Tan Poh Khiang v Malayan Banking Berhad

[2015] 1 MLJ (Umi Kalthum JCA) 817

A
Tan Poh Khiang v Malayan Banking Bhd

COURT OF APPEAL (PUTRAJAYA) — CIVIL APPEAL NO

B
J-02–1562–07 OF 2012
MOHD HISHAMUDIN, ZAKARIA SAM AND UMI KALTHUM JJCA
24 SEPTEMBER 2014

C Banking — Banks and banking business — Guarantees — Overdraft loan

facility secured by charge on 13 pieces of land and letter of guarantee and indemnity
— Borrower defaulted in repayment — Bank recalled loan facility — Borrower
made settlement proposal to bank which bank accepted — Five out of nine
guarantees discharged except second respondent — 13 pieces of land discharged
D — Bank claimed against second respondent as guarantor who were not purportedly
discharged under settlement — Whether second defendant had been discharged
from liability upon acceptance of borrower’s settlement proposal by bank
— Whether second defendant discharged from liability when bank had accepted
lesser sum from borrower and had discharged all 13 landed properties
E
In November 1995, Novel Villa Sdn Bhd (‘Novel Villa’) took an overdraft loan
facility of RM1.8m from the respondent (‘the plaintiff ’) which was secured by
a charge on 13 pieces of land and a letter of guarantee and indemnity (‘the
guarantee’) given by nine guarantors, including the appellant (‘the second
F defendant’). When Novel Villa defaulted on its repayment obligations with the
plaintiff under the overdraft loan facility, the latter recalled the loan facility.
Novel Villa made a settlement proposal to the plaintiff where a sum of
RM1.3m was proposed as settlement of the outstanding overdraft amount.
The plaintiff accepted Novel Villa’s proposal vide letter dated 16 May 2003 and
G had also agreed to discharge five out of the nine guarantors (not including the
second defendant). It was not disputed that the settlement was concluded with
the payment of RM1.3m by Novel Villa to the plaintiff and the security
properties comprising the 13 pieces of land were accordingly discharged.
Notwithstanding the said settlement, the plaintiff claimed against the second
H defendant and three other guarantors for an alleged ‘shortfall’ of debt due from
Novel Villa to the plaintiff, being the guarantors who were not purportedly
discharged under the said settlement. This appeal concerned the second
defendant only as a guarantor. The judicial commissioner (‘the JC’) held that
by accepting Novel Villa’s offer of settlement, and releasing the charged
I properties, the plaintiff as the creditor had not discharged Novel Villa’s entire
liability under its contract with the plaintiff. There was, thus, no unilateral
variation of the terms of the contract for s 86 of the Contracts Act 1950 (‘the
Act’) to apply to discharge the second defendant of his liability as guarantor.
Further, the guarantee was so worded that it made the liability of the guarantors
818 Malayan Law Journal [2015] 1 MLJ

primary and co-extensive with that of the principal debtor. As there was no A
record of the second defendant having been discharged as a guarantor as
compared to several other guarantors under the plaintiff ’s letter of acceptance
of Novel Villa’s offer of settlement, the JC held that the plaintiff had a valid
cause of action against the second defendant under the terms of the guarantee
for the balance sum due and owing by Novel Villa under the overdraft loan B
facility. The second defendant was therefore held to be liable for the balance
due as pleaded and judgment was entered for the plaintiff. In this appeal, the
second defendant raised the issues of whether the second defendant had been
discharged from his liability upon the acceptance of Novel Villa’s settlement
C
proposal by the plaintiff; and whether the second defendant was discharged
from his liability when the plaintiff had accepted the lesser sum of RM1.3m
from Novel Villa and had discharged all 13 landed properties.

Held, allowing the appeal with costs of RM20,000: D

(1) By the two letters, Novel Villa had explicitly stated that it offered to settle
the outstanding overdraft and amount to a maximum limit of RM1.3m
in one payment. This offer was accepted by the plaintiff vide letter dated
16 May 2003. The ‘discharge of the property’ meant that all 13 pieces of
charged lands to the plaintiff were to be discharged. What this meant was E
that Novel Villa had been released from its debt claimed by the plaintiff
(see para 21).
(2) Sections 87–88 of the Act applied to this case to release the second
defendant, as a guarantor, from the guarantee. The JC had erred in law F
and on the facts when he failed to take into account the concluded
settlement of Novel Villa’s debt to the plaintiff and that by virtue of s 87
the second defendant was released from the guarantee (see para 22).
(3) The court did not accept the plaintiff ’s argument that the plaintiff ’s letter G
of acceptance dated 16 May 2003 was not meant to be a full and final
settlement of the debt seeing that the plaintiff had not reserved its rights
to pursue the balance of the debt due in the same letter, and had on top
of accepting the offer of settlement of RM1.3m, had agreed to discharge
the 13 charged lands. The plaintiff ’s letter dated 12 July 2003 could not H
be interpreted to mean that the plaintiff had reserved its right to sue
Novel Villa and the guarantors for the balance of the debt due (see para
23).
(4) The second defendant was discharged from liability under the guarantee
upon the plaintiff ’s acceptance of the settlement proposal and the release I
of the 13 pieces of the charged lands under ss 87–88 of the Act without
the consent of the second defendant. By releasing the 13 pieces of charged
lands without the consent of the second defendant under the plaintiff ’s
letter dated 16 May 2003, the plaintiff had acted in a way which was
 Tan Poh Khiang v Malayan Banking Berhad
[2015] 1 MLJ (Umi Kalthum JCA) 819

