

appellant's rights.

Digest :

Heng Cheng Swee v Bangkok Bank Ltd [1976] 1 MLJ 267 Federal Court, Kuala

Lumpur (Suffian LP, Lee Hun Hoe CJ (Borneo).


3 [2380] CONTRACT Guarantee – Continuing guarantee – Contract - Guarantee -

Construction - Credit facilities in excess of maximum amount guaranteed -

Effect of, on guarantee.

Summary :

On 19 February 1964, the appellant signed a letter of guarantee as guarantor for the

debt due by his son who, as agent of the respondents, car distributors, had been

supplied with cars on credit for sale by him. The relevant part of the letter of

guarantee stated that the appellant 'guarantee the performance and fulfilment by the

said Yang Pin Joo of any obligation and liabilities due from him to you on the

understanding that: (a) the maximum credit balance monthly shall not exceed

$100,000'. There was $129,911 due to the respondents by the appellant's son at the

date of the letter of guarantee. The letter of guarantee was signed in consideration

of the respondents' forbearance to sue the appellant's son and to grant further credit

facilities to him. In an action by the respondents on the letter of guarantee, the trial

judge held that the appellant was liable on the guarantee to pay the respondents

$100,000 ([1967] 1 MLJ 123). On appeal, the appellant contended that he was

relieved from liability as the credit facilities given to his son, having exceeded

$100,000, was contrary to condition (a) of the letter of guarantee and was therefore

void ab initio.

Holding :

Held, dismissing the appeal: the learned trial judge did not misdirect himself that

the case of Oriental Bank of Malaya Ltd v Subramaniam [1958] MLJ 35 was

applicable and the decision of the trial judge should be affirmed.

Digest :

Yang Chin Lang v Tan Chong & Sons Motor Co Ltd [1968] 2 MLJ 8 Federal

Court, Kuala Lumpur (Barakbah LP, Azmi CJ (Malaya).


3 [2381] CONTRACT Guarantee – Continuing guarantee – Guarantee was executed

after loan was granted – Whether guarantee was supported by good

consideration

Summary :

A2 was A1's executive chairman. A1 applied for a loan facility from D and A2

signed the application. D's offer of a loan facility was subject to a resolution from

A1's board of directors authorizing A1 to accept the loan facility. A resolution to

this effect was passed and was signed by A2 and A3 as A1's directors. D granted

the loan facility to A1 whereby A2 and A3 guaranteed to pay D, on demand, all

money due to P from A1. A1 defaulted on the loan facility and D claimed from

A1-A3. A2 firstly argued that as the guarantee was executed after the loan facility

was granted, the guarantee was not supported by any valid consideration. A2 next

contended that since there was a change in the interest rate, there was a variation of

the guarantee agreement. A2 finally alleged in his defence that he executed the

letter of guarantee in blank. The learned senior assistant registrar granted D

summary judgment against A1-A3. A2 appealed to the High Court.

Holding :

Held, dismissing the appeal: (1) A2 not only knew about the loan facility at the

time of signing the letter of guarantee but was also instrumental in getting the loan

facility for A1. It is clear from the letter of guarantee that it is a continuing

guarantee. There is therefore good consideration for A2's guarantee; (2) under the

loan agreement, D is entitled to change the interest rate at its own discretion

without having to inform and to obtain consent from A1 or A2. Any variation in

the interest rate without the knowledge and consent of A2 does not affect A2's

liability under the letter of guarantee; (3) all the terms of the guarantee except, inter

alia, the signature and particulars of A2, were already printed on the letter of

guarantee. Any person who signs the letter of guarantee before the particulars are

filled in should know that he is signing a letter of guarantee and no other document.

Furthermore, A2 knew all the time that A1 was applying for a loan facility.

Digest :

Malayan Banking Bhd v Senorita Holdings Sdn Bhd & Ors Civil Suit No C2-23-

3364-1986 High Court, Kuala Lumpur (Zakaria Yatim J).


3 [2382] CONTRACT Guarantee – Continuing guarantee – Nature of – Whether

guarantee unenforceable for want of good consideration

Summary :

D4 appealed against the decision of the senior assistant registrar in allowing P to

enter final judgment against him. D4 had guaranteed payment of all sums of

money due and owing by D1 to P under two loan facilities granted by P to D1. P's

claim was for the outstanding sum due and owing by D to P. Counsel for D4

submitted, inter alia, that the guarantee was given for a past consideration and as

such was void and unenforceable.

Holding :

Held, allowing the appeal: (1) in the instant case, the question of past consideration

did not arise. Since the guarantee was a continuing guarantee, the consideration

was a good consideration; (2) it was however not clear in the instant case whether

D4 was charged interest by P at the agreed rates as specified in the letter and offer.

There was no evidence to show whether the interest charged was that as specified

in the letter of offer or at a lesser or higher rate. The learned judge was of the view

that the instant case was not a plain and obvious case for an ord 14 judgment. In

the circumstances, D4's appeal was allowed.

Digest :

Public Bank Berhad v Tradikon Sdn Bhd & Ors Civil Suit No D4-23-2468-87



3 [2383] CONTRACT Guarantee – Continuing guarantee – No facility extended to

principal borrower at time of execution of guarantee – Whether guarantor

discharged from liability

Summary :

P sued D3 and two guarantees executed in consideration of P granting various

banking facilities to M Sdn Bhd. In appealing against an ord 14 summary judgment

entered against him, D3 disputed liability under the second guarantee on the

grounds that he did not execute the guarantee and that at the time of its execution,

no facility had yet been extended to the principal borrower.

Holding :

Held, dismissing the appeal: (1) in the instant case, D3 had signed on each page of

the guarantee as acknowledgment of the fact that he had fully read and understood

its contents. Accordingly, D3's plea of non est factum must be defeated by his own

negligence in not ascertaining the true contents of the document he had executed;

(2) the guarantee in the instant case was a continuing guarantee. In the

circumstances, it was quite irrelevant that no facility was extended to the principal

borrower at the time of the execution of the guarantee. In any event, there was

evidence to show that P had in due course made further advances to the principal

borrower under the guarantee; (3) as the issues raised by D3 had been dealt with

sufficiently by affidavit evid-ence, the court confirmed the order of the registrar

and dismissed the appeal.

Digest :

United Asian Bank Bhd v Jayachandran & Ors Civil Suit No D2-23-34-87 High



3 [2384] CONTRACT Guarantee – Continuing guarantee – Notice of revocation –

Whether notice was clear and explicit – Whether guarantee was revoked by

each of the guarantors when their written notices of withdrawals were

transmitted to the respondent – Contracts Act 1950, s 83

Summary :

Pursuant to a master agreement dated 14 May 1977 ('the master agreement')

executed between the respondent and a motor dealer company known as Larkin

Motor Trading Sdn Bhd ('Larkin'), the respondent provided hire-purchase facilities

to Larkin's customers when those customers purchased motorcars from Larkin. In

consideration of the respondent extending the hire purchase facility to the

prospective customer, Larkin undertook to indemnify the respondent against 'all

damage, losses, costs and expenses whatsoever' which may be incurred by the

respondent. The appellants were, at the material times, directors of Larkin and they

stood as guarantors and they guaranteed all sums due to the respondent under the

master agreement. They signed a guarantee document dated 14 May 1977 to that

effect. Clause 8(f) of the master agreement stated that the guarantee was a

continuing guarantee. By letters dated 18 March 1977 and 21 November 1985

respectively, the second and the first appellant informed the respondent that they

wanted to withdraw themselves as guarantors. The guarantee document, which was

collateral to the master agreement, was totally silent in regard to the right of the

guarantor to revoke the guarantee. Larkin failed to indemnify the respondent. The

appellants were sued by the respondent for the debts of Larkin. The sessions court

('the trial court') allowed the respondent's claim for the sum of RM44,772.39 with

interest and costs. The appellants appealed. The issues before the court were: (i)

whether the guarantee was revoked by each of the appellants when their written

notices of withdrawal were transmitted to the respondent; and (ii) whether each of

the appellants signed a guarantee or an indemnity document. It was argued by

counsel for both appellants that there was an effective revocation of the guarantee

document by the appellants within the ambit and scope of s 83 of the Contracts Act

1950 ('the Act'). It was also argued that the guarantee document was void as it was

founded on a master agreement which was void for uncertainty as it bore two

different dates. A fresh point which was not argued before the trial court was raised

by counsel for the appellants, ie the issue of illegality. It was argued that the

guarantee document offended against s 2 of the Hire Purchase Act 1967 and

consequently, it was null and void and of no effect. Evidence was given that Larkin

was represented by the second appellant when it signed the master agreement with

the respondent, and the second appellant also stood as one of the guarantors and he

signed the guarantee document. It was argued that the second appellant as the

representative of Larkin should not have signed the guarantee document and be

one of the guarantors. It was also argued that the court had the jurisdiction to hear

and adjudicate on that fresh point.

Holding :

Held, allowing the appeal with costs: (1) and (d) by notice to the creditor.

Generally, when a guarantee is continuing, unless there is a provision in the

guarantee document to the contrary, the surety may withdraw at any time as to

future transactions by giving notice to the creditor. Once this happens, the surety

cannot be held accountable for any advances made, or liabilities incurred because

after giving notice he longer stands as a surety. But if there is no provision in the

contract of guarantee for withdrawal of the surety, this section gives a blanket

statutory power to revoke the continuing guarantee, at any time, in regard to future

transactions, by notice to the creditor; (2) it is important that to revoke a guarantee,

the notice must be couched in a language which is both clear and explicit so that

the recipient would understand the contents of the revocation. The revocation must

not only be an expression of a wish by the guarantor that the guarantee must be

withdrawn. Thus, whether a guarantee has been revoked is dependent on the facts

of each particular case; (3) the words employed in the letter of revocation of the

first appellant were clear and explicit and it could easily be understood by the

respondent. It complied with the requirement that the terms of effective revocation

as to future liability be in writing, and it took into account the payment of existing

liability of the first appellant. It was a good notice and it had revoked the

continuing guarantee; (4) the second appellant withdrew himself as a guarantor on

18 March 1977, ie before the guarantee document was dated (14 May 1977) and

stamped (16 May 1977). The inference that can be drawn from this was that the

second appellant must have signed the guarantee document, which was undated at

the material time, on or before 18 March 1977. In the court's judgment, the second

appellant had effectively revoked his suretyship on 18 March 1977 and he could

not now be accountable to indemnify the respondent; (5) to ascertain and

determine whether a contract is one of guarantee or of indemnity is entirely a

question of construction in each particular case. The authorities show the need to

construe the agreement in a reasonable way by taking into account all the

surrounding circumstances; (6) upon reading the guarantee document, it was

abundantly clear that it was couched as an indemnity. The words: 'we É jointly and

severally agree to pay to you by way of indemnity' explicitly described the role of

the guarantors as indemnifiers to the respondent under the master agreement; (7)

the appellants here merely signed an indemnity to indemnify the respondent, and

since they had revoked that indemnity, no liability would attach to them; (8) the

master agreement, especially the nature of its terms, can be ascertained, and being

a business agreement it must be construed fairly and broadly. The only defect as

submitted in regard to the master agreement was that it bore two dates. This would

not vitiate the master agreement. Both s 93 of the Evidence Act 1950 and s 30 of

the Act cannot be invoked to strike down the master agreement as those sections

relate to the ambiguity or defectiveness or uncertainty of the language employed in

any agreement and not on the point as raised by counsel for the appellant. At any

rate, the master agreement was duly stamped on 16 May 1977 and that gave it a

semblance of legality; (9) it is entirely up to the discretion of the appellate court

whether to allow a fresh point which was not argued before the trial court to be

ventilated in the appellate court; (10) it is now settled law that any contract

including a contract of indemnity like the present case which is prohibited by

statute, either expressly or by necessary implication, is illegal and void; (11)

pursuant to s 83 of the Act, it is apparent that a continuing guarantee may be

revoked: (a) at any time; (b) as to future transaction; (c) by the surety;illegality

need not be specifically pleaded. Even though it was not argued before the trial

court nor pleaded, the court was obliged to consider the illegality issue. The

contract of guarantee which was in fact a contract of indemnity contravened s 2 of

the Hire Purchase Act 1967 and it was void, illegal and of no effect.

Digest :

Siow Kwang Joon & Anor v Asia Commercial Finance (M) Bhd [1996] 3 MLJ 641


2385 Guarantee -- Contracting out of Contracts Act 1950 (Act 136), ss 86, 92, 94

3 [2385] CONTRACT Guarantee – Contracting out of Contracts Act 1950 (Act 136),

ss 86, 92, 94 – Guarantee - Whether parties can contract out of provisions of

Contracts Act which define circumstances in which a surety is discharged

from his obligations to the creditor - Whether omissions on part of the

creditor discharged guarantors from their liabilities - Contracts Act 1950, ss

1(2), 2, 86, 92 & 94.

Summary :

In this case, the respondent bank had sued the appellants on a contract of guarantee

for banking accommodation given to a company. The appellants were the directors

of the company and in the contract of guarantee they had agreed to waive their

rights in respect of any variation or alteration of the contract between the

respondent bank and the company. The advances were not repaid and the

respondent bank sued the appellants. The respondent bank applied for summary

judgment under O 14 of the Rules of the Supreme Court. The assistant registrar

made an order in terms but this order was reversed in the High Court. The

appellants had contended that their liabilities under the guarantee were conditional

on the respondent bank securing certain acts on the part of the company, the

directors and the shareholders. Such acts were not stated in the guarantee but were

stated in a letter which set out the terms and conditions of the cases. The appellants

relied on the fact that the respondent bank had not obtained (a) a valid debenture

on the company's assets containing a provision to enable receivers to be appointed

in the event of default; (b) a letter of undertaking from the shareholders who held

40% of the issued share capital not to divest their shareholdings without the bank's

consent. The Federal Court allowed the appeal of the respondent bank against the

order of the High Court - see [1981] 1 MLJ 282. The appellants appealed. The

appellants conceded that in the absence of the Contracts Act 1950 (Act 136), cll

7(5), 8 and 16 of the guarantee would prevent the appellants being discharged from

the liability by the omissions of which they complain. Two questions therefore

arose. Firstly, whether those clauses of the guarantee were valid or whether they

were void because parties could not contract out of the sections of the Contracts

Act, ss 86, 92 and 94. Secondly, if parties cannot contract out, whether such

omissions on the part of the respondent bank were matters which discharged the

appellants from their liabilities upon the true construction of the sections of the

Contracts Act referred to.

Holding :

Held: (1) if freedom to contract is to be curtailed in relation to a particular subject

matter, the prohibition should be expressed in the statute and not left by the

legislature to be picked out as an implication based upon sections dealing with

different subject matters. When the Contracts Act intends to render an agreement

void it says so in express terms as in ss 25 to 31; (2) the clauses in the guarantee

are therefore valid and it becomes unnecessary to decide whether the appellants

would have been discharged under all or any of the sections of the Contracts Act

relied on by the appellants assuming that the clauses of the guarantee relied upon

by the respondent bank are void. It is doubtful, however, whether it can properly be

said that the omission from the debenture of a power to sell out of court was a

variance of the agreement by the company to grant a fixed and floating charge

within the meaning of s 86 of the Contracts Act relied on by the appellants, and

whether in the terms of the Act the appellants would have been discharged by the

omission of the respondent bank to obtain the undertakings called for by the letters

of agreement; (3) the action was not suitable for summary disposal under O 14

since the defence did raise matters for serious arguments. The issues could more

appropriately have been decided without the expense of a full trial with witnesses,

by way of the hearing of a preliminary issue. However, it would not be appropriate

for the appellants to be given leave to defend, since a decision has been reached on

the merits of the defence and nothing remains to be tried.

Digest :

Ooi Boon Leong & Ors v Citibank NA [1984] 1 MLJ 222 Privy Council Appeal

from Malaysia (Lord Fraser of Tullybelton, Lord Edmund-Davies, Lord Keith of

Kinkel, Lord Brightman and Lord Templeman).

2386 Guarantee -- Contracting out of surety's rights

3 [2386] CONTRACT Guarantee – Contracting out of surety's rights – Creditor

appointed receiver who sold principal debtor's assets – Whether surety could

allege that receiver had been negligent in selling principal debtor's assets at

undervalue – Whether parties had agreed that surety could not complain of

creditor's impairment of principal debtor's securities

Summary :

A consortium of financial institutions, including the appellant, had provided credit

facilities to Malaysian Prestressed Concrete Strand Manufacturing Sdn Bhd

('MPCSM' ). The credit facilities were secured, inter alia, by a guarantee provided

by the respondent and a debenture executed by MPCSM. MPCSM defaulted in

repayment of the credit facilities and the appellant, acting as agent for the

consortium, appointed a receiver and manager ('the receiver') to manage MPCSM's

business pursuant to the debenture. The receiver borrowed RM1.5m from the

Oriental Bank ('OB') with the consent of the consortium, whereby the RM1.5m

was to be repaid to OB in priority to the amount owed by MPCSM under the

debenture. The receiver obtained a valuation of MPCSM's assets ('the assets') by

professional valuers and advertised the sale of the assets in a local newspaper. The

receiver then sold the assets and eventually remitted the proceeds of the sale to the

appellant. There was, however, still a shortfall due to the consortium ('the shortfall')

and upon the respondent's failure to meet the shortfall, the appellant applied as

agent of the consortium for summary judgment against the respondent. The senior

assistant registrar dismissed the application and the appellant appealed to the High

Court. The respondent firstly contended that the shortfall was due to the receiver's

negligence in the discharge of his duties as agent for the consortium. The

respondent alleged that the receiver should have advertised the sale of the assets in

foreign journals and should have obtained a proper valuation of the assets. The

respondent therefore claimed that due to the respondent's negligence, the assets had

been sold at a significantly low price. The respondent further alleged that the

receiver had held the proceeds of the sale of the assets for an unreasonable length

of time, during which MPCSM had to incur default interest. The respondent lastly

argued that the receiver's borrowing of RM1.5m from OB was questionable and

provided a triable issue. Section 4.01 of the guarantee executed by the respondent

provided, inter alia, that the respondent's obligations would not be impaired by any

failure of the consortium to assert any right or remedy against MPCSM in respect

of any security ('s 4.01'). The guarantee also stated in s 5.01, inter alia, that the

consortium was at liberty, without affecting its rights against the respondent, to

vary or substitute the securities held or to release such securities ('s 5.01').

Holding :

Held, allowing the appeal: (1) it is settled law that a guarantor can contract away

rights which he would otherwise have. Even the right of subrogation can be

contracted away. It depends on the terms of the guarantee; (2) ss 4.01 and 5.01 had

the effect of preventing the respondent from complaining that the securities were

released for less than their worth; (3) the effect of the provisions of the debenture

made it unarguable that the receiver had acted as agent of MPCSM; (4) whether a

greater response would have been achieved by advertising the sale of the assets in

foreign journals, was mere speculation. The respondent's allegation that there was

lack of advertising concerning the sale of the assets, did not provide a bona fide

triable issue; (5) the real market value is what is offered by a willing buyer and is

acceptable to a willing seller; (6) what was offered in this case was consistent with

the valuation of the professional valuers. MPCSM, its directors and guarantors had

not come up with anybody who could make a better offer. The respondent's mere

contention without any acceptable basis that the assets had been sold at a

significantly low price, was thus insufficient to satisfy the court that there was a

bona fide triable issue in negligence; (7) the debenture allowed the receiver to raise

money that might be required to carry on the business of MPCSM. The respondent

had not shown that the raising of the RM1.5m loan from OB was not necessary or

was done improperly. In fact, the appellant had shown that the RM1.5m was

relevant to the running of MPCSM's business and had been ploughed back into

MPCSM; (8) the agreement for the sale of the assets provided that the proceeds of

the sale had to be held by the solicitors until certain matters had been attended to.

In the meantime, the sale proceeds were held in interest-earning fixed deposits and

the sale proceeds were released together with the earned interest. Accordingly, the

respondent's allegation that the receiver had held the sale proceeds for an

unreasonable length of time did not provide a bona fide triable issue; (9) summary

judgment should not be granted when any serious conflict of facts or any real

difficulty as to a matter of law arises. The court will, nevertheless, give final

judgment once a point of law, however difficult, is understood and the court is

satisfied that it is unarguable.

Digest :

Amanah Merchant Bank Bhd v Sumikin Bussan Kaisha Ltd [1992] 2 MLJ 832

High Court, Kuala Lumpur (VC George J).

2387 Guarantee -- Contracts Act 1950 (Act 136), s 79

3 [2387] CONTRACT Guarantee – Contracts Act 1950 (Act 136), s 79 –

Construction of contract – Contract - Whether contract of guarantee -

Contracts Act 1950, s 79 - Banking - Overdraft - When interest payable -

Construction of memoranda of charges - Interpretation - Interpretation of

deed - Contra proferentem rule.

Summary :

In this case, in consideration of the appellant bank giving a company, the Sarawak

Vanguard Limited, overdraft facilities up to $45,000, the respondent executed a

memorandum of charge over his half undivided share and interest in a piece of

land in Kuching. Subsequently the amount secured was increased to $60,000 and

then to $85,000 and memoranda of charges were executed accordingly. The bank

asked for payment of the amount due under the charges as at 30 April 1979 which

it claimed amounted to $163,176.83 and subsequently brought an application for

the sale of the respondent's undivided share and interest in the land and for

payment from the proceeds of sale of the amount claimed. The respondent objected

to the application stating in effect that his right of redemption extended only to

paying $85,000 plus interest from the date of demand till the date of full settlement.

Neither the company nor the respondent had paid anything to the bank. The

learned trial judge ruled that the respondent was to repay on demand the balance

for the time being due owing (i) in respect of advances of various types up to the

total limit of $85,000 and (ii) in respect of interest plus bank charges and

conversion as from 28 September 1979, the date on which the bank made the

demand for payment. The appellant appealed.

Holding :

Held: (1) the present case was not a contract of guarantee. The promise to pay was

made by the respondent in consideration of the bank granting accommodation to

the company and the respondent was not in the position of a surety or guarantor. In

any event, it is now settled law that guarantees are not to be construed in any

different way from any other contract; (2) the charges in the present case can be

construed in accordance with their expressed intention. So construed it was clear

that interest became payable on sums from time to time they were drawn and sums

became payable when they were drawn; (3) the respondent was therefore

responsible to pay the bank for (i) the principal sum under the charges, that is,

$85,000, (ii) interest at 12% per annum calculated on daily balances with monthly

rest from the date of utilization of overdraft facilities by the company and (iii)

interest from the date of demand till the date of settlement.

Digest :

Kong Ming Bank Bhd v Leong Ho Yuen [1982] 2 MLJ 111 Federal Court,

Kuching (Lee Hun Hoe CJ (Borneo).

2388 Guarantee -- Contracts Act 1950 (Act 136), ss 90, 94

3 [2388] CONTRACT Guarantee – Contracts Act 1950 (Act 136), ss 90, 94 –

Banking - Guarantee enforced without debenture rights being resorted to first

- Whether guarantor thereby prejudiced and thus discharged from liability -

Whether s 94 of the Contracts Act 1950 applicable - Contracts Act 1950, s 94 -

Civil Procedure - Judgment in default of appearance - Application to set aside

- Delay of nine months in filing application - No explanation given - Bona fides

of application doubted - Contract - Guarantee - Guarantee enforced without

debenture rights being resorted to first - Whether guarantor thereby

prejudiced and thus discharged from liability - Whether s 94 of the Contracts

Act 1950 applicable - Contracts Act 1950, s 94.

Summary :

The plaintiff obtained a judgment in default of appearance against the third

defendant as guarantor of the first defendant's credit facilities given by the plaintiff.

In addition to the third defendant's personal guarantee, the plaintiff also held two

debentures over the fixed and floating assets of the first defendant. However, the

plaintiff did not take any action to appoint a receiver to take over the assets of the

first defendant. The third defendant applied to have the judgment set aside,

contending that the plaintiff's failure to exercise its rights under the debentures had

prejudiced him and under s 94 of the Contracts Act 1950 (Act 136), he is

discharged from his liability under the guarantee to the extent of the value of the

first defendant's assets.

Holding :

Held, dismissing the application: (1) s 94 of the Contracts Act 1950 has no

relevance as it refers to cases where a creditor has lost or parted with a security. In

this case, the plaintiff has not lost the benefit of the two debentures. They are still

in existence and, as a guarantor, the third defendant's rights to the debentures are

still preserved; (2) the third defendant's objection to the plaintiff not exercising its

rights to appoint a receiver cannot provide a line of defence to the third defendant

as the plaintiff's conduct is protected by cl 8 of the guarantee which allows the

plaintiff to enforce the guarantee notwithstanding that other means of payment

have not been resorted to; (3) moreover, under s 90 of the Contracts Act 1950,

mere forbearance on the part of the plaintiff to enforce the debentures does not

discharge the liability of the third defendant under the guarantee; (4) as no reason

was given by the third defendant as to the delay of about nine months in filing the

present application, the bona fides of the application is doubted.

Digest :

Perwira Habib Bank Malaysia Bhd v Wastecol Manufacturing Sdn Bhd & Ors

[1988] 3 MLJ 215 High Court, Kuala Lumpur (Siti Norma Yaakob J).

2389 Guarantee -- Contracts Act 1950 (Act 136), ss 92, 94

3 [2389] CONTRACT Guarantee – Contracts Act 1950 (Act 136), ss 92, 94 –

Contract - Guarantee - Action by bank against guarantors - Banking facilities

secured by debenture - Debenture not crystallized - Whether bank was

obliged to enforce charge under debenture before proceeding to enforce

guarantee - Whether bank was negligent or in breach of implied warranty for

not crystallizing debenture - Whether any impairment of security - Contracts

Act 1950, ss 92 & 94 - Banking - Banking facilities secured by debenture -

Action by bank against guarantors - Debenture not crystallized - Whether

bank was obliged to enforce charge under debenture before proceeding to

enforce guarantee - Whether bank was negligent or in breach of implied

warranty for not crystallizing debenture - Whether any impairment of

security - Contracts Act 1950, ss 92 & 94.

Summary :

This is the third defendant's appeal against an O 14 judgment against him. The

plaintiff bank had granted certain banking facilities to the first defendant company

secured by a debenture by which all the assets of the first defendant company were

charged to the bank. The second and third defendants are guarantors thereof. The

debenture was not crystallized by the bank. The third defendant resisted the bank's

claim against him and filed a defence and opposed the O 14 application where ss

92 and 94 of the Contracts Act 1950 (Act 136) were invoked.

Holding :

Held, allowing the appeal: (1) two aspects of the suggested defence merit

consideration. First, there is the contention that there was an implied warranty that

the bank was obliged to enforce the charge under the debenture before proceeding

to enforce the guarantee. The second contention is that the bank, in not

crystallizing the debenture and appointing receivers, was negligent on its part and

also that the omission of the bank to appoint receivers amounts to the bank being

guilty of a breach of an implied warranty or of a duty it owed to the guarantors; (2)

in the instant case, there certainly was a debenture which was not caused to be

crystallized. Whether that amounted to negligence or a breach of implied warranty

or duty, and whether or not the third defendant had bargained away his rights

preserved by ss 92 and 94 of the Contracts Act 1950, and in any event whether as a

result there had been an impairment of the security, all provide triable issues; (3)

accordingly the appeal is allowed with costs. The O 14 judgment as against the

third defendant is set aside and the third defendant is given unconditional leave to

defend.

Digest :

Development & Commercial Bank Bhd v Almas Motors Corp (M) Sdn Bhd & Ors

[1988] 3 MLJ 229 High Court, Kuala Lumpur (VC George J).

2390 Guarantee -- Deed of guarantee

3 [2390] CONTRACT Guarantee – Deed of guarantee – Personal guarantee given

for commissions payable to trading company – Trading company to source

and sell steel rods to defendant's company – Contract made between

defendant's company and steel supplier directly – Whether commissions

payable – Contracted price and quantity different from price and quantity

stated in guarantee – Guarantee a primary obligation

Summary :

The plaintiffs were a French trading company incorporated in France. The

defendant, the chairman of D, executed a deed of guarantee in favour of the

plaintiffs in which he guaranteed that he would pay commissions due to the

plaintiffs for the supply of steel wire rods. It was agreed between the parties that

the plaintiffs would source and purchase steel originating from West Siberia and in

turn sell the steel to D. However, the plaintiffs later discovered that they could

procure such steel through a Hong Kong company, N. It was then agreed that the

purchase contract was made between D and N directly and as security for the

commission, the plaintiffs accepted a guarantee from the defendant for the agreed

commission. The shipment of steel was delivered to D but D did not pay the

commission to the plaintiffs despite repeated reminders. The plaintiffs accordingly

instituted proceedings for the recovery of the commission. The defendant

contended that the plaintiffs were only entitled to a commission if they concluded

the contract on the terms contained in the guarantee and at the stipulated price and

as they did not do that, there was a total failure of consideration and hence no

commission was payable. It was alleged that the N contract was for US$251/mt

and and for 10,000 metric tons of steel, not US$250/mt and 20,000 metric tons as

specified in the personal deed of guarantee. The defendant claimed that the

plaintiffs had nothing to do with the contract entered into between D and N.

Holding :

Held, allowing the plaintiffs' claim: (1) the fact that the final price was lower by

US$1 and the fact that only 10,000 metric tons were contracted for in the first

instance made no difference to the defendant's liability under the personal

guarantee to pay the commission; (2) although the deed signed by the defendant

was referred to as a guarantee, it was in fact a primary obligation. This was clear

from cl (c) of the guarantee.

Digest :

Nivekra International Trade Co v Ban Ah Ping Suit No 1773 of 1994—High Court,

Singapore (S Rajendran J).

2391 Guarantee -- Demand for payment

3 [2391] CONTRACT Guarantee – Demand for payment – Allegation that demand

was in excess of the sum claimed – Whether demand was valid and effective

Summary :

The plaintiff granted three credit facilities to the first defendant. The action in this

case was only for the recovery on the second and the third facilities. The senior

assistant registrar granted leave to the plaintiff to enter summary judgment against

the second, third and sixth defendants who were guarantors to the second and third

facility agreement. The appellants appealed against the decision of the senior

assistant registrar. The appellants raised several issues. The main issues were that

the statement of claim was inadequately pleaded in that it failed to particularize the

mode of computation of interest and the rate of interest and the time period for

which interest was levied for each of the amounts claimed under the second and

third facility agreements. Thus, there was no way of ascertaining whether interest

claimed was actually due. The appellants also contended that the plaintiff had

demanded for a sum in excess of the sum claimed and that the demand was not

valid and ineffective. The appellants also alleged that the guarantees were voidable

having been obtained as a result of misrepresentation as they had not been advised

by the plaintiff's solictors as to the consequences of having persons who were

beyond the jurisdiction of the court as joint guarantors. The respondent relied,

amongst others, on the conclusive evidence clause in the guarantee agreement to

bind the second, third and sixth defendants.

Holding :

Held, dismissing the appeal: (1) the statement of claim was adequately pleaded.

The plaintiff had pleaded the contractual terms regarding interest on which it relied

in full, including the rates and mode of computation, the principal amounts due on

each facility claimed and the interest rates charged. To plead anything more would

be tantamount to pleading evidence; (2) on the facts, it was apparent that in the

letters of demand, the principal and interest due under each of the three facilities

had been set out separately. The demand made was for three separate facilities, the

amounts under each being clearly identified. Out of the three, this action related to

only two of the said facilities and whereas the plaintiff/respondent had also clearly

pleaded in the statement of claim that in respect of the first facility the

plaintiff/respondent intended to file a separate action to recover the sums due under

the said first facility. In the circumstances, the contention of the appellants that the

plaintiff/respondent had demanded a sum in excess of that claimed was as

unmeritorious as was a bare denial to an action. Also, in the present case, the

amounts due on the principal and interest were all separately set out for each

facility in the two letters of demand, thus the appellants were in a position to know

exactly what was being demanded of them in respect of the said facilities. Further,

on the facts, the plaintiff/respondent had not demanded anything it was not entitled

to. Therefore, the letters of demand were valid and effective; (3) the issue of

misrepresentation raised by the appellants was also devoid of merit. Since the

plaintiff/respondent's solicitors were not representing the appellants, there was no

legal duty on them to advise the appellants. Besides, if such was the situation

which led to the appellants being misrepresented, the appellants would have or

ought to have protested this fact at the earliest opportunity or at least raise it in the

affidavits to enable the plaintiff/respondent to rebut. They ought not to have raised

it during the submission without any basis; (4) (obiter) the presence of a conclusive

evidence clause per se could not prevent the guarantors from questioning the

correctness or otherwise of the account sought to be produced as conclusive

evidence against them. However, if the conclusive evidence clause was to be

disputed, then there ought to be a proper challenge taken, since the existence of

such a clause was prima facie evidence of the debt due. As the second, third and

sixth defendants had not alleged nor shown any grounds to vitiate the certificate of

indebtedness, the said certificate of indebtedness was held to be conclusive of the

sums owed by the appellants.

