Maplelee Property Sdn Bhd

[2004] 2 MLRA v. Tan Lei Fon i

MAPLELEE PROPERTY SDN BHD

v.
TAN LEI FON
[2004] 2 MLRA 483

Court Of Appeal, Putrajaya

Mokhtar Sidin, Abdul Aziz JJCA, James Foong J
[Civil Appeal No: W-02-302-2001]
11 December 2004

Contract: Guarantee — Variation without surety's consent — Whether there was a

variation in loan agreement without knowledge of guarantor — Whether invoice could
be in any form — Whether alteration unsubstantial and to benefit of sureties — Loan
— Loan agreement stipulated that drawdown would be released upon receipt of invoices
— Whether there was a variation in agreement when drawdown was released upon
letters requesting for drawdown and not invoices per se

The respondent was a director of a company. The company had taken a loan
from the appellant for a sum of RM670,000 to open a coffee house-cum-
restaurant ('food outlet') for service apartments managed by the appellant. The
loan was interest-free and unsecured but was guaranteed by the respondent and
the other director of the company. The company defaulted in the repayments
for the loan. The appellant thus instituted an action for the recovery of the
loan in the High Court. The appellant obtained default judgment against the
company and the other guarantor. However, the claim against the respondent
was dismissed on the grounds that there was a variation in the loan agreement
that the respondent had no knowledge of, and that the appellant, when it took
possession of the food outlet upon default of the loan, did not account for the
benefits derived from the equipments therein. The appellant appealed against
the dismissal of its claim against the respondent.

Held (allowing the appellant's appeal):

Per Abdul Aziz JCA and Mokhtar Sidin JCA (Concurring)

(1) Being a reservation of right, and as its sole purpose was to satisfy the
appellants that the money was needed, and would therefore be used, for the
proper purpose, it was within the discretion of the appellants to dispense with
proof if they could be satisfied of the genuineness of a request for a drawdown
without it. (para 15).

(2) Disbursement of the loan without invoices or progress certifications was

not a variance but was within the intention of the parties. (para 17).

(3) Even if the court is wrong in holding that there was no variance, the variance
was unsubstantial and one which could not be prejudicial to the respondent as
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ii v. Tan Lei Fon [2004] 2 MLRA

surety and therefore did not discharge the respondent as surety (para 18).

(4) Since the appellants' cause of action against the respondent was under the
guarantee related to the loan agreement, the appellants were not bound to
account to the respondent for whatever benefit they may have derived from
the taking of possession of the restaurant premises and the equipment therein
(para 23).

Per James Foong J and Mokhtar Sidin JCA (Concurring)

(5) Though the relevant letters may not be invoices which are commonly noticed
in the commercial market, but they have all the characteristics of invoices in
tune with The Oxford Concise Dictionary. As could be observed from a typical
letter of request, the goods and services provided or to be provided with prices
and or charges attached for the project are itemised. Such contents, going by
the definition of the word as defined, are sufficient qualify this document and
all others with similar particulars as invoices within the meaning of the Loan
Agreement which is merely to give particulars of all goods or services provided
or to be provided with prices for the project (para 50).

(6) The trial judge erred in his conclusion that there has been a variation to the
loan agreement. Thus, the issue of whether the third defendant was aware of
or consulted over such variation becomes academic. (para 52).

(7) The 3rd defendant is sued as a guarantor and not as a principal debtor. As
a guarantor, the 3rd defendant is liable under the Deed of Guarantee when
the 1st defendant 'does not make such payment' towards the repayment of
the loan. This is spelled out in the Deed of Guarantee. Therefore, there is no
question of mitigation of damages. (para 54).