A inconsistent with the right of the second defendant as a guarantor.

Therefore, he was also discharged as a guarantor under s 92 of the Act (see
paras 25–26).

[Bahasa Malaysia summary

B Pada November 1995, Novel Villa Sdn Bhd (‘Novel Villa’) telah mengambil
kemudahan pinjaman overdraf sejumlah RM1.8 juta daripada responden
(‘plaintif ’) yang telah dijamin dengan gadaian ke atas 13 keping tanah dan
surat jaminan dan indemniti (‘jaminan tersebut’) telah diberikan oleh
sembilan penjamin, termasuk perayu (‘defendan kedua’). Apabila Novel Villa
C gagal dalam tanggungjawab bayaran baliknya dengan plaintif di bawah
kemudahan pinjaman overdraf, plaintif telah menarik balik kemudahan
pinjaman itu. Novel Villa telah membuat cadangan penyelesaian kepada
plaintif di mana sejumlah RM1.3 juta telah dicadangkan sebagai penyelesaian
baki jumlah overdraf. Plaintif telah menerima cadangan Novel Villa melalui
D surat bertarikh 16 Mei 2003 dan juga telah bersetuju untuk melepaskan lima
daripada sembilan penjamin (tidak termasuk defendan kedua). Adalah tidak
dipertikaikan bahawa penyelesaian itu telah diakhiri dengan bayaran RM1.3
juta oleh Novel Villa kepada plaintif dan jaminan hartanah yang terdiri
daripada 13 keping tanah telah dilepaskan sewajarnya. Walaupun terdapat
E penyelesaian tersebut, plaintif menuntut terhadap defendan kedua dan tiga
penjamin lain untuk dakwaan ‘shortfall’ hutang yang kena dibayar oleh Novel
Villa kepada plaintif, yang merupakan penjamin-penjamin yang tidak
bermaksud dilepaskan di bawah penyelesaian tersebut. Rayuan ini berkenaan
defendan kedua hanya sebagai penjamin. Pesuruhjaya kehakiman (‘PK’)
F memutuskan bahawa dengan menerima tawaran penyelesaian Novel Villa, dan
melepaskan hartanah yang dicagarkan itu, plaintif sebagai pemiutang tidak
melepaskan keseluruhan liabiliti di bawah kontraknya dengan plaintif. Oleh
itu, tidak terdapat pengubahan unilateral tentang syarat-syarat kontrak kerana
s 86 Akta Kontrak 1950 (‘Akta tersebut’) yang terpakai untuk melepaskan
G defendan kedua daripada liabilitinya sebagai penjamin. Selanjutnya, jaminan
tersebut telah disusun ayatnya sehingga menjadikannya liabiliti kepada
penjamin-penjamin utama dan wujud bersama dengan penghutang utama.
Oleh kerana tiada rekod defendan kedua yang dilepaskan sebagai penjamin
jika dibandingkan dengan beberapa penjamin lain di bawah surat penerimaan
H plaintif terhadap tawaran penyelesaian Novel Villa, PK tersebut telah
memutuskan bahawa plaintif mempunyai kausa tindakan sah terhadap
defendan kedua di bawah syarat-syarat jaminan tersebut untuk baki jumlah
yang kena dibayar dan terhutang oleh Novel Villa di bawah kemudahan
pinjaman overdraf. Defendan kedua dengan itu diputuskan bertanggungjawab
I untuk baki yang kena dibayar sebagaimana dipli dan penghakiman telah
dimasuki untuk plaintif. Dalam rayuan ini, defendan kedua telah
menimbulkan isu-isu sama ada defendan kedua telah dilepaskan daripada
liabilitinya setelah penerimaan cadangan penyelesaian Novel Villa oleh
plaintif; dan sama ada defendan kedua telah dilepaskan daripada liabiliti
820 Malayan Law Journal [2015] 1 MLJ

apabila plaintif telah menerima jumlah lebih kecil RM1.3 juta daripada Novel A
Villa dan telah melepaskan kesemua 13 hartanah.