Digest :

Bank Industri Malaysia Bhd v Huston Electronics Co (M) Sdn Bhd & Ors [1997] 1

MLJ 818 High Court, Kuala Lumpur (Kamalanathan Ratnam JC).


3 [2392] CONTRACT Guarantee – Demand for payment – Guarantee requires first

letter of demand for payment by principal debtor to be sent to guarantor –

Creditor did not send first letter of demand to guarantor – Creditor merely

demanded guarantor to indemnify creditor – Whether guarantor was liable to

indemnify creditor

Summary :

P entered into an agreement with D1 (the 'master agreement') whereby, inter alia,

D1's rights in hire purchase agreements were assigned to P. D2-D4 guaranteed

upon demand D1's payment to P of all sums due to P under the 'master agreement'.

D5 executed a separate letter of guarantee whereby, inter alia, D5 guaranteed upon

demand made to D5, all sums due to P under the 'master agreement'. D1 defaulted

in paying to P under the 'master agreement'. P then sent separate letters of demand

to D1-D5 requiring them to pay the sum due to P under the 'master agreement'. P

applied for summary judgment against D2-D5. The senior assistant registrar gave

final judgment in P's favour against D2-D5. D2-D5 appealed to the High Court.

Holding :

Held, dismissing D2-D4's appeal, allowing D5's appeal: (1) where the terms of the

guarantee require that certain remedies be taken against the principal or that certain

collateral securities be obtained by the creditor from the principal, such condition

must be satisfied by the creditor before the guarantor is rendered liable; (2) D5's

letter of guarantee required two letters of demand to be sent by P to D5. The first

written demand required to be given by P to D5 was for the payment by D1. In the

event of D1's failure to pay, then and only then the second letter of demand was to

be sent to D5 asking him to indemnify P. D5's letter of guarantee therefore

stipulated that it was a condition precedent that the first letter of demand must be

sent to D5 before sending the second letter of demand; (3) in this case P had failed

to send the first letter of demand to D5 and had thus failed to comply with the

condition precedent as stipulated in the guarantee. P's second letter of demand was

therefore bad. In the circumstances, D5 was not liable to pay P when he received

the second letter of demand.

Digest :

Mayban Finance Bhd v Industrade Credit Corp Sdn Bhd & Ors Civil Suit No D4-

22-1048-89 High Court, Kuala Lumpur (Zakaria Yatim J).


3 [2393] CONTRACT Guarantee – Demand for payment – Guarantor alleged sum

owed has been paid – Plaintiffs alleged fraud on part of guarantor – Burden

on proof

Summary :

The plaintiffs are in the business of supplying bunker fuels and lubricants. The first

defendants were shipping agents and charterers of vessels, and were the plaintiffs'

customers. The plaintiffs' claim was for a sum of S$220,000 said to be outstanding

on a trading account between the plaintiffs and the first defendants in respect of

which the second defendant was sued as a guarantor. The first defendants had been

wound up. The plaintiff carried on the suit against the second defendant personally.

It is not disputed that if it was found that the first defendants had not paid the

amount, then the second defendant would be liable to pay the plaintiffs by virtue of

a personal guarantee dated 26 November 1981 which the second defendant had

signed in favour of the plaintiffs. The S$220,000 claimed by the plaintiffs were

made up of three sums, one of S$200,000 and two of S$10,000 each. The plaintiffs

said that these sums had not been paid, but the second defendant said that they had.

In relation to the S$200,000 claim, the plaintiffs alleged, inter alia, that the second

defendant had procured the forgery of the relevant payment voucher to show a

payment of S$240,000 when in fact only S$40,000 had been paid. In relation to

each of the S$10,000 claims, the plaintiffs alleged that the second defendant had

tricked their representative into signing two different vouchers for two different

cheques of S$10,000 each when only one cheque of S$10,000 was handed over.

There were also allegations that the second defendant procured the forgery of a

payment voucher for the sum of S$13,737.83 so as to show that was the final

balance of the sum owing by the first defendant and that the payment of the sum

resulted in a full and final discharge of all outstanding debt to the plaintiffs.

Holding :

Held, dismissing the plaintiffs' claim and awarding the second defendant 90% of

his party and party costs: (1) the question was whether the plaintiffs had proved

their case, involving as it did allegations of fraud. The burden was clearly on the

plaintiffs to make good these allegations; (2) this was a difficult case, not made any

the easier by the fact that none of the principal fact witnesses involved on either

side inspired much confidence in their ability or willingness to tell the court what

they were sworn to tell. The court was driven to deciding the case on the

undisputed facts and the intrinsic probabilities. The odds were about even in regard

to the strengths and weaknesses of their respective cases; (3) the court found it

difficult to believe that the second defendant would have chosen a new recruit to

his firm to perpetrate the fraud that was alleged against him. Bearing in mind the

burden and standard of proof applicable, the plaintiffs had not proved their case on

the evidence.

Digest :

Hin Leong Trading (Pte) Ltd v Mondale Maritime Enterprises (S) Pte Ltd & Anor

Suit No 5803 of 1983 High Court, Singapore (Warren LH Khoo J).


3 [2394] CONTRACT Guarantee – Demand for payment – Payment not made –

Allegation of misrepresentation – Guarantor had opportunity to go through

the guarantee before signing – Whether such guarantee was binding

Summary :

The plaintiff's claim against the defendant was for the sum of B$833,414.21 for

banking facilities granted to Cang Ceng Engineering (B) Pte Ltd being the

outstanding balance owed by Cang Ceng Engineering (B) Pte Ltd comprising

overdraft facilities and fixed loan. The case arose out of a joint and several

guarantee which the defendant signed in December 1985 with four others wherein

they jointly and severally agreed to repay the palintiff all moneys owing by Cang

Ceng Engineering (B) Pte Ltd amounting to B$6,250,000. The defendant alleged

that the bank and/or their servants/agents had failed to disclose material facts to

him before he signed the said guarantee and that he was induced into signing as a

result of the plaintiff's misrepresentation. The defendant's contention was that the

said guarantee was to secure new banking facilities but that he was told that it was

to secure further security required by the plaintiff to continue granting the banking

facilities to Cang Ceng Engineering (B) Pte Ltd. A further issue concerned the sale

of the security by the plaintiff pertaining to property in Singapore (`the porperty')

which belonged to Cang Ceng Engineering (B) Pte Ltd - and which had an open

market value at S$730,000. The property was sold to one Chua Heng Hoe (another

director of Cang Ceng Engineering (B) Pte Ltd for S$475,000, although the initial

asking price was S$600,000. The bank had not given the defendant a chance to buy

the property.

Holding :

Held: (1) the defendant was bound by the guarantee since he had the document

before him and he had the opportunity to go through it before he signed. He could

have counter-checked but he chose not to do so - therefore the defendant could not

now disclaim liabliity for it; (2) the bank was under a duty to use all reasonable

care and to obtain the best possible price. The sale of the property was a forced sale

as the bank was interested only in getting its own redemption sum back. The bank

has a duty not only to itself but to the mortgagor to reduce as much as possible the

balance due and owing; (3) in selling the property at a reduced price, the bank had

been negligent and had given no regard to the interest of other guarantors. The

bank should have made an offer to the other directors including the defendant as

well instead of dealing with Chua Heng Hoe alone - as the other directors' interests

would necessarily be affected. The bank had failed to obtain the best price possible.

The defendant therefore was not liable to the extent of the difference between the

market price valued at S$730,000 and the price sold to Chua Heng Hoe at

S$475,000.

Digest :

Standard Chatered Bank v Tan Seng Hin Suit No MR 41 of 1993—High Court,

Miri (Elizabeth Chapman JC).


3 [2395] CONTRACT Guarantee – Demand for payment – Payment not made –

Defence of duress – Defence that guarantee invalid because of winding-up

proceedings – Companies Act (Cap 50), s 262(3)

Summary :

P sued D on a letter of guarantee dated 6 October 1986 issued by D whereby D

promised to pay P S$100,000 in consideration of P forebearing to sue the company

HE ('the company') of which D was the managing director and major shareholder.

An offer was made to P by the company whereby the company would appoint P to

the position of executive director, provided P bought 100,000 shares. P issued a

cheque for S$100,000 but did not confirm his acceptance of the offer. He

eventually decided not to take up the offer and asked D for the refund of his money.

When P pressed for payment, D reassured him by issuing the letter of guarantee. D

pleaded, firstly, that the guarantee was given under duress and secondly, that the

guarantee was invalid because of the winding-up proceedings against the company.

Held, ordering judgment for P: (1) the offer, even if it was accepted by P, was

superceded by the parties' agreement not to proceed with the matter and for P's

payment to be refunded. The agreement, founded on the consideration that P was

to forego the shares and the directorship, was binding on the parties; (2) no

particulars of duress were pleaded and by D's admission, there was no duress; (3)

on 6 October 1986, there was no winding-up order made against the company nor

any provisional liquidator appointed; accordingly there was no impediment against

P suing the company; (4) even if there had been a winding-up order made or a

provisional liquidator appointed, the right to sue was not lost because P could

apply to court for leave to sue the company.

Digest :

Kwok Wai Hon v Wong Yew Kee Suit No 1095/87 High Court, Singapore (Kan

Ting Chiu JC).


3 [2396] CONTRACT Guarantee – Demand for payment – Whether carbon copies

of demand meant for borrower but sent to guarantors constitute proper

demand

Summary :

The plaintiff/respondent had brought a claim for money lent to the first defendant

under overdraft facilities and interest thereon. The loans were guaranteed under

continuing guarantees and indemnities by the other five defendants for the payment

of all money owing by the first defendant still remaining unpaid on the general

balance of the first defendant's account with the plaintiff. When the defendants

failed to pay the stated sum the plaintiff filed a writ and statement of claim against

them. Judgment was given for the plaintiff and the defendants/appellants appealed.

The main issue in the appeal was whether the notice sent by the plaintiff was a

proper demand under the guarantees. It was conceded that all the guarantors

received carbon copies of the notice of demand meant for the first defendant.

Holding :

Held, allowing the appeal: (1) the notice of demand in this case was made only to

the first defendant and not to any of the six guarantors including the four appellants;

(2) since bank guarantees invariably specify that the liability of the guarantor is to

pay on demand, the words are not devoid of meaning or effect but make the

demand a condition precedent to suing the guarantor.

Digest :

Mok Hin Wah & Ors v United Malayan Banking Corp Bhd [1987] 2 MLJ 610

Supreme Court, Kuala Lumpur (Salleh Abas LP, Seah and Syed Agil Barakbah

SCJJ).


3 [2397] CONTRACT Guarantee – Demand for payment – Whether carbon copies

of demand meant for borrower sent to guarantors constitute proper demand –

Proper demand must be made

Summary :

The respondents in this case were bankers and had granted to a housing developer

an overdraft facility of $100,000. The said facility was secured by joint and several

guarantees of the directors of the housing developer, including the appellant. The

housing developer defaulted and was in breach of the said facility. The respondents

sent a demand letter to the housing developer requesting it to settle the excess and

to regularize the account. Carbon copies of the said letter were sent to all the

guarantors including the appellant. The notice was ignored and the respondent filed

an action against the housing developer and the guarantors. The appellant filed a

defence to the effect that no formal letter of demand was served on him and

therefore the respondents had no cause of action against him. The senior assistant

registrar gave him unconditional leave to defend. On appeal, the learned judge of

the High Court allowed the appeal. The appellant appealed to the Supreme Court.

Holding :

Held, allowing the appeal: the learned judge was wrong in holding in this case that

no antecedent demand was required to create a cause of action and that the mere

filing of the writ and the service thereof was a sufficient demand, obliging the

appellant to pay. Here the letter of guarantee is clear. A proper demand must be

made and it is a condition precedent to establishing a claim against a guarantor.

Digest :

Orang Kaya Menteri Paduka Wan Ahmad Isa Shukri bin Wan Rashid v Kwong

Yik Bank Bhd [1989] 3 MLJ 155 Supreme Court, Kuala Lumpur (Lee Hun Hoe CJ

(Borneo).


3 [2398] CONTRACT Guarantee – Demand for payment – Whether credit facilities

extended in reliance of guarantee

Summary :

In this action the appellants claimed a sum of S$122,957.42 from the respondent

on the basis of a guarantee in writing signed by him on 6 October 1978, to repay

on demand advances made by the appellants to a company called WSP Ltd, in

reliance upon the said guarantee. The respondent's evidence was to the effect that

firstly, the application for further credit facilities took the form of a letter dated 14

October 1976, 14 days before the respondent joined the board of directors of WSP

Ltd. Secondly, the respondent had stipulated that he would not sign a guarantee for

the company's debts until he obtained a majority shareholding in it. At first

instance, Yong Pung How J (as he then was) dismissed the appellants' claim on the

ground that the respondent's guarantee was never a condition for the appellants

paying out the money to WSP Ltd in the first place. The appellants appealed.

Holding :

Held, dismissing the appeal: (1) the appellants failed to call witnesses who were

essential to disprove the respondent's evidence; (2) there was no sufficient

evidence to justify interfering with the learned judge's finding that the credit

facilities listed were not extended at the respondent's request.

Digest :

Indian Overseas Bank v Lim Hug Hiong Civil Appeal No 79 of 1990 Court of

Civil Appeal, Singapore (Lai Kew Chai, Rajendran and FA Chua J).


3 [2399] CONTRACT Guarantee – Demand for payment – Whether proper notice

of demand made on guarantor – Whether creditor should realize other

securities first before calling on guarantee – Whether accounts provided by

creditor conclusive

Summary :

The plaintiff bank claimed against the third defendant a sum of RM900,000 with

interest at 16% pa from 12 March 1983 until realization. Since 1974, Accuron Sdn

Bhd had been the plaintiffs' client and the third defendant was one of its directors.

The company was given various facilities and in return it gave various securities,

including personal guarantees by its directors. The third defendant had guaranteed

jointly and severally the payment of all credit, bills and credit notes of the

company. On 10 September 1977 the company's factory was burned down and the

company could not carry on its business. The company failed to fulfil the terms

and conditions of the plaintiffs. Thereafter, on the plaintiffs' instruction, their

solicitors wrote a notice of demand to the third defendant for the payment of

moneys due by the company. At the close of the plaintiffs' case, the third defendant

made a submission of no case to answer and did not lead any evidence.

Holding :

Held, allowing the plaintiffs' claim: (1) there was a proper demand made to the

third defendant which was individually sent to him and signed by the plaintiffs'

solicitors. Although the notice of demand could have been better drafted, the third

defendant all along knew that it was sent in regard to the guarantee. There was no

necessity for the notice to state that the company had defaulted in its payments

because the third defendant had signed the guarantee wherein it was stated he

'guarantees, on demand in writing being made, the due payment of all advances'.

Although the notice stated a figure higher than RM900,000, this did not render it

defective as the defendant knew his liability was for that amount only; (2) since the

third defendant made a submission of no case to answer, all the evidence led by the

plaintiffs is deemed to be true. It was clear from the evidence that it was upon the

third defendant's request that the second defendant was released from all liabilities

on the undertaking by the third defendant to execute the guarantee. Therefore the

claim that there was no consideration for the guarantee fails; (3) there is nothing in

law which prevents the plaintiffs from enforcing their rights in the guarantee

before realizing other securities given by the company. The claim that the

plaintiffs' action was premature therefore is without merit; (4) the third defendant's

claim that the money from the insurance policy was not taken into account is

clearly refuted by the evidence; (5) the third defendant was bound by the guarantee

to accept the accounts stated by the plaintiffs as being conclusive; (6) the

appointment of receivers was made for the benefit of the company and in any event,

the guarantee was binding on the third defendant regardless whether the company

was wound up or not.

Digest :

United Asian Bank Bhd v Chin Tai Thai & Ors Civil Suit No C 1436 of 1984 High

Court, Kuala Lumpur (Wan Adnan J).

Annotation :


2400 Guarantee -- Discharge

3 [2400] CONTRACT Guarantee – Discharge – Contracts Act 1950 (Act 136), s 99 –

Guarantee - Letter of guarantee - Co-sureties agreed to honour guarantee -

Discharge of debt by plaintiff - Claim against defendants for equal share of

contribution - Contracts Act 1950, s 99.

Summary :

The plaintiff together with the first, second, third and fourth defendants became co-

sureties to the Bank of Tokyo for the debt of the Big Bear Supermarket Sdn Bhd,

the debtor, for the sum of $250,000. They held themselves liable to pay to the bank

if the debtor did not do so, under a letter of guarantee. Later, the bank called upon

the defendants as co-sureties to honour their guarantee. The plaintiff duly paid

$194,564.78 towards the discharge of the debt then outstanding by virtue of which

the guarantee was discharged. He then called upon the defendants to contribute

equally towards the amount disbursed by him, but they refused. He then sued each

of the defendants for the sum of $49,141.19 as their equal share of contribution and

interest. The plaintiff had also charged his land for $180,000 and the wife of the

first defendant had charged hers for $70,000 making a total of $250,000. The

plaintiff's claim against the first defendant was disallowed by the senior assistant

registrar. The plaintiff appealed against the said order.

Holding :

Held, allowing the appeal: s 99 of the Contracts Act 1950 (Act 136) makes it quite

clear that if any of the co-sureties had paid the creditor towards the discharge of the

debt and obtained a discharge (of which in this case there was no dispute), then the

others were equally liable to contribute to the sum paid towards that discharge. If

the payment had effected to discharge the first defendant's land as the additional

security, it did not alter the defendant's liability to contribute since a discharge of

the debt under the guarantee as provided by s 99 had been effected.

Digest :

Wong Kim Swee v Wong Chee Mun & Ors [1984] 2 MLJ 221 High Court, Kuala

Lumpur (Abdul Razak J).


3 [2401] CONTRACT Guarantee – Discharge – Letters of revocation – Service – To

discharge only in respect of future transactions – Contracts Act 1950, s 83

Summary :

The appellants claimed RM925,103.73 against the first and second respondents,

and RM100,000 against the third respondent. At the hearing of the O 14

application, the first and second respondents were allowed unconditional leave to

defend the sum of RM144,383.02 and the third respondent the sum of

RM19,279.29. Both the appellants and respondents appealed against the decision.

The appellants alleged that by a letter of guarantee dated 24 October 1983 ('the

first guarantee') the three respondents agreed to guarantee the payment by a

company to the extent of RM800,000 in respect of goods sold and delivered by the

appellants to the said company. It also alleged that by another guarantee dated 10

October 1985 ('the second guarantee'), the first and second respondents agreed to

guarantee for the same to the extent of RM200,000. The said company was now

indebted to the appellants in the sum of RM925,103.73 for goods sold and

delivered and the respondents had failed to satisfy the debts despite demands made.

The respondents admitted that the company was indebted to the appellants but

claimed that the amount was only RM180,000. According to the respondents, the

second guarantee was valid, but alleged fraud on the appellants' part in respect of

the first guarantee. They contended that under the first guarantee, they had agreed

to guarantee only RM100,000. Besides, the guarantee form, which they were asked

to sign on every page, was blank, with the amount RM800,000 subsequently

inserted by the appellants without the respondents' knowledge. When the fraud was

discovered, the respondents claimed to have served on the appellants two notices

revoking both guarantees, to which claim the appellants denied. Even if the notices

had been duly served, the appellants argued that they were still not valid as at the

time of service, the said company was indebted to the appellants in the amount of

RM780,720.71.

Holding :

Held, allowing the appellants' appeal and dismissing the respondents' cross-appeal:

(1) on the treatment of conflict of evidence on affidavits, 'although in the normal

way it is not appropriate for a judge to resolve conflicts of evidence on affidavit,

this does not mean that he is bound to accept uncritically, as raising a dispute of

fact which calls for further investigation, every statement on an affidavit however

equivocal, lacking in precision, inconsistent with undisputed contemporary

documents or other statement by the same deponent, or inherently improbable in

itself may be' (per Lord Diplock in Eng Mee Yong v Letchumanan [1979] 2 MLJ

212); (2) and (e) the area sales manager of the appellant company, who deponed

that he had signed TKL-1 as a witness to the signature of each of the respondents

who were signatories to the first guarantee, confirmed that the respondents had

only signed at the end of the agreement and not on every page; (3) on the

supposition that the respondents were to be believed, there was still the principle

that the plea of non est factum does not work in favour of a person who has shown

himself to be negligent; (4) on a critical analysis of the affidavits, it was highly

improbable that there was any service of the letters of revocation on the appellants

as the stamp chop on the notices referred to the appellants' warehouse department

and not their address as stated in the letters of guarantee. Besides, the stamp used

to acknowledge receipt of documents by the warehouse department was not in the

form shown in the letters of revocation. These averments were not rebutted by the

respondents; (5) if there had been a proper service of the notices of revocation,

there was still no triable issue raised as the notices of revocation were bad in law.

By s 83 of the Contracts Act 1950, a guarantor is allowed to discharge himself only

in respect of future transactions whilst the respondents here were attempting to

discharge themselves of all transactions; (6) the appellant had also produced

statements of account showing the amounts owing, and a certificate produced by

their auditors confirming the amount due, which was binding unless there was

manifest error, whilst the respondents had not only not attempted to show that the

statements or the certificate were erroneous, but had been inconsistent in their

averments of the amount they owed; (7) on an examination of the affidavits, the

defence of fraud raised by the respondents was inherently improbable for the

following reasons: (a) no reasonable businessman would sign a blank guarantee

regardless of the amount guaranteed; (b) the exhibit in the appellants' affidavit

purported to be the first guarantee ('TKL-1'), did not fit the description given by

the respondents. It did not contain the respondents' signatures on every page, but

only on the last two pages. The respondents also did not deny TKL-1 as the very

document executed by them; (c) if it were true that the respondents had signed on

every page, all that the appellants had to do, if they wanted to cheat, was to insert

the amount in the appropriate space in the allegedly signed page 2 of the blank

form instead of removing the allegedly signed first three blank pages and

substituting them with fresh unsigned ones as implied by the respondents. This

allegation was therefore difficult to believe and did not make sense; (d) the two

letters of revocation did not mention anything about fraud but gave the reasons for

the revocation as recent developments and changes in management policy;the

respondents have failed to show that there was a fair or reasonable probability that

they had a bona fide defence.

Digest :

Goodyear Malaysia Bhd v Tan Kok Hai & Ors [1993] 3 CLJ 471 High Court, Shah

Alam (Mohd Hishamudin JC).


3 [2402] CONTRACT Guarantee – Discharge – Surety guaranteed lessee's payment

to lessor for lease of machineries – Surety informed lessor that lessee was

taking machineries out of state – Lessee was 16 months in arrears – Whether

lessor was negligent in not repossessing machineries – Whether lessor's

negligence discharged surety's liability – Contracts Act 1950, s 92(c)

Summary :

P, a finance company, leased machine equipment to H Sdn Bhd. D agreed to

guarantee payment of lease rental by H Sdn Bhd to P and to indemnify P up to 50%

of the loss incurred by P. Subsequently, D wrote a letter to P, informing them that

H Sdn Bhd were preparing to move the machinery outside Sabah. P replied that

under the lease agreements H Sdn Bhd could not take the machinery outside Sabah

without P's prior written consent. P further stated that H Sdn Bhd had been

informed of this requiremnent under the lease agreements. P, however, took no

steps to investigate or inspect the machinery and were content to leave them in the

hands of H Sdn Bhd. D then notified P that the machinery had been taken out of

Sabah. H Sdn Bhd, after only paying a month's rental, failed to pay 16 months'

rental. P claimed from D 50% of the sum due to P from H Sdn Bhd. P applied for

summary judgment against D. H Sdn Bhd subsequently went into receivership. D

argued that P had been negligent in not repossessing the machinery after H Sdn

Bhd were 16 months in arrears and after being informed that H Sdn Bhd were

preparing to take the machinery outside Sabah. D thus alleged that P's negligence

had deprived D of its right of recourse to the machinery in the event of H Sdn

Bhd's default under the lease agreements. D accordingly claimed that they were

discharged from their liability to P. P relied on the guarantee contracts providing,

inter alia, that any omission on P's part would not discharge D's liability. P also

argued that since the machinery belonged to them, the machinery could not

become a security for D to have recourse to.

Holding :

Held, dismissing the application: (1) the underlying philosophy in O 14 of the

Rules of High Court 1980 is to prevent a plaintiff clearly entitled to the money

from being delayed where there is no fairly arguable defence to the claim. Order 14

of the 1980 Rules should only be applied where there is no reasonable doubt that

plaintiff is entitled to judgment; (2) P was negligent in not acting in D's interest.

D's liability is thus discharged under s 92(c) of the Contracts Act 1950.

Digest :

Sabah Finance Bhd v UMW (East Malaysia) Sdn Bhd Civil Suit No K620 of 1988

High Court, Sabah (Syed Ahmad Idid JC).


3 [2403] CONTRACT Guarantee – Discharge – Variation of terms of agreement

without consent of surety – Whether surety discharged as to transactions

subsequent to variation – Contracts Act 1950, s 86

Summary :

[Mal] P appealed against the decision of the senior assistant registrar ordering that

the judgment in default against D2 be set aside and that D2 be given conditional

leave to defend the action. D2 had acted as guarantor to a loan given by P to D1.

Counsel for D2 contended that the interest claimed by P was in excess of that

allowed in the loan agreement and that D2 as guarantor was not informed of the

increase in the rate of interest.

Holding :

Held, dismissing the appeal: (1) in the instant case, the variation of the rate of

interest by P without the consent of D2 had the effect of discharging D2 as to

transactions subsequent to the variation as provided for under s 86 of the Contracts

Act 1950; (2) in the instant case, since judgment was obtained in excess of what P

was entitled to, the judgment in default was clearly an irregular judgment and

ought to be set aside ex debito justitiae. Although D2 did not file any notice of

appeal against the decision of the senior assistant registrar, the learned judge

exercised his inherent power in the interest of justice and ordered that P's appeal be

dismissed and that D2 be given unconditional leave to defend the action.

Digest :

United Asian Bank Bhd v Kamariah bte Mohd Yusoff & Ors Suit No C24-5082-86



3 [2404] CONTRACT Guarantee – Discharge – Whether guarantors had been

discharged from liability – Whether guarantors had complied strictly with

letter of guarantee in respect of discharge

Summary :

P granted, inter alia, overdraft facilities to D1 Sdn Bhd. D2-D5 as D1 Sdn Bhd's

directors guaranteed D1 Sdn Bhd's repayment of sums due to P. One of the clauses

of D2-D5's letter of guarantee provided that the guarantee would be determined as

to future transactions by D2-D5 giving P 14 days' written notice ('clause 6'). D1

Sdn Bhd failed to pay sums due to P. P obtained summary judgment against D1-D5

from the senior assistant registrar. D2-D5 appealed to the High Court firstly on the

ground that P had acted negligently in failing to safeguard the assets of D1 Sdn

Bhd and consequently this had greatly diminished the value of D1 Sdn Bhd's assets.

D2-D5 also claimed that they had disposed of their shares in D1 Sdn Bhd and had

resigned as its directors. D2-D5 purported to rely on 'clause 6' to argue that they

had been discharged as guarantors. D2-D5 alleged that they had sent letters to D1

Sdn Bhd stating their discharge as D1 Sdn Bhd's guarantors and copies of such

letters had been sent to P.

Holding :

Held, dismissing the appeal: (1) even if there was negligence on P's part, D2-D5

were only entitled to claim damages by way of counterclaim; (2) D2-D5 had not

complied strictly with 'clause 6' because firstly their letters were not addressed to P

but were only copied to P. Moreover in D2-D5's letters D2-D5 were not asking to

be released in respect of 'future transactions'; (3) D2-D5 were thus still liable under

the letter of guarantee.

Digest :

Malayan Banking Bhd v Bakelite Manufacture Sdn Bhd & Ors Civil Suit No

C6068 of 1985 High Court, Kuala Lumpur (Zakaria Yatim J).

2405 Guarantee -- Equity

3 [2405] CONTRACT Guarantee – Equity – Chargee obtained order for sale of land

but sale was not completed – Chargee sued guarantor – Whether there arises

equity in guarantor's favour to bar chargee's action against guarantor until

sale is completed

Summary :

D lent money to A1 secured by a third party charge over PD Sdn Bhd's land. A2

was the guarantor of the loan. A1 defaulted on the loan. D applied for and obtained

an order for sale of PD Sdn Bhd's land. The successive auctions of PD Sdn Bhd's

land were however unsuccessful. D then sued A1 and A2. D obtained summary

judgment against both A1 and A2 from the learned senior assistant registrar. A

appealed to the High Court. A firstly argued that the order for sale is a judgment

and once it was obtained, all the causes of action available to D in respect of the

loan merged. Accordingly D's action in respect of the loan should not be allowed

until the sale of PD Sdn Bhd's land was effected. A also alleged that D's action on

the covenant to pay and the separate charge action in respect of PD Sdn Bhd's land

amounted to duplicity of proceedings. A finally argued that once D obtained an

order for sale, there arose an equity in favour of A2 which disallowed D's action

against him until the sale was completed.

Holding :

Held, dismissing the appeal: (1) an order for sale of land under s 256(3) of the

National Land Code 1965 cannot amount to a judgment under O 42 r 1 of the

Rules of High Court 1980 because no execution proceedings can be instituted on

such an order. The doctrine of merger does not therefore apply; (2) it is not the

practice in Malaysian courts to seek an order for sale and a judgment on the

covenant to pay in the same proceedings. In Malaysia, a charge action is

commenced by way of an originating summons and a separate writ action is

commenced on the covenant to pay as against the borrower and/or guarantor. Such

an accepted practice is given judicial notice; (3) in any event, even if the order for

sale of land and judgment on the covenant to pay could be sought in the same

action, there was no duplicity of proceedings if separate actions were taken to

obtain the order for sale and judgment on the covenant to pay; (4) D was only

entitled to apply for an order for sale of PD Sdn Bhd's land and could not apply for

judgment on the covenant to pay as against PD Sdn Bhd. There was therefore no

duplicity of proceedings when D sued A on the covenant to pay; (5) obiter dicta of

a case refer to statements made 'by the way as it were' which are not necessary for

the decision arrived at. As such, obiter dicta should not be given the weight of the

decision of the case or the grounds of that decision; (6) even if a guarantor can

raise an equity in his favour, he can only obtain a stay of execution of the judgment

obtained against him until the sale has been completed or until it has been shown

that the sale cannot be effected within a reasonable time; (7) leave to defend is

given where a difficult question of law is raised but in this case the conflict of

authority has now been resolved. The points raised by A are now unarguable.

Digest :

Supreme Finance (M) Bhd v Bukit Barat Development Sdn Bhd & Anor Civil Suit

No C23-2717-86 High Court, Kuala Lumpur (VC George J).