Case(s) referred to:

Citibank NA v. Ooi Boon Leong amp; Ors [1980] 1 MLRA 221; [1981] 1 MLJ 282
(refd)
Hj Ali Hj Othman v. Telekom Malaysia [2003] 1 MELR 7; [2003] 1 MLRA 296; [2003]
3 MLJ 29; [2003] 3 CLJ 310 (refd)
Holme v. Brunskill [1878] 3 QBD 495 (refd)
Kidurong Land Sdn Bhd v. Lim Gaik Hua amp; Ors [1990] 1 MLRA 188; [1990] 1
MLJ 485; [1990] 1 CLJ (Rep) 141 (refd)
National Bank of Nigeria Ltd v. Awolesi [1964] 1 WLR 1311 (refd)
Tan Sri Khoo Teck Puat amp; Anor v. Plenitude Holdings Sdn Bhd [1994] [1994] 1
MLRA 420; [1994] 3 MLJ 777; [1995] 1 CLJ 15 (refd)

Legislation(s) referred to:

Contracts Act 1950, ss 86, 92, 93, 94, 98
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[2004] 2 MLRA v. Tan Lei Fon iii

Counsel:
For the appellant: Manpal Singh (together with T Prem Anand); M/s Manjit Singh
Sachdev, Mohammad Radzi & Partners
For the respondent: Mathew Thomas Philip; M/s Thomas Philip Kwa & Lou
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iv v. Tan Lei Fon [2004] 2 MLRA

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 Maplelee Property Sdn Bhd
[2004] 2 MLRA v. Tan Lei Fon 483

JUDGMENT

Mokhtar Sidin JCA:

[1] I have been given the opportunity of reading the draft judgments of my
learned brothers, Abdul Aziz Mohamad JCA and James Foong Cheng Yuen
J whereupon both of them have decided to allow the appeal and judgment be
entered for the appellants as prayed. I have nothing more to add to what have
been expressed by my learned brothers in their respective judgments.

[2] The appeal is hereby allowed and that judgment be entered for the appellants
as prayed. Costs to the appellants here and in the court below. The deposit is to
be refunded to the appellants.

Abdul Aziz Mohamad JCA:

[3] This is an appeal against the dismissal by the High Court of the appellant
company's claim against the respondent for the refund of a sum of RM670,000
lent by the appellants to a company called Inspiration Hub Sdn Bhd ("the
borrower") pursuant to a loan agreement dated 22 April 1997 between the
appellants and the borrower It was an interest-free unsecured loan. The
respondent and another person, who were the only directors and shareholders
of the borrower, guaranteed the loan under a joint-guarantee of the same date.
In the High Court the appellants' action was against the borrower under the
loan agreement and against the two guarantors under the guarantee. The trial
proceeded against the respondent only because the appellants had obtained
default judgment against the borrower and the other guarantor.

[4] At the trial, no evidence was adduced by the respondent because after the
appellants closed their case with only one witness, the respondent's counsel
submitted that there was no case to answer and elected not to bring in evidence.
Two grounds were advanced, with which the judge agreed. He therefore
dismissed the claim. I shall state and deal with those grounds after setting out
further facts.

[5] According to the appellants' sole witness, the appellants were the managers
of a block of service apartments called Maple Suite owned by Lim Seng
Company Sdn Bhd and it was necessary, as a requirement of Dewan bandar
raya Kuala Lumpur, for the service apartments to have a coffee house-cum-
restaurant for them to be called service apartments. The recital to the loan
agreement stated the facts that on the same date, 22 April 1997, the appellants
and the borrower had executed a tenancy agreement whereby the appellants
as landlord let to the borrower as tenant restaurant premises in Maple Suite
and that upon the request of the borrower the appellants had agreed to grant
an interest-free loan of RM670,000 to the borrower "to assist the borrower to
pre-open, equip, furnish and fit out the restaurant premises". The fact of the
tenancy was merely information related to the purpose of the loan and was of
no legal significance to the loan agreement, and there was nothing elsewhere
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484 v. Tan Lei Fon [2004] 2 MLRA

in the loan agreement to show any bearing that rights and liabilities under the
tenancy agreement, on the one hand, and those under the loan agreement, on
the other hand, might have on one another.

[6] cl 1.2 of the loan agreement provided as follows:

It is hereby agreed that the Loan shall be drawdown (sic) against

production of valid invoices and progress certifications by the Borrower
in respect of works, services, supplies and equipment related directly
to the restaurant premises and which are deemed acceptable to and/
or approved by the Lender at the Lender's sole discretion.