Diputuskan, membenarkan rayuan dengan kos sebanyak RM20,000:

(1) Melalui dua surat itu, Novel Villa dengan jelas menyatakan bahawa ia B
menawarkan untuk menyelesaikan overdraf yang tertunggak dan jumlah
sehingga had maksimum RM1.3 juta dalam satu pembayaran. Tawaran
ini telah diterima oleh plaintif melalui surat bertarikh 16 Mei 2003.
‘Discharge of the property’ bermaksud kesemua 13 keping tanah yang
dicagarkan kepada plaintif hendaklah dilepaskan. Ini bermaksud bahawa C
Novel Villa telah pun dilepaskan daripada hutangnya yang dituntut oleh
plaintif (lihat perenggan 21).
(2) Seksyen-seksyen 87 dan 88 terpakai dalam kes ini untuk melepaskan
defendan kedua, sebagai penjamin, daripada jaminan tersebut. PK telah
D
terkhilaf dari segi undang-undang dan berdasarkan fakta apabila dia
gagal mengambil kira penyelesaian terakhir hutang Novel Villa kepada
plaintif dan bahawa menurut s 87 defendan kedua telah dilepaskan
daripada jamian tersebut (lihat perenggan 22).
(3) Mahkamah tidak menerima hujah plaintif bahawa surat penerimaan E
plaintif bertarikh 16 Mac 2003 tidak dimaksudkan sebagai penyelesaian
hutang yang penuh dan muktamad oleh kerana plaintif tidak merizab
haknya untuk meneruskan dengan baki hutang yang kena dibayar dalam
surat yang sama, dan selain daripada menerima tawaran penyelesaian
F
RM1.3 juta itu, telah bersetuju untuk melepaskan 13 harta yang
dicagarkan itu. Surat plaintif bertarikh 12 Julai 2003 tidak boleh
ditafsirkan sebagai bermaksud bahawa plaintif telah merizabkan haknya
untuk menyaman Novel Villa dan penjamin-penjamin tersebut untuk
baki hutang yang kena dibayar (lihat perenggan 23). G
(4) Defendan kedua telah dilepaskan daripada liabiliti di bawah jaminan
tersebut setelah plaintif menerima cadangan penyelesaian dan
melepaskan 13 keping tanah yang dicagarkan di bawah ss 87–88 Akta
tersebut tanpa persetujuan defendan kedua. Dengan melepaskan tanah
yang dicagarkan tanpa persetujuan defendan kedua di bawah surat H
plaintif bertarikh 16 Mei 2003, plaintif telah bertindak secara tidak
konsisten dengan hak defendan kedua sebagai penjamin. Oleh itu, dia
juga dilepaskan sebagai penjamin di bawah s 92 Akta (lihat perenggan
25–26).]
I
Notes
For cases on guarantee, see 1(2) Mallal’s Diget (4th Ed, 2014 Reissue) paras
2551–2552.
 Tan Poh Khiang v Malayan Banking Berhad
[2015] 1 MLJ (Umi Kalthum JCA) 821

A Cases referred to
Azman bin Mahmood & Anor v SJ Securities Sdn Bhd [2012] 6 MLJ 1; [2012]
4 MLRA 595, FC (refd)
Lee Wah Bank Limited v Joseph Eu [1981] 1 MLJ 11, FC (refd)
B Legislation referred to
Contracts Act 1950 ss 81, 86, 87, 88, 92

Appeal from: Civil Suit No MT4–22–884 of 2003 (High Court, Johor Bahru)
C Yeo Chun Ming (CM Yeo & Assoc) for the appellant.
Nas Idalina bt Nasruddin (Tan & Lee) for the respondent.

Umi Kalthum JCA:

D
[1] This is an appeal against the decision of the learned judicial
commissioner (‘the JC’) allowing the respondent’s/plaintiff ’s claim against the
appellant/second defendant, as guarantor for the alleged ‘shortfall’ in respect of
the debts of the principal borrower Novel Villa Sdn Bhd (‘Novel Villa’). For
E ease of reference we will refer the parties as they were referred to in the High
Court suit.

THE FACTS

F [2] Around November 1995, Novel Villa, the principal borrower, took an
overdraft loan facility of RM1.8m from the plaintiff.

[3] The said overdraft loan facility was secured by a charge dated
18 December 1995 (‘the charge’) on 13 pieces of land and a letter of guarantee
G and indemnity dated 28 November 1995 (‘the guarantee’) given by nine
guarantors, including the second defendant.

[4] In July 2001, Novel Villa defaulted on its repayment obligations with
the plaintiff under the overdraft loan facility. The plaintiff proceeded to recall
H
the loan facility.