2406 Guarantee -- Estoppel

3 [2406] CONTRACT Guarantee – Estoppel – Failure to execute guarantee –

Estopped by conduct from denying intention to give guarantee – No duty to

advise defendant to seek independent legal advice – No satisfaction of

judgment sum from principal debtors – Whether claim had been

compromised

Summary :

The defendant appealed an order granting the plaintiffs' application for a

declaration that pursuant to an agreement with the defendant in conjunction with a

settlement, the defendant was obliged to execute a personal guarantee; an order for

specific performance of the execution of the guarantee in the terms of the draft

guarantee; an order that the Registrar of the Supreme Court be authorized to

execute the guarantee if the defendant failed to do so within the stipulated period

and that the signature by the registrar will have the same effect as execution by the

defendant and costs. By a deed of assignment and a mortgage in escrow, a

company mortgaged a property to the plaintiffs to secure a loan. In consideration

of the loan, a joint and several guarantee was executed whereby the signatories

undertook to pay the loan or any balance with interest due and owing on demand in

writing from the plaintiffs. The mortgaged property was sold in March 1989 but

the proceeds were insufficient to settle the loan and in August 1991, a suit was

brought for the balance. An agreement was reached to settle for a lesser sum of

S$550,000 on the conditions that an initial sum of S$50.000 be paid with monthly

instalments of S$5000 commencing in October 1991; the parties consent to

judgment in the suit; the defendant (the son of the signatories) execute a

guarantee/indemnity to guarantee due performance and indemnify the plaintiffs in

respect of any loss, damage or expense arising as a result of any default by the

parties with an undertaking that the defendant pay the total amount on demand plus

interest in the event of default; the three parties indemnify the plaintiffs in respect

of all legal costs and the plaintiffs would not waive any indebtedness until they had

received full payment. Despite several requests for the defendant to execute the

guarantee, he failed to do so. Between September 1991 and June 1992, the

defendant paid the instalments then defaulted with the result that the whole amount

became due and payable. The plaintiffs commenced proceedings. In an affidavit

opposing the application, the defendant claimed, inter alia, that he had not

understood the full significance of what he was signing when he signed the letter

of confirmation, which was undated. Further, he claimed that the company had

incurred substantial interest as a result of the late release of funds by the plaintiffs

and that he had a good defence as the plaintiffs had elected to take judgment

against the three parties in the suit, they were precluded from taking proceedings

against him.

Holding :

Held, granting the plaintiffs an order in the terms of their application: (1) the

defendant knew the purpose and nature of the letter of confirmation when he

signed it. He was educated and read the letter himself. He knew the plaintiffs and

his father wanted him to sign the guarantee for the company debts. He then paid

the instalments for nine months after signing the letter; (2) the law does not impose

a duty on the plaintiffs to advise the defendant to seek independent legal advice as

there was no fiduciary or confidential relationship between them; (3) the wording

of the letter of confirmation clearly showed that as between the defendant and his

parents and the company, his liability was secondary. The plaintiffs were not

precluded from instituting an action against him as they had not obtained

satisfaction of the judgment sum from the principal debtor; (4) as the plaintiffs had

not compromised their claim, they were not estopped from enforcing the letter of

confirmation against the defendant. The defendant was estopped from raising any

objections to the plaintiffs' enforcement of their rights as his conduct subsequent to

the signing of the letter led them to believe that he would and indeed did comply

with the settlement agreement in making the payments; (5) the defendant had not

shown in either his affidavits or arguments any valid reason why the letter of

confirmation should not be enforced.

Digest :

Hong Leong Finance Ltd v Son Boon Seng Originating Summons No 1175 of

1993 High Court, Singapore (Lai Siu Chiu J).

2407 Guarantee -- Execution of undated guarantee

3 [2407] CONTRACT Guarantee – Execution of undated guarantee – Whether

guarantor bound by guarantee

Summary :

The first defendant company obtained judgment against company M in an earlier

suit. M settled the judgment debt only in part. The plaintiff and Lee were directors

of M and guaranteed the outstanding amount due to the first defendant. The

guarantee was undated. Lee then appointed the second defendant law firm to

represent him, M and the plaintiff (in his absence as he could not be located), to

protect the interests of all the defendants in that earlier suit. The second defendant

negotiated the settlement terms and a consent judgment was entered between all

the parties. The sealed copy of the consent judgment was extracted. The plaintiff

now claimed that he only learned of the earlier suit when he was served with a

bankruptcy notice a year later. He denied authorizing Lee to act on his behalf. The

plaintiff brought an action to impeach the consent judgment obtained in the earlier

suit. The defendants sought to strike out the action by the present application.

Holding :

Held, allowing the application; (1) an application to strike out pleadings under O

18 r 19(2) of the Rules of the High Court 1980 must not be considered with

evidence. However, the courts have now resorted to the affidavits to adjudicate

such applications. Affidavits in support of such applications should contain

particulars and not bare averments. Even after pleadings are closed, applications

for striking out may still be made so long as the action has not been set down for

trial; (2) since the sealed copy of the consent judgment had been extracted, the

court did not have the power to recall its judgment. A consent judgment which has

been perfected and extracted cannot be rectified by alteration or variation; (3) once

the defendants filed the memorandum of appearance, its authenticity could not be

questioned; (4) the second defendant had implied authority to act for the plaintiff in

the earlier suit; (5) while the general rule is that no person is to be adversely

affected by a judgment in an action he was not a party to, there were two

exceptions: a privy who is estopped by res judicata, and a person whose conduct

precludes him from challenging the judgment; (6) the guarantee agreement was

valid even though it was undated when signed, because it was signed by a director

and there was no fraud or misrepresentation; (7) there was no slip of the type

envisaged by the slip rule in O 28 r 11 of the Rules of the Supreme Court (O 20 r

11 of the Rules of the High Court).

Digest :

Siang Yam Beng v Marushin Canneries (M) Sdn Bhd & Anor [1995] 4 MLJ 691


2408 Guarantee -- Granting of, whether prohibited

3 [2408] CONTRACT Guarantee – Granting of, whether prohibited – Whether

ultra vires company's objects – Construction of objects clause in light of

statutory prohibition – Meaning of 'investment', 'carrying on business',

'borrowing company' – Whether guarantee amounts to granting unsecured

credit facilities – Whether granting of guarantee a 'dealing' in foreign

exchange currency – Finance Companies Act 1969, ss 2, 4, 6 & 20(1)

Summary :

The appellant is a licensed borrowing company within the meaning of the Finance

Companies Act 1969 ('the Act'). On 25 August 1980, the appellant entered into an

agreement with the respondent, agreeing to guarantee the repayment of all moneys

owing by a third party ('the principal debtor') to the respondent. The respondent

brought this action against the appellant, having obtained judgment against the

principal debtor for the balance of the amounts owing by the latter. The appellant

having denied liability under the guarantee on several grounds, by consent of all

parties, the matter was brought before the High Court under O 33 r 2 of the Rules

of the High Court 1980 for the determination of preliminary issues of law. The trial

judge having decided the issues raised in favour of the respondent, the matter was

brought before the Supreme Court and arguments raised on substantially the same

issues. The appellant contended that: the activities of the appellant was governed

by the Act, in particular s 2 which defines 'borrowing business' as, inter alia, the

'investment ... by the borrower ... of the borrower's funds', and s 4 which prohibits

the appellant from carrying on business other than borrowing business, and that: (1)

the guarantee was not an investment as there was no application of money in the

purchase of some property from which interest or profit was expected and which

property was purchased in order to be held for the sake of income which it could

yield; (2) the issuance of guarantee, not being a borrowing business, was

prohibited by s 4 of the Act and, not being an investment, was therefore void and

unenforceable by the operation of s 24 of the Contracts Act 1950; (3) the guarantee

was tantamount to granting to the principal debtor unsecured credit facilities,

thereby enabling the principal debtor to receive cash, goods and/or services from

the creditor or a third person and was in contravention of s 20(1) of the Act; (4) the

issuance of the guarantee amounted to a dealing by the appellant in foreign

exchange currency which was prohibited by s 6 of the Act. As one of the grounds

of his decision, the trial judge had concluded that the term 'investment' set out by

Macnaghten J in IRC v Rolls-Royce [1944] 2 All ER 340 and by Lord Greene MR

in IRC v Desoutter Bros [1946] 1 All ER 58 was not exhaustive and that the giving

of guarantees as a business was an investment within s 2 of the Act.

Holding :

Held, dismissing the appeal: (1) the distinction between the primary objects and

the powers of a company has a decisive bearing on the determination of the appeal.

Having regard to s 49 of the Act, which provides that the Act shall be without

prejudice to the provisions of the Companies Act 1965 and that where there is a

conflict between the two Acts, the former will prevail, the objects clause in the

memorandum of association of the appellant must be examined in the light of ss 2

and 4 of the Act. Only objects which conform to the requirements and/or fall

within the scope of s 2 would be regarded as primary objects of the appellant. All

other clauses in the memorandum of association which do not so conform must

either be regarded as powers of the appellant (where they can be regarded as

ancillary to the primary objects) or must necessarily be ignored and regarded as

prohibited by virtue of s 4; (2) having regard to the appellant's memorandum of

association, the objects which fall within the definition of borrowing business can

be easily identified. The clauses relating to granting of guarantees are not such

objects and must, by their very nature, be regarded as powers which are ancillary

to the primary objects. That being the case, the provision of guarantee by the

appellant company cannot form part of its borrowing business. The issuance of the

guarantee is, therefore, not caught by s 4 of the Act and is instead valid and

enforceable against the appellant; (3) the words 'carrying on business' has been

interpreted to connote a succession of acts having the acquisition of gain for their

object. In the instant case, there was no disclosure in what manner, if the issuance

of a guarantee was regarded as a business, a profit would be derived therefrom or

that there was a succession of issuance of guarantees by the appellant. Under the

circumstances, the only conclusion possible is that the appellant did not in this

instance carry on the business of providing guarantees; (4) the issuance of the

guarantee to the respondent cannot be construed as a granting of credit by the

appellant. In granting the guarantee, there was no financial accommodation coming

from the appellant in favour of the respondent, nor can there be since the

guarantor's undertaking is always a collateral undertaking to answer for the debt or

to fulfil the obligation of another on his default; (5) the contention that the issuance

of the guarantee amounted to a dealing by the appellant in foreign exchange

currency in contravention of s 6 of the Act is equally untenable. In the court's view,

the word 'dealing' in s 6 of the Act cannot be construed to include the issuance of a

guarantee in the sense that it is tantamount to either buying, borrowing, selling or

lending of foreign currency. The ground is without merit; (6) (held further,

overruling the lower court) the trial judge was wrong to extend the meaning of

'investment' to include the issuance of guarantees; (7) applying Desoutter's case,

the word 'investment' is not a term of art and the court must look at the statutory

provision in which the word is used, and interpret it according to its popular

conception. In the instant case, the key words in s 2 of the Act are 'the investment

of the borrower of the borrower's funds'. It is explicit from this definition that there

must be 'investment of the funds' in the popular sense, namely, the laying out of

money in the purchase of some property from which interest or profit is expected

and which property is purchased in order to be held for the sake of the income

which it will yield. Consequently the provision of the guarantee does not come

within the meaning of 'investment'; (8) further, in all the leading cases, the element

of income features prominently and plays a decisive role on whether the money or

property from which it was derived was an investment. In the instant case, as there

was no compelling evidence of the fiscal advantages of issuing guarantees as a

business, it would not be justifiable for the court to make an affirmative

determination on an important issue such as this grounded on mere speculation; (9)

(per curiam) 'Since we are at this stage dealing primarily with preliminary points of

law, we are not precluded from dealing with any points of law relevant and

applicable to the determination of the issues even if they were never adverted to

and canvassed by both counsel, inadvertently or otherwise, or because it never

occurred to them that these points of law were relevant to the proper determination

of the issues on account of wrong perception of the crux of those issues. To arrive

at the correct decision, consideration of any points of law which have a crucial and

decisive bearing on the determination of the issues before us is not only fully

justified but also necessary as to do otherwise would leave the questions of law

fully unanswered, thereby causing more injustice.'

Digest :

Arab Malaysian Finance Bhd v Meridien International Credit Corp Ltd London

[1993] 3 MLJ 193 Supreme Court, Malaysia (Jemuri Serjan CJ (Borneo).

2409 Guarantee -- Guarantee and indemnity

3 [2409] CONTRACT Guarantee – Guarantee and indemnity – Discharge of

guarantee – Need for acknowledgment

Summary :

The plaintiffs' claim is for S$192,962.08 plus interest against the defendants as

guarantors under a guarantee and indemnity dated 6 January 1982. The present

action proceeded only against the first and third defendants. The said defendants

denied liability on the grounds that they had given notice by way of post to

terminate the guarantee to take effect six months from 22 December 1982; that

there was a material variation in the terms of the contract in that the facility amount

was increased from S$300,000 to S$350,000 without their consent; and that the

plaintiffs continued financing the beneficiary even though they knew that the

beneficiary was in breach of the financing agreement.

Holding :

Held, allowing the claim: (1) the defendants, having received no acknowledgment

or confirmation from the plaintiffs that they would be discharged, took no steps to

ensure that their liabilities were indeed discharged; (2) by the terms of the

guarantee the defendants guaranteed the payment by the beneficiary of all sums

due under the financing agreement and also undertook to indemnify the plaintiffs

against all losses arising as a result of the beneficiary's failure to pay. There was no

limit set nor was there any collateral agreement or warranty to the defendants that

the limit would be S$300,000 and no more. Otherwise a limited guarantee would

have been entered into; (3) further financing was stopped after it was discovered

that the goods had been sold on a 'returnable' basis.

Digest :

Hong Leong Finance Ltd v Tan Kia Poh & Ors Suit No 7079 of 1985 High Court,

Singapore (Goh Joon Seng J).

2410 Guarantee -- Guarantee for loan facility

3 [2410] CONTRACT Guarantee – Guarantee for loan facility – Guarantee dated

after loan disbursement – Whether there was consideration for guarantee –

Whether guarantee was wrongly dated – Loan given for benefit of defendant –

Evidence Act, s 92 – Contracts Act 1950, ss 2(d) & 80

Summary :

This was a claim made by the plaintiff against the sixth defendant pursuant to a

guarantee in writing. The sixth defendant was a shareholder and director of the first

defendant. The first defendant purchased a parcel of land from the plaintiff, which

purchase was financed partly by a loan facility from the plaintiffs. There was thus a

guarantee by the directors of the first defendant with regard to this grant of the loan

facility. The date given in the guarantee was 18 June 1982 whilst the loan of the

first defendant was debited on 31 May 1982. The sixth defendant contended that

there was no consideration for the guarantee.

Holding :

Held, allowing the plaintiff's claim: (1) the plaintiff relied quite heavily on the

testimony of PW1 and it was the testimony of PW1 that the guarantee was duly

signed in March 1982. Having considered as a whole the evidence of PW1 and that

of the sixth defendant, the court was inclined to say that the version of PW1 was

more credible; (2) besides what was said by PW1, there was also documentary

evidence which favoured his version. For instance, the cover letter addressed to the

first defendant enclosing the various documents, including the guarantee, was

dated 8 March 1982. And the cover letter from the plaintiff addressed to the legal

firm of PW1 enclosing the documents duly signed by the plaintiff was dated 20

March 1982 as well; (3) the court was satisfied on the balance of probabilities that

the plaintiff had established that indeed the sixth defendant signed the guarantee in

March 1982; (4) the plaintiff should be entitled to invoke proviso (a) of s 92 of the

Evidence Act to admit oral evidence regarding the date of the signing of the

guarantee. The evidence adduced showed that the guarantee was wrongly dated; (5)

the evidence adduced did show, if not directly, at least by implication, that the loan

was given to the first defendant on request and for the benefit of the first defendant.

Accordingly, even if the guarantee was said to have only been signed on 18 June

1982, ie after the release of the loan on 31 May 1982, the plaintiff should be able to

rely on ss 2(d) and 80 of the Contracts Act.

Digest :

Borneo Development Corporation Sdn Bhd (in Voluntary Liquidation) v Concept

Marketing (Sandakan) Sdn Bhd & Ors Suit No S66 of 1989—High Court,

Sandakan (Richard Malanjum J).

2411 Guarantee -- Guarantor's liability

3 [2411] CONTRACT Guarantee – Guarantor's liability – Amount demanded

exceeding limit under guarantee – Whether demand bad – De minimis rule

Summary :

By a letter of guarantee, D2 and D4 jointly and severally guaranteed the payment

to P on demand of all sums of money owing from D1, P's customer, but up to a

limit of M$150,000. Upon default by D to pay the sum owing, P sued D for the

sum in question. P obtained O 14 judgment against D2 and D4 who appealed to the

High Court. It was contended, inter alia, that P's demand made on D2 and D4

pursuant to the guarantee was bad as it was for a sum of M$150,120.67 which

exceeded the limit provided under the guarantee.

Holding :

Held, dismissing the appeals: (1) having regard to the conclusive evidence clause

in the guarantee and s 3 of the Bankers' Books (Evidence) Act 1949, D2 and D4

were estopped from questioning the correctness of the amount certified by P to be

owing by D1; (2) in any event, in the circumstances of the instant case, the

application of the de minimis rule would overcome the contention that the demand

was bad being in excess of M$150,000 by M$120.67; (3) as there were no triable

issues raised by D2 and D4 which warranted a full trial, their appeals were

dismissed by the court.

Digest :

Chung Khiaw Bank Ltd v Entlink Sdn Bhd & Ors Civil Suit No D3-23-2453-87

High Court, Kuala Lumpur (VC George J).


3 [2412] CONTRACT Guarantee – Guarantor's liability – Attestation of

guarantor's signature – Signature of guarantor attested by an undischarged

bankrupt – Whether judgment ought to be given against the guarantor

Summary :

The first defendant failed to satisfactorily service the loan facilities given by the

plaintiff. The plaintiff sued and obtained judgment against the first defendant and

three other defendants who were the guarantors for the loan. The third defendant

appealed. The main ground of appeal was that the plaintiff obtained judgment

against the third defendant under O 14 of the Rules of the High Court 1980 in spite

of his signatures on the debentures being attested by a director who was an

undischarged bankrupt.

Holding :

Held, dismissing the appeal: the point taken up by counsel for the third defendant

was devoid of any merit since he was unable to point to any provision of the law

where the third defendant could not sign in the circumstances he did. No provision

of the law was pointed to the court which forbade an undischarged bankrupt from

witnessing a signature. In this case, the third defendant did sign and became a

guarantor.

Digest :

Lim Wah Siang v Perwira Affin Bank Bhd [1997] 1 MLJ 374 Court of Appeal,

Kuala Lumpur (Mahadev Shankar, Abu Mansor and Abdul Malek Ahmad JJCA).


3 [2413] CONTRACT Guarantee – Guarantor's liability – Construction of

guarantee – Whether guarantee invalid

Summary :

By a consumer contract made between P and H Sdn Bhd, P agreed to supply shell

petroleum products on credit to H Sdn Bhd and to the various companies listed in

the contract. In respect of purchases by the companies, the invoices, for billing

purposes, would be in the name of the company placing the order and addressed to

H Sdn Bhd for payment. In consideration of P agreeing to supply the products on

credit to H Sdn Bhd, D agreed to guarantee the due payment, on demand by P, of

all such products. From time to time, P supplied the products as providedg for

under the terms of the said arrangement. Upon H Sdn Bhd defaulting in payment of

the products supplied, P claimed the sum in question against D. P applied under O

18 r 19 of the Rules of the High Court 1980 for D's statement of defence to be

struck out on the ground that it disclosed no reasonable defence and that it was

frivolous and vexatious. In the alternative, P applied for summary judgment for the

sum in question. D opposed the application made under O 18 r 19 contending that

triable issues had been raised in the statement of defence. In regard to the O 14

application, D contended that it should be dismissed as there was inordinate delay

on the part of P in making the application.

Holding :

Held, allowing P's application to strike out the statement of defence: (1) in the

instant case, there was a delay of nearly 16 months before P applied for summary

judgment under O 14. As P had given no satisfactory explanation for the delay, the

court dismissed the O 14 application; (2) however, such a delay on the part of P in

making the application to strike out the defence is not fatal in the circumstances as

the application may be made even after the pleadings are closed; (3) in the instant

case, there was evidence to show that the service of the notice of demand on D was

properly made. It could not also be denied that there was consideration for the

guarantee which was in the nature of a continuing guarantee; (4) in the instant case,

the amounts claimed by P were covered by the guarantee as they were the debts of

H Sdn Bhd. The court took the view that a guarantee should be considered simply

like any other commercial contract. It must be construed reasonably not only by

the words used but also with regard to the surrounding circumstances. Thus, it

should be given a reasonable business meaning and should not be construed so as

to render it ineffective or illusory; (5) in the result, the court found that D had

failed to show that he had a reasonable defence. As the statement of defence was

frivolous, vexatious and an abuse of the process of the court, it was struck out and

judgment was, accordingly, entered for P.

Digest :

Shell Marketing Co of Borneo Ltd v Tan Sri Datuk Wee Boon Ping Civil Suit No

K776 of 1987 High Court, Kota Kinabalu (Mohamad Noor J).


3 [2414] CONTRACT Guarantee – Guarantor's liability – Guarantors liable to pay

on demand – Creditor extending time to pay to principal debtor – Whether

claim against guarantors premature – Interpretation of guarantee

Summary :

P appealed against the decision of the senior assistant registrar refusing to grant P's

application to enter judgment against D for sums of money due on overdraft

facility and trust receipt facility granted by P to D1. P also appealed against the

order of the registrar granting D unconditional leave to defend the action.

Alternatively, P applied for an order that the defence of D be struck out and

judgment be entered in favour of P. D2-D5 were guarantors, who by letters of

guarantee, agreed to pay on demand all sums from D1 to P. Counsel for D

submitted that the claim against D1 was premature as P had agreed to grant D1

time to settle the outstanding sums. Counsel also submitted that D2-D5's liability to

pay had not yet arisen due to P granting time to D1 to pay the debt.

Holding :

Held, dismissing P's appeal against D1 and allowing the appeal against D2-D5: (1)

in the instant case, the question which arose for consideration was whether P's

claim against D1 was premature in view of the extension of time given by P to D1

to pay the outstanding sums. D1 had accordingly succeeded in raising triable issues.

P's appeal against D1 was dismissed by the court; (2) in the case of D2-D5, having

regard to the letters of guarantee signed by them, their liability to pay was not

affected in any way by P granting time to D1 to pay the debt. By the letters of

guarantee, D2-D5 agreed to pay P on demand made upon them. In view of the

provisions contained in the letters of guarantee and in the circumstances of the case,

D2-D5 had no defence to the claim. The court accordingly allowed P's appeal

against them.

Digest :

Development & Commercial Bank Bhd v Uni-Commercial Sdn Bhd & Ors Suit

No C3-23-4424-86 High Court, Kuala Lumpur (Zakaria Yatim J).


3 [2415] CONTRACT Guarantee – Guarantor's liability – Hire-purchase agreement

– Arrears of hire-rent – Hire-purchase - Repossession by owner - Notice to

terminate - Claim of arrears of hire-rent - Right to recover - Hirer cannot

recover any payment made under agreement - Contracts (Malay States)

Ordinance 1950, ss 75 and 98.

Summary :

The was an appeal from the decision of the High Court on a claim by the

appellants for instalments due under a hire-purchase agreement of a tractor. The

hirer had paid the initial payment of RM6,451 under the agreement and up to 6

May 1994 had paid by way of hire-rent the sum of RM13,336 when the total

amount due as hire-rent was RM33,124, so that by that date he was in arrear with

the rent to the extent of RM19,788. The appellants sent a letter to the hirer

informing him that as he had failed to pay the instalments they had instructed their

representative to repossess the tractor. The learned trial judge found that no notice

was required to terminate the hiring but if notice was required the letter was

sufficient notice for that purpose. He also held that the respondent as guarantor was

liable to pay the sums due under the agreement. The learned trial judge then found

that the amount recoverable was RM3,047 made up as follows: The agreed hire-

purchase price was RM49,034, the first defendant had paid a total of RM19,787

and therefore the balance of the purchase price was RM29,247. The appellants

resold the seized tractor for RM32,200 after spending RM6,000 on the repairs, so

the amount they recovered was RM26,200. The learned trial judge gave judgment

for the appellants for the difference, that is RM3,047.

Holding :

Held, allowing the appeal: (1) the learned trial judge had misdirected himself in

law and had failed to distinguish between the claim for arrears of monthly hire-rent

and the claim by way of compensation for depreciation. The appellants were

entitled to recover the balance of instalments due, and the amount already paid by

the hirer and the amount realized by the resale of the property were wholly

irrelevant to this claim; (2) no case had been made out by the respondent for

equitable relief which could exempt him from liability to pay the hire-rent; (3) the

appellants were therefore entitled to judgment in the sum of RM19,788 in respect

of arrears of hire-rent and RM500 in respect of repossession fees making a total of

RM20,288 with interest as claimed.

Digest :

Anglo-American Corp (M) Sdn Bhd v Datok Phua Cheng Leong [1969] 2 MLJ 12

Federal Court, Kuala Lumpur (Azmi LP, Suffian and Gill FJJ).


3 [2416] CONTRACT Guarantee – Guarantor's liability – Hire purchase of tractors

– Dealers recourse agreement – Guarantees given in favour of financier –

Default – Assignment of guarantees by financier to dealer – Whether dealer

could recover from guarantors after having indemnified financier

Summary :

The plaintiffs sold the first defendant two tractors. The first defendant entered into

hire-purchase agreements with a financier for the tractors. The plaintiffs also

signed a dealers recourse agreement with the financier. The second and third

defendants guaranteed the first defendant's payments, and indemnified the

plaintiffs against losses suffered through the first defendant's default. The

guarantees were signed between the financier and the guarantors. The first

defendant failed to pay the instalments, and the financier repossessed the tractors.

The plaintiffs indemnified the financier for the losses on a recourse basis, and then

claimed from the second and third defendant guarantors. (The financier assigned

the guarantees to the plaintiffs.) The preliminary objection of the second and third

defendants were that the plaintiffs had failed to plead the dealers recourse

agreement from whence their rights originated; the assignment of the guarantees by

the financier to the plaintiffs; and the notice of the assignment of the guarantees.

The plaintiffs had also failed to give written notice of such assignment before the

commencement of this action, contrary to s 4(3) of the Civil Law Act 1956.

Holding :

Held, upholding the preliminary objection: the plaintiffs' right to sue depended on

a written assignment of the guarantees to them, and written notice of the

assignment being given to the guarantors before the commencement of the action.

Since this had not been done, the averments were out of s 4(3) of the Civil Law

Act. The parties were bound by their pleadings.

Digest :

UMW (East Malaysia) Sdn Bhd v Syarikat World Business & Ors Suit No K34 of

1984 High Court, Kota Kinabalu (Tee Ah Sing JC).


3 [2417] CONTRACT Guarantee – Guarantor's liability – Interpretation of

guarantee – Whether creditor entitled to proceed against guarantor instead of

chargor for realization of debt – Bank Bumiputra Malaysia Bhd v Esah bte Abdul

Ghani [1986] 1 MLJ 16 (apprvd) Malaysian International Merchant Bankers Bhd

v G & C Securities Sdn Bhd & Anor [1988] 2 MLJ 471 (apprvd) Bank Bumiputra

Malaysia Bhd v Doric Development Bhd & Ors [1988] 1 CLJ 311

(apprvd) Malaysia Building Society Bhd v Lim Kheng Kim & Ors [1988] 3 MLJ

175 (approvd) Re Majory [1955] 1 Ch 600 (consd) Re Fraser [1892] 2 QB 633

(consd) Re Davies (1876) 3 Ch D 461 (consd) Re Flatau (1888) 22 QBD 83

(consd) Sovereign General Insurance Sdn Bhd v Koh Tian Bee [1988] 1 MLJ 304

at 305 (apprvd) Lesco Development Corp Sdn Bhd v Malaysia Building Society

Bhd [1988] 2 MLJ 184 (distd)

Summary :

P sued D, the guarantor, to recover the amount owing by X, the borrower, to whom

P had lent a sum of money. Judgment in default was obtained against D.

Subsequently, bankruptcy proceedings based on that judgment was instituted

against D. D applied for the bankruptcy proceedings to be set aside or to be stayed

under s 97 of the Bankruptcy Act 1967. D contended that as his liability only arose

when the proceeds of sale of the land were insufficient to pay all moneys due to P

by X, P was estopped from proceeding against him after foreclosure of the land in

the originating summons. D also contended that the civil suit was brought

prematurely against him as no proper letter of demand was sent to him so that the

default judgment obtained therein was not proper and accordingly the bankruptcy

proceedings based on that judgment should not be allowed. It was further

contended that the creditor's petition was bad in law as it wrongly stated that the

act of bankruptcy occurred on a day which was one day before the event.

Holding :

Held, allowing P's petition: (1) it is clear from the authorities that where a loan has

been secured by two collateral securities, one in the form of a charge and the other

in the form of a guarantee, there is nothing to prevent the lender from proceeding

against the guarantor instead of the chargor for realization of the debt. In the

instant case, whether D's liability had arisen must depend upon the terms of the

guarantee agreement executed between the parties. Under cl 6 of the guarantee, the

liability incurred by D was as principal debtor and not merely as surety. The court,

accordingly, found no merit in D's contention that P was estopped from proceeding

against him after foreclosure of the land in the originating summons; (2) in the

instant case, the question of the propriety of the notice of demand was argued at

length by counsel for D at the hearing of the O 14 application but was rejected by

the senior assistant registrar who gave summary judgment in favour of P. No

appeal was lodged by D against the judgment nor was there any application for

stay of proceedings as a result of it. The court accordingly held that in the absence

of any fraud, collusion or miscarriage of justice having been established, the

validity of the final judgment could not be inquired into. In any event, the

guarantee agreement in the instant case did not specifically provide for an actual

notice of demand to be sent to D before any liability could arise against him; (3) in

the instant case, the misstatement in P's petition was merely a formal defect or

irregularity which was remediable under s 131 of the Bankruptcy Act 1967 as no

injustice could be said to arise from it. There was no evidence that D attempted to

pay up at any time before the day in question; (4) the court, however, ordered a

stay of the bankruptcy proceedings pursuant to s 97 of the Bankruptcy Act 1967

pending the judicial sale of the land with liberty to P to apply if the sale should

prove abortive. As the sale had proven abortive and upon the application of P, the

court made a receiving and adjudication order against D.

Digest :

Re Tosrin bin Jarvanthi, ex parte Equity Finance Corp Bhd [1989] 3 MLJ 428 High

Court, Johore Bahru (LC Vohrah J).



guarantee – Whether guarantor discharged from liability under guarantee upon restructuring of credit facility – Heng Cheng Swee v Bangkok Bank

Ltd [1976] 1 MLJ 267, 274 (cited) Bank Bumi v Kredin [1989] 1 MLJ 323, 325

(cited) MIMB v G & C Securities (Kuala Lumpur High Court Civil Suit 23-

1657-86) (unreported) (cited) Bank Bumi v Doric Development Sdn Bhd [1984] 1

MLJ 222 (cited) Burnes v Trade Credits Ltd [1981] 2 All ER 122 (distd) National

Bank of Greece SA v Pinios Shipping Co (No 1) [1989] 1 All ER 213 (cited)

Summary :

P sued D4 pursuant to a guarantee by which D4 guaranteed the repayment of all

moneys due and payable by D1 to P. P had earlier provided D1 with a term loan

and a revolving credit facility. P applied for summary judgment to be entered

against D4. D4 contended that they were discharged from all liabilities under the

guarantee as P had restructured the facility or deferred the repayment schedule. D4

contended that this was a triable issue. The senior assistant registrar dismissed P's

application and P appealed to the High Court.

Holding :

Held, allowing the appeal: (1) with regard to the terms of the guarantee, D4 was

not discharged from its liability under the guarantee until all amounts payable by

D1 had been paid. In any event, D4 by the terms of the guarantee had bargained

away its rights to make complaints on matters which it sought to have issues tried.

Under the terms of the guarantee, P was not even obliged to give reasons for delay,

indulgence, consent and so on; (2) as there were no bona fide triable issue raised in

the appeal, P was granted leave to enter final judgment against D4.

Digest :

D & C Nomura Merchant Bankers Bhd v Gunung Kuari Sdn Bhd & Ors Civil Suit

No C23-537-86 High Court, Kuala Lumpur (VC George J).



guarantees – Whether creditor in breach of its obligations under guarantees

Summary :

D sued P, the guarantors, pursuant to two guarantees executed in 1986. P alleged,

inter alia, that D, the creditor, had not fulfilled its own obligations under the

guarantees in that it had failed to lend a further B$2m. P had earlier in 1981

executed five guarantees with D for certain sums of money advanced by D. The

registrar gave P unconditional leave to defend the action brought by D. On appeal

by D, the High Court reversed the decision of the registrar. Hence, the present

appeal by P to the Court of Appeal.