[7] The loan was disbursed at different times in different amounts and was
fully disbursed on 9 August 1997. Each disbursement was made upon request
by letter from the borrower stating what they needed the particular sum for,
but no invoices or progress certifications were produced in support of any of
the sums requested. No question, however, arose in the trial that the sum of
RM670,000 or any part of it was not used for the purpose stated in the loan
agreement. The plaintiffs' witness said that in each case there was no reason to
doubt the request.

[8] According to cl 3.1 of the loan agreement, the repayment was to be by

monthly instalments, each of RM22,333, the first instalment to be six months
from the date of the agreement, that is, on 22 October 1997. But the borrower
failed to pay.

[9] Now in or about January 1998 the appellants took back possession of the
restaurant premises and the equipment in them. This fact only emerged in the
cross-examination of the appellants' witness. The appellants' claim against the
respondent being under the guarantee related to the loan agreement, there was
no reason for them to introduce evidence about the taking of possession of the
restaurant premises. It was not part of their case. So what is in evidence about
the taking of possession is only so much as the witness was cross-examined
about it. And this is as much as was elicited from him:

The plaintiff had taken possession of the restaurant and equipment.

All the set up was done by (the borrower). The restaurant was taken
roughly January 1998. The plaintiff is running the restaurant now. I
was present when possession was taken back. The premises were not
sealed when taken back. The taken (sic) back was done after we lodge
(sic) a police report and together with lawyer and director we went to
the place.

There was inventory prepared. It is not in the document.

[10] It is therefore not in evidence on what grounds was possession of the

restaurant premises taken back.

[11] By 22 January 1998 the borrower had been in default under the loan
 Maplelee Property Sdn Bhd
[2004] 2 MLRA v. Tan Lei Fon 485

agreement in four instalments totalling RM89,332. The borrower failing to

settle the sum after notice, the appellants demanded of them and the guarantors
repayment of the entire loan and subsequently commenced the action against
them.

[12] The first ground for the judge's dismissal of the appellants' claim was
based on s 86 of the Contracts Act 1950, which provides as follows:

Any variance, made without the surety's consent, in the terms of the
contract between the principal debtor and the creditor, discharges the
surety as to transactions subsequent to the variance.

[13] The judge found that the disbursement of the loan sum without the
production of invoices and progress certifications was a variance of cl 1.2 of
the loan agreement and that the variance was without the respondent's consent.

[14] In the High Court the appellants' counsel had submitted, first and foremost,
that there was no variance of cl 1 February His argument for so contending is
not clear from the notes of proceedings. In their written submission for this
appeal the appellants did not contend that there was no variance but argued,
first and foremost, that the variance was unsubstantial and insignificant and
did not in any way prejudice the respondent. In his oral submission, however,
the appellants' counsel submitted, inter alia, that there was no variance and his
reason for so contending, as far as I have been able to make it out, was that the
loan agreement did not provide a specific format for a request for disbursement
or drawdown, a reason which I do not find satisfactory.

[15] Whether a drawdown without invoices or progress certifications was

a variance of cl 1.2 depends on the intention and effect of the clause, the
intention being that of the parties, the borrower and the appellants. The
clause speaks of "production of valid invoices and progress certifications by
the borrower". The phrase "by the borrower" to my mind does not qualify
"progress certifications". It qualifies "production". So that another way of
reading the entire phrase would be: "production by the borrower of valid
invoices and progress certifications". The purpose of the invoices and progress
certifications was obviously to satisfy the appellants that the money disbursed
would be used for the purpose for which the loan had been agreed to be given.
The invoices and progress certifications were meant to serve as independent
proof of that and therefore it could not be that the progress certifications
were to be made by the borrower themselves. Having said that, however, it is
necessary to observe that cl 1.2 is not worded in such a way as to prohibit the
appellants from allowing a drawdown without such proof. It is not worded as
a stipulation by the borrower, accepted by the appellants, that the appellants
were not to allow a drawdown without such proof. There was no reason for the
borrower to make such a stipulation. The borrower would have been too happy
if the appellants accepted their mere word for it that they needed a particular
sum for the purpose specified in the loan agreement. It was a stipulation by the
appellants, accepted by the borrower, that they would require such proof before
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486 v. Tan Lei Fon [2004] 2 MLRA