[5] Novel Villa made a settlement proposal to the plaintiff vide letter dated
9 April 2003 (p 332, AR Jld 2) whereby it proposed a sum of RM1.3m as
I settlement of the outstanding overdraft amount. The plaintiff accepted Novel
Villa’s proposal vide letter dated 16 May 2003 (p 333, AR Jld 2) and had also
agreed to discharge five out of the nine guarantors (not including the second
defendant).
822 Malayan Law Journal [2015] 1 MLJ

[6] It was not disputed, and in fact had been confirmed by the plaintiff ’s A
main witness ‘PW1’, the bank officer in charge of the said overdraft loan
facility, that the settlement was concluded with the payment of RM1.3m by
Novel Villa to the plaintiff and the security properties comprising the 13 pieces
of land were accordingly discharged.
B
[7] Notwithstanding the said settlement, the plaintiff in this suit claimed
against the second defendant and three other guarantors for an alleged
‘shortfall’ of debt due from Novel Villa to the plaintiff, being the guarantors
who were not purportedly discharged under the said settlement. This appeal C
concerned the second defendant only as a guarantor (judgment in default had
been entered against the first, third and fourth defendants who did not contest
the plaintiff ’s action).

BEFORE THE HIGH COURT D

[8] After a full hearing, the learned JC held that by accepting Novel Villa’s
offer of settlement, and thereby releasing the charged properties, the plaintiff as
the creditor had not discharged Novel Villa’s entire liability under its contract
with the plaintiff. There was, thus, no unilateral variation of the terms of the E
contract for s 86 of the Contracts Act 1950 (‘the Contracts Act’) to apply to
discharge the second defendant of his liability as guarantor. Further, the
guarantee was so worded that it made the liability of the guarantors primary
and co-extensive with that of the principal debtor. As there was no record of the
second defendant having been discharged as a guarantor as compared to several F
other guarantors under the plaintiff ’s letter of acceptance of Novel Villa’s offer
of settlement, the learned JC held that the plaintiff had a valid cause of action
against the second defendant under the terms of the guarantee for the balance
sum due and owing by Novel Villa under the overdraft loan facility. The second
defendant was therefore held to be liable for the balance due as pleaded and G
judgment was entered for the plaintiff.

THE APPEAL
H
[9] Before us, the second defendant raised two issues, they were:
(a) whether the second defendant as guarantor had been discharged from
his liability upon the acceptance of Novel Villa’s settlement proposal by
the plaintiff; and
I
(b) whether the second defendant as guarantor was discharged from his
liability when the plaintiff had accepted the lesser sum of RM1.3m from
Novel Villa and had discharged all 13 landed properties.
We will consider these two issues together.
 Tan Poh Khiang v Malayan Banking Berhad
[2015] 1 MLJ (Umi Kalthum JCA) 823

A Whether the second defendant discharged from liability upon the plaintiff ’s
acceptance of settlement proposal and the discharge of 13 landed properties

[10] It was the second defendant’s submission that in view of the acceptance
by the plaintiff of the settlement proposal by Novel Villa, the principal
B borrower, and the due payment of the agreed sum of RM1.3m by Novel Villa
to the plaintiff, the second defendant, as a guarantor, was clearly discharged
from the guarantee by virtue of s 87 of the Contracts Act which provides as
follows:
C 87 Discharge of surety by release or discharge of principal debtor
The surety is discharged by any contract between the creditor and the principal
debtor, by which the principal debtor is released, or by any act or omission of the
creditor, the legal consequence of which is the discharge of the principal debtor.

D [11] As such, the learned JC had erred in law and on the facts when he failed
to take into account that Novel Villa, the principal borrower, had reached an
agreement/settlement with the plaintiff, which was perfected in respect of the
outstanding overdraft amount as reflected:
E (a) in the offer letter dated 9 April 2003 from Novel Villa to the plaintiff;
and
(b) in the acceptance letter dated 16 May 2003.

[12] By these two said letters, Novel Villa had been released from the debt
F
claimed by the plaintiff and as confirmed by the plaintiff ’s only witness PW1,
Mr Jagir Singh a/l Ajmer Singh. Therefore, the second defendant as guarantor
as of right was released from the guarantee by virtue of ss 81 and 87 of the
Contracts Act.
G
[13] It was also submitted that the learned JC had erred in law and on the
facts when he took into account and failed to make the correct interpretation of
subsequent non-contemporaneous letter dated 12 July 2003 (p 335, AR Jld 2)
from the plaintiff to Novel Villa. The plaintiff ’s witness PW1, during
H cross-examination, had explained the contents of the fourth paragraph of the
said letter, wherein it was stated as follows:
NOTWITHSTANDING the above, the Bank reserves the right to demand or
request additional monies if the amount received in relation to the redemption
statement is insufficient to settle all sums due and owing to us and/or should there be
I any variation in the interest rate chargeable, it will be adjusted accordingly.
(Emphasis added.)
to mean that the term ‘to settle all sums due and owing to us’ referred to the
earlier settlement sum of RM1.3m and not any alleged ‘shortfall’ arising
thereafter (see p 64, AR Jld 1).
824 Malayan Law Journal [2015] 1 MLJ