Holding :

Held, dismissing the appeal: (1) in the instant case, there was nothing in the

guarantees executed which imposed on D the obligation to lend to the principal

debtor a further B$2m. Upon a true construction of the documents, the amount to

be lent was up to the discretion of D; (2) the court dismissed the counterclaim of

P1 and P4 as the issues in the counterclaim were the same as those in the claim and

depended likewise upon P being able to establish upon D an obligation to lend a

further B$2m.

Digest :

Yong Tze Kiok & Ors v Citibank NA [1990] 1 MLJ 222 Court of Appeal, Brunei

(D Cons Ag President, DS Hunter and Bokhary, Commissioners).


3 [2420] CONTRACT Guarantee – Guarantor's liability – Loan to principal debtor

secured by absolute deed of assignment and guarantee – Deed of assignment

executed – Whether execution of absolute deed of assignment extinguished

debt – Whether guarantee not extant and consequently not available for

enforcement

See contract, para VIII [49].

Digest :

Raju Jayaraman Kerpaya v Chung Khiaw Bank Ltd [1997] 2 MLJ 590 Court of

Appeal, Kuala Lumpur (Gopal Sri Ram, Siti Norma Yaakob and Ahmad Fairuz

JJCA).


3 [2421] CONTRACT Guarantee – Guarantor's liability – Nature of – Loan to

principal debtor secured by registered charge and guarantee – Foreclosure

proceedings instituted by creditor against principal debtor – Whether creditor

estopped from enforcing guarantee

Summary :

P sued D in their capacities as guarantors for the repayment of a loan granted by P

to AP Sdn Bhd of which D were the directors at the material time. The loan facility

was secured by a first legal charge over a factory and the personal guarantees of D.

In their statement of defence, D raised two issues, namely, that the notices of

demand were bad in law and that there had been a variation in the amount

guaranteed. However, in a joint affidavit opposing P's ord 14 application, D had

also added a third issue in that P was estopped from enforcing the guarantee as

there were pending foreclosure proceedings instituted by P against AP Sdn Bhd to

realize the facility by the sale of the other security for the loan. The instant

application was an appeal by D against the summary judgment entered against

them by the senior assistant registrar.

Holding :

Held, dismissing the appeal: (1) it is a cardinal principle of pleadings that parties to

an action are bound by their own pleadings. By raising the issue of estoppel in their

affidavit for the first time, D were clearly seeking to improve on their statement of

defence. This was not permissible, particularly so in this case when the plea of

estoppel alone was relied upon as D chose to abandon the other issues raised in

their statement of defence; (2) the plea of estoppel merits no consideration as the

instant suit against D was to enforce a different security altogether to the one

commenced against AP Sdn Bhd, the principal debtor. There was nothing in the

guarantee which prohibited P from suing D just because there were pending

foreclosure proceedings instituted by P against the principal debtor; (3) in the

instant case, the fact that the guarantee itself contained a conclusive evidence

clause sealed D's liability under the guarantee; (4) D's appeal was, accordingly,

dismissed.

Digest :

Development & Commercial Bank Bhd v Abdullah bin Ismail & Anor Kod No

D2-23-130-88 Hgh Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2422] CONTRACT Guarantee – Guarantor's liability – Nature of – Loan to

principal debtor secured by registered charge and guarantee – Whether

creditor's right to enforce guarantee dependent upon whether there is a

shortfall in proceeds of sale in foreclosure proceedings

Summary :

P sued D for a sum of money due on a loan agreement. The agreement was signed

between P and D1 under which a fixed term loan was granted to D1. The loan was

secured by a first legal charge on a piece of property belonging to D2 and the joint

and several guarantee of both D2 and D3. The present suit was instituted against D

following their defaults. The senior assistant registrar allowed P's application for

summary judgment under O 14 of the Rules of the High Court 1980 for the sum

claimed against D1 as the principal debtor and D2 and D3 as guarantors. D

appealed against the decision of the senior assistant registrar on the ground that P

could only proceed against D2 and D3 if there had been a shortfall in the proceeds

of sale realized by the sale of D2's charged property. As the foreclosure

proceedings were still pending and the sale not finalized, D contended that P's

conduct in enforcing the guarantee against D2 and D3 was premature. Accordingly,

the right to sue against them had not arisen yet.

Holding :

Held, dismissing D's appeal: (1) in the instant case, only the liabilities of D2 and

D3 were disputed. As far as D1 was concerned, it was not questioning its liability

under the loan agreement; (2) the liabilities of D2 and D3 are personal liabilities

and are in no way affected by the charge created by D2 in favour of P. As the

chargee, P was at liberty to seek the directions of the court or the Land

Administrator regarding the sale of D2's land to offset the amount due to it. This

was an action in rem and very distinct from the action in personam available under

the contract of guarantee against D2 and D3; (3) the presence of cl 28 in the charge

documents, which seeks to cover the situation where the proceeds of sale were

insufficient to satisfy the amount due on the loan agreement, in which case D2, as

chargor, was expected to meet the difference, did not abrogate the right of P to

elect which of two securities it wished to proceed with. P may even enforce both

securities, as was done in this case, if it was found that one security was

insufficient to settle the debt; (4) the appeal of D was, accordingly, dismissed by

the learned judge.

Digest :

Kwong Yik Finance Bhd v Mutual Endeavour Sdn Bhd & Ors [1989] 1 MLJ 135

High Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2423] CONTRACT Guarantee – Guarantor's liability – Nature of – Whether

guarantor liable as principal debtor under guarantee – Whether prior

demand a condition precedent to creation of liability in guarantor

Summary :

P applied for summary judgment against D3 for a sum of money owing by D1. D3

had, together with the other directors of D1, guaranteed repayment of the sum

pursuant to a letter of guarantee. D3 was also a director of D1 to which P had

granted overdraft facility. P had earlier given notice by AR Registered letter to D3

and the other directors that they required the balance sum owing by D1 to be

settled within seven days. D3 and the other directors ignored the notice. The only

ground on which D3 denied liability to pay the sum claimed was that P's letter

aforesaid was not a proper demand and as no demand had been made from him for

payment of the same, action of P was premature.

Holding :

Held, allowing P's application: (1) the issue as to whether a prior demand is a

condition precedent to the creation of liability in a guarantor must depend on the

precise terms of the guarantee. Regard must be had to the language of the

instrument and the nature of the liability which it creates; (2) under the first clause

of the letter of guarantee, the obligation of D3 was not a collateral promise to pay

on demand if the primary debtor did not pay. Clause 14 made each of the

guarantors a principal debtor; (3) in the instant case, no antecedent demand was

required to create a cause of action and the mere filing of the writ and the service

thereof was a sufficient demand obliging D3 to pay. In any event, P's letter was a

demand on D3 as well as all the other directors of D1 and D1 itself; (4) in the

instant case, P were entitled to judgment for the amount of the overdraft facility

plus the interest which accrued thereon at the agreed rate.

Digest :

Kwong Yik Bank Bhd v Transbuilder Sdn Bhd & Ors [1989] 2 MLJ 301 High

Court, Kuala Lumpur (Shankar J).


3 [2424] CONTRACT Guarantee – Guarantor's liability – Notice of sent after

expiry of guarantee period – Whether liability as guarantor discharged

Summary :

P sued D, the guarantor, pursuant to a letter of guarantee wherein D guaranteed the

repayment of a term loan which P had granted to two stock brokers, the principal

debtors. The principal debtors had defaulted almost immediately when they failed

to service the interest payable on the drawdown. D contended that his liability as a

guarantor had been validly discharged as the notice of demand was not sent during

the currency of the guarantee but only well after the expiry of the guarantee period.

The senior assistant registrar granted summary judgment against D and D appealed

to the High Court.

Holding :

Held, dismissing the appeal: (1) under cl 1 of the guarantee, what was more

important was that the liability must arise during the currency of the guarantee and

it matters not that the enforcement of such a liability took place after the expiry of

the guarantee. In the instant case, D's liability to meet payment of the term loan

arose immediately upon the default of the principal debtors to service the interests

due, an event which happened during the currency of the guarantee; (2) in any

event, the presence of a principal debtor clause in the guarantee had changed the

character of the guarantee such that it was no longer a collateral agreement. The

presence of such a clause obviates the necessity for a demand as the issuance of the

writ was a demand in itself; (3) since all the issues raised had been adequately

replied by affidavit evidence, the learned judge, accordingly, dismissed D's appeal.

Digest :

Bank Kerjasama Rakyat Malaysia Bhd v Bank Pembangunan Malaysia Bhd Civil

Suit No 23-56-87 High Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2425] CONTRACT Guarantee – Guarantor's liability – Validity of guarantee

Summary :

P had granted credit facilities to D1, the repayment of which was guaranteed by

D2-D4. Upon default in repayment, P sued D1 as principal borrower and D2-D4 as

guarantors for the sum owing. Judgment in default of appearance was entered

against D1. P applied for summary judgment against D2-D4. In opposing the

application, D2-D4 contended, inter alia, that the guarantee was invalid as a fourth

person who was to have signed as a co-guarantor had yet to execute the guarantee.

Holding :

Held, allowing P's application: (1) having regard to the evidence in the instant case,

there was nothing to show that a fourth person was to sign as a co-guarantor. There

was no representation by P to D2-D4 that a fourth person was to join them as

guarantor and this could be seen from the fact that the name of the fourth person

was not typed on the guarantee document; (2) in the result, as no triable issue was

raised, the court allowed P's application for summary judgment to be entered

against D2-D4.

Digest :

United Malayan Banking Corp Bhd v Sabakaya Credit Sdn Bhd & Ors Civil Suit

No K256 of 1988 High Court, Kota Kinabalu (Syed Ahmad Idid JC).


3 [2426] CONTRACT Guarantee – Guarantor's liability – Variation of terms of

principal contract without knowledge of guarantor – Whether guarantor

discharged from liability – Contracts Act 1950, ss 86 & 94

Summary :

P sued D2 as a guarantor for the sum in question. P's application for summary

judgment was allowed by the registrar. In his appeal to have the O 14 judgment

entered against him set aside, D2 raised, inter alia, the following issues: (a) that

there was delay in the filing of the O 14 application; (b) that there had been a

variation of the terms of the loan agreement without his knowledge; and (c) that ss

4 and 5 of the Bankers' Books (Evidence) Act 1949 had not been complied with.

Holding :

Held, dismissing the appeal: (1) in the instant case, the O 14 application was filed

just two months after D2 had filed his statement of defence. As D2 had not shown

that he had been in any way prejudiced by the delay, the court took the view that

the delay of two months could not be considered in any way unreasonable; (2)

having regard to the wide terms of the guarantee, it was clear that P had the

absolute discretion to vary the terms of the facility without resorting to D2 and to

contract out of ss 86 and 94 of the Contracts Act 1950. D2 was, accordingly, not

discharged from his liability as a guarantor as a result of the variation in question;

(3) the statement of account exhibited by P detailing the amount that had been

disbursed and the calculation of accrued interest showing the total amount

outstanding, was admissible in evidence as it had been verified and affirmed by the

general manager of P as coming from the original records of P. This was sufficient

to show compliance with ss 4 and 5 of the Act; (4) as the liability of D2 as a

guarantor had been established, the court dismissed the appeal with costs.

Digest :

Co-operative Central Bank Ltd v Low Wah Shak & Ors Civil Suit No C23-234-

1987 High Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2427] CONTRACT Guarantee – Guarantor's liability – Whether guarantors

liable when notice of demand sent to address different from that expressly

stated in the guarantee – Interpretation of clause deeming service

Digest :

Teck Guan Trading Sdn Bhd v Hydrotek Engineering (S) Sdn Bhd & Ors [1996] 4

MLJ 331 High Court, Kota Kinabalu (Ian Chin J).



3 [2428] CONTRACT Guarantee – Guarantor's liability – Whether proper demand

made – Whether subsequent guarantee given in substitution for and to

discharge first guarantee

Summary :

D had earlier granted an overdraft facility to X Bhd. The overdraft facility was

serviced by a charge over eight parcels of properties and guaranteed jointly and

severally by the board of directors of X Bhd, of whom P was a member. Another

guarantee had subsequently been executed but this time by only four directors of X

Bhd, excluding P. This subsequent guarantee was also a continuing guarantee and

it covered the overdraft as well as two term loans which had been approved but not

released. D had by a letter demanded payment of a sum of money from X Bhd,

being the sum in excess of the overdraft. As no payment was forthcoming, D

commenced proceedings against all the guarantors. The High Court found in

favour of D and P appealed to the Supreme Court. It was contended for P that he

was not liable under the guarantee as no proper demand was made on him. It was

also argued for P that he was released from his liability under the first guarantee by

reason of D having obtained the second guarantee.

Holding :

Held, dismissing the appeal: (1) the issue of whether a proper demand was made

on P was not pleaded and argued in the High Court. Accordingly, the issue should

not be allowed to be argued and to succeed on appeal; (2) even if the issue was

considered, P's contention on this point would still have failed. Having regard to cl

11 of the guarantee, it was not a mandatory but a discretionary requirement for the

notice of the demand to be effectually given by an officer of D. It was therefore

proper and valid for the solicitor in question to act on behalf of D by signing and

sending the notice of the demand to P; (3) in the instant case, the second guarantee

was not given in substitution for, and to discharge, the first guarantee. The amount

guaranteed under the first guarantee was different from that in the second

guarantee where the terms of repayment of the term loans themselves were

different. More importantly, there was evidence to show that it was the intention of

D that the first and second guarantees should subsist side by side and not one in

substitution for another.

Digest :

Lee Ah Chor v Southern Bank Bhd [1991] 1 MLJ 428 Supreme Court, Malaysia

(Abdul Hamid Omar LP, Gunn Chit Tuan and Jemuri Serjan SCJJ).


3 [2429] CONTRACT Guarantee – Guarantor's liability – Whether proper demand

made on guarantors

Summary :

P had granted a loan to D1 the repayment of which was guaranteed by D2-D4.

Subsequently, D defaulted in repayment of the loan and failed to pay the sum

owing despite repeated demands by P. P sued D for the sum owing and O 14

judgment was entered against D in due course. In the appeal to the High Court, D

contended, inter alia, that (i) P's affidavit supporting the O 14 application was

defective as it did not verify at all the facts on which the claim was based; (ii) there

had been an inordinate delay on the part of P in filing the O 14 application; and (iii)

there was no proper demand made on D2-D4 who were guarantors.

Holding :

Held, allowing D2's appeal: (1) in the instant case, the affidavit in support of P's O

14 application was not defective. The affidavit had complied with the requirement

as to the verification of the facts on which the claim was based. The ord 14

application was, accordingly, not defective and wanting in the circumstances; (2)

in the instant case, the delay on the part of P in filing the O 14 application was not

inordinate. P had filed the O 14 application after the grace period given to D to

settle the debts had expired. Accordingly, the delay had been satisfactorily

explained by P; (3) in the instant case, the letters of demand sent to D3 and D4

were valid as they had been sent to them individually by registered post. The AR

cards in respect of the letters sent to D3 and D4 had all been exhibited. In regard to

D2, the court found that there was no concrete proof that the letter of demand had

actually reached him in the absence of the relevant AR card for his letter. The court,

accordingly, held that D2 was not served with the letter of demand; (4) in the result,

the court dismissed the appeal by D1, D3 and D4 but allowed the appeal by D2.

Digest :

MBF Finance Bhd v Hasmat Properties Sdn Bhd & Ors [1990] 1 MLJ 180 High

Court, Ipoh (Abdul Malek J).

2430 Guarantee -- Guarantor

3 [2430] CONTRACT Guarantee – Guarantor – Liability of – Failure of plaintiff to

create assignment of properties in hire-purchase agreements acquired by it

under block discounting agreement – Whether guarantor prejudiced

Digest :

Mayban Finance Bhd v Aik Soon Auto Sdn Bhd (formerly known as Aik Soon

Auto Finance Sdn Bhd) & Or Suit No D2-22-1752-91 High Court, Kuala Lumpur

(Siti Norma Yaakob J


2431 Guarantee -- Indemnification

3 [2431] CONTRACT Guarantee – Indemnification – Contract - Guarantee -

Whether plaintiff entitled to be fully indemnified in respect of guarantee for

overdraft facilities - Resolution of company.

Summary :

In this case, the respondent, a consultant engineer and employee of the company,

was appointed a director of a company. As director he joined with the other

directors to guarantee debts or other liabilities of the company and other connected

companies by issuing letters of guarantee. In this case, the guarantee was to the

Malayan Banking Ltd for granting overdraft facilities to the company. The

overdraft debt was not paid and the bank obtained judgment against the respondent

and some of the other directors. The respondent relied on the oral assurance of the

shareholders of the companies and a resolution of the appellant company and

claimed to be indemnified against all claims. The learned trial judge made a

declaration that the respondent was entitled to be fully indemnified in respect of

the guarantee. The appellant appealed. It was argued on appeal that (a) the learned

judge was wrong to conclude that there was sufficient evidence from which he

could draw the inference that the appellant had agreed to indemnify the respondent

on the guarantee either orally or in writing; (b) the learned judge was wrong in

holding that an assurance from a director of a company without more, when acted

upon could bind the company; (c) the learned judge drew a wrong conclusion that

the resolution of the company was intended by the appellant to indemnify the

respondent in respect of the guarantee issued by him.

Holding :

Held: the learned trial judge was right in concluding that the respondent was

entitled to be fully indemnified in respect of the guarantee.

Digest :

Euco International Sdn Bhd v PF Chen [1984] 2 MLJ 61 Federal Court, Kuala

Lumpur (Lee Hun Hoe CJ (Borneo).

2432 Guarantee -- Indemnification

3 [2432] CONTRACT Guarantee – Indemnification – Indemnity for liabilities of

assignee – Guarantors agreed to indemnify plaintiff in the event of assignee's

default – Guarantee not executed contemporaneously with assignment –

Whether good consideration for guarantee – Whether assignment enforceable

Summary :

The plaintiff had extended term loans and banking facilities amounting to

M$16,144,188.59 to the borrower. On 14 January 1984, the plaintiff assigned all

its rights, title and interest in all the secured and unsecured debts due and payable

by the borrower to the plaintiff, to the assignee. A deed of assignment was

executed by the plaintiff, the assignee and the borrower. Under cl 3.02(b) of the

assignment, the balance of the purchase consideration was to be settled by a final

payment of M$2m by the assignee to the plaintiff within two years from the date of

the execution of the assignment. Pending such payment, the assignee was to secure

the personal guarantees of four named guarantors. A joint and irrevocable

guarantee dated 14 April 1984 was executed by the four guarantors, agreeing to

indemnify the plaintiff in the event of default by the assignee in failing to fulfil cl

3.02(b) of the assignment. The assignee failed to do so, and the plaintiff sought to

enforce the guarantee against the defendant, who is one of the guarantors. Before

the senior assistant registrar, the plaintiff succeeded in its application to enter final

judgment against the defendant. The defendant appealed on the grounds, inter alia,

that (i) there was no good consideration given for the guarantee as it was not

executed contemporaneously with the assignment, and (ii) the assignment is not

enforceable, as no written notice as envisaged by s 4(3) of the Civil Law Act 1956

has been sent by the plaintiff to the borrower.

Holding :

Held, dismissing the appeal with costs: (1) it has already been agreed that there

was to be a grace period of three months after the execution of the assignment

within which the guarantee was to be executed. In view of this prior arrangement,

it cannot be said that the consideration is past purely based on the time when the

guarantee was executed; (2) the principal debtor is the assignee and at the time the

guarantee was executed, the benefit still accrued to the assignee, even though there

is a lapse of time of three months between the execution of the assignment and the

execution of the guarantee. Since the lapse of time had been agreed to by all the

parties, there is no question of the consideration being a past consideration and, to

that extent, s 80 of the Contracts Act 1950 has been sufficiently fulfilled; (3) if

there is any doubt as to the relationship of the parties and their liabilities, the

recitals in the guarantee are clear in meaning and intent and recital (c) repeats the

time frame when the guarantee must be given; (4) lack of a written notice does not

render the assignment illegal or unenforceable, as the assignment then becomes an

equitable assignment that binds all the parties to the assignment; (5) lack of

authority to sign the assignment has no relevance to the liability of the defendant,

as he is being sued under the guarantee he executed and not under the assignment.

Digest :

Citibank NA v Choong Kok Min; Abdul Ghafar Baba & Ors, Third Parties Civil

Suit No D2-22-867-90 High Court, Kuala Lumpur (Siti Norma Yaakob J).

2433 Guarantee -- Indemnifiers' liability

3 [2433] CONTRACT Guarantee – Indemnifiers' liability – Whether right to be

indemnified absolute – Interpretation of indemnities

Summary :

D were partners of a firm which in turn was a customer of P. At the request of the

firm, P issued four bank guarantees as security for the due performance by the firm

of its obligations under three timber concession agreements executed by the firm

with Yayasan Pahang. Yayasan Pahang had agreed to allow the firm to fell and

purchase all the timber logged in the designated concession areas in consideration

of the firm paying a sum of money to it. To secure the four bank guarantees, D

executed four indemnities. In due course, P sought reimbursement for the total

amount paid out to Yayasan Pahang under the bank guarantees by enforcing the

indemnities executed by D. D denied liability contending that P had been negligent

in paying out the sums demanded by Yayasan Pahang as such payment was

conditional upon the firm being in possession of a valid licence to extract logs to

be issued by the Forest Department of Pahang. The senior assistant registrar

allowed P's application for summary judgment and D appealed to the High Court.

Holding :

Held, dismissing the appeal: (1) in the instant case, the indemnities in question

contained no precondition that binds P before making payment out to Yayasan

Pahang. By the expressed language contained in the indemnities, D had held

themselves out to be personally liable to P for any payment made out by P under

the bank guarantee; (2) the fact that the bank guarantees might well have a

precondition attached to them was quite immaterial to D's liability under the

indemnities as different considerations were expressed in both sets of documents

and they were executed by different parties. Since the indemnities did not

incorporate any precondition similar to that expressed in the bank guarantees, D

could not now import such precondition into the indemnities; (3) as there were no

triable issues raised by D, the court, accordingly, dismissed D's appeal against the

O 14 judgment entered against them.

Digest :

Perwira Habib Bank Malaysia Bhd v Sim Ah Hee & Anor Code No C23-2336-86

High Court, Kuala Lumpur (Siti Norma Yaakob J).

2434 Guarantee -- Indemnity

3 [2434] CONTRACT Guarantee – Indemnity – Construction – Whether

instrument was a guarantee or indemnity – Contracts Act 1950, ss 70, 77 & 79

Summary :

The plaintiffs had on the application and/or request of the first defendant made on

7 June 1983 issued a guarantee (`the Guarantee') in favour of the Federal Land

Development Authority (`FELDA') for an amount of RM503,818.05 (`Guaranteed

Sum'). It was a term of the Guarantee that the Guaranteed Sum shall be paid by the

plaintiffs forthwith on demand made by FELDA without FELDA having to assign

any reason whatsoever for such demand. In consideration of the plaintiffs agreeing

to issue the Guarantee, the first defendant together with the second and third

defendants executed their indemnity (Ìndemnity') and indemnity and guarantee

(Ìndemnity and Guarantee') respectively in favour of the plaintiffs on 8 June 1983.

Pursuant to the Indemnity, the first defendant undertook to indemnify the plaintiffs

against all claims, losses, damages, expenses and all liabilities arising from the

plaintiffs providing the Guarantee in favour of FELDA. The first defendant agreed

to accept vouchers or other evidence of payment made by the plaintiffs as

conclusive evidence against the first defendant of its liability under the Indemnity

and further agreed that the Indemnity shall remain in force and shall be valid until

the plaintiffs' liability under the Guarantee ceased. Under the Indemnity and

Guarantee given by the second and third defendants, they jointly and severally

undertook and agreed to guarantee the performance and compliance by the first

defendant of its obligations to the plaintiffs. The second and third defendants

further jointly and severally undertook and covenanted that: (a) the plaintiffs may

at their absolute discretion compromise all claims, payments, demands, actions,

suits, proceedings whatsoever which may be taken or made against the plaintiffs;

(b) vouchers or other evidence of payment made by the plaintiffs by reason of the

Guarantee should be accepted as conclusive evidence against them; (c) the

Indemnity and Guarantee may be enforced against them at any time; (d) the

Indemnity and Guarantee should continue to remain in force and should be valid

until the plaintiffs' liability under the Guarantee shall cease. The first defendant

defaulted in performing its contract with FELDA and as a result thereof FELDA

terminated the contract entered into between itself and the first defendant and made

a call on the Guarantee. Upon default or delay in payment by the plaintiffs to

FELDA, FELDA issued a summons against the plaintiffs wherein FELDA claimed

for the Guaranteed Sum. The plaintiffs, on 16 November 1987, made full payment

of the Guaranteed Sum to FELDA and the proceedings taken by FELDA against

the plaintiffs were discontinued. Thereafter, the plaintiffs demanded for

reimbursement and indemnity from all the defendants of the Guaranteed Sum.

However, the first defendant was wound-up on 24 November 1989 whilst the

second defendant was adjudicated bankrupt on 16 February 1987 leaving the third

defendant the only person on record to be held liable under the Indemnity and

Guarantee. The third defendant filed an amended defence of bare denial and

requested the plaintiffs to prove the existence of the Indemnity and Guarantee and

in the alternative pleaded that the said Indemnity and Guarantee was void and

unenforceable for want of consideration. The third defendant further argued that

the Indemnity and Guarantee was a guarantee executed by him in respect of the

first defendant's obligations to the plaintiffs and as there appeared to be a variation

on the Indemnity by giving extension of time towards completion, the third

defendant pleaded that he stood discharged of his liability because the plaintiffs

had paid the Guaranteed Sum to FELDA after their liability under the Guarantee

had ceased.

Holding :

Held, allowing the plaintiffs' claim: (1) although the document executed by the

plaintiffs had been described as a guarantee, when read as a whole, it appeared to

be nothing less than an indemnity to pay to FELDA an equivalent in cash instantly

and unconditionally upon demand; (2) upon demand by FELDA, the plaintiffs

were obliged to pay in accordance with the express terms of the undertakings

without proof or any conditions or notwithstanding there being a dispute between

FELDA and the first defendant; (3) s 77 read together with s 79 of the Contracts

Act 1950 did not enable the plaintiffs herein to plead the ùsual equities' against

FELDA's demand under the Guarantee, which otherwise would have been

available in the ordinary contracts of guarantee; (4) the plaintiffs' liability to pay

FELDA crystallised as soon as a demand was made and the plaintiffs were forced

to pay upon the issuance of the writ against them; (5) the plaintiffs were seeking

for an equitable right to full indemnity or restitutory reimbursement from the third

defendant under s 70 of the Contracts Act 1950 and they could not be denied this

right.

Digest :

Capital Insurance Bhd v Kumpulan Pantai Sdn Bhd & Ors Civil Suit No D3-23-

969-88— High Court, Kuala Lumpur (Rekhraj J).

2435 Guarantee -- Interest

3 [2435] CONTRACT Guarantee – Interest – Applicability of standard interest

clause where interest rate not stated

Digest :



See contract, Vol 3, para xxx.


3 [2436] CONTRACT Guarantee – Interest – Calculation of – Interpretation of

guarantee – Whether interest payable runs from date of demand or from date of first drawdown – Malayan Banking Bhd v Tan Fong Guan & Ors [1975] 2

MLJ 49 (consd) Kong Ming Bank Bhd v Leong Ho Yuen[1982] 2 MLJ 111 (cited)

Summary :

The only issue raised in the suit is whether the interest payable under the guarantee

executed by D in favour of P runs from the date of demand as contended by D or

from the date of the first drawdown as contended by P. The guarantee in question

was a demand guarantee. P had claimed from D the sum representing the interest

calculated from the date of the first drawdown and not from the date of demand.

Holding :

Held, allowing P's claim: (1) having regard to the terms of the guarantee, P was

entitled to charge interest on the first drawdown made to the principal borrower

and not from the date of demand. This was so as the transaction was a commercial

one where the only benefit derived by P could only be on the profit to be made on

the interest due and it was highly inconceivable that the parties should agree to

such interest being due from the date of demand; (2) the court, accordingly, entered

judgment for P for the sum claimed, being the balance due as interest calculated

from the date of the first drawdown together with further interest at the rate of 8%

pa until realization and costs.

Digest :

United Asian Bank Bhd v Lloyds Bank International Ltd & Anor Civil Suit No C

7018 of 1985 High Court, Kuala Lumpur (Siti Norma Yaakob J).


3 [2437] CONTRACT Guarantee – Interest – Calculation of – Whether permissible

to calculate interest owing before date of demand – Interpretation of

guarantee

Summary :

P had earlier obtained summary judgment against D2 and D3 who were guarantors

for the sum in question. The senior assistant registrar had held that there were no

triable issues and had granted P's application for summary judgment. D2 and D3

appealed against the decision. D2 and D3 contended that they were liable for a

lesser sum under the guarantee and that it was wrong for P to calculate the interest

owing before the date of demand.

Holding :

Held, dismissing the appeal: (1) upon a proper reading of the terms of the

guarantee, it was abundantly clear that interest could be levied before the date of

demand. The relevant explanatory letters from P had in fact clarified the mode of

calculation: (2) as there were no triable issues raised, the learned judge affirmed

the decision of the senior assistant registrar and dismissed D's appeal.

Digest :

Public Finance Bhd v Ching Yik Credit Sdn Bhd & Ors Civil Suit No 23-266-86

High Court, Ipoh (Abdul Malek J).

2438 Guarantee -- Joint guarantee

3 [2438] CONTRACT Guarantee – Joint guarantee – Contracts Act 1950 (Act 136),

s 91 – Practice and procedure - Application to set aside default judgment -

Defence on merits - Guarantee - Release - Contracts Act 1950, s 91.

Summary :

The third defendant applied to set aside a judgment in default of appearance

entered against him. The third defendant had stood as guarantor with the second

defendant for the first defendant, a partner of SP & Low Agencies, in respect of

payment of insurance premiums. It was alleged that (1) the third defendant had not

been properly served with the writ of summons and (2) the letter of guarantee had

been automatically revoked when the constitution of the partnership of SP & Low

Agencies was changed.

Holding :

Held: (1) on the facts the writ of summons had been properly served on the third

defendant; (2) the guarantee in this case was not joint but several but even

assuming that it was a joint guarantee the common law principle that a release of a

joint guarantor without the consent of the other would release him from his

obligation under the bond is not applicable in this country because of s 91 of the

Contracts Act 1950 (Act 136); (3) the applicant had not shown a prima facie

defence on the merits in law or in fact and therefore the application must be

dismissed.

Digest :

Taisho Marine & Fire Insurance Co Ltd v Wong Poo Peng & Ors [1976] 1 MLJ 78

High Court, Kuala Lumpur (Mohamed Azmi J).

2439 Guarantee -- Letter guaranteeing repayment of third party's debt in instalments

3 [2439] CONTRACT Guarantee – Letter guaranteeing repayment of third party's

debt in instalments – Whether guarantor could avail himself of counterclaim

against beneficiary – Whether counterclaim of merit – Whether comity of

nations required Singapore courts to allow litigation of counterclaim in

Malaysia first

See contract, para IX [64].

Digest :



2440 Guarantee -- Letter guaranteeing repayment of third party's debt in instalments

3 [2440] CONTRACT Guarantee – Letter guaranteeing repayment of third party's

debt in instalments – Whether terms of letter constituted primary

undertaking to pay debt of third party – Whether terms of letter mere

guarantee or indemnity

Summary :

At the request of Automatic Packing & Services Sdn Bhd (Automatic), the

plaintiffs supplied steel drums to Felda Refinery Corp (Felda), a Malaysian

company. A sum of RM$1,016,257.14 was outstanding for the steel drums

delivered by the plaintiffs. The plaintiffs sought a personal guarantee from the

defendant, who managed Automatic, in respect of the debt. The defendant signed a

letter dated 4 March 1991 which acknowledged the debt and agreeing to its

repayment by specified instalments. No payment was made at the time due for the

first instalment. By another letter dated 2 April 1992, the defendant was alleged by

the plaintiffs to have personally guaranteed repayment of the outstanding debt by

Automatic in instalments. Automatic failed to pay the debt and the plaintiffs

commenced an action against the defendant in Singapore. Shortly after the

Singapore action was started, Automatic commenced proceedings in Malaysia

against the plaintiffs for damages for late delivery of the steel drums. In response,

the plaintiffs commenced separate proceedings against Automatic in Malaysia for

the debt of RM$1,016,257.14. Felda also subsequently sued Automatic in Malaysia

in respect of matters arising from the steel drums. The plaintiffs later obtained

summary judgment against Automatic in their action. Although an appeal was filed

against the order for summary judgment, Automatic was wound up on the petition

of the plaintiffs when they were unable to pay the judgment debt. The suit against

the plaintiffs in Malaysia was later struck off. At the trial of the action in Singapore,

the defendant contended, inter alia, that the letter of 2 April 1991 was not a

guarantee as it was signed by him on behalf of Automatic, that there was no or no

adequate consideration for the alleged guarantee and that the claim against

Automatic had not been finally disposed off by virtue of Automatic's counterclaim

and the appeal against the order for summary judgment in Malaysia.