they would disburse the loan. It was a reservation of a right by the appellants,
acceptable to the borrower, not to disburse without such proof, the purpose
of which was solely to satisfy the appellants that the money would be spent
for the stated purpose. It is not difficult to imagine that the appellants had an
interest to be so satisfied. They had an interest in having a restaurant to serve
the service apartments. Further, proper use of the money was more likely to
bring in profit and to enable the borrower to repay the loan than if the money
was used for some other purpose. Being a reservation of right, and as its sole
purpose was to satisfy the appellants that the money was needed, and would
therefore be used, for the proper purpose, it was within the discretion of the
appellants to dispense with proof if they could be satisfied of the genuineness
of a request for a drawdown without it. cl 1.2 must therefore be construed, not
strictly, but as a discretionary clause that bore within it the implication that the
appellants might dispense with proof of the purpose of a drawdown if they
were satisfied as to the purpose without it, so that a drawdown with no invoice
or progress certification would not be a variance of the clause since it would
still fall within the scope of the intention of the clause.

[16] There are two other considerations that support my view that cl 1.2
was not meant to be complied with strictly but was a matter to be left to the
discretion of the appellants. One consideration is that invoices and progress
certifications do not appear to be possible for some of the kinds of expenses
for which drawdown would be needed. Take, for example, the borrower's first
request by their letter dated 26 April 1997 for a total sum of RM160,270. The
total comprised eight items One of them was RM60,000 for the mobilization of
a foreign pre-opening team. The borrower needed the money for that. Another
item was RM54,800 for a rental deposit according to a tenancy agreement.
The borrower needed that sum to pay the rental deposit. I cannot see how an
invoice or progress certification could be obtained for those needed expenses.
Further, as regards the rental deposit, if the tenancy agreement was the tenancy
agreement between the appellants and the borrower that I have mentioned,
the appellants would themselves know without it having to be proved that
the borrower needed that sum for the rental deposit. The other consideration
applies only if I am wrong in saying earlier that the phrase "by the borrower"
does not qualify "progress certifications" and if the correct reading is that it
does, so that progress certifications were to be those made by the borrower
Since progress certifications by the borrower would amount to the word of
the borrower themselves, then as far as progress certifications were concerned,
the word of the borrower alone would suffice for such items as were capable
of progress certification. There was no reason why the word of the borrower
alone might not suffice for other items.

[17] For those reasons I am of opinion that disbursement of the loan without
invoices or progress certifications was not a variance of cl 1.2 but was within
the intention of the parties as expressed in cl 1 February Although the
plaintiff's witness replied in the affirmative to the question or suggestion in
cross-examination: "In so drawing down the plaintiff changed the terms of cl
 Maplelee Property Sdn Bhd
[2004] 2 MLRA v. Tan Lei Fon 487

1.2", he was speaking literally as a matter of fact and not considering the legal
import of the "change" in the context of the intention of cl 1 February.

[18] If I am wrong in holding that there was no variance of cl 1.2, I am in

any case of opinion that the variance was unsubstantial and one which could
not be prejudicial to the respondent as surety and therefore did not discharge
the respondent as surety. The authority for this is the following passage from
Holme v. Brunskill [1878] 3 QBD 495 at p 505, which was applied by the Privy
Council in National Bank of Nigeria Ltd v. Awolesi [1964] 1 WLR 1311 and which
the Federal Court relied on in Citibank NA v. Ooi Boon Leong amp; Ors [1980] 1
MLRA 221; [1981] 1 MLJ 282:

The true rule in my opinion is, that if there is any agreement between
the principals with reference to the contract guaranteed, the surety
ought to be consulted, and that if he has not consented to the alteration,
although in cases where it is without inquiry evident that the alteration
is unsubstantial, or that it cannot be otherwise than beneficial to the
surety, the surety may not be discharged; yet, that if it is not self-evident
that the alteration is unsubstantial, or one which cannot be prejudicial
to the surety, the court, will not, in an action against the surety, go into
an inquiry as to the effect of the alteration... but will hold that in such
a case the surety himself must be the sole judge whether or not he will
consent to remain liable notwithstanding the alteration, and that if he
has not so consented he will be discharged.