[14] Moreover, the fact that Novel Villa, the principal borrower, was not A
sued or even made a party to the present suit for the alleged ‘shortfall’ clearly
confirmed the settlement reached between Novel Villa and the plaintiff, and
that Novel Villa would not be sued by the plaintiff for the ‘shortfall’ now
claimed against the second defendant. This fact was confirmed by PW1 during
cross-examination where at p 63, AR Jld 1, he stated as follows: B

29.Q: Dalam tuntutan ini juga tiada tuntutan terhadap peminjam utama,
Novel Villa Sdn Bhd, setuju?
A: Setuju.
C
30.Q: Rujuk Encik Jagir Singh semula pada mukasurat 173, Bundle B.
Encik Jagir Singh, setuju bahawa tiada tuntutan dibuat terhadap
peminjam utama, Novel Villa Sdn Bhd kerana penyelesaian ini telah
dicapai di antara Plaintif dan Novel Villa Sdn Bhd, setuju?
A: Setuju. D
31.Q: Dan Encik Jagir Singh, penyelesaian di mukasurat 173 diantara
Plaintif dan Novel Villa Sdn Bhd adalah berdasarkan kepada surat
tawaran di mukasurat 172, setuju?
A: Ya, setuju. E
32.Q: Tawaran tersebut adalah RM1.3 juta, betul?
A: Betul.

[15] In view of the aforesaid position of the plaintiff, the second defendant, F
as a guarantor, was also clearly discharged from the guarantee, consonant with
the provisions of s 88 of the Contracts Act which provides as follows:
88 Discharge of surety when creditor compounds with, gives time to, or agrees not
to sue principal debtor
G
A contract between the creditor and the principal debtor, by which the creditor
makes a composition with, or promises to give time to, or not to sue, the principal
debtor, discharges the surety, unless the surety assents to such contract.

The second defendant, as a guarantor, had never agreed to the release of Novel
Villa from its obligations to the plaintiff. H

[16] The second defendant drew the attention of the court to a subsequent
judgment in default of appearance (‘the default judgment’) 24 December 2008
entered against Novel Villa under a separate and subsequent Civil Suit No I
22–712 of 2008 at the High Court in Johor Bahru. It was noted that:
(a) in this present suit, wherein Novel Villa was not made a party, it was filed
on 24 December 2003. The subsequent suit against Novel Villa,
wherein the default judgment was entered against Novel Villa as the
 Tan Poh Khiang v Malayan Banking Berhad
[2015] 1 MLJ (Umi Kalthum JCA) 825

A principal borrower, was only filed on 26 September 2008, after the

second defendant’s defences herein was brought up by the second
defendant; and
(b) the subsequent suit against Novel Villa was filed more than seven years
B after the aforesaid overdraft loan facility was defaulted by Novel Villa
and was recalled in 2001, rendering the subsequent action itself against
Novel Villa time barred.

[17] It was, therefore, submitted that the default judgment entered against
C Novel Villa under the separate and subsequent Civil Suit No 22–712 of 2008,
followed by an order for winding up by the court dated 12 May 2010
(pp 323–325, AR Jld 2), was clearly an abuse of the process of the court and an
afterthought attempt to subsequently ‘defeat’ the second defendant’s valid
defences.
D
[18] As such, the learned JC had erred in law and on the facts when he failed
to take into account the second defendant’s right to be released from the
guarantee pursuant to the provisions of ss 86 and 88 of the Contracts Act based
on the true position of Novel Villa at all material times.
E
[19] For the plaintiff/respondent, it was argued that vide the acceptance
letter dated 16 May 2003, the plaintiff had only accepted the proposal to settle
the matter by Novel Villa paying to the plaintiff RM1.3m and had agreed to
discharge the charge on the 13 pieces of land. That nothing was stated that the
F
acceptance was in full and final settlement of the overdraft loan facility. Further,
the plaintiff had also agreed to release five out of nine ‘paying guarantors’ which
did not include the second defendant. This fact (being not in full and final
settlement) was further reiterated in the plaintiff ’s letter dated 12 July 2003
(p 335, AR Jld 2) wherein the plaintiff had stressed that it had the right to claim
G
outstanding moneys if the redemption sum was insufficient to settle the
outstanding sum owed. Great stress was laid on the statement in para 4 of the
said letter (as quoted in para 13 above) to evince the intention of the plaintiff
to claim further sums outstanding. This intention to claim further sums
outstanding against Novel Villa was proved when the default judgment for the
H
balance of the debt due in the sum of RM1,331,274.36 as of 31 July 2008 with
interest thereafter was entered against Novel Villa, and Novel Villa was wound
up on 12 May 2010.