Holding :

Held, allowing the plaintiffs' claim: (1) the defendant's claim that he had signed the

letter of 2 April 1991 only on behalf of Automatic was not accepted as it was

abundantly clear from the face of the document that what was required therein was

both his personal undertaking to pay the debt and Automatic's confirmation of the

debt and repayment schedule. From the evidence, the letter was an indemnity given

to the plaintiffs by the defendant. The words used indicated that the defendant was

not merely guaranteeing the debt of Automatic but undertaking primary liability to

pay Automatic's debt in the amounts stated therein; (2) the letter of 2 April 1991

was not, in the context in which it was prepared and signed, a document containing

an offer by the defendant to pay the debt by instalments and the plaintiffs' failure to

sign the letter to indicate their acceptance of the instalment plan was not fatal to the

existence of a binding contract between the parties. The letter was really a

document evidencing the terms that had already been agreed to by the parties and

no further agreement by the plaintiffs was necessary to give it legal effect; (3) in

the letter of 2 April 1991, the defendant had in fact acknowledged that the

plaintiffs were granting him an indulgence in allowing him to pay the outstanding

debt of Automatic in instalments. The indulgence consisted of the plaintiffs

forbearing to take immediate steps to enforce their claim against Automatic in

exchange for the defendant's undertaking to pay the debt in instalments. Such

forbearance to sue was a sufficient consideration for the indemnity; (4) as the

commercial purpose of the guarantee was that the plaintiffs would have gotten

their money from the defendant if they could not get it from Automatic, whatever

the merits of Automatic's counterclaim against the plaintiffs, the defendant, by the

terms of the letter of 2 April 1991, was bound to pay to the plaintiffs the amounts

stated therein; (5) the evidence led by the defendant fell hopelessly short of

establishing the existence of any counterclaim that Automatic might have had

against the plaintiffs. In view of the paucity of evidence that could support the

counterclaim and the dilatoriness in proceeding with the appeal in Malaysia, the

defendant was keeping the suit in Malaysia alive solely for the purpose of

frustrating or delaying the plaintiffs' claim. Thus, the submission that the comity of

nations required the Singapore courts to allow the litigation of the matter in

Malaysia first was devoid of merit.

Digest :



2441 Guarantee -- Limitation of time for demand under guarantee

3 [2441] CONTRACT Guarantee – Limitation of time for demand under guarantee

– Whether valid – Contracts Act 1950 (Act 136), s 29

Summary :

The appellants claimed a sum of $73,402.80 being the amount allegedly owed by

Syarikat Baiduri (M) Sdn Bhd on an overdraft account. The respondents were sued

as the guarantors of the company. Judgment in default was obtained by the

appellants and the respondents applied that the judgment be set aside. The

respondents tried to explain why the action was not defended and also alleged that

they had a good defence to the action. The application was allowed in the High

Court and the appellants appealed to the Federal Court.

Holding :

Held: (1) an appellate court could only interfere in this case with the exercise of

the discretion if the court below had clearly acted on some wrong principle,

committed some error of law or failed to consider matters which demanded

consideration; (2) in dealing with the application the learned judge committed no

error of law. Neither did he fail to consider all matters demanding consideration

nor act on any wrong principle; (3) all the elements were present which would

justify the exercise of the discretion in favour of the respondents.

Digest :

Bank Bumiputra Malaysia Bhd v Majlis Amanah Ra'ayat [1979] 1 MLJ 23 Federal

Court, Kuala Lumpur (Raja Azlan Shah Ag CJ (Malaya).

2442 Guarantee -- Loan secured by charge and guarantee

3 [2442] CONTRACT Guarantee – Loan secured by charge and guarantee –

Guarantor sued by creditor before realization of security – Whether possible

– Banking - Loan secured by charge and guarantee - Whether creditor bank

can commence legal proceedings against borrower/chargor and guarantor

before realization of security.

Summary :

The plaintiff bank gave a loan to the first defendant and by way of security, the

first defendant executed a charge in its favour. The second defendant, who was the

director of the first defendant, also executed a written guarantee for the repayment

on demand of all sums owing by the first defendant. Subsequently, the loan was

not repaid in accordance with the wishes of the plaintiff and the plaintiff initiated

an action against the first and second defendants for the repayment of the debt. The

senior assistant registrar gave summary judgment for the plaintiff and the

defendants appealed against this decision. The defendants contended, inter alia,

that the effect of art 11.03 of the charge document was that the plaintiff bank was

obliged to have the charged properties sold first and only then was it entitled to sue

the first or second defendants for the balance.

Holding :

Held, dismissing the appeal: art 11.03 of the charge document does not impose any

such obligation upon the plaintiff bank. It was open to the plaintiff bank to proceed

simultaneously against the second defendant as well, as cl 3 of the guarantee

provided that all moneys due from the first defendant could nevertheless be

recoverable from the second defendant as principal debtor and cl 4 provided that

the guarantee was in addition to and not a substitution for any other rights which

the plaintiff bank may have had under the charge.

Digest :

Malaysian International Merchant Bankers Bhd v G & C Securities Sdn Bhd &

Anor [1988] 2 MLJ 471 High Court, Kuala Lumpur (Shankar J).

2443 Guarantee -- Nature of guarantee

3 [2443] CONTRACT Guarantee – Nature of guarantee – Whether demand

guarantee – Whether guarantor liable when creditor had proceeded against

co-guarantors only in previous suit – Joint and several liability – Whether

action brought within limitation period – Res judicata

Summary :

This was an application by the plaintiff for summary judgment against the

defendants. The first defendant was the administratrix and the second defendant

the administrator of the guarantor (the deceased). The issues before the court were:

(1) whether the plaintiff's claim against the defendant was time-barred; (2) whether

the plaintiff, after having obtained judgment against the other co-guarantors in a

previous suit (in which the deceased was also a defendant) ('the previous suit') but

not against the deceased, is prevented from suing the defendants in the present suit;

and whether the defendants in the present suit were not liable because the plaintiff

had failed to proceed against the deceased in the previous suit; (3) whether the

doctrine of res judicata applied to the present suit.

Holding :

Held, allowing the application: (1) the plaintiff's claim was not time-barred. A

perusal of the clauses of the guarantee showed it was a demand guarantee and the

cause of action only arose when the notice of demand was served on the guarantor.

On the facts the action was brought well within the 6-year period under s 6(1)(a) of

the Limitation Act 1953. The notice of demand was also properly served as it was

issued by way of certificate of posting to both defen-dants by the plaintiff's

solicitors under cl 11 of the said guarantee. It was plain and obvious that the issue

was settled and unarguable; (2) the fact that the plaintiff had failed to proceed

against the deceased in the previous suit did not mean that the matter had been

abandoned. The guarantors' liability under the said guarantee was joint and several.

There was no bar to an action against one guarantor even if the plaintiff had

obtained judgment against the other guarantors. The plaintiff in the present case

did not seek and obtain judgment against the deceased although judgment was

sought and obtained against all the other co-guarantors as there was no cause of

action against him then as no notice of demand had been served on him before he

died. Further when the plaintiff filed the present suit, it had elected to proceed with

the present suit and consequently not to proceed or had abandoned the previous

suit. There was no room for controversy, dispute or argument; (3) neither the

doctrine of res judicata nor the doctrine of constructive res judicata had any

application in the instant case. For the doctrine of res judicata to apply the

defendant had to show that there was a former suit between the same parties for the

same matter and upon the same cause of action, and that the matter directly and

substantially in issue had been heard and finally decided by the court which heard

it. In the previous suit, the matter directly and substantially in issue was never

finally decided; (4) the further ground raised by the defendant that the plaintiff had

submitted defective affidavits could not stand as the plaintiff had stated in its

affidavit that it verily believed that there was no defence to the action in

accordance with O 14 r 2 of the Rules of the High Court 1980. There was further

no triable issue on the identity of the customer of the plaintiff as contended by the

defendants. It was clear from cl 1 of the guarantee that the borrower, Chua Lai

Seng, was the customer for the purpose of the said guarantee. The fact that a

further clause appeared in the guarantee stating the name of Pembenaan Sri Pati

Sdn Bhd as the customer did not arise in any ambiguity as it was a clause that

appeared after the guarantors had signed the guarantee in which the said Chua Lai

Seng was stated as the customer. The clause after the guarantors' signatures could

not vary the guarantors' liability thereunder. It was clear from that clause that it

was included to make Pembenaan Sri Pati Sdn Bhd an additional collateral

guarantor in favour of the plaintiff. The plaintiff's claim was plain and obvious and

summary judgment ought to be given; (5) the defendant's application to the court to

file a further affidavit which touched on the status of the customer Chua Lai Seng

did not render any assistance to the defendant in the contest against the plaintiff's

application for summary judgment, though the further affidavit had been allowed

to be read in the defendant's submission and had been taken into account.

Digest :

United Malayan Banking Corp Bhd v Datin Theresah Bte Abdullah & Anor Civil

Suit No 22(23)-7 1993 High Court, Muar (Low Hop Bing JC).

2444 Guarantee -- Notice of demand

3 [2444] CONTRACT Guarantee – Notice of demand – Lawful mode of service –

Interpretation of meaning of 'post' in letter of guarantee – Whether includes

AR registered post – Whether return of AR card and acknowledgement

essential – Proper mode of service depends on provision in individual letter of

guarantee

Summary :

The respondent was sued by the appellant bank under a letter of guarantee

following the default of the principal borrowers for whom the respondent acted as

guarantor in respect of a revolving bankers acceptance facility which was granted

by the appellant bank to the principal borrowers. The appellant had sent a notice of

demand via AR registered post to the respondent at his last known address. It was

the appellant's contention that the notice of demand must be deemed to have been

duly served upon the respondent by virtue of a clause ('the clause') in the said letter

of guarantee which stated that ' any notice sent through the post in an envelope

addressed to the last known place of address of the person to be served shall be

deemed to be served on the following day that on which it is posted'. The trial

judge, in dismissing the appellant's case, held that the clause was only applicable to

notices sent by ordinary post, and in any event, the said notice of demand would

only have been effectively served upon the respondent if the relevant AR card was

returned to the appellant together with an acknowledgement of receipt by the

respondent. The central issue before their Lordships was whether upon the true

construction of the clause in the said letter of guarantee, it could be held that the

clause only applied to notices sent by ordinary post and not those by AR registered

post, and that it was only upon the return of the AR card to the appellant together

with the respondent's acknowledgement of receipt that the said notice of demand

was effectively served.

Holding :

Held, allowing the appellant's appeal: (1) in construing the clause in the said letter

of guarantee, a liberal approach rather than a strict contra proferentem rule should

have been adopted, giving a reasonable construction to the words of the clause

having regard to the prevailing surrounding circumstances. The word 'post' ought

to have been given its ordinary and natural meaning, and in the context of the

clause, no distinction should have been made between an ordinary post and an AR

registered post; (2) the word 'post' in its ordinary and natural meaning is wide

enough to cover both registered post and ordinary post, and the fact that the said

notice of demand was sent by AR registered post would not make any difference as

registration is merely one way of sending a notice; (3) it must, however , be borne

in mind that the proper mode of service for a notice of demand in a given case will

depend on the words of the relevant clause as contained in the relevant letter of

guarantee, as it is common for letters of guarantee to expressly prescribe the mode

of service for notices of demand; (4) however, the clause in the instant case did not

prescribe that a notice of demand must be sent by a specific mode of posting, and

thus in the absence of such a prescription it was not justifiable for the court to hold

that the said notice of demand must be sent by ordinary post in order that the

deeming provision in the clause would take effect; (5) their Lordships were also of

the view that it was unnecessary for the appellant to show that the AR card had

been returned by the respondent together with an acknowledgement of receipt in

order to prove that the said notice of demand had been effectively served. It was

sufficient that the appellant showed that the notice of demand was correctly

addressed, prepaid and delivered to the post office and acknowledged for service

by the postal authority. Once these facts have been established, the deeming

provision in the clause would inevitably apply.

Digest :

Amanah Merchant Bank Bhd v Lim Tow Choon [1994] 1 MLJ 413 Supreme Court,

Kuala Lumpur (Jemuri Serjan CJ (Borneo).


3 [2445] CONTRACT Guarantee – Notice of demand – Letters of demand sent to

guarantors by ordinary post – Whether a sufficient demand – Construction of

guarantee

Summary :

P appealed against the decision of the senior assistant registrar in refusing to enter

final judgment against D pursuant to O 14 of the Rules of the High Court 1980. D1,

in a separate notice of appeal, appealed against the decision of the same senior

assistant registrar given on the same date refusing to allow D1 unconditional leave

to defend the action. D1 was at all material times a customer and account holder of

P. D2-D6 were guarantors of D1. P claimed the sum in question being the amount

outstanding inclusive of interest due on a temporary overdraft facility granted and

advanced by P to D1. D2-D6 had guaranteed repayment of the sum in question.

Counsel for D contended, inter alia, that D did not receive letters of demand from P

before the writ was filed. P in its affidavit averred that six letters of demand were

sent to the addresses of D by AR Registered post as well as by ordinary post. In

regard to the letters of demand sent by ordinary post, none had been returned to P

as mails 'unclaimed'. In the case of the letters of demand sent by AR Registered

post, except for the letters sent to D3 and D4, the other four AR Registered letters

were all retoured.

Holding :

Held: (1) in regard to D1, the agreement clearly provided for a letter of demand to

be sent to D1 before P could file the writ. P's affidavit did not prove that the letters

had been actually posted by someone. Therefore, it could not be presumed that the

letters reached D1 and D2-D6. Even if there was proof of posting, it was only a

presumption that the letter reached D1 and this presumption was rebuttable. This in

itself raised a triable issue; (2) as for D2-D6, they had agreed that letters of demand

could be sent to them at their addresses as stated in the guarantee agreement. Since

the guarantors had agreed on this mode of service in respect of the letters of

demand, the learned judge was of the view that the letters sent to them by ordinary

post were deemed to be a sufficient demand made to them; (3) in the circumstances,

the learned judge found that D2-D6 had not raised any triable issue. P's appeal in

respect of D2-D6 was accordingly allowed. As for D1, the learned judge allowed

its appeal and granted it unconditional leave to defend the action.

Digest :

Southern Bank Bhd v Mega Lestari (M) Sdn Bhd & Ors Suit No C24-4400-86



3 [2446] CONTRACT Guarantee – Notice of demand – Letters sent by AR

registered post but AR cards not returned – Whether there was delivery to

guarantors – Post Office Act 1947, s 3

Summary :

This was an appeal against the decision of the senior assistant registrar allowing

final judgment of a claim arising from a guarantee given upon a bridging loan. The

third and fourth defendants/guarantors raised the following issues: (1) that there

were no proper letter of demand from the plaintiff; (2) that the defendants had

revoked the guarantee by notice and were therefore discharged as guarantors.

Under the letter of guarantee, any notice may be despatched by registered post

addressed to the defendants. It appeared that the plaintiff did send letters of

demand to the defendants by AR Registered post but the AR cards were not

returned to the plaintiff. The plaintiff, however, produced a certificate of posting

from the Postal Department, Kuala Lumpur, showing that the letters were delivered

to the defendants' addresses. The question is whether delivery to the defendants'

addresses can be deemed to be delivery to the defendants. Regarding the second

issue, the defendants produced two letters, each of which were addressed by the

borrower to the plaintiff, requesting the plaintiff to release the ... 'guaranteeship'.

Holding :

Held, dismissing the appeal: (1) by virtue of s 3 of the Post Office Act 1947, the

AR registered letters sent to the defendants at their respective addresses were

deemed to have been received by them; (2) the letters sent by the borrowers were

not notices of revocation since they were not from the defendants, and further, they

did not ask for the guarantee to be revoked but requested the plaintiff to consider

the release of the guarantee.

Digest :

Perwira Habib Bank Malaysia Bhd v Sehatian Development Sdn Bhd Civil Suit No

C23-2066-86 High Court, Kuala Lumpur (Zakaria Yatim J).


3 [2447] CONTRACT Guarantee – Notice of demand – Notice to be sent 'by post'

and stated to be 'sufficient if signed by any officer of the Bank' – Notice sent

by hand and signed by solicitor of bank – Whether notice valid – Whether

fresh notice required after partial payment

Summary :

This was an appeal against the decision of the senior assistant registrar awarding

summary judgment against the defendants. The plaintiff had advanced money to

the first defendant secured by continuing guarantees furnished by the second to

fourth defendants. A relevant clause in the letters of guarantee state: 'A demand in

writing shall be deemed to be duly given to me/us [the defendants] ... by sending

the same by post addressed to me/us ... and shall be sufficient if signed by any

officer of the Bank ...'. The defendants contended, inter alia, that no proper demand

had been made by the plaintiff against the defendants in that: (1) the letters of

demand were required to be executed by an officer of the plaintiff but was instead

executed by the plaintiff's solicitor; (2) the specified mode of service (ie by post

addressed to the guarantors) had not been complied with as the letters of demand

had been sent by hand. The defendants further contended that fresh letters of

demand should have been issued to them after certain partial payments had been

made to the plaintiff.

Holding :

Held, dismissing the appeal: (1) the material words in the guarantee clause do not

explicitly state that a letter of demand shall be signed by a bank officer but merely

that it shall be sufficient if signed by a bank officer. It does not prohibit solicitors

who were duly authorized to act on behalf of the plaintiff to issue the demand; (2)

the clause also did not prescribe a particular form of service. It merely provide that

if the demand was sent by post, it was deemed to be served. The plaintiff was

entitled to use any mode of service, including personal service. However, if it

chose the latter mode of service, it cannot rely on the deeming provision and will

have to prove by evidence that service was effected; (3) there was no legal basis

for contending that the effect of a demand notice was obviated by partial payment

and that a new notice was necessary every time payment was made. Rather, the

cause of action remained until the trial of the action even though some moneys had

been paid by the guarantors.

Digest :

United Asian Bank Bhd v Dyalchands Sdn Bhd & Ors [1993] 4 CLJ 630 High

Court, Kuala Lumpur (Zakaria Yatim J).


3 [2448] CONTRACT Guarantee – Notice of demand – Whether a condition

precedent to establishing claim against guarantor – Guarantor liable as

principal debtor under guarantee

Summary :

D had earlier granted an overdraft facility to T Sdn Bhd. The facility was secured

by a joint and several guarantee of the directors of T Sdn Bhd. P was one of the

directors of T Sdn Bhd. When T Sdn Bhd defaulted under the facility, D sent a

letter of demand to T Sdn Bhd requesting payment of the sums due. Carbon copies

of the letter was sent to each of the directors of T Sdn Bhd. T Sdn Bhd and the

directors ignored the notice. Judgment in default was subsequently obtained

against the company and the other directors. P filed a defence to the effect that no

formal letter of demand was served upon him and therefore, D had no cause of

action against him. The senior assistant registrar gave P unconditional leave to

defend. On appeal by D, the learned judge held that no antecedent demand was

required to create a cause of action and the mere filing of the writ and the service

thereof was a sufficient demand obliging P to play. From the decision of the

learned judge, P appealed to the Supreme Court.

Holding :

Held, allowing the appeal: (1) in the instant case, although P was liable as a

principal debtor under the guarantee, this did not, however, mean that he was not

entitled to a proper demand which was a condition precedent to establishing a

claim against him under the guarantee; (2) a guarantor must never be made liable

beyond the precise terms of his commitment and is entitled to insist on a rigid

adherence to the terms of his obligation by the creditor; (3) for the above reasons,

their Lordships disagreed with the decision of the learned judge and allowed the

appeal of P.

Digest :

YM Orang Kaya Menteri Paduka Dato Wan Ahmad Isa Shukri bin Wan Rashidi v

Kowng Yik Bank Bhd [1989] 3 MLJ 155 Supreme Court, Malaysia (Lee Hun Hoe

CJ (Borneo).


3 [2449] CONTRACT Guarantee – Notice of demand – Whether a condition

precedent to suing guarantors – Guarantors liable as principal debtors under

guarantee – Whether 'principal debtor' clause obviates necessity to make

demand on guarantors before proceedings instituted

Summary :

P, a banker, had given certain credit facilities to S Sdn Bhd. D who were each

directors of S Sdn Bhd executed a guarantee to cover the indebtedness of S Sdn

Bhd and undertook to pay on demand all sums owing by S Sdn Bhd to P. S Sdn

Bhd subsequently defaulted in paying to P the sums owing under the various credit

facilities. When the judgment obtained by P against S Sdn Bhd remained

unsatisfied, P through their solicitors sent an AR registered letter to each of D

demanding payment of the sums still left owing by S Sdn Bhd. D ignored the

notice and P instituted the present action against them. P's application for summary

judgment against D was allowed by the senior assistant registrar. Against this

judgment, D appealed to the High Court. D contended, inter alia, that a notice of

demand was a condition precedent to suing them as guarantors and that the notice

of demand should state precisely the amount due and owing by the principal debtor

so that D could elect whether to comply with it. It was also contended for D that

the judgment obtained earlier against S Sdn Bhd was a nullity because it was far

too much. As an excessive claim nullified the judgment, it was accordingly argued

that it should equally nullify the demand against D as guarantors.

Holding :

Held, dismissing the appeal: (1) there is no general rule that regardless of the terms

of the guarantee, a prior precise demand is a sine qua non to the commencing of an

action. Nor is there any general rule that a prior notice must be given in all cases,

the terms of the guarantee did not require the giving of a prior demand by P as a

condition precedent to suing D; (2) the effect of the guarantee agreement was to

make D the principal debtors which would accordingly obviate the necessity for a

demand as the character of the agreement under which payment was sought was no

longer strictly collateral; (3) a judgment which has been taken for too much if it is

issued under the seal of the court is enforceable like any other judgment of the

court. If there is no appeal against it, the judgment will crystallize in the suit. At

best the judgment is voidable at the instance of the aggrieved party who has the

onus to satisfy a subsequent court that it is just and proper that the judgment in

question should be set aside. In the instant case, S Sdn Bhd did not take objection

to the amount at the first instance and it did not appeal. Accordingly, D could

derive no assistance from this as the matter was clearly res judicata.

Digest :

Public Bank Bhd v Chan Siok Lie & Ors [1989] 1 MLJ 47 High Court, Kuala

Lumpur (Shankar J).


3 [2450] CONTRACT Guarantee – Notice of demand – Whether service of notice

defective – Validity of guarantee

Summary :

P had granted overdraft facilities to T Sdn Bhd. D7, as one of the directors of T

Sdn Bhd, guaranteed repayment of the amount payable by the company to P. In

due course, summary judgment was entered against D7 for the amount owing. D7

appealed to the Supreme Court which granted him unconditional leave to defend

the action and ordered that the matter be heard before another High Court judge.

D7 contended, inter alia, that the service of the notice of demand by P on him was

defective. It was also contended that the guarantee was invalid as the name of T

Sdn Bhd appearing therein was incomplete and that the rate of interest had been

left out.

Holding :

Held, allowing P's claim: (1) in the instant case, the service of the notice of

demand on D7 was not defective. The notice of demand, which was served on D7

at his last known address, had been sent by registered post. Moreover, the amount

stated in the notice was the correct amount due and owing. The principle that a

demand is a condition precedent to suing a guarantor had, accordingly, been

satisfied in the instant case; (2) the incomplete name of the company and the

blanks as regards the rate of interest could not invalidate the guarantee as no doubt

had been raised as to which company D7 was signing for as director and because

the interest rate had been stated in the offer letter and all subsequent statements of

accounts to which D7 had not protested, queried or objected to; (3) in the result,

the court gave judgment as prayed for by P against D7.

Digest :

Southern Bank Bhd v Toh Choe Beng & Ors Civil Suit No 1320A of 1984 High

Court, Ipoh (Abdul Malek J).


3 [2451] CONTRACT Guarantee – Notice of demand – Whether there was proper

and effective service of such notices on guarantors – Appeal by guarantors

against order for summary judgment – Rules of the High Court 1980, O 14

Summary :

P sued D4 and D5, who were directors of D1, in their capacities as guarantors for

the repayment of two fixed loans granted by P to D1. D1, which was also sued by

P, had defaulted in the repayment of the two loans granted pursuant to two

agreements signed with P. P obtained summary judgment against them under O 14

of the Rules of the High Court 1980. Two issues were raised in their appeal against

the ord 14 judgment entered against them . The first related to the service of the

notices of demand on them in that the notices of demand, although addressed to D1,

was acknowledged and received by a company which was in no way connected to

these proceedings. In the case of D4 and D5, it was contended that there was no

proper service of such notices which were sent to them by way of AR registered

post as the AR cards were returned without any due acknowledgment by them. The

second issue raised related to non-compliance of s 4 of the Bankers' Books

(Evidence) Act 1949, the effect of which was to render evidence on the entries of

D1's accounts kept by P inadmissible.

Holding :

Held, allowing the appeal: (1) in the instant case, there was no proper and effective

service of the notices of demand on D and this in itself afforded a defence to them;

(2) in relation to the second issue raised in the appeal, P's solicitors sought to

remedy their omission by filing an affidavit to comply with the requirements of s 4

on the day the appeal was heard. Since the appeal was in the nature of a rehearing

and as P had done whatever was necessary to remedy their omission even though

that was done at the eleventh hour, the learned judge considered that this omission

on their part should not be taken against him; (3) in any event, as the notices of

demand were not properly and effectively served on D, there was a triable issue

raised. D's appeal was, accordingly, allowed.

Digest :

Public Bank Bhd v Rasatulin Holdings Sdn Bhd & Ors [1989] 1 MLJ 47 High


2452 Guarantee -- Overdraft facilities

3 [2452] CONTRACT Guarantee – Overdraft facilities – Overdraft facilities -

Guarantee - Plaintiff filed suit against defendants - Defendants filed claim

against second third party for indemnity against plaintiff's claim and costs -

Second third party one of the joint and several guarantors - Application by

second third party to strike out defendants' statement of claim.

Summary :

On 26 February 1982, Bank Bumiputra Malaysia Bhd (the plaintiff) filed a suit

against the first defendant as the principal debtor on three overdraft facilities to the

extent of $350,000, $150,000 and $150,000 respectively, making a total of

$650,000. The second to fifth defendants jointly and severally guaranteed the

aforesaid overdraft facilities by executing a letter of guarantee to that effect. The

defendants subsequently brought third party proceedings on 21 May 1982 against

the first and second third parties. In the case of the second third party the

defendants claimed against him to be indemnified against the plaintiff's claim and

costs in this suit on the grounds that the second third party was one of the joint and

several guarantors to the aforesaid guarantee. On 6 February 1984, the second third

party applied by summons-in-chamber to strike out the statement of claim of the

defendants under O 18 r 19 of the Rules of the High Court 1980.

Holding :

Held: (1) in this case the principal debtor, ie the first defendant, has not paid the

creditor, ie the plaintiff, the principal sum and interest or any part thereof, and has

no cause of action against the surety, ie the second third party. A surety against

whom an action is brought on his guarantee may obtain indemnification by issuing

a third party notice against the principal debtor, but while the surety can call in the

principal debtor, the principal debtor cannot call in the surety; (2) the second third

party's co-sureties, ie the second to the fifth defendants, also do not have a cause of

action against him because they have not each paid anything to the creditor. A

surety is not entitled to call upon his co-surety for contribution until he has paid

more than his portion of the debt due to the principal creditor, even though the co-

surety has not been required by the creditor to pay anything, provided the co-surety

has not been released by the creditor.

Digest :

Bank Bumiputra Malaysia Bhd v Darnaz Enterprise Sdn Bhd & Ors [1986] 2 MLJ

222 High Court, Kuala Lumpur (Gunn Chit Tuan J).

2453 Guarantee -- Performance bond

3 [2453] CONTRACT Guarantee – Performance bond – Bank guarantee to remain

in force 60 days after date stated in certificate of final completion – Contract

provided that defendant contractor could at its absolute discretion terminate

contract with plaintiff subcontractor – Defendant terminated contract –

Defendant demanded plaintiff to pay plaintiff's creditors failing which

defendant would call on guarantee – Whether defendant had right to do so -

Whether bank guarantee had ceased to have effect

Summary :

On 30 November 1992, the plaintiff entered into a contract ('the contract') with the

second, third and fourth defendants whereunder the plaintiff was to carry out

certain insulation and painting works as subcontractor to the defendants in respect

of the defendants' contract with the main contractor. The services provided were

highly specialized and there were only six contractors in the world, including the

plaintiff and another Japanese company called Meisei Corporation, who were

capable of undertaking such work. Pursuant to the contract, two performance

bonds were provided by the plaintiff and issued by the first defendant ('the bank')

in the form of guarantees. During the course of the plaintiff's work, several

payments were made by the defendants to the plaintiff for the materials supplied.

The payments were described as advances and were secured under an advance

payment guarantee. Further payments were also made pursuant to the terms as set

out under two supplementary agreements. The plaintiff continued to carry out the

works under the contract until 14 April 1995, when the defendants terminated the

contract pursuant to art 20 of the contract, which provided that the contractor had

the right at any time, for any reason and at its absolute discretion to terminate the

contract for convenience by notice in writing to the plaintiff. There was no

allegation by the defendants that the plaintiff was in default in the performance of

its work. After the termination of the contract, Meisei Corporation took over the

plaintiff's work, and the defendants demanded the plaintiff to pay its creditors (the

lower-tier subcontractors), failing which the defendants would seek payments

under the bank guarantees. The plaintiff contended that the defendants were not

entitled to make such claims. The plaintiff argued that the defendants had

conveniently terminated the contract, and gave it to Meisei Corporation with which

the second defendants had a financial connection, and that the defendants called on

the bank guarantees to pay off the lower tier subcontractors so that Meisei

Corporation could continue to utilize the lower tier subcontractors' services to

complete its work, at the expense of the plaintiff. The plaintiff further argued that it

had met all its obligations to the defendants up to the date of termination and was

entitled to payments under the contract. On the other hand, the defendants claimed

that they had made substantial overpayments to the plaintiff. Pending trial of the

issues in question, the plaintiff applied to the court for an interlocutory injunction

restraining the defendants from accepting any money from the bank under the

guarantees.

Holding :

Held, allowing the application: (1) pursuant to art 9.3 of the contract, the bank

guarantee was to remain in force and effect until 60 days after the date stated in the

certificate of final completion. However, the defendants in this case had

prematurely terminated the contract in accordance with art 20 of the contract. Thus,

the event to final completion of the contract by the plaintiff was not to take place,

and there could be no certificate of final completion. Accordingly, upon the act of

the defendants rendering final completion impossible, the bank guarantee ceased to

have force and effect; (2) even if the above was wrong, an examination of art 20

disclosed a number of obligations, none of which embraced the right of the

defendants to make demand under the bank guarantees, or the liability of the

defendants to submit to such demand and payment under the bank guarantees

without objection. Nowhere in art 20 nor anywhere in the contract was there a right

in the defendants to demand of the plaintiff that the plaintiff pay its debts to the

lower tier subcontractors and/or in the event of the plaintiff failing to do so the

defendants would be at liberty to make demand and receive payment under the

bank guarantees. Therefore, payment by the defendants or the requirement by them

of the plaintiff to make payment of the debts was gratuitous; (3) in view of the

defendants' refusal to tell the court whether one or more of the defendants had an

interest in Meisei Corporation and to disclose the new contract with Meisei

Corporation, the presumption under s 114 of the Evidence Act 1950 arose, and the

supposition that the defendants had used art 20 as a device to terminate the contract

so as to enable Meisei to enjoy the benefit of whatever profits remained of the

contract must be true. Accordingly, the defendants were guilty of fraud, and had

acted in bad faith and in unconscionable manner. The plaintiff would therefore be

entitled to the order for an interlocutory injunction; (4) there were serious

questions for trial in this case. Further, damages would not be an adequate remedy

to the plaintiff because if the defendants were allowed to call on the bank

guarantees and the bank made payment, the plaintiff might not be able to

reimburse the bank, as it had been deprived of the profits it would have earned had

the contract not been terminated. That would expose the plaintiff to being wound

up The balance of convenience favoured the plaintiff; (5) in an interlocutory

application for an injunction, a claim of fraud need not be proved beyond

reasonable doubt. The plaintiff need only place sufficient affidavit evidence before

the court to satisfy the court that a case of fraud or the likelihood of a fraud being

committed had been established to an extent sufficient for the court to be minded

to grant the injunction sought. The word 'fraud' itself need not to be mentioned.