[19] The variance was, in my opinion, unsubstantial because the only purpose
of the requirement of invoices and progress certifications was to satisfy the
appellants that the drawdown was for the purpose of the restaurant premises,
and it was open to the appellants to be so satisfied on the mere say-so of the
borrower and without the invoices and progress certifications. The variance
was in my opinion not prejudicial to the respondent as guarantor because
the result would have been the same if there had been invoices and progress
certifications. The loan would have been disbursed and the money spent on the
restaurant premises, as it in fact was. There has been no suggestion that any
sum disbursed was not in fact required for the restaurant premises or was used
other than for the restaurant premises.

[20] But even if there was a variance of cl 1.2 and it was neither unsubstantial
nor unprejudicial to the respondent, cl 3(2)(vi) of the letter of guarantee
operates to prevent the respondent from being discharged as guarantor or
surety. The clause provides as follows:

(2) As between the Guarantors and You - that is the appellants - "each
of the Guarantors shall be liable under this cl 3 as if he were a principal
debtor and not merely a surety and accordingly the Guarantors shall
not be discharged, nor shall their liability be affected, by anything
 Maplelee Property Sdn Bhd
488 v. Tan Lei Fon [2004] 2 MLRA

which would not discharge them or affect their liability if they were
principal debtors, including, without limitation,..."

and there follows a series of nine paragraphs, one of which is:

(vi) any amendment to... the Agreement;

[21] By that clause the respondent in effect agreed to be liable as a principal

debtor would be liable. As far as liability was concerned, she agreed to be
treated as a principal debtor What would not discharge, or affect the liability
of, a principal debtor would therefore - note the words "and accordingly" - not
discharge the respondent or affect her liability as a guarantor The variance in
this case would not discharge, or affect the liability of, the principal debtor,
that is the borrower So it would not discharge the respondent, or affect her
liability under the guarantee. The clause thus far is already enough to preserve
the respondent's liability. The nine paragraphs merely set out specific things
that would not discharge, or affect the liability of, the guarantors if they were
principal debtors. They are not exhaustive. Note the words "including" and
"without limitation". They do not restrict the scope of the basic and general
provision of subclause (2). The appellants need not have to rely on the specific
instance of para (vi). But their specific reliance on para (vi) is nonetheless valid.
The only argument of the respondent against the appellants' resort to para (vi)
is that cl 7(1)(b) of the loan agreement provides that "This Agreement may not
be... amended in any manner except by an instrument in writing signed by the
parties...", the reasoning being that the variance of cl 1.2 of the agreement,
not being done according to cl 7(1)(b), was not an amendment of the loan
agreement and would not fall under cl 3(2)(vi) of the letter of guarantee. The
argument is neat and attractive but I do not think that cl 3(2)(vi) of the letter of
guarantee, in speaking of an "amendment", was necessarily thinking of cl 7(1)
(b) of the loan agreement. Without having to examine the difference between
an amendment of a contract and a variance in the terms of a contract, I think
that the word "amendment" in cl 3(2)(vi) ought to be construed widely to
include such a variance. I do not think the word was put there after a meticulous
consideration of what was intended to be its scope. I think it was chosen as a
convenient word to express any change in, or departure or deviation from, the
terms of the agreement.