I [20] We had perused the two material letters dated 9 April 2003 (‘the offer
letter’) and 16 May 2003 (‘the acceptance letter’). To better understand the
import of these two letters, we reproduce them in toto as follows:
NOVEL VILLA SDN BHD (348471-U)
C/o. 32A, Jalan Pahlawan 2, Taman Ungku Tun Aminah
826 Malayan Law Journal [2015] 1 MLJ

81300 Skudai, Johor Bahru. A

____________________________________________________
09 April 2003
Attn : Mr. Jagir Singh
The Loan Supervising Officer B
MALAYAN BANKING BERHAD
Loan Management Centre
6th Floor, No. 11, Jalan Selat Tebrau
80000 Johor Bahru C
Johor Darul Ta’zim
Dear Sir
OVERDRAFT ACCOUNT NO. 5-01150-10627-6 (Ex-Pacific Bank)
With reference to the above. D
We hereby proposed to settle the outstanding overdraft amount with a maximum
limit of RM1.3 million with your bank in one payment.
For your understanding, we are really unable to settle the entire amount owing with
your bank in this economic crisis.
E
We hope you will kindly accept our proposal.
We apologise for any inconvenience cause and your early reply would be very much
appreciated.
Yours faithfully
NOVEL VILLA SDN.BHD. (348471-U) F
sigd
LIM CHIN HOE
(director)
G
____________________________________________________
MAYBANK
PRIVATE &CONFIDENTIAL
OurRef : LMC/OAR/JS/rin/03/0447/OD106276/PN
H
Date : 16hb Mei 2003
WITHOUT PREJUDICE
M/s Novel Villa Sdn Bhd
c/o 32A, Jalan Pahlawan 2
I
Taman Ungku Tun Aminah
81300 Skudai
Johor
Attn : Mr Lim Chin Hoe
 Tan Poh Khiang v Malayan Banking Berhad
[2015] 1 MLJ (Umi Kalthum JCA) 827

A Dear Sir/Madam
Re : SETTLEMENT PROPOSAL
A/C NO. 501150–106276
____________________________________________________
B The above and your letter dated 09/04/2003 refer.
We are pleased to advised that our management has accepted your above proposal of
RM1.3 million and to discharge the property charged to us subject to the following
conditions :-
C - Payment is to be received within 2 month from date of our
notification hereof.
- To discharge the following paying Guarantors :-
a. Lim Chin Hoe
D b. Siow Ah Seng
c. Joseph Ee Yew Chong
d. Keh Ah Kau @ Ker Hoon Chit
e. Steven Ee Chiung Sun
E
- A copy of the Sale & Purchase agreement is to be forward to us within 2
weeks hereof.
Thank You.
Yours faithfully
F
For Maybank
‘SERVICE IS OUR BUSINESS’
sigd
G JAGIR SINGH
Authorised Signatory
Loan Management Centre
Johore
H 07-2252176 / fax : 07-2248895
cc. M/s Tan & Lee
Advocates & Solicitors
(Ref: TLA/MBBM/Lt4(155)/0112/698/cn
I [Please kept the matter in abeyance]
Malayan Banking Berhad
(3813-K)
828 Malayan Law Journal [2015] 1 MLJ

[21] By the two letters, it was clear to us, and we accepted the submission of A
the second defendant, that Novel Villa had explicitly stated that it offered to
settle the outstanding overdraft and amount to a maximum limit of RM1.3m
in one payment. This offer was accepted by the plaintiff vide letter dated
16 May 2003. The plaintiff went further to state that it would ‘discharge the
property charged to us’ subject to the conditions that: B

(a) ‘payment is to be received within 2 months from date of our notification

hereof ’;
(b) ‘to discharge the following [5] paying Guarantors’; and
C
(c) ‘A copy of the Sale And Purchase agreement is to be forwarded to us
within 2 weeks hereof )’.
The ‘discharge of the property’ meant that all 13 pieces of charged lands to the
plaintiff were to be discharged. What this meant was that Novel Villa had been D
released form its debt claimed by the plaintiff. This state of affairs was
confirmed by the plaintiff ’s sole witness PW1. PW1 stated as follows at
pp 59–61, AR Jld 1:
7.Q: Encik Jagir Singh, boleh saya rujuk kepada mukasurat 173, Bundle B.
Ini merupakan surat penyelesaian bertarikh 16/5/2003, betul? E
A: Betul.
8.Q: Encik Jagir Singh, pada masa surat ini dikeluarkan, berapakah jumlah
yang dihutang oleh Novel Villa Sdn Bhd kepada Plaintif? Novel Villa
merupakan peminjam utama. F
A: About RM1.778 million.
9.Q: Boleh saya rujuk Encik Jagir Singh kepada mukasurat 17 dan 18,
Bundle B. Is this a charge or gadaian?
A: Yes. G