Digest :

Bains Harding (Malaysia) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd & Ors

[1996] 1 MLJ 425 High Court, Kuala Lumpur (Richard Talalla J).


3 [2454] CONTRACT Guarantee – Performance bond – Call by buyer – Whether in

breach of contract

Digest :

Magenta Resources (S) Pte Ltd v China Resources (S) Pte Ltd [1996] 3 SLR 62




3 [2455] CONTRACT Guarantee – Performance bond – On demand performance

bond – Whether issuer bank required to pay on demand – Whether payment

dependent on contract between plaintiff and defendant – Whether demand

must be in any particular form of words

Summary :

The appellant, Esso Petroleum Malaysia Inc ('Esso'), agreed with the respondent,

Kago Petroliam Sdn Bhd ('Kago'), for the latter to sell and deliver certain

construction materials ('the goods') to Esso, from time to time on specified dates

which were regarded as being of the essence. It was agreed that Esso would be

entitled to deduct a maximum of 10% of the purchase price in respect of any delays

in delivery by Kago. However, at Kago's request, Esso paid the full price in

exchange for two letters of guarantee ('the performance bonds'), issued by Bank

Bumiputra Malaysia Bhd, for the sums of DM466,562 and DM17,640, totalling

DM484,202, which was equivalent to the deductions Esso would have been

entitled to make. Subsequently, Esso informed Kago that damages for delay

amounted to 90% of the total sum of DM484,202 and requested for payment

within seven days. Payment was not made and Kago wrote to Esso for particulars

justifying the claim. Without replying, Esso made a written demand on the

performance bonds addressed to Bank Bumiputra Malaysia Bhd. Kago, however,

obtained an ex parte injunction restraining Esso from receiving any part of the

moneys under the performance bonds and alleged that: (a) the delays were caused

by Esso's refusal to accept the goods; and (b) Esso had not, at the time of

acceptance of the delayed goods, indicated its intention to claim damages. Esso's

application to the High Court to set aside the injunctions was dismissed and it has

appealed.

Holding :

Held, allowing the appeal: (1) the performance bonds were stated to be

'unconditional' guarantees and, on a true construction, were pure 'on demand'

guarantees. All that was required to trigger them was a demand in writing; (2)

since the performance bonds were on demand performance bonds, they were

independent of any underlying contract between Esso and Kago. Therefore, it was

not open to the judge to inquire into any breach of such underlying contract as he

seemed to have done; (3) there was nothing to suggest that the demand was not

proper. It had complied with the requirement that all claims made under the

performance bonds were to be made in writing. No particular form of words is

required and if the words used are in apparent conformity with the wording in any

particular bond, they are sufficient; (4) in this case, although no injunction could

have been granted against Bank Bumiputra, Kago was not prevented from applying

for an interlocutory injunction against Esso despite the fact that the effect of that

was to restrain Bank Bumiputra. However, the balance of convenience lay with

Esso as, inter alia, Kago's remedy was in damages and Esso would undoubtedly be

able to pay.

Digest :

Esso Petroleum Malaysia Inc v Kago Petroleum Sdn Bhd [1995] 1 MLJ 149

Supreme Court, Kuala Lumpur (Anuar CJ (Malaya).


3 [2456] CONTRACT Guarantee – Performance bond – Want of consideration –

Duty of disclosure – Whether payment on demand or upon proof of loss –

Whether principal contractual terms were uncertain – Validity of bond

despite premature termination of principal contract

Summary :

The plaintiffs entered into a contract with Newform for Newform to supply and

install a formwork system. Under the contract, Newform was required to furnish a

performance bond to the plaintiffs. Newform obtained a bond from the defendants

wherein it was stated that 'in consideration of the employer not insisting on the

contractor paying 5% of the total value of the contract as a security deposit for the

contract, the guarantor hereby guarantees the due and faithful performance of the

contract by the contractor'. Due to unsatisfactory work by Newform, the plaintiffs

terminated the contract with Newform and made a demand under the bond. The

defendants refused to make payment, contending that: (a) the bond furnished was

not supported by consideration because there was no right to a security deposit

spelt out in the contract between the plaintiffs and Newform; (b) the plaintiffs had

failed to make proper disclosures to them, one being that they were not informed

by the plaintiffs about Newform's poor performance and delay; (c) the guarantee is

conditional upon the employer actually suffering loss; (d) the guarantee was void

as the contractual terms were uncertain, there being no formal written contract; (e)

the bond cannot be enforced after the plaintiffs had terminated their contract with

Newform.

Holding :

Held, allowing the plaintiffs' claim: (1) as employers, the plaintiffs were entitled to

insist that a security deposit be paid under the contract. If they had agreed to accept

a performance bond and made provision for that in the contract instead of a

security deposit, they can rightly be said to have not insisted on the security deposit;

(2) when the plaintiffs waived the security deposit, that was consideration in the

first form; (3) the plaintiffs did no more than to agree to accept the defendants'

bond. There was no merit in the contention that they had failed in their duty of

disclosure to the defendants. The defendants should exercise reasonable care when

they assumed the responsibility of becoming guarantors. They ought to know that

there may be delays and complaints in the course of construction works but they

made no inquiries; (4) a purposive construction taking into account the essential

characteristics of performance bonds was to be adopted. Particular regard must be

given to the purpose for which performance bonds are issued. They should not be

construed to be conditioned to proof of breach except in clear cases where payment

is expressed to be so conditioned; (5) a party seeking to avoid a contract on the

ground of uncertainty must identify the areas of uncertainty and show that they are

so serious as to vitiate the contract. The defendants did not identify any area of

uncertainty and their complaint was only that they were unaware that there was no

formal contract signed between the plaintiffs and Newform; (6) consideration can

take the form of a detriment to the promisee or a benefit to the promisor;there is no

law that a performance bond is only valid and enforceable while the principal

contract is in force. Where the parties have agreed that the bond was to be effective

for a stated period, there was no justification for imposing a qualification that it

shall cease to have effect if the principal contract was terminated prematurely.

Digest :

Sembawang Construction Pte Ltd & Anor v UMBC Insurans Sdn Bhd; Mehar

Singh & Ors (Third Parties) Suit No 417 of 1993 High Court, Singapore (Kan Ting

Chiu J).


3 [2457] CONTRACT Guarantee – Performance bond – Whether bank issuing

performance bonds could dishonour them – Whether bank had notice of

fraud committed by beneficiary in respect of bonds

Summary :

P entered into agreements to purchase crude palm oil from X ('the agreements'). P

agreed to provide security for the performance of its obligations under 'the

agreements'. Consequently bank D2 issued bank guarantees in favour of D1 upon

request by P. P in turn executed letters of indemnity in favour of D2. A dispute

arose in respect of 'the agreements' and P sued X and D1. Subsequently the parties

compromised and a consent order was recorded ('the order'). Before 'the order' was

recorded, the parties had negotiations in which they were represented by solicitors.

Four different drafts of 'the order' were exchanged before it was finalized. After the

recording of 'the order', D1 reminded P about its obligation under 'the order'. P then

by telex requested extension of time from D1. On the telex it was written 'without

prejudice'. P applied to set aside 'the order' on the ground that during the

negotiations, D1's officers had fraudulently misrepresented that P's request for

extension of time to perform 'the agreements' would be favourably considered by

D1. P applied to the High Court for an interlocutory injunction to restrain D2 from

paying D1 under the bank guarantees.

Holding :

Held, dismissing the application: (1) the guarantees issued by D2 were in fact

performance bonds. D2 was thus obliged to honour them unless it had notice of

fraud committed by D1. To prevent D2 from honouring its obligations, the fraud

must be on the performance guarantee itself and not on any other document. P

made no such allegation and there was no evidence that D1's claim on the

performance guarantee was fraudulent. Accordingly there was no question to be

tried; (2) the facts showed that the parties to 'the order' had given particular

attention to time being of the essence of 'the order' and had so agreed. If P's

allegation was true, it would have insisted for such a clause to be included in 'the

order'. The parties' conduct after the recording of 'the order' also showed that P's

allegation of fraud did not give rise to any serious question to be tried; (3) at the

time of P's telex, there were no negotiations or attempted negotiations between the

parties. P's telex although written 'without prejudice', was therefore admissible; (4)

even if there was a serious question to be tried, the balance of convenience was not

in P's favour. This was because P would be adequately compensated by D1-D2 in

damages if its action was successful.

Digest :

Patel Holdings Sdn Bhd v Estet Pekebun Kecil & Anor [1989] 1 MLJ 190 High

Court, Penang (Wan Adnan J).

2458 Guarantee -- Performance guarantee

3 [2458] CONTRACT Guarantee – Performance guarantee – Different from

contract of guarantee – Stringent form of contract – Third party providing

indemnity to cover issuer of performance guarantee – Effect of third party's

countermand – Whether third party liable to full indemnity for claims arising

out of payment on performance guarantee

Summary :

The plaintiffs issued two insurance guarantees in favour of Paya Kamunting

Development Sdn Bhd ('the principal'), at the request of the contractor, Abama Sdn

Bhd, and the defendants. The defendants acted as guarantors, undertaking to

indemnify the plaintiffs should the contractor fail to carry out the required works

under the contract between the principal and the contractor. The defendants

executed two letters of indemnity in favour of the plaintiffs, undertaking to keep

them indemnified against all claims and demands arising out of the guarantees.

Subsequently, there was a breach of the contract by the contractor. The principal

wrote to the plaintiffs informing them that if the contractor failed to remedy the

breach, their guarantees shall be called in. On being informed by the plaintiffs that

they intended to settle the principal's claim made under the insurance guarantees

and to recover the full sum from the defendants, the defendants countermanded the

payment payable under the letter of guarantee for the reason that they were no

longer under any obligaton to meet the payments in the face of breach of the

contract on the part of the principal. The plaintiffs then refused the payment to the

principal because of the defendants' countermand. The principal issued a writ

against the plaintiffs to enforce the guarantees and were granted judgment. The

plaintiffs claimed against the defendants under the letters of indemnity for the

payment made by them to the principal under the order of the court. The senior

assistant registrar ('the SAR') dismissed the plaintiffs' application for summary

judgment. The plaintiffs appealed. In their defence, the second and third

defendants alleged that: (i) the letters of indemnity were signed in blank upon the

representations of the first defendant; and (ii) a fraud had been perpetrated upon

them by the contractor's agent and the plaintiffs' agent acting in collusion.

Holding :

Held, allowing the plaintiffs' appeal: (1) the plea of non est factum is not available

in favour of a person who has shown himself to be negligent. He has only himself

to blame for signing the blank guarantee forms; (2) the plea of fraud has to be

specifically pleaded and particularized as required under O 18 r 12(1)(a) and (b) of

the Rules of the High Court. The allegation of fraud here has been made only by

general assertion against the first defendant and stands totally mute against the

plaintiffs. It thus cannot be said that the representations, when made, were that of

the plaintiffs, before or at the time the defendants signed the letters of indemnity;

(3) the plaintiffs had issued a performance guarantee, which is a stringent form of

contract under s 77 of the Contracts Act 1950 ('the Act'). It is not a contract of

guarantee under s 79 of the Act which requires strict construction so that no

liability is imposed on the surety which is not clearly covered by the terms of the

guarantee; (4) the personal liability to pay under the performance guarantee

crystallizes as soon as the first demand is made but here the defendants

countermanded against payment and the plaintiffs were forced to pay under an

order of court. The plaintiffs are now just seeking for themselves the equitable

right to full indemnity or restitutionary reimbursement which they are no doubt

absolutely entitled to, under s 70 of the Act.

Digest :

Malaysian Assurance Alliance Bhd v Yeam Sai Ming & Ors [1996] 5 MLJ 345

High Court, Kuala Lumpur (KL Rekhraj JC).

2459 Guarantee -- Performance guarantee

3 [2459] CONTRACT Guarantee – Performance guarantee – Nature of – Bank

obliged to honour guarantee unless it has notice of clear fraud committed by

beneficiary – Whether claim on performance guarantee by beneficiary

fraudulent

Summary :

P had earlier entered into three agreements with NARSCO Bhd for the purchase of

crude palm oil. Under each agreement, P had agreed to provide a security deposit

in the form of a bank guarantee in the name of D1 for the due performance of P's

obligations under the agreement. D2 had issued the guarantees to D1, the

beneficiary, upon request made by P. A dispute arose and P then commenced a

civil suit against NARSCO Bhd and D1. The parties subsequently compromised

and a consent order was recorded. In the present suit, P sought, inter alia, an

interlocutory injunction to restrain D2 from making payment of the sum under the

guarantees and to restrain D1 from receiving the same until after the trial of the

action. P alleged that D1 committed fraud in respect of the consent order.

Holding :

Held, dismissing the application: (1) the guarantees in the instant case were

performance guarantees. D2 was obliged to honour them unless it had notice of

clear fraud committed by D1; (2) in order to prevent D2 from honouring its

obligations, the fraud must be on the performance guarantee itself and not on any

other document. The claim on the performance guarantee by D1 must be fraudulent.

As there was no evidence in the instant case that the claim was fraudulent, the

learned judge found that there was no question to be tried and P was, accordingly,

not entitled to the injunction; (3) in any case, having regard to the conduct of the

parties before and after the execution of the consent order, the learned judge found

that P's allegation of fraud did not give rise to any serious question to be tried; (4)

in the instant case, the balance of convenience lay in favour of not granting the

interlocutory injunction as P would be adequately compensated by D or either of

them by way of damages for the loss sustained in the event that P succeeded in the

action.

Digest :

Patel Holdings Sdn Bhd v Estet Pekebun Kecil & Anor [1989] 1 MLJ 190 High

Court, Penang (Wan Adnan J).

2460 Guarantee -- Personal guarantor

3 [2460] CONTRACT Guarantee – Personal guarantor – Director providing

guarantee for benefit of company – Right to be indemnified – Contractual

interest to run till date of payment and not only to judgment

Summary :

The first defendants had entered into three hire-purchase agreements with the

plaintiffs. As security for the payment obligations, the plaintiffs had required

various guarantees. The first defendants defaulted and the plaintiffs issued process

against the first defendants and the various guarantors who included the second

and third defendants. By the time the action came up for trial, the plaintiffs had

already obtained judgment against the first defendants. The second and third

defendants contested the action on the grounds that they had no knowledge of the

hire-purchase transactions. They also claimed that the guarantees were to be a

temporary and interim comfort pending the furnishing of a corporate guarantee by

the seventh defendant. They had also taken out third party proceedings against the

seventh defendants claiming an indemnity if they were found liable to the plaintiffs.

At the time of the transactions, the second and third defendants were directors in

the first defendants and the first defendants was a company in the seventh

defendant's group. They had joined the first defendants on the request of the

seventh defendant. The seventh defendant had then acquired an interest in a

company called Sejati. The three transactions which the first defendants concluded

with the plaintiffs were for the benefit of Sejati.

Holding :

Held, entering judgment for the plaintiffs and granting the second and third

defendants' claim for an indemnity: (1) there was no agreement between the

plaintiffs and the second and third defendants that the personal guarantees

furnished by them would, in any of the transactions, be interim, temporary and of

comfort only until the issue of the seventh defendant's corporate guarantee; (2) the

hire-purchase agreement provided for interest at the rate of 16% till payment was

made. This clause was clear and interest would continue to accrue at 16% pa until

payment was actually made whether such payment was obtained before or after

judgment; (3) it was clear law that, except in certain specific instances which were

not applicable here, an agent had a right against his principal to be reimbursed for

all expenses and to be indemnified against all losses and liabilities incurred by him

in the execution of his authority. The right of indemnity extended to personal

liabilities incurred by the agent in the execution of his duties; (4) the second and

third defendants were at all times acting in the best interest of the seventh

defendants. If they had not been directors of the first defendants they would not

have incurred the liabilities under the guarantees. It did not lie in the mouth of the

entity which urged the second and third defendants to assume this responsibility to

say that it will not indemnify them against the consequences of their action.

Digest :

Hong Leong Finance Limited v Famco (S) Pte Ltd & Ors [1993] 1 SLR 348 High

Court, Singapore (Judith Prakash JC).

2461 Guarantee -- Release of guarantors

3 [2461] CONTRACT Guarantee – Release of guarantors – Contract - Guarantors -

Release of joint guarantor without consent of the other - Common law

principle not applicable to contracts in Malay States - Contracts (Malay States)

Ordinance 1950, ss 45 & 91.

Summary :

The common law principle that the release of a joint guarantor without the consent

of the other would release him from his obligation under the bond is not applicable

to contracts in the Malay States. In the Malay States the law relating to contracts is

contained in the Contracts (Malay States) Ordinance 1950 in which some of the

provisions are at variance with the principles of the common law.

Digest :

Song Bok Yoong v Ho Kim Poui [1968] 1 MLJ 56 High Court, Ipoh (Maclntyre J).

2462 Guarantee -- Rescission

3 [2462] CONTRACT Guarantee – Rescission – Inequality of bargaining power –

Misrepresentation – Non est factum

Digest :

Malayan Banking Bhd v Kim Produce Pte Ltd & Ors and another action [1991]

SLR 414 High Court Singapore (Sinnathuray J).


2463 Guarantee -- Rescission

3 [2463] CONTRACT Guarantee – Rescission – Misrepresentation – Plea of non est

factum – Application of principles in Avon Finance case

Summary :

The plaintiffs, Malayan Banking Bhd, brought two actions, which are consolidated

in this action, against Ong Chi Hui @ Ong Sing Chiat @ Ong Yue Hwee ('Ong')

and Loi Sai Kwang ('Loi') as guarantors under two letters of guarantee. Ong is the

fifth defendant in Suit No 1979 of 1981 ('the first suit') and the third defendant in

Suit No 1980 of 1981 ('the second suit'). Loi is the sixth defendant in the first suit

and the fourth defendant in the second suit. In both the actions Ong and Loi gave

guarantees in favour of Kim Produce Pte Ltd ('Kim Produce'), the principal debtor

in the first suit and T Bin (Singapore) Pte Ltd ('T Bin'), the principal debtor in the

second suit. The two guarantees were given in consideration of the plaintiffs

granting credit facilities to Kim Produce and T Bin. The plaintiffs had already

obtained judgment against Kim Produce and T Bin in respect of moneys owing to

the plaintiffs and the sole issue was the question of liability or otherwise of Ong

and Loi under the two guarantees to make good the sums owed by Kim Produce

and T Bin. The applications were made on Kim Produce and T Bin's behalf by

their managing director, Hasannudin Guntur @ Felix Lui ('Lui'). The plaintiffs

gave the guarantee documents to Lui who obtained the signatures of Ong and Loi

as guarantors in respect of credit facilities granted to Kim Produce and T Bin.

Holding :

Held, allowing the plaintiffs' claim against Ong and dismissing the plaintiffs' claim

against Loi: (1) Loi had misplaced his faith in Lui who was an untrustworthy

person. There had been an inequality of bargaining power between Loi and Lui,

and also between Lui and the plaintiffs. Loi did not have the benefit of independent

legal advice and the circumstances in which the plaintiffs obtained Loi's signatures

on the letters of guarantee were unfair to him. Hence, the principles in the Avon

Finance case [1985] 2 All ER 281 applied to absolve Loi; (2) Ong, on the other

hand, was an experienced businessman who, in the course of his business, signed

many guarantees. In the instant case, he knew he was signing letters of guarantee

and knew what guarantees were all about. There were also material contradictions

between Ong's testimony and his son's testimony which were not reconcilable.

There was no inequality of bargaining power and the principles in the Avon

Finance case and the plea of non est factum were not available to Ong.

Digest :

Malayan Banking Bhd v Kim Produce Pte Ltd & Ors [1991] SLR 414 High Court,

Singapore (Sinnathuray J).

2464 Guarantee -- Revolving bankers acceptance facility

3 [2464] CONTRACT Guarantee – Revolving bankers acceptance facility –

Subsequent renewals of facility – Whether guarantor's liability for default in

payments limited only to period of original facility – Whether extensions were

fresh facilities – Whether guarantee a continuing guarantee

Summary :

The trial of this suit was confined to the second defendant ('the defendant') who

was sued under a guarantee dated 3 October 1984, pursuant to which he undertook

to pay the plaintiff bank all sums due under a revolving bankers acceptance facility

('the facility') granted by the plaintiffs to a company, its subsidiaries and associated

companies ('the borrowers'). The defendant was a director of the borrowers at the

material time. Under the guarantee, his liability was limited to RM2m, the amount

claimed by the plaintiffs following the borrowers' default in payment. The granting

and acceptance of the facility was evidenced by a Bankers Acceptance Agreement

dated 20 September 1984 ('the agreement') executed by the plaintiffs with the

borrowers. Under cl 5 of the agreement, a RM2m facility was available to the

borrowers for a one-year period commencing from 12 June 1984 until 11 June

1985, and thereafter it could be renewed for further periods. On 10 June 1985, the

Chief Executive of the plaintiff bank gave a temporary approval extending the

availability of the facility for three months to commence from 12 June 1985 to 11

September 1985. This was done unilaterally without any request from the

borrowers for an extension. The plaintiffs' reason for doing so was to maintain the

good banker and customer relationship which existed then between the plaintiffs

and the borrowers. Further, a temporary approval as opposed to a formal extension

was granted then as there was a backlog of accounts to be reviewed by the

plaintiffs' executive committee. On 22 August 1985, the plaintiffs formally

approved an extension of the facility for one year, from 22 August 1985 to 22

August 1986. The borrowers were informed of the extension and this was duly

accepted by them. After 22 August 1986, two further temporary extensions of three

months each were approved by the plaintiffs. After 20 February 1987, no further

extensions were granted as by that date the borrowers were in default. The

evidence showed that the borrowers utilized the facility during the currency of the

one-year period, thereby incurring a liability amounting to RM322,000 and another

RM1.678m during the currency of the second temporary approval. The defendant

contended, firstly, that his liability under the guarantee was only limited to the

indebtedness incurred by the borrowers during the currency of the agreement, ie

for the period from 12 June 1984 to 11 June 1985. He further contended that the

further extensions granted by the plaintiffs were in respect of fresh facilities

granted by the plaintiffs to the borrowers for which fresh letters of guarantee

should have been executed by him if he were to be made liable for their

indebtedness during the extended periods. Since the borrowers incurred no liability

during the period from 12 June 1984 to 11 June 1985, he was therefore not liable to

meet the plaintiffs' demand for any debt incurred by the borrowers after 12 June

1985. He contended, secondly, that the letter of demand dated 4 March 1988 was

not posted in compliance with cl 17 of the guarantee (ie to be served on him

personally or by sending such notice through the post addressed to his last known

address) but, instead, was sent by AR registered post. The AR card was never

returned to the plaintiffs. The defendant argued that the plaintiffs consequently had

no cause of action against him as the notice of demand had not been effectively

served on him. The plaintiffs argued that: (1) as the defendant had not pleaded that

he did not receive the letter of demand in his defence, and also chose not to lead

any evidence in court, the court should not give any consideration to this point; and

(2) since the defendant chose not to rely on this defence in the earlier O 14

proceedings, he was debarred from doing so at trial.

Holding :

Held, dismissing the plaintiffs' claim: (1) cl 5 of the agreement empowers the

plaintiffs to renew the facility for further successive periods after 11 June 1985.

Any notion that they had done so in contravention of cl 5 is dispelled by the

subsequent conduct of the borrowers in accepting the renewals and utilizing the

facility during the currency of the renewals. The defendant, as the director,

acknowledged the one-year renewal and in his said capacity, he must have been

fully aware that the facility was utilized during the renewal periods. As such, he

cannot now claim that there was no 'mutuality' as far as the renewals are concerned;

(2) there is no merit to the objection that the extensions were fresh facilities which

were not covered by the guarantee he signed. Clause 9 of the agreement does

empower the plaintiffs to recall the facility on demand, and when the letter

informing the borrowers of the extension makes mention of it, it was not intended

to introduce a new term for the renewed facility but only to emphasize the

plaintiffs' remedy for default as contained in cl 9 of the agreement; (3) there is no

evidence to show that the facility granted after 22 August 1986 was a fresh facility.

On the contrary, there was evidence that the facility granted after that date was the

same facility but renewed for a period of time as empowered by cl 5 of the

agreement. Further, there is the glaring evidence that there was no break in the

availability of the facility but that it continued until 20 February 1987. The very

fact that the borrowers utilized the facility during the currency of the second

temporary approval lends further support to the conclusion that the facility was not

a fresh facility but the same one renewed for the benefit of the borrowers; (4) the

guarantee executed by the defendant therefore is a continuing guarantee, covering

all liabilities incurred by the borrowers not only during the currency of the original

facility but also during the currency of subsequent renewals of the same facility; (5)

the defendant in his statement of defence has denied the plaintiffs' allegation in

their statement of claim that a demand for payment was made to the defendant

through their solicitors' letter dated 4 March 1988, and has put the plaintiffs to

strict proof of such a demand. By so pleading, the defendant has raised an issue on

the letter of demand itself and the burden is on the plaintiffs to prove that such a

notice had been sent to and received by the defendant; (6) the fact that the

defendant had not specifically pleaded that he did not receive the letter of demand

makes no difference to and carries no weight affecting the plaintiffs' burden of

proof that such notice had been effectively sent; (7) at the O 14 stage, the

defendant need only raise one triable issue acceptable to the court to enable him to

defend this suit. As such, the fact that the issue of demand was not raised at the O

14 proceedings does not debar the defendant from relying on it at the trial so long

as he had made an issue of it in his pleadings; (8) sending a letter by AR registered

is 'greater' than sending it by ordinary post as the postman must obtain an

acknowledgment of receipt of the letter on the AR card. It is only upon the return

of the AR card with the said acknowledgment that it can truly be said that the letter

of demand has been effectively served on the guarantor. Anything short of that can

never amount to the letter of demand having been served on the guarantor where

posting is done through AR registered post; (9) to constitute a proper demand, the

burden is on the plaintiff to prove that the AR card has been returned duly

acknowledged. As this burden has not been discharged by the plaintiffs, the

plaintiffs have not been able to establish a cause of action against the defendant

under the guarantee.

Digest :

Amanah Merchant Bank Bhd v Lim Tow Seng & Ors [1993] 2 MLJ 241 High


2465 Guarantee -- Rights of surety

3 [2465] CONTRACT Guarantee – Rights of surety – Contribution from co-surety –

Co-surety also the principal debtor – whether right to contribution available –

Contracts Act 1950, s 98

Summary :

P and D1 entered into three lease agreements wherein certain equipment were

leased by P to D1. D1 and D2 guaranteed payment of all rentals due to P under the

agreements. Subsequently, D1 defaulted in paying the due rentals. P then filed the

present suit against D. In due course, P applied for summary judgment to be

entered against D. The senior assistant registrar granted D conditional leave to

defend the action upon their depositing a sum of money into court. D appealed to

the High Court against the order of the senior assistant registrar. D1 contended,

inter alia, that it had no legal entity to enter into any contractual relations and as

such the three lease agreements were void and unenforceable. Liability was also

disputed by D2 on the ground that he could not claim contribution from D1, as co-

guarantor, as the latter was also the principal debtor.

Holding :

Held, dismissing the appeal: (1) in the instant case, although the three lease

agreements had been entered into by D1, it was the partners of the firm who were

bound by the agreements and as such, there was no substance in D1's submission

that the agreements were void and unenforceable as they were executed by a firm;

(2) under s 98 of the Contracts Act 1950, in every contract of guarantee, there is an

implied promise by the principal debtor to indemnify the surety and the surety is

entitled to recover from the principal debtor whatever sum he had rightfully paid

under the guarantee. As such there is nothing to prevent D2 seeking contribution

against D1, even though D1 is also the principal debtor; (3) since all the issues

raised by D had been satisfactorily replied by affidavit evidence and as D had not

succeeded in showing that the senior assistant registrar had been wrong to order

conditional leave to defend, the court, accordingly, dismissed D's appeal with costs.

Digest :

Supreme Leasing Sdn Bhd v Low Chuan Heng & Anor Civil Suit No 24-2918-86

High Court, Kuala Lumpur (Siti Norma Yaakob).

2466 Guarantee -- Subrogation

3 [2466] CONTRACT Guarantee – Subrogation – Whether guarantor had right of

subrogation – Whether guarantor had paid sum due to creditor – Whether

guarantor had paid into court sum due to creditor

Summary :

X lent money to P1 Sdn Bhd. The loan was secured by debentures created by P1

Sdn Bhd over its land in X's favour. D, the majority shareholder of P1 Sdn Bhd,

also guaranteed P1 Sdn Bhd's repayment of the loan to X. Subsequently P1 Sdn

Bhd was placed in receivership and P2 was appointed as its receiver and manager.

P2 then entered into a sale and purchase agreement whereby P1 Sdn Bhd's land

was sold to a third party. D entered a private caveat in respect of P1 Sdn Bhd's land

and had also applied for an injunction to restrain P1-P2 from selling P1 Sdn Bhd's

land. X had commenced action against D based on the guarantee given by D but D

had disputed the sum due to X. P1-P2 filed this present application to remove D's

caveat. D firstly argued if the sum due to X had been settled by D as a guarantor, D

would have a right of subrogation and this would entitle D to enter the caveat. D

then alleged that the valuation of P1 Sdn Bhd's land before it was sold by private

treaty to the third party, was not proper and this would therefore cause D to suffer

loss.

Holding :

Held, allowing the application: (1) subrogation did not apply in this case because

D had not settled the sum due to X. Nor had D paid into court the debt due to X. D

had instead disputed the amount due to X; (2) if a suffcient sum of money had been

paid by D into court despite the fact that D had disputed such a sum as being due to

X or if the total amount due to X had been settled, D would have a right to enter a

caveat in respect of P1 Sdn Bhd's land. In this case however D could not be said to

have a caveatable interest in P1 Sdn Bhd's land; (3) P2 was entitled to sell P1 Sdn

Bhd's land by way of private treaty under the debentures and P2 was also satisfied

that the sale price was sufficient. Since the sale and purchase agreement had

already been concluded, it was too late for D to take any action; (4) D had

therefore failed to raise any serious question to be tried. The question of balance of

convenience did not consequently arise. D's caveat was accordingly removed.

Digest :

Malayan Prestressed Concrete Strand Manufacturing Sdn Bhd & Anor v Malaysian

Ropes Sdn Bhd [1991] 3 MLJ 482 High Court, Ipoh (Abdul Malek J).

Annotation :


2467 Guarantee -- Substitution of guarantors

3 [2467] CONTRACT Guarantee – Substitution of guarantors – Whether change in

guarantors releases other guarantors – Provision in contract giving creditor

power of substitution – Conditions precedent in agreement not complied with

– Whether creditor could waive conditions precedent

Summary :

In 1986, F Ltd entered into three option agreements under which certain parties

were entitled to require F Ltd to purchase specified shares from them. To finance

the possible purchase, F Ltd entered into a syndicated loan agreement with the

plaintiff banks under which the banks guaranteed payment for the shares to the

vendors. F Ltd was obliged to reimburse the banks. The obligations of F Ltd were

guaranteed by D and five other individuals. In August 1986, a director of F Ltd

was jailed for criminal breach of trust. This was one of the events of default

provided for specifically in the credit agreement. The guarantors, including D,

purported to terminate their guarantees with immediate effect. In October 1986, F

Ltd was required to purchase the shares under the option agreements and the

vendors called upon the banks to pay on their guarantees. P thereafter sued D on

their guarantees of F Ltd's liabilities. Summary judgment was obtained and D's

appeal to the High Court was dismissed (see [1988] 2 MLJ 210). D appealed to the

Court of Appeal. They argued, inter alia, that conditions precedent to the issue of

the bank guarantees had not been complied with and that they had been released

from liability since new guarantors had been introduced without their consent.