10.Q: Encik Jagir Singh, I am going to read the part of the charge for you,
daripada pertengahan. It says: ‘NOVEL VILLA SDN BHD, sebuah
syarikat yang ditubuhkan di Malaysia dan mempunyai pejabat
berdartarnya di No. 26A, Jalan Shah Bandar 6, Taman Ungku Tun H
Aminah, 81300 Skudai, Johor Bahru, Johor.’
A: That’s right. Correct.
11.Q: And here is says: ‘tuanpunya tanah atas tanah yang tersebut dalam
jadual di bawah ini’, correct?
I
A: Yes, correct.
12.Q: And here also says: ‘bagi maksud penjamin, pembayaran kepada
pemegang gadaian yang tersebut namanya di bawah ini, berserta
 Tan Poh Khiang v Malayan Banking Berhad
[2015] 1 MLJ (Umi Kalthum JCA) 829

A faedah, wang yang dari semasa ke semasa kena dibayar kepadanya

daripada akaun semasa saya/akaun yang berikut yang disimpan di
antara kami.’ Correct?
A: Yes, correct.
B 13.Q: And go the next page (on top), it says: ‘Dengan ini menggadaikan
tanah tersebut untuk membayar kepadanya wang yang tersebut itu
beserta faedah atasnya mengikut peruntukan-peruntukan yang
dilampirkan disini’ correct?
A: Yes, correct
C
14.Q: So, Encik Jagir Singh, do you agree to this particular charge, 13 tanah
ini telah digadai untuk menjamin pembayaran balik hutang Novel
Villa Sdn Bhd, betul?
A: That’s right, correct.
D
Yang Arif: Gadaian ini untuk?
2nd Defendant’s counsel: Menjamin pembayaran balik hutang Novel
Villa Sdn Bhd.
15.Q: Encik Jagir Singh, saya rujuk kepada mukasurat 173 lagi. Atas
E jawapan anda awal tadi, adakah benar bahawa 13 tanah ini telah
digadai kepada pihak Plaintif untuk menjamin jumlah RM1.778 juta
yang dihutang oleh Novel Villa Sdn Bhd? Is that correct?
A: It is correct.
F Yang Arif: Jumlah hutang berapa?
2nd Defendant’s Counsel: RM1.778 juta
16: Daripada surat ini, pihak Plaintif telah menerima proposal RM1.3
juta, betul?
G A: That’s correct.
Yang Arif: RM1.3? Setuju terima sebagai penyelesaian?
2nd Defendant’s counsel: RM1.3 million. Yes.
17.Q: Adakah Encik Jagir Singh setuju sekiranya Plaintif menerima jumlah
H yang kurang daripada RM1.778 juta yang dihutang sebagai
redemption sum untuk melepaskan 13 tanah tersebut daripada
gadaian, 13 tanah tersebut tidak boleh lagi bertindak sebagai jaminan
bagi bayaran baki jumlah tersebut, betul?
A: Ya, betul. Telah dilepaskan.
I
18.Q: Adakah Encik Jagir Singh setuju bahawa 13 tanah tersebut tidak lagi
menjamin jumlah yang kini dituntut oleh pihak Plaintif terhadap
Defendan Ke-2?
A: Ya, betul.
830 Malayan Law Journal [2015] 1 MLJ

[22] As such, we were of the view that ss 87 and 88 of the Contracts Act A
applied to this case to release the second defendant, as a guarantor, from the
guarantee. We, therefore, found that the learned JC had erred in law and on the
facts when he failed to take into account the concluded settlement of Novel
Villa’s debt to the plaintiff and as confirmed by PW1, and that by virtue of s 87
the second defendant was released from the guarantee. B

[23] We did not accept the plaintiff ’s argument that the plaintiff ’s letter of
acceptance dated 16 May 2003 was not meant to be a full and final settlement
of the debt seeing that the plaintiff had nor reserved its rights to pursue the C
balance of the debt due in the same letter, and had on top of accepting the offer
of settlement of RM1.3m, had agreed to discharge the 13 charged lands. We
accepted the submission of the second defendant when he explained the
meaning of para 4 of the plaintiff ’s letter dated 12 July 2003 as being the true
meaning of the said paragraph (see para 13 above) and that it could not be D
interpreted to mean, as did the learned JC in error, the plaintiff had reserved its
right to sue Novel Villa and the guarantors for the balance of the debt due.

[24] We agreed with the second defendant’s submission that it was very
significant for the plaintiff to sue the first to the fourth defendants and not E
Novel Villa in this action in 2003, for it showed the true state of affairs between
Novel Villa and the plaintiff. We also agreed with the second defendant that the
fact the plaintiff had sued Novel Villa in Civil Suit No 22–712 of 2008, was an
after thought to defeat the second defendant’s defence in the circumstances of
this case and to bolster the plaintiff ’s argument in this case. We were not F
impressed, to say the least, with the plaintiff ’s argument pertaining to this
aspect. The said civil suit to our minds seemed to be instituted to self-serve the
plaintiff ’s case against the second defendant in this suit.
G
[25] We therefore found that the second defendant was discharged from
liability under the guarantee upon the plaintiff ’s acceptance of the settlement
proposal and the release of the 13 pieces of charged lands under the provisions
of ss 87–88 of the Contracts Act without the consent of the second defendant
(see Lee Wah Bank Limited v Joseph Eu [1981] 1 MLJ 11 at paras C–D, right). H

[26] We also found that by releasing the 13 pieces of charged lands without
the consent of the second defendant under the plaintiff ’s letter dated 16
May 2003, which were charged to the plaintiff to guarantee the full payment of
Novel Villa’s debts to the plaintiff, the plaintiff had acted in a way which was I
inconsistent with the right of the second defendant, as a guarantor. We
therefore agreed with the submission of the second defendant that he was also
discharged as a guarantor under the provisions of s 92 of the Contracts Act
which provides as follows:
 Tan Poh Khiang v Malayan Banking Berhad
[2015] 1 MLJ (Umi Kalthum JCA) 831

A 92 Discharge of surety by creditor’s actor or omission impairing surety’s eventual

remedy
If the creditor does any act which is inconsistent with the rights of the surety, or
omits to do any act which his duty to the surety requires him to do, and the eventual
remedy of the surety himself against the principal debtor is thereby impaired, the
B surety is discharged.

[27] In short, we found that there was a full and final settlement of the debt
due from Novel Villa to the plaintiff which in law discharged the second
defendant as a guarantor. In making this finding, we were very well aware of the
C
principles of law pertaining to appellate jurisdiction of this court. We do not
wish to cite case authorities on this issue other than to quote a passage from the
Federal Court case of Azman bin Mahmood & Anor v SJ Securities Sdn
Bhd [2012] 6 MLJ 1; [2012] 4 MLRA 595, wherein Raus Sharif PCA at p 12
D (MLJ); p 603 (CLJ) para 23 stated as follows:
[23] The law on appellate intervention on findings of fact by a trial judge is trite. In
this context it may be useful to refer to the case of Multar Masngud v Lim Kim Chet
and Anor [1982] 1 MLJ 184, wherein it was held that an appellate court will
interfere and disturb the finding of fact by the trial judge if crucial evidence had
E been misconstrued resulting in the uncertainty on one party’s evidence and the
consistency of the other party’s evidence being disregarded. In the Privy Council
case of Choo Kok Beng v Choo Kok Hoe and Ors [1984] 2 MLJ 165 it was held that
when a trial judge had so manifestly failed to derive proper benefit from the
undoubted advantage of seeing and hearing witnesses at the trial, and in reaching his
F conclusion, has not property analysed the entirety of the evidence which was given
before him, it is the plain duty of the appellate court to intervene and correct the
error lest otherwise the error results in serious injustice. In Gan Yook Chin and Anor
v Lee Ing Chin And Ors [2005] 2 MLJ 1; [2004] 4 CLJ 309, the Federal Court
echoed the following:
G In our view, the Court of Appeal in citing these cases had clearly borne in mind
the central feature of appellate intervention ie, to determine whether or not the
trial court had arrived at its decision or finding correctly on the basis of the
relevant law and/or the established evidence. In so doing, the Court of Appeal
was perfectly entitled to examine the process of evaluation of the evidence by the
H trial court.
Clearly, the phrase … ‘insufficient judicial appreciation of evidence’ merely relate to
such a process. This is reflected in the Court of Appeal’s restatement that a judge
who was required to adjudicate upon a dispute must arrive at his decision on an
issue of fact by assessing, weighing and, for good reasons, either accepting or
I rejecting the whole or any part of the evidence placed before him. The Court of
Appeal further reiterated the principle central to appellate intervention ie, that a
decision arrived at by a trial court without judicial appreciation of the evidence
might be set aside on appeal.
832 Malayan Law Journal [2015] 1 MLJ

CONCLUSION A

[28] For the reasons stated above, we had unanimously allowed the appeal
with costs of RM20,000 here and below to the second defendant/appellant.
The order of the High Court was set aside. Deposit was refunded to the
appellant. B

Appeal allowed with costs of RM20,000.

Reported by Afiq Mohamad Noor

C