Holding :

Held, dismissing the appeal: (1) the agreement between F Ltd and the banks

provided that F Ltd might not make its first request for the issue of a bank

guarantee until the agent had confirmed receipt of certain specified documents.

However, as between the banks and F Ltd there was nothing in the agreement to

prevent the banks from waiving these conditions precedent and to act on any

request of F Ltd even if the request did not satisfy the said conditions precedent. If

the conditions precedent had been imposed also for the benefit of D, it would have

been easy to provide in the agreement or the guarantee that D's guarantee would

not come into force until the condition precedent had been complied with in

accordance with its terms; (2) as to the argument that D were released from

liability under the guarantee because two of the original guarantors were replaced

by new guarantors without the consent of D, the Court of Appeal agreed with the

learned judge that D were not prejudiced at all and the guarantee itself provided

that such a change in the security arrangements would not be a defence to D's

liability as surety; the appeal was accordingly dismissed.

Digest :

Rumah Nanas Rubber Estates Sdn Bhd v NM Rothschild & Sons (Singapore) Ltd

& Ors [1989] SLR 141 Court of Appeal, Singapore (Wee Chong Jin CJ, Chan Sek

Keong and Chua JJ).

2468 Guarantee -- Surety's right against creditor

3 [2468] CONTRACT Guarantee – Surety's right against creditor – Duty of creditor

– Duty to prevent security from becoming worthless – Loan secured by

mortgage of shares – Shares sufficient to cover loan at date of default –

Creditor proceeding against surety after shares became worthless – Whether

creditor has a duty to surety

Summary :

A, a bank, advanced money to D. The loan was secured by the mortgage of shares

and by a guarantee executed by R. D defaulted on the loan. At that time, the shares

were worth a sufficient amount to cover the indebtedness to A. However, A did not

sell the mortgaged shares and they subsequently became worthless. A then

proceeded against R on his guarantee, obtaining summary judgment. On appeal to

the Court of Appeal, unconditional leave to defend was given to R, who had

contended that the bank as creditor should have sold the shares to recover its

money before the shares became worthless. A appealed to the Privy Council.

Holding :

Held, allowing the appeal: (1) the creditor had three sources of repayment. It could

sue the debtor, sell the mortgaged securities or sue the surety. All these remedies

could be exercised simultaneously or contemporaneously or successively or not at

all; (2) if the creditor chose to sue the surety and not pursue any other remedy, it

was bound to assign the security to the surety on being paid in full. If the creditor

chose to exercise the power of sale, it must sell at the current market value but had

a discretion to decide when and if to sell. The creditor does not become a trustee of

the mortgaged securities and the power of sale for the surety unless and until the

creditor is paid in full and the surety, having paid the debt, becomes entitled to a

transfer of the securities to him; (3) the surety contracts to pay the debt if the

debtor does not pay. If the surety is worried that the mortgaged securities may

decline in value, then he may request the creditor to sell and if the creditor did not

do so, the surety could pay off the debt, take over the benefit of the securities and

sell them. The creditor is not under a duty to exercise his power of sale at any

particular time or at all; (4) as A had done no act injurious to R or inconsistent with

R's rights and did not breach any duty to R, R's defence failed and the appeal was

allowed.

Digest :

China & South Sea Bank Ltd v Tan [1989] 3 All ER 839 Privy Council Appeal

from Hong Kong (Lords Keith, Templeman, Ackner, Oliver and Goff).

2469 Guarantee -- Terms of guarantee

3 [2469] CONTRACT Guarantee – Terms of guarantee – Costs and expenses

incurred not provided for

Summary :

The plaintiffs by a letter dated 8 November 1983 granted to M/s Moving Pictures

Pte Ltd ('the company') the following credit facilities: (a) an overdraft facility of

S$60,000 payable on demand; and (b) a term loan, also of S$60,000, repayable by

1 August 1985. Each carried interest at the rate of 11.05% pa. At the trial what was

before the court were as follows. In respect of the overdraft account, the plaintiffs

confined themselves to four of the six items of expenses. In respect of the term

loan account, the claim stood at S$11,296.31, being the difference between the

term loan judgment sum of S$60,000 less S$48,703.69, the amount realized from

the garnishee proceedings. In the end, the only claims that had to be dealt with at

length are (a) in respect of the overdraft account, the plaintiffs' solicitors' costs, and

(b) in respect of the term loan account, the shortfall of S$11,296.31.

Holding :

Held, allowing the plaintiffs' claim: (1) none has been identified. Neither is there

anything in the guarantee agreement obliging the guarantors to bear such costs and

expenses. All that the guarantors undertook to bear under cl 13(b) were costs and

expenses incurred in recovering moneys due under the guarantee itself. The

plaintiffs have not shown how the costs and expenses incurred in the overdraft

action and the term loan action, particularly the enforcement proceedings, can be

considered to be costs and expenses incurred in recovering moneys due 'under the

guarantee'. The claim therefore, cannot be sustained; (2) the court accepted the

defendant's contention that the total principal sum for which he is liable should not

exceed S$120,000. On calculation, by elimination, the principal sum which was

debited to the company would be S$127,280.44 - S$4,442.25 = S$122,838.19. It

exceeded the limit by S$2,838.19. This must be taken off the shortfall claimed, so

that what the plaintiffs are entitled to claim is S$11,296.31 - S$2,838.19 =

S$8,458.12 which sum the court allowed; (3) in the instant case, there is no

provision in the principal agreement dealing with the costs and expenses of

recovering moneys due under it;if the plaintiffs and their advisers had been more

responsive to the expressed desire of the defendant to settle the matter, this suit

need never have proceeded beyond the writ stage, or been started at all. The

plaintiffs' conduct of these proceedings leaves much to be desired. In the

circumstances there is no order as to costs.

Digest :

Banque Indosuez v Pang Giap Oon Suit No 6200 of 1985 High Court, Singapore

(Warren LH Khoo J).

2470 Guarantee -- Undue influence

3 [2470] CONTRACT Guarantee – Undue influence – Whether guarantees were

executed under undue influence of third party – Contracts Act 1950, s 16

Summary :

P advanced money to Syarikat S. D1-D4 guaranteed the repayment of the loan by

Syarikat S on demand by P. Upon the failure of Syarikat S to repay the loan, P

sued D1-D4 and obtained judgment in default of appearance against them. D3-D4

applied to the High Court to set aside the default judgment, firstly, on the ground

that they executed the guarantees under the undue influence of D1. D3-D4 also

alleged that they signed blank guarantee agreements without any explanation given

to them. D1 and D3 were married to each other while D4 was D3's mother.

Holding :

Held, dismissing the application of D3-D4: (1) to establish undue influence under s

16 of the Contracts Act 1950, D3-D4 had to prove the other contracting party,

namely, P was in a position to dominate their will and that P had obtained an unfair

advantage by using that position. However, under the common law, if a party

enters into a contract as induced by a person who is not a party to the contract, the

contract is not enforceable. The common law should therefore be considered as a

principle of law in addition to s 16 of the 1950 Act and is not inconsistent with

such a provision; (2) there was no evidence that P had dominated the will of D3-

D4, nor that P had any real or apparent authority over D3-D4; (3) D3-D4 merely

made bare allegations of D1's undue influence without giving any particulars. This

was insufficient to raise the question of undue influence as a triable issue; (4) the

guarantees were valid in the absence of fraud or misrepresentation despite the fact

that the particulars were not filled in at the time they were signed by D3-D4.

Digest :

Malaysia French Bank Bhd v Abdullah bin Mohd Yusof & Ors [1991] 2 MLJ 475


2471 Guarantee -- Unilateral cancellation of guarantee

3 [2471] CONTRACT Guarantee – Unilateral cancellation of guarantee –

Guarantor a director of borrowing company – Resignation of director –

Whether director can withdraw from guarantee

Summary :

P advanced money to H Co. D was a director of H Co and a guarantor of the loan.

D resigned from H Co and purported to give notice of his resignation and

rescission of the guarantee to P. Upon H Co's default, P sued D upon the guarantee.

Holding :

Held, allowing P's claim: it was held that the evidence submitted by D regarding

the cancellation of the guarantee was fabricated. Even if D did purport to terminate

the guarantee, such unilateral termination was ineffective.

Digest :

Indian Overseas Bank v Goh Teng Hoon [1988] 3 MLJ 372 High Court, Singapore

(Rajah J).

2472 Guarantee -- Validity

3 [2472] CONTRACT Guarantee – Validity – Blank guarantee agreements were

executed without explanation – Whether guarantees were valid

Digest :

Malaysia French Bank Bhd v Abdullah bin Mohd Yusof & Ors [1991] 2 MLJ 475




3 [2473] CONTRACT Guarantee – Validity – Compliance with Finance Companies

Act 1969, s 20

Summary :

This was an application by the plaintiff for summary judgment against the

defendants for moneys due under a block discounting agreement. Based on this

agreement and at the request of the first defendant, the plaintiff had bought hire

purchase agreements from the first defendant. The second defendant had also

entered into the relevant guarantee with the plaintiff and was also liable as a

principal debtor. The first defendant subsequently failed to pay the moneys due.

The first defendant claimed that the plaintiff had contravened ss 2 and 127 of the

Banking and Financial Institutions Act 1989 ('the BFIA') and ss 4 and 20 of the

Finance Companies Act 1969 ('the FCA'). The second defendant argued in respect

of the plaintiff's claim for 18% interest that the plaintiff had to first prove damages

despite the provision in the block discounting agreement of the penalty rate of

interest which the second defendant felt was excessive. He also argued that the

notice of demand against the second defendant was bad because it did not take into

consideration two payments which had been made.

Holding :

Held, dismissing the application: (1) the effect of the block discounting agreement

was the purchase by the plaintiff of debts owed to the first defendant. Under s 4 of

the FCA 'borrowing business'as defined in s 2 of the FCA includes the lending or

the investment by the borrower of the borrowers funds. It does not cover the

purchase of debts and therefore when the relevant agreement was entered into, it

was void under the FCA. However the position changed with the enactment of the

BFIA. Section 128(9) of the BFIA repeals the FCA but transactions under the FCA

continue to be valid. Section 127(2) of the BFIA was amended to add 'provision of

finance' which covers the business of acquiring debts. The amendments to the

BFIA were retrospective. Thus, a block discounting agreement is now legally

binding; (2) however, under s 20 of the FCA, no finance company may give

unsecured advances, loans or credit facilities in access of RM 5,000 except to a

registered finance company, bank or any other financial institution approved by

Bank Negara Malaysia. As it would appear that this transaction did not comply

with s 20 of the FCA, a triable issue had been raised; (3) in respect of the claim for

interest of 18%, there was no issue for trial as the provisions were clearly stated in

the relevant agreement; (4) as regards the discrepancies in the accounts, there was

no triable issue as the plaintiff had admitted the error and had accordingly amended

their statement of claim; (5) although the second defendant had not been able to

raise any triable issue, the validity of the guarantee rested on the validity of the

main agreement. Therefore, the plaintiff's application for summary judgment was

dismissed.

Digest :

Cempaka Finance Bhd v Menang - SK Brothers Enterprise Sdn Bhd & Anor Civil

Suit No D 5-22-1685-92 High Court, Kuala Lumpur (Abdul Malek J).


3 [2474] CONTRACT Guarantee – Validity – Deed of guarantee over hire-purchase

transaction – Particulars of deed and agreement left blank when executed –

Default on hire-purchase payments – Validity of deed – Whether past

consideration present – Responsibility of persons executing blank documents

Summary :

The appellant was a sales executive with a company selling tractors. He secured a

purchaser, the first defendant, for one tractor and arranged hire-purchase financing

with the respondent for the first defendant. This culminated with a hire-purchase

agreement ('the agreement') between the parties. To 'convince' the first defendant to

purchase the said tractor, the appellant executed a deed of guarantee ('the deed') for

the due performance of the first defendant of the terms stated in the agreement.

Both the agreement and the deed were signed by the first defendant and the

appellant respectively on or before 11 January 1984. When the deed was executed

by the appellant, it was a printed form with relevant particulars left blank. These

relevant particulars were only completed on 15 August 1984 when the hire-

purchase sum was to be released by the respondent. Subsequently, the first

defendant defaulted in the hire-purchase payments under the agreement. The

tractor was therefore repossessed and sold leaving a balance of RM18,096.31

which the respondent claimed against the first defendant, and obtained judgment in

default of appearance. The appellant disputed the respondent's claim on the

grounds that: (a) the deed was invalid without the relevant particulars inserted at

the material time of execution. Hence, the fundamental elements on the formation

of a contract had not been fulfilled; (b) since he was sued on a guarantee, the

agreement being a principal document also bore no relevant particulars when

executed; and (c) there was an issue of past consideration.

Holding :

Held, dismissing the appeal: (1) there was no trace of past consideration in the

transaction. The opening sentence of the deed expressly stated, 'In consideration of

your entering into the hire-purchase agreement ...'. There was such a hire-purchase

agreement intended to be executed between the first defendant and the respondent

at the material time, and this did take place when the appellant executed the deed;

(2) a person who chose to be careless, or not bothered to find out what the contents

of documents are, or relied completely upon others to complete the same, is

responsible for his own actions and is prevented from denying that the contents

therein bound him.

Digest :

Chai Then Song v Malayan United Finance Bhd [1993] 2 CLJ 640 High Court,

Johore Bahru (James Foong J).


3 [2475] CONTRACT Guarantee – Validity – Guarantor denied signing guarantee –

Nature of proof needed – Evidence Act (Cap 97), s 69

Summary :

The plaintiff bank's claim against the defendant was founded on a guarantee it said

he executed in its favour. The defendant denied signing the guarantee, asserted that

the guarantee was not supported by consideration and disputed the amount owed

by the principal debtor.

Holding :

Held, allowing the plaintiff's claim: (1) primary proof of the guarantee was given

by the production of the guarantee at the hearing. Evidence was also led on the

defendant's conduct in face of the bank's claim against him as a guarantor. For

example, the defendant did not deny the guarantee until about a year and a half

after the plaintiff sent a formal letter of demand to the defendant through its

solicitors. Further, the defendant had also attended discussions with the plaintiff's

representatives, both in Singapore and in Penang about settlement of the debts due

to the plaintiff. The defendant had also admitted in a letter dated 1 September 1987

to being a guarantor. The court was therefore satisfied that the defendant had

signed the guarantee; (2) on the defendant's argument that the plaintiff had failed to

prove the guarantee under s 69 of the Evidence Act (Cap 97) because it did not

lead evidence on the defendant's signature, the court held that s 69 does not apply

to preclude the use of indirect or circumstantial evidence. It does not render it

necessary that direct evidence of the handwriting of the person alleged to have

executed the deed must be given by some person who saw the signature affixed; (3)

on the issue of whether the guarantee was supported by consideration, the

guarantee was stated to be given in consideration of the plaintiff making or

continuing to give advances, or otherwise giving credit or other accommodation to

Jaico, the company of which the principals were directors. "Accommodation"

refers to the facilities a bank provides and indulgences it grants to its customers. In

context of the present guarantee, it would include the continuance of the Foreign

Bills Purchased facility granted to Jaico and the agreement not to take immediate

action to recover Jaico's outstandings. All these matters were deposed to in the

plaintiff's manager's affidavit-in-chief and were not challenged in cross-

examination; (4) on the amount due under the guarantee, the defendant guaranteed

the payment of Jaico's liabilities including interest and agreed to pay interest on the

sum claimable from him under the guarantee but the rate of interest was left blank.

The court found on the evidence that the parties did not think of or agree on a

figure and what appeared in the guarantee was an incomplete standard clause that

could not be applied. In the situation, the primary provision between the principals

and the plaintiff continued to operate as a governing provision.

Digest :




3 [2476] CONTRACT Guarantee – Validity – Whether guarantee executed by

company required company seal to be affixed – Whether consideration for

guarantee past consideration – Whether directors of company aware they

were signing guarantee – Whether any variation of terms of the guarantee

discharging guarantors – Whether liability of guarantors discharged if

creditor has alternative remedy

Summary :

The plaintiff (the bank) applied for summary judgment against the first defendant

(the company) as borrower in a credit facility and against the second to sixth

defendants as guarantors (the guarantors). The company had made an application

to the bank for credit facilities to finance the company's purchase of raw materials

and for finance of exports. The company was offered a credit facility referred to as

an Export Credit Refinancing (Pre and post shipment) facility (the ECR facility)

for RM3m subject to certain terms, inter alia, that all export transactions were to be

covered by a Banker's Finance Insurance policy (the BEFIP) and that the

guarantors, who were directors of the company, execute a joint and several

guarantee for RM3m. There was some delay in the issuance of the BEFIP, which

was a condition precedent for the granting of the ECR, as the company was unable

to fulfil certain requirements in obtaining it, and the company requested and was

granted an extension of time to accept the ECR facility. After successfully

acquiring and utilizing the ECR facility, the company subsequently breached one

of the conditions by failing to settle an outstanding sum of RM998,481.97. The

plaintiff filed a writ of summons claiming the sum and subsequently filed this

application for summary judgment. As the company had been ordered to be wound

up, bearing in mind s 226(2) of the Companies Act 1965, the hearing of the

application for summary judgment was ordered to be proceeded against the

guarantors only. The guarantors opposed the ap-plication.

Holding :

Held, allowing the application: (1) the guarantors' argument that the ECR facility

was untenable in law as the plaintiff had failed to comply with the legal formalities

and requirements of the Bankers Act and the Companies Act could not stand.

Counsel for the guarantors did not submit as to what the non-compliance of the

banking laws were. With regards to the Companies Act, counsel's argument that

the agreement was not valid as the common seal of the company was not affixed to

the loan document and that it was not stamped was without merit and misleading.

The guarantors were fully aware that the agreement was in the form of several

documents and correspondence, and counsel had not identified the loan document

requiring the company's seal to be affixed and also did not make submission on

this point. Even if he had, it would not have made any difference as the Companies

Act 1965, s 35(4) does not make it mandatory for a company to affix its common

seal to a contract unless required by law or by its memorandum or articles of

association. Furthermore, no company seal need be affixed at all to the guarantee

document executed by the guarantors since it was entered into in their personal

capacity; (2) the guarantors' assertion that they had no knowledge that they had

executed any document in their capacity as guarantors, or in the alternative, that

the guarantee was invalid was equally without merits. The guarantors were all

directors of the company and it was resolved at a meeting of the board of directors

that they would be guarantors for the ECR facility. They were signatories to the

guarantee document and were fully aware they had executed that document as

guarantors. The argument that the said guarantee executed amounts to past

consideration and was therefore invalid could not hold water. The guarantee was

one of several conditions imposed by the plaintiff and accepted by the company at

a meeting of its board of directors. It was part of the same transaction wherein the

plaintiff had agreed to make available the ECR facility and without it being

executed the company would not have been able to utilize the ECR facility. When

it was executed would be irrelevant as it formed part of the same transaction and

the said guarantee was not past consideration; (3) there was also no merit in the

denial of the guarantors that they were not liable for the outstanding sum. The

words of the guarantee document made it clear that they had agreed not only to

repay all the liabilities of the company incurred after the execution of the guarantee

but also in respect of liabilities incurred as at the time of execution; (4) there was

nothing to support the contention that the guarantors were discharged due to the

contract between the company and the plaintiff being varied. Counsel did not

address the court as to what were the variances or acts or omissions he was

referring to, if at all they existed. There were some indulgences granted by the

bank at the company's request such as one of the directors being excluded from

being a guarantor and the extension of time to enable the company to fulfil the

conditions to enable it to accept the bank's offer of the ECR facility, but all these

were made before the agreement to make available the ECR facility was finalized.

None of the requests could tantamount to variances which could discharge or

release the guarantors from their liability; (5) the guarantors' contention that the

plaintiff could seek indemnity under the BEFIP was a non-issue. The guarantors

could not discharge their liability under the guarantee by identifying a source from

which the plaintiff might be able to recover his loss.

Digest :

Perwira Habib Bank Malaysia Berhad v Campell Industries Sdn Bhd & Ors Civil

Suit No 22-237-1992 High Court, Johor Bahru (Mohd Ghazali J).

2477 Guarantee -- Variation

3 [2477] CONTRACT Guarantee – Variation – Co-sureties failing to execute –

Deletion of co-sureties' names from deed of guarantee – Whether presumption

that alterations made before execution applies

Summary :

The plaintiffs are a finance company. In July 1982 or thereabout, they granted a

loan of S$4m to a company, Chinese Pottery Arts & Handicraft Pte Ltd ('the

company'), and among the securities provided for the loan was a guarantee in

writing dated 28 July 1982 executed by Lim Shu Jin ('Lim'), Goh Khim Teik ('Goh')

and James Chan Chao Jan ('Chan'). The company subsequently defaulted in

repayment of the loan and the plaintiffs commenced this action, inter alia, against

Chan for the amount due under the guarantee. Chan's sole defence was that it was

intended that the guarantee was to be executed by the five persons named therein

(who were the existing directors of the company) but that after the execution of the

guarantee by him, the names of two of those directors, Jit Lin and Geok Mooi

therein were deleted without his knowledge and consent with the result that neither

of them executed the guarantee and in consequence he was not liable under the

guarantee. It transpired that the guarantee was prepared by the plaintiffs' solicitors

with the names and addresses of all five of the company's directors as co-sureties.

However, the executed document had those names and addresses deleted. The

defendant alleged that the alterations were made after he had executed the

guarantee and without his knowledge or consent. The plaintiffs contended

otherwise and additionally submitted that as the guarantee was executed under seal,

there is a presumption in law that any alteration appearing upon the face of a deed,

in the absence of evidence to the contrary, was made before the execution of the

deed.

Holding :

Held, dismissing the claim: (1) where a surety had executed a document in the

belief derived from the form of the document that it would be executed by all the

sureties named as such in the document as persons who were to sign, he would be

relieved from his obligation if all the others did not sign; (2) on the evidence, the

court concluded that Chan, as far as he is concerned, executed the guarantee on the

basis or understanding that all the five persons would sign the guarantee, and as the

absence of the execution thereof by Jit Lin and Geok Mooi had not been agreed to

by him, he is not bound by the guarantee; (3) and so, to alter it afterwards would be

fraudulent, and, in many cases, highly criminal (Simmons v Rudall (1851) 1 Sin NS

115); (4) in the case of deeds, the authorities seem to show that, when there are

interlineations, the presumption is that they were made before execution ... And

this is consistent with good sense: for every deed expresses the mind of the parties

at the time of its execution;in this case, the short answer to the plaintiffs' argument

is that the guarantee was expressed to be executed by five parties under seal but

only three parties had so executed it. It was not, and is still not, a perfected

instrument. Certainly, it is not in so far as Chan is concerned. The document as a

whole is not a deed - not yet at any rate until it is executed by the other two parties.

This case is therefore distinguishable from those cases in which the presumption of

law was invoked.

Digest :

Hong Leong Finance Ltd v Goh Khim Teik & Anor [1994] 1 SLR 366 High Court,

Singapore (LP Thean JA).


3 [2478] CONTRACT Guarantee – Variation – Contracts Act 1950 (Act 136), s 86 –

Contract - Guarantees provided by directors for banking facilities granted to

their companies - Companies unable to pay debts due to bank - Claim on

guarantees against guarantors - Sums of money paid by receiver not credited

to companies' accounts - Interest rate not specified in guarantees - Defence of

variation - Bank's right of variation - Whether variation absolves guarantors

from liability - Contracts Act 1950, s 86 - Banking - Banking facilities granted

to companies - Guarantees provided by directors - Claim on guarantees

against guarantors - Defence of variation - Bank's right of variation -

Contracts Act 1950, s 86.

Summary :

The three defendants in these consolidated actions were guarantors for banking

facilities granted by the plaintiff bank to two companies (Seiko and Mandarin) in

which they were directors. Seiko owed the bank $1,762,266.19 as at 28 June 1977,

and Mandarin owed $2,049,064.73 as at 6 July 1977. Both companies were unable

to pay their debts to the bank and have been liquidated. On 3 June 1985, the

receiver of Seiko sent a sum of $399,912.94 to the bank. On 6 July 1977, the

receiver of Mandarin sent a sum of $329,388.65 to the bank. These two sums were

kept in suspense accounts and were not credited to the respective accounts of Seiko

and Mandarin. The bank now proceeds against the second defendant (Yap Seng

Hock) and the third defendant (Yee Soo We @ You Su We) on their guarantees.

They do not deny the debts but seek to avoid the guarantees which did not specify

the rate of interest payable. The defendants' main contentions are (1) the guarantors

gave their guarantees on the basis of the approval letter and conditional upon the

security being obtained so that the money be disbursed in accordance with such

approval; (2) assuming the variation did take place, whether such variation could

be considered being one which absolved the defendants; and (3) whether the

variation is such that it goes to the root of the contract and therefore the guarantees

fail.

Holding :

Held: (1) both the defendants as directors had knowledge of the variations made by

the bank which were granted for their benefit, and neither the companies nor the

defendants were prejudiced by these variations; (2) the two clauses of the

guarantees were sufficient for the bank to vary the securities which had been

agreed to by the defendants or to grant whatever indulgence to the companies

without obtaining prior consent of the defendants. These two clauses, although

contrary to s 86 of the Contracts Act 1950 (Act 136), are valid and binding on the

guarantors; (3) the defendants were therefore liable as guarantors for the respective

debts of Seiko and Mandarin as at the dates of demand served upon them, with

proper reduction of the amounts paid by the receivers; (4) an interest of 5% pa (as

conceded by counsel for the bank) is payable on the guarantees; (5) costs to the

bank to be taxed.

Digest :

Malayan Banking Bhd v Yap Seng Kee & Ors [1988] 1 MLJ 313 High Court,

Johore Bahru (Yusoff Mohamed J).


3 [2479] CONTRACT Guarantee – Variation – Material variation – Consent of

surety not obtained – Surety discharged as to transactions subsequent to

variation – Contracts Act 1950, s 86

Summary :

P appealed against the decision of the senior assistant registrar ordering that the

judgment in default entered against D2 be set aside and granting D2 conditional

leave to defend the action. D2 did not appeal against the decision of the registrar in

regard to the grant of conditional leave to defend. P had obtained judgment in

excess of what they were entitled to. D2 had guaranteed the repayment to P of

certain credit facilities granted by P to D1. It transpired that P had increased the

rate of interest stipulated in the loan agreement without being authorized to do so.

There was no evidence that D2 was informed of the increased or that he had given

his consent to such increase.

Holding :

Held, dismissing the appeal: (1) in the instant case, the judgment in default was

clearly an irregular judgment. The senior assistant registrar, in setting aside the

judgment in default, should have granted unconditional leave to D2 because in the

circumstances of the case, D2 had the right ex debito justitiae to have the judgment

set aside; (2) the variation in the terms of the loan agreement which was effected

without D2's consent had discharged D2 as to his obligations under the guarantee

with regard to transactions subsequent to the variation; (3) for the above reasons,

the court invoked its inherent jurisdiction in the interest of justice and ordered that

unconditional leave to defend the action be given to D2.

Digest :

United Asian Bank Bhd v Kamariah bte Mohd Yusoff & Ors Suit No C24-5082-86



3 [2480] CONTRACT Guarantee – Variation – Material variation – Consent of

surety not obtained – Surety discharged from obligations under guarantees –

Contracts Act 1950, s 86

Digest :

Kidurong Land Sdn Bhd & Anor v Lim Gaik Hua & Ors [1990] 1 MLJ 485

Supreme Court, Malaysia (Lee Hun Hoe CJ (Borneo).



3 [2481] CONTRACT Guarantee – Variation – Novation – Release of gurantors –

Late payment interest – Obligation to pay after principal is wound up

Summary :

On 1 October 1982, P entered into a hire purchase agreement with H for two

hydraulic presses. On 17 February 1983 P entered into a further hire purchase

agreement with H in respect of two furnaces. Both agreements were guaranteed by

D2 and D3. H began to default in the repayments, but P did not repossess the

machinery. Instead they allowed H to continue with the hirings until both

agreements expired by effluxion of time, the reason being that it would have cost

S$20,000 to dismantle the machinery. Subsequently in September 1986, H were

put into receivership. A winding-up petition was presented against H on 6 October

1986 and the company was wound up on 6 February 1987. On 18 February 1987

the receivers entered into an arrangement with P to pay off the outstanding

instalments and by 1989 had paid a total of $114,141. Out of this sum P applied

S$20,435 (S$12,575.83 of which was late payment interest) to settle all amounts

due under the 1983 agreement. P then brought an action against D1-D4, as

guarantors, for S$90,113.57 being the balance due under the 1982 agreement. Of

the sum claimed S$73,451.74 was late payment interest. P applied for summary

judgment and D2 and D3 were given unconditional leave to defend. P appealed.

The defence of D2 and D3 was that the arrangement between P and the receivers

was done without their consent, and amounted to a variation of the agreements,

therefore releasing them as guarantors. D2 and D3 also claimed that they were not

liable for late payment interest incurred after H were wound up.

Holding :

Held, allowing the appeal: (1) P's arrangement with the receivers was not a

variation or modification of the agreements. There was nothing to vary or modify

as the agreements had expired by effluxion of time. P's claim was for the

indebtedness of H which had accrued up to the date of presentation of the winding-

up petition, less the sums paid by the receivers. D2 and D3 were not sued under the

new arrangement; (2) H's obligation to pay interest on the overdue instalments

ceased to be payable on the date of the presentation of the winding-up petition on

which the company was wound up. P were therefore not entitled to charge overdue

interest after 6 October 1986. P were therefore only entitled to recover

S$49,297.47 and there would be judgment for that amount.

Digest :

Singapore Finance Ltd v Huang Liang Yu & Ors Suit No 1419 of 1989 High Court,

Singapore (Chan Sek Keong J).


3 [2482] CONTRACT Guarantee – Variation – Variation of interest rate of loan –

Whether creditor could vary interest rate without knowledge and consent of

surety

Digest :

Malayan Banking Bhd v Senorita Holdings Sdn Bhd & Ors Civil Suit No C2-23-

3364-1986 High Court, Kuala Lumpur (Zakaria Yatim J).



3 [2483] CONTRACT Guarantee – Variation – Waiver – Construction – Contract -

Contract of guarantee - Variation without surety's consent - Alteration

insubstantial and to the benefit of sureties - Waiver of rights by sureties -

Contracts Act 1950, s 86.

Summary :

In this case, the appellant bank sued the respondents on a contract of guarantee for

banking accommodation given to a company. The respondents were the directors

of the company and in the contract of guarantee they had agreed in effect to waive

their rights in respect of any variation or alteration of the contract between the

appellant bank and the company. The advances were not repaid and the appellant

bank sued the respondents. The appellant bank then applied for summary judgment

under O 14 of the Rules of the Supreme Court. The assistant registrar made an

order in terms but this order was reversed in the High Court. The respondents had

contended that their liabilities under the guarantee were conditional on the bank

securing certain acts on the part of the company, the directors and the shareholders.

Such acts were not contained in the guarantee but were contained in a letter which

set out the terms and conditions of the loan. The respondents relied on the fact that

the bank had not obtained (a) a valid debenture on the company's assets containing

a provision to enable receivers to be appointed in the event of default; (b) a letter

of undertaking from the shareholders who held 40% of the issued share capital not

to divest their shareholdings without the bank's consent.

Holding :

Held: (1) the letter from the bank containing the terms and conditions of the loan

did not fall within the category of negotiations so as to be caught by the prohibitory

provisions of the Evidence Act but gave factual background which was admissible;

(2) the variations, if any, in this case were so fleeting and patently non-prejudicial

to the respondents as to fall into the de minimis non curat lex rule. In this case, the

bank had obtained an order for the sale of the assets of the company under the

debenture and there was no evidence that any of the shareholders had in fact

transferred their shares; (3) in any event the contract of guarantee in this case

contained express provisions giving the bank the right to do or omit to do certain

things without thereby prejudicing the right against the respondents. As the

respondents had agreed to waive any variation or alteration and the bank had

proceeded with the performance of the contract on that basis it would be

inequitable to allow them to resile from the contract; (4) in this case the

respondents were bound under the contract of guarantee to accept the certificate of

indebtedness duly executed by the Vice-President of the bank as conclusive

evidence of the debt due to the bank. On this footing the bank was entitled to

summary judgment.

Digest :

Citibank NA v Ooi Boon Leong & Ors [1981] 1 MLJ 282 Federal Court, Kuala

Lumpur (Raja Azlan Shah CJ (Malaya).


3 [2484] CONTRACT Guarantee – Variation – Whether there was substantial

variation of principal contract – Whether guarantor discharged from liability

– Contracts Act 1950, s 86

Summary :

P had earlier granted an overdraft facility to D1. D2 and D3 jointly and severally

guaranteed the repayment of the overdraft facility to P. Upon default in repayment,

P sued D for the sum owing under the facility. P's application for summary

judgment against D2 was dismissed by the registrar. Dissatisfied with the decision,

P appealed to the High Court. In his statement of defence, D2 contended that P's

action against him was time barred. D2 also contended that he was discharged

from liability as a guarantor as there had been a substantial variation of the

principal contract.

Holding :

Held, allowing the appeal: (1) having regard to the terms of the guarantee, a cause

of action arose against D2 only when a demand was made by P on him to pay the

sum owing. Accordingly, for the purpose of the Limitation Act 1953, time started

to run from the date of the letter of demand in question. In the circumstances, P's

claim against D2 was not time-barred; (2) in the instant case, the extension of the

period of the overdraft facility was not a substantial variation of the principal

contract. Such an extension was not disadvantageous to D2. In fact, it was an

advantage to D1 as well as to D2 and D3. In the circumstances, D2 was not

discharged from liability as a guarantor; (3) as there were no triable issues raised

by D2 in the appeal, the court ordered that summary judgment be entered against

D2 in favour of P.

Digest :

Bank Bumiputra Malaysia Bhd v Fu Lee Development Sdn Bhd & Ors [1991] 2

MLJ 202 High Court, Kuala Lumpur (Zakaria Yatim J).

2485 Guarantee -- Variation of guarantee

3 [2485] CONTRACT Guarantee – Variation of guarantee – Whether security

discharged without guarantors' consent – Whether guarantors discharged

from guarantee

Summary :

In 1986, the plaintiff, a private limited company carrying on the business of

licensed moneylenders, granted the first defendant a loan of RM365,000 with

interest at a rate of 12% per annum. The loan was secured by a charge over a piece

of land owned by the first defendant and both parties signed a memorandum

pursuant to s 16(1) of the Moneylenders Ordinance (the Ordinance).

Simultaneously on the same day, the second to sixth defendants each executed a

guarantee agreeing that in consideration of the plaintiff granting the loan to the first

defendant, each of them would guarantee to pay the plaintiff on demand all sums

owing by the first defendant. The first defendant failed to pay the sum borrowed

but, after several meetings with the plaintiff, informed them he had secured a loan

from a finance company with which he would pay the plaintiff. In order to secure

the moneys from the finance company the plaintiff had to release the charge over

the said land to allow it to be charged to the finance company. It was agreed that

the first defendant was to pay RM740,000 towards settlement of the loan (the said

settlement) but managed to pay only RM35,000. The plaintiff filed a writ claiming

the remaining sum with interest and applied for summary judgment. Only the first,

second and fifth defendants had entered appearance as the other defendants had

since died.

Holding :

Held, dismissing the application: (1) this was a moneylender's action interpolated

with a claim for breach of agreement regarding the said settlement. The plaintiff

had failed to comply with the provisions of the Moneylenders Ordinance and the

requirements of O 79 of the Rules of the High Court 1980. He had failed to provide

details of the amount of interest accrued due and unpaid on the original sum loaned

as required by O 79 r 3. He had also failed to produce a statement of account in

accordance with s 19 of the Ordinance as required by s 21 of the same Ordinance.

Further s 21(2) of the Ordinance allowed the court to re-open harsh and

unconscionable moneylenders transactions and on a calculation of the interest

under the agreement, there was a clear inference that the interest charged was

excessive and the transaction was harsh and unconscionable and substantially

unfair. Accordingly, if the suit went to trial it would enable the court to re-open the

transaction and take an account between the plaintiff and the first defendant on the

agreement purporting to close the previous dealing which was made to settle the

matter regarding the outstanding loan; (2) the plaintiff's argument that the

statement of defence was vague, contained concoctions and did not give details

was without merit. This was an application for summary judgment and the

defendants could raise defences over and above those pleaded in their statement of

defence. The issue was whether the defendant had a defence and not whether the

statement of claim provided him with a defence; (3) although counsel for the

defendants did not put forward any defence for the second and fifth defendants as

guarantors, the pleadings showed that negotiations to settle the loan was made

between the plaintiff and the first defendant and it was not clear if the guarantors

participated in the negotiations. Unless they had given their consent the discharge

of the charge on the land would, on the surface of it, have released them from their

undertakings as it would be tantamount to a variance of the original loan agreement

within the contemplation of the Contracts Act 1950, s 86. Whether the discharge of

the said charge was a variance by the plaintiff was a question of law which

remained undetermined and leave to defend should be given to the second and fifth

defendants.

Digest :

Lien Chong Credit & Leasing Sdn Bhd v Srisaga Holdings Sdn Bhd & Ors Civil

Suit No 22-189-199 High Court, Johor Bahru (Mohd Ghazali J).

2486 Guarantee -- When does defendant acquire right of exoneration

3 [2486] CONTRACT Guarantee – When does defendant acquire right of

exoneration – Ascertaining amount owing when there is a fluctuating sum –

Shares deposited as security – Mitigation by wronged party

Summary :

The plaintiffs, a company in the MBF group of companies, claimed against the

defendants damages for breach of duty as mortgagees in connection with the sale

of shares mortgaged by the plaintiffs to the defendants to secure credit facilities

granted to MBF Leasing ('the borrowers'), another company in the MBF group.

The plaintiffs also alleged breach of an oral agreement not to sell some 3.3 million

shares in MBFI (Australia) Ltd, being part of the shares subject to mortgage,

without giving the plaintiffs sufficient notice to enable them to redeem these shares.

Holding :

Held, allowing the plaintiffs' claim: (1) under general guarantee law principles,

upon the borrowers committing a default, what the defendants could acquire would

be the right to be exonerated from their obligations under the guarantee by

requiring the borrowers as the principal debtors to pay off the amount which the

defendants were liable to pay to UOB under the guarantee; (2) but the defendants

can only do so when the amount for which they are liable under the guarantee had

been ascertained. This could only be done if the guarantee was terminated, and the

overdraft account closed, since otherwise the amount would fluctuate; (3) in a case

where there is a fluctuating sum, the only way to have an ascertained sum due was

either for the bank to close the account on its own initiative or for the defendants to

serve a termination notice on the bank. In either event the amount owing to the

bank would be ascertained and the defendants would then be in a position to call

on the borrowers to pay off the amount due. Without either event occurring, the

right to do so would not arise; (4) a mortgagee has to act in good faith in exercising

his power of sale; (5) where shares are deposited as security, and they have to be

sold in the event of default, the mortgagee can reasonably be expected to monitor

the realisation of the security to see that no more is liquidated than is necessary to

protect his own interest as the mortgagee; (6) since where shares are concerned, the

price fluctuates from day to day, it is not possible to tailor the amount to be sold to

the amount needed to liquidate the borrower's liability, so long as the mortgagee

makes a reasonable effort to guard against excessive sale, he cannot be faulted if

the quantity sold turns out to be more than is required for that; (7) the law requires

the wronged party to take all reasonable steps to mitigate the loss and damage

arising from the breach. However, the plaintiff is only required to act reasonably,

and the court should not be astute to find fault with him when placed in such a

position; (8) the burden was on the defendants to show that the steps taken were

unreasonable.

Digest :

MBf International Ltd v Royal Trust Merchant Bank Ltd [1993] 3 SLR 216 High

Court, Singapore (Warren LH Khoo J).

2487 Guarantee -- Whether guarantors have equity against creditor

3 [2487] CONTRACT Guarantee – Whether guarantors have equity against

creditor

Summary :

In this case, a company, the Pembagunan Farlim Sdn Bhd, was developing a

housing estate in Raub. For this purpose the company obtained a loan of $2 million

from the respondent bank. The appellants who were directors of the company

executed a guarantee for the loan and as a further security the land of the company

upon which the housing estate was to be developed was charged to the bank. The

project failed and the houses which were already built were neglected. All the 223

lots in the housing estate, except 78 of them, were partially built and sold to

members of the public. The remaining 78 were still vacant land but there was no

evidence that they were not sold. The respondent bank took out a writ against the

company claiming a total sum of $3,335,832.42 by way of principal and interest.

Subsequently the respondent bank took proceedings against the appellants on the

guarantee. The appellants applied to the court to stay the proceedings against them

until after the bank had foreclosed charges and realized their securities against the

company. The application was refused and the appellants appealed.

Holding :

Held: (1) although a guarantor has an equity against the creditor if he can show

that the creditor is attempting to place the whole burden of the debt unfairly upon

him, in this case the lands which were charged as a security for the loan were also

sold to several purchasers and these purchasers too have equities. Between the

equities of the appellants and the purchasers, the court shall protect those of the

purchasers because theirs are the innocent ones; (2) in the circumstances of this

case, the appellants as guarantors have no equity to prevent the respondent bank as

creditor from proceeding upon the guarantee to recover the sum owing to them.

Digest :

Tengku Farid bin Tunku Hussain & Ors v United Asian Bank Bhd [1985] 2 MLJ

199 Supreme Court, Kuala Lumpur (Salleh Abas LP, Wan Suleiman and Syed Agil

Barakbah SCJJ).

2488 Housing development contract -- Breach

3 [2488] CONTRACT Housing development contract – Breach – Damages/specific

performance – Housing Developers (Control and Licensing) Rules 1970 –

Contract - Housing development contract - Sale of building lots - Breach of

contract - Specific performance - Damages - Remoteness - Specific

performance of part of contract - Housing Developers (Control and Licensing)

Rules 1970, r 12 - Housing Developers (Control and Licensing) Act 1966 -

Specific Relief Act 1950, ss 3, 11, 14 & 18 - Land law - Sale of immovable

property - Breach of contract - Specific performance - Land law - Housing

developers - Breach of contract - Specific performance - Damages - Indemnity

for failure to complete housing development in time - Housing Developers

(Control and Licensing) Rules 1970, r 12 - Housing Developers (Control and

Licensing) Act 1966.

Summary :

In this case, the appellants were the registered owners of land. They entered into

two separate contracts with the respondents for the sale of a portion of the land to

be developed. By the first contract, the appellants agreed to sell to the respondents

60 specified building lots for the price of $5,000 for each lot and to clear and level

the lots for a development price of $420,000 calculated at the rate of $7,000 for

each lot. The appellants also agreed to nominate a licensed housing developer who

would build a terrace house on each lot in conformity with the plans and

specifications annexed to the first contract for the construction price of $840,000

calculated at the rate of $14,000 for each house. Following the first contract, the

respondents entered into individual contracts with members of the society whereby

each member became entitled and bound to acquire one of the lots and the terrace

house to be erected thereon in accordance with the terms of the first contract. The

respondents have paid the sum of $720,000 to the appellants consisting of

$300,000 as land price and $420,000 as development price. By the second contract,

the appellants agreed to sell to the respondents specified land and to obtain 25

separate titles to the land divided into lots for the erection of 14 semi-detached

houses and 11 bungalows. The respondents have paid the sum of $426,300 for

these lots comprising of $172,000 as land price and $254,300 as development price.

Out of the 85 lots sold, the appellants have transferred to the respondents only one

terrace lot under the first contract and one semi-detached lot under the second

contract. Ten of the bungalow lots under the second contract were found to be

commercially useless as it would cost about $13 million to level the land. The

appellants had nominated themselves as the licensed housing developer for the first

contract and submitted a draft building contract which was rejected by the

respondents as it did not conform with the provisions of the Housing Developers

(Control and Licensing) Act 1966 (Act 118) and the rules made thereunder. The

learned trial judge held that the first contract was a sale of land with houses and

therefore caught by housing developers legislation. He found that the appellants

were in breach of both the contracts for their failure to transfer the various lots to

the respondents. In respect of the first contract, he ordered specific performance for

the transfer of the remaining 59 terrace-lots to the respondents and he also awarded

compensation for consequential loss which included, inter alia, damages for

additional costs in constructing the 60 terrace houses and $187,200 as indemnity

under the Housing Developers (Control and Licensing) Rules 1970. With regard to

the second contract, he ordered specific performance for the transfer of the

remaining 13 semi-detached lots and one bungalow lot. For the ten useless

bungalow lots, the appellants were ordered to refund the contract price of $203,000

with interest. In addition to specific performance, the learned judge also ordered

damages for increased cost of construction - $117,000 for the nine semi-detached

houses and $148,500 for the 11 bungalows. The appellants appealed to the Federal

Court but the appeal was dismissed - see [1985] 1 MLJ 285. The appellants

appealed from the decision of the Federal Court.

Holding :

Held, dismissing the appeal: (1) by the first contract and by the appellants' own

nomination of themselves as developers, the appellants became engaged in the

business of housing development by agreeing to construct more than four units of

housing accommodation in one development with the view of selling the housing

accommodation thus constructed. By the first contract and the appellants' own

nomination of themselves as developers too, the appellants sold the sites of the

terrace houses for the land purchase price, agreed to level and clear the sites for the

development price and agreed to construct the terrace houses with a view of selling

them to the respondents for the construction price; (2) r 12 of the Housing

Developers (Control and Licensing) Rules 1970 makes provision for the possibility

that the land may be vested in a proprietor who is not the developer and in that case

the rules relating to the terms and conditions of a contract of sale are to apply so far

as appropriate to both the proprietor and the developer. In the present case, the

appellants were and remain the proprietors of the land until they transfer the

building lots. Under the first contract and the nomination, the appellants became

the housing developers under a contract to construct and sell 60 terrace houses to

the respondents for the construction price; (3) s 15 of the Specific Relief Act 1950

(Act 137) makes provision for specific performance in circumstances which obtain

in this case; (4) under the first contract, it was the duty of the appellants to obtain a

licence and to obtain approval of the building plans. The court may refuse to order

specific performance of an agreement to build or of an obligation to obtain a

licence or to obtain approval for plans, but that is no reason why the court should

not award damages for breach of contract; (5) in this case, there has been delay in

the delivery of the vacant possession of the housing accommodation and the

appellants must pay for that delay under the rules just as they would have to pay

under common law rules. The learned judge was right in awarding damages for the

delay occasioned by the appellants' default; (6) the learned judge was also right in

awarding damages for the difference between the construction price and the cost to

the respondents of employing another builder to carry out the development at the

date of the trial of the action. The Act of 1966 and the rules were designed to

improve and supplement common law remedies and do not expressly or by

implication deprive a litigant of a contractual remedy which is not dealt with under

the rules; (7) in regard to the second contract, the learned judge was correct in

making an order for specific performance in respect of the lot that was unaffected

by problems of terrain. In respect of the other bungalow lots, as they were in fact

practically and commercially useless for the purpose for which they were bought,

the trial judge was correct in awarding damages in lieu of specific performance; (8)

in this case, there was a separate price and a separate completion date for the sale

of the land. By refusing to build the houses for the construction price, the

appellants cannot deprive the respondents of the land for which the respondents

have already paid in full the land purchase price and the development;the learned

judge was correct in awarding damages in respect of all the 11 bungalow lots on

the basis of the difference between the 1978 cost of building the bungalows and the

cost of building the same bungalows at the date of the trial.

Digest :

City Investment Sdn Bhd v Koperasi Serbaguna Cuepacs Tanggungan Bhd [1988]

1 MLJ 69 Privy Council Appeal from Malaysia (Lord Keith of Kinkel, Lord Fraser

of Tullybelton, Lord Templeman, Lord Ackner and Sir Robert Megarry).

2489 Illegality -- Agreement for management and operation of discotheque

3 [2489] CONTRACT Illegality – Agreement for management and operation of

discotheque – Public entertainment licence to be obtained by respondents –

Appellants to manage and operate the discotheque – Whether agreement in

breach of Public Entertainments Act and Rules – Public Entertainments Act

(Cap 257), ss 3, 6, 11 & 18 – Public Entertainments Rules 1969, rr 3(2) & 5

Summary :

The question before the court was the legality of an agreement between the first

respondents ('Amara') and the appellants ('Nova') ('the agreement') by the terms of

which Nova agreed to operate and manage a discotheque for Amara on the latter's

premises. The legality of the agreement turned on the interpretation of the Public

Entertainments Act (Cap 157) ('the Act') and the Rules made thereunder, the Public

Entertainments Rules 1969 ('the Rules') in general, and s 3 of the Act and r 5 of the

Rules in particular. According to the agreement, Amara would obtain the licence to

operate the discotheque. The application for the licence was made in the name of

Teo Kwee Chuan, the second respondent ('Teo') who at the material time was a

director of Amara Hotel and was described as such in the application form. The

licence was issued in Teo's name without any reference to his connection with

Amara Hotel or for that matter to Nova. The court below had decided that the

agreement was in breach of the Act and the Rules and therefore illegal and

unenforceable. The appellants appealed.

Holding :

Held, allowing the appeal: (1) the scheme of the Act and the Rules is to issue the

licence to a natural person or persons and to hold them responsible, under pain of

the penalties provided in the Act, for the due performance of the public

entertainment in accordance with the provisions of the Act, the Rules and the

conditions of the licence; (2) the word 'licence' in ss 3 and 18(1) of the Act is used

in reference to the public entertainment itself and not in reference to the person or

organization providing, or assisting in providing, the public entertainment,

notwithstanding that the licence must be held in the name of a natural person. What

the Act and the Rules intended to prohibit is the providing of public entertainment

in respect of which there is no license issued; (3) the plain and ordinary meaning of

r 5 of the Rules is that a licensee shall not transfer or lend the licence issued to him

for the purpose of public entertainment other than the one for which it was issued.

As the Act itself clearly indicates, the regulation is the regulation of public

entertainment itself; (4) the Act and the Rules envisage the licensee's

accountability to the licensing authority and not his 'accountability' to a third party

such as the appellants. 'Accountability' and 'control' in the sense referred to by the

court below are matters of contract between the licensee and person, be he another

natural person or a corporation, engaged by the licensee to provide or 'supply' the

public entertainment for which the licence is issued to the licensee; (5) under the

Act, the public entertainment can be provided by the licensee or by someone

engaged by him for the purpose. In this case, the public entertainment provided by

Nova as agents of Amara was covered by the licence issued to Teo as Amara's

representative.

Digest :

Nova Management Pte Ltd v Amara Hotel Properties Pte Ltd & Anor [1994] 1

SLR 263 Court of Appeal, Singapore (Yong Pung How CJ, Karthigesu and LP

Thean JJA).

2490 Illegality -- Agreement relating to transfer of 'shophouse property'

3 [2490] CONTRACT Illegality – Agreement relating to transfer of 'shophouse

property' – Agreement relating to transfer of 'shophouse property' - Refusal

on vendor's part to transfer interest in land - Whether agreement contravenes

ss 23 and 27 of Land Code and illegal - Contract not illegal - Specific

performance against vendor - Land Code, ss 23 & 27.

Summary :

The plaintiff/appellant was the executor of the estate of Chong Vui Nee, deceased

(the purchaser). On 26 June 1957, Chong had entered into a contract in writing

with the defendant/respondent (the vendor). The contracting parties were entitled

in equal undivided shares to a piece of land on which stood a shop. They were the

only partners in a company called the Ghee Hoe Company, which operated a

business in the shop. In or before 1957, the shop was occupied and continued to be

occupied by the purchaser, by the plaintiff or by the plaintiff's relatives until it was

burnt down on 16 July 1979. The plaintiff alleged that the vendor was in breach of

the agreement in that the vendor had sold his shares and interests including a

'shophouse property' to the purchaser. The vendor claimed that the said agreement

was not binding on him and that even if it did, it was void for illegality. The

learned Chief Justice held in favour of the plaintiff on the first point but in favour

of the vendor on the second, and he dismissed the action. The plaintiff appealed.

The subject matter of the suit was the land on which the shop stood. The plaintiff

claimed that the 'shophouse property' consisted of a building together with the land

on which it had been erected. The purchaser was not 'a natural born subject of His

Highness' and by virtue of the proviso to s 23 of the Land Code, a transfer to him

could not be valid or be registered without the approval of the Sultan in Council.

Holding :

Held, allowing the appeal: (1) in law, the building became part of the land and it

would have needed very different language to show all that was being sold was a

right to occupy a building; (2) one should therefore assume that it was their

intention to sell and purchase the land with the requisite approval; (3) the court

could not confirm the plaintiff's title, but it could order the vendor to do what he

ought to have done long since. Confirmation of the title must rest upon the decision

of the Sultan in Council. What might happen if approval was refused did not fall

for consideration here; (4) this was not a case where consent had been refused.

There was no evidence that it was the intention of the parties to do something

illegal;no injustice would result if an order of specific performance were made.

The respondent was ordered to execute the appropriate form of transfer within one

month, failing which the form should be executed by the chief registrar.

Digest :

Chong Kon Fah v Yong Siau [1983] 1 MLJ 271 Court of Appeal, Bandar Seri

Begawan (Briggs P, Huggins and Bewley, Commissioners).

2491 Illegality -- Agreement to sell interest in partnership

3 [2491] CONTRACT Illegality – Agreement to sell interest in partnership –

Consent of other partner refused – Partnership Ordinance (Cap 67 of

Sarawak)

Digest :

Lau Hock Chiong v Sim Kheng Hong 1960 Supreme Court, Sarawak, North

Borneo and Brunei


2492 Illegality -- Architectural services

3 [2492] CONTRACT Illegality – Architectural services – Claim for outstanding

fees – Incorporated company not registered as architect – Whether services

rendered through natural persons who were registered – Architects Act 1976,

s 17

Summary :

The plaintiffs are a company incorporated in Singapore on 2 March 1974 with

unlimited liability. The objects under the memorandum of association included

carrying on the practice of architects. Upon its incorporation, it took over the

architectural practice of the partnership firm of BEP Akitek on 1 April 1974. The

defendants are, inter alia, property developers. Prior to the incorporation of the

plaintiffs, the firm of BEP Akitek had been engaged by the defendants as project

architect for some of the defendants' projects. On 29 May 1974 the plaintiffs

informed the defendants, in relation to one of the projects, about the incorporation

of BEP Akitek (Pte) and of its taking over the practice of BEP Akitek. The

defendants agreed to the plaintiffs taking over as the project architect for that

project. The Pertamina Building project was later cancelled by the employers, and

the plaintiffs at the request of the defendants agreed to accept $100,000 in full

settlement of the balance of fees amounting to $316,318 due to them. This was

subject to the plaintiffs being retained, should the defendants decide to continue

with the projects at Institution Hill and Grange Road at agreed fees as the project

architect for those two projects. In the events that followed no agreements on fees

and other terms was arrived at. The defendants subsequently discharged the

plaintiffs as architects for their projects. The plaintiffs commenced proceedings

claiming as a firm of architects practising in partnership for the sum of $946,668

being loss of expected profits due to the unlawful termination by the defendants of

their professional services as architects. The defendants by their amended defence

filed on 2 May 1990 contended that the plaintiffs are an incorporated company and

as such 'are not a "registered architect" within the meaning of the Architects Act'

and 'are prohibited by law from claiming or recovering any charge fee or

remuneration from the defendants' for work done by them as architects. The

plaintiffs thereupon amended their claim to one for damages for wrongful

termination of their services in causing the defendants to be provided with

professional architectural services through their members and employees who were

registered architects in respect of the defendants' projects.

Holding :

Held, dismissing the plaintiffs' claim with costs: (1) s 17 of the Architects Act

1976 prohibits any person not registered under it from practising as architects and

by sub-s (2) 'no person other than a registered architect shall be entitled to recover

in any court any charge, fee or remuneration for any professional service rendered

as an architect in Singapore'. Section 2(1) of the Interpretation Act (Cap 1) defines

'person' to include any company or association or body of persons, corporate or

unincorporate. There is nothing in s 17 which renders it inconsistent to construe

'person' as including a company and the provisions of s 17 therefore apply to a

company; (2) the purpose of incorporation of the plaintiffs was to carry on the

practice of architects under the name of the plaintiffs. The partnership of BEP

Akitek was sold to the plaintiffs 'as a going concern'. The plaintiffs were then

appointed by the defendants as architects for one of their projects. In the typical

floor plans for some proposed condominium housing developments, the plaintiffs

were named therein as the architects. All applications for development approval for

the projects were submitted by the plaintiffs. Clearly, it was the plaintiffs who

undertook the professional architectural work though the same was executed by

registered architects who were either shareholders or employees of the plaintiffs; (3)

accordingly, the plaintiffs' claim was unenforceable under the Architects Act (Cap

213, 1970 Ed) and/or the 1976 Act in force at the material time. The plaintiffs have

also not suffered any loss due to the 'premature termination' as they were fully

occupied with other projects.

Digest :

BEP Akitek (Pte) v Pontiac Land Pte Ltd [1992] 1 SLR 251 High Court, Singapore

(Goh Joon Seng J).

2493 Illegality -- Assignment of forest licence

3 [2493] CONTRACT Illegality – Assignment of forest licence – Breach of

enactment

Summary :

In this case, the appellant who was the third plaintiff in the civil action claimed to

be the assignee of a forest licence granted to first defendant. The respondent was

similarly an assignee whom the first defendant, the licensee, purported to substitute

in place of the appellant. The appellant and two others had sued the respondent and

two others and the respondent had applied for the writ of summons and the action

to be dismissed on the ground, inter alia, that the claim was based on an illegal

contract. The learned judge was of the opinion that the assignment of the licence

was in breach of the Forest Enactment 1968 and the Forest Rules 1969 and

therefore illegal and void. He therefore made the order dismissing the action. The

appellant appealed.

Holding :

Held, dismissing the appeal: the learned trial judge was correct in holding that the

purported assignment of the forest licence was illegal and void and therefore that

the action should be dismissed.

Digest :

Nam Seng Co v Wing Yew (Tawau) Co Sdn Bhd [1978] 2 MLJ 198 Federal Court,

Kota Kinabalu (Suffian LP, Lee Hun Hoe CJ (Borneo).

2494 Illegality -- Assignment of forest permit

3 [2494] CONTRACT Illegality – Assignment of forest permit – Assignee alleging

that he was compelled to repudiate contract – Assignment of forest permit -

Whether illegal - Assignee alleging that he was compelled to repudiate

contract - Onus of proof.

Summary :

In this case, the respondent and the Yayasan Trengganu held a forest permit over

part of a forest reserve. By an agreement with the Yayasan Trengganu the

respondent undertook to fell, extract and haul timber in the area. The forest permit

and the agreement with the Yayasan Trengganu contained similar conditions, that

is, assignment, transfer or subletting was subject to written approval of the State

Forest Officer and of the Yayasan. The appellant agreed to accept assignment from

the respondent subject to those conditions. The appellant advanced moneys to the

respondent in payment of royalty and also incurred other expenses. He brought an

action to recover the sums paid alleging that the respondent had conducted himself

in such a way as to compel the appellant to repudiate the contract of assignment.

The learned trial judge dismissed the claim and the appellant appealed.

Holding :

Held: (1) in the circumstances of this case, as approval could have been obtained

from the State Forest Officer, the contract of assignment would have been legal; (2)

the onus was on the appellant to prove what was the conduct of the respondent and

what were the conditions of the agreement which entitled her to withdraw from the

agreement and to recover payment. The appellant had failed to discharge the onus

and therefore the appeal must be dismissed.

Digest :

Yap Cheng Kim v Zahid Safian bin Tawaf [1980] 1 MLJ 302 Federal Court, Kota

Bharu (Raja Azlan Shah CJ (Malaya).

2495 Illegality -- Assignment of rights and benefits under gaming licence

3 [2495] CONTRACT Illegality – Assignment of rights and benefits under gaming

licence – Licence granted to turf club for gaming activities – Club assigned its

rights and benefits under its licence to respondent via written agreement –

Licence subsequently amended by the authorities – New licence granted with

condition prohibiting any transfer or assignment of licence rights – Whether

written agreement became void and illegal after issuance of new licence –

Parliament's intention not to be frustrated – Contracts Act 1950, s 24(b) –

Pool Betting Act 1967, ss 5 & 21

See contract, para III [57].

Digest :

Datuk Yap Pak Leong v Sababumi (Sandakan) Sdn Bhd [1997] 1 MLJ 587 Court

of Appeal, Kuala Lumpur (Gopal Sri Ram, Abdul Malek Ahmad and Mokhtar

Sidin JJCA).

2496 Illegality -- Assignment of rights in a licence for timber extraction

3 [2496] CONTRACT Illegality – Assignment of rights in a licence for timber

extraction – Breach of express condition in licence granted under Forest Rules

1954

Summary :

This was an appeal against the judgment of the High Court at Kota Kinabalu

whereby the respondents obtained judgment against the appellants in the sum of

$255,000. The Forest Officer, Sabah had issued a licence for the extraction of

timber to the Beaufort Timber Extraction Co-operative Society. This society

appointed Jesselton Development Ltd as their attorney and the Jesselton

Development Ltd in turn appointed the respondents in their place as attorneys for

the licensees. The appellants subsequently entered into an agreement with the

respondents, whereby the respondents in effect transferred their rights in the

licence to the appellants. In their grounds of appeal, the appellants, inter alia, raised

for the first time a point of illegality: that the agreement was an assignment of the

rights of the licensees under the licence in contravention of an express condition in

the licence and was therefore illegal.

Holding :

Held, allowing the appeal: (1) the agreement in this case was clearly in breach of

the provisions of ss 23 and 24 of the Forest Enactment and therefore illegal and

any claim based thereon cannot be enforced; (2) the power of attorney given to the

appellants was a colourable device to deceive others into believing that the

appellants were operating as agents for the licensees.

Digest :

Lo Su Tsoon Timber Depot v Southern Estate Sdn Bhd [1971] 2 MLJ 161 Federal

Court, Kota Kinabalu (Azmi LP, Ismail Khan CJ (Borneo).

2497 Illegality -- Building approval

3 [2497] CONTRACT Illegality – Building approval – Failure to obtain approval

under Building Control Act before commencement of renovations – Whether

contract ex facie illegal

Digest :

Yeoh Swee Inn v Cheang Jen Boon and another action (No 1) Suit Nos 1820 and

109 of 1993 High Court, Singapore (Lai Siu Chiu J).


2498 Illegality -- Charge

3 [2498] CONTRACT Illegality – Charge – Developer sold land to purchaser –

Charged land to bank for loan subsequently in breach of r 12 of Housing

Developers (Control and Licensing) Rules 1970 – Provisions in agreement

allowed developer to do so – Whether contrary to letter and spirit of Rules –

Whether charge illegal – Whether charge void ab initio – Housing Developers

(Control and Licensing) Rules 1970, r 12 – Contracts Act 1950, s 24

Digest :

Keng Soon Finance Bhd v MK Retnam Holdings Sdn Bhd (Bhagat Singh s/o

Surian Singh & Ors, Interveners) [1996] 2 MLJ 431 High Court, Kuala Lumpur

(Anuar J).


2499 Illegality -- Charge

3 [2499] CONTRACT Illegality – Charge – Developer sold land to purchaser –

Developer unlicensed in breach of s 5 of Housing Developers (Control and

Licensing) Act 1966 – Bank granted bridging loan to developer – Developer

created charge over land in favour of bank – Whether charge illegal

Digest :

Keng Soon Finance Bhd v MK Retnam Holdings Sdn Bhd (Bhagat Singh s/o

Surian Singh & Ors, Interveners) [1996] 2 MLJ 431 High Court, Kuala Lumpur

(Anuar J).


2500 Illegality -- Consequences of

3 [2500] CONTRACT Illegality – Consequences of – Plaintiff company charging

lands to defendant as security for loan granted to its director – Charge void

and unenforceable – Whether plaintiff company can recover lands from

defendant given as security – Companies Act 1965, s 133

Digest :

Che Wan Development Sdn Bhd v Co-operative Central Bank Bhd [1990] 2 MLJ

365 High Court, Kuala Lumpur (NH Chan J).

See COMPANIES AND CORPORATIONS, Vol 3, para 156.

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2001 Construction of Terms of Contract

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