[22] The second ground for the judge's dismissal of the appellants' claim
concerned the taking of possession of the restaurant premises and the equipment
therein. If I understand the respondent's counsel rightly, in submission in
the High Court the issue relating to the taking of possession, which was not
pleaded in the statement of defence, was taken up as a point of failure of the
appellants to prove their debt. No objection was taken in the High Court to the
raising of this issue on the ground of its not being pleaded. In the respondent's
outline of submission for the High Court at p 34 of the appeal record, the
issue was reduced to the argument that because of the taking of possession the
appellants had not suffered any loss and their debt had been fully satisfied. The
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[2004] 2 MLRA v. Tan Lei Fon 489

judge ruled that the value of the equipment, which was not in evidence, ought
to have been deducted from the claimed sum of RM670,000, as otherwise the
appellants would get the benefit of the sum as well as the equipment. Before
us the respondent's counsel argued that the appellants had gained financial
advantage from the taking of possession of the restaurant and equipment and
must account for it, and since they had not done so the court had been unable
to determine the amount unpaid under the loan agreement.

[23] I am of opinion that, since the appellants' cause of action against the
respondent was under the guarantee related to the loan agreement, the
appellants were not bound to account to the respondent for whatever benefit
they may have derived from the taking of possession of the restaurant premises
and the equipment therein. It was not the repossession of goods under a leasing
or hire-purchase agreement, which usually provides for the accounting for the
goods where the owner claims the amount due under the agreement, and the
appellants' claim was not under such an agreement. It was not the seizure
of a security for a loan because the loan in this case was without security.
It was unrelated to the loan agreement. There was no material before the
judge on which to determine the rights and liabilities of the appellants and
the borrower in the matter of the taking of possession. It was most probably a
tenancy matter between the appellants as landlord and the borrower as tenant.
If at all the appellants were liable to compensate or to account to anybody
for the taking of possession, it is the borrower, and the borrower must sue the
appellants on some cause of action not related to the loan agreement. Even
if the borrower were to sue, it would not affect the appellants' entitlement to
judgment on their claim under the loan agreement or under the guarantee. In
the taking of possession's having no effect whatsoever on the appellants' claim
under the loan agreement or the guarantee, the position is no different from
what it would be if the restaurant premises had been rented from someone
other than the appellants.

[24] In para 17 of her outline of submissions in this appeal, the respondent also
argued, which she had not done in the High Court, that "Having surreptitiously
taken over the assets of the borrower, the appellant has also prejudiced the
respondent's right of recourse against the assets of the borrower which rights
are enshrined in ss 92, 93, 94 and 98 of the Contracts Act 1950". In my opinion,
none of those ss supports the argument.

[25] Section 92 provides:

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 surety is discharged.

[26] Apart from any other reason, the section does not support the respondent's
argument because it concerns the impairing of "the eventual remedy of the
surety himself against the principal debtor" and not the impairing of any right
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490 v. Tan Lei Fon [2004] 2 MLRA

of recourse of the surety against the assets of the principal debtor, which is the
subject of the complaint in para 17.

[27] Section 93 provides:

Where a guaranteed debt has become due, or default of the principal

debtor to perform a guaranteed duty has taken place, the surety, upon
payment or performance of all that he is liable for, is invested with all
the rights which the creditor had against the principal debtor.

[28] In order to rely on this section, the argument has to be premised on the
assumption that the appellants as creditor under the loan agreement had rights
against the borrower as principal debtor over the borrower's property in the
restaurant premises. The appellants as creditor under the loan agreement had
no such rights because the borrower's property was not charged as security and
the loan agreement gave no such rights otherwise.

[29] Section 94 provides:

A surety is entitled to the benefit of every security which the creditor

has against the principal debtor at the time when the contract of
suretyship is entered into, whether the surety knows of the existence
of such security or not; and, if the creditor loses or, without the
consent of the surety, parts with the security, the surety is discharged
to the extent of the value of the security.

[30] It is not applicable because the loan was without a security.

[31] Section 98 provides:

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 has rightfully paid
under the guarantee, but not sums which he has paid wrongfully.

[32] It itself proclaims its irrelevance to the respondent's argument.

[33] I would allow the appeal with costs and order that judgment be entered for
the appellants as prayed for.

James Foong J:

Introduction

[34] This is an appeal by the plaintiff, in High Court at Kuala Lumpur Civil
Suit number S2-22-172-98, against the decision of the learned High Court
Judge who dismissed its claim with cost against the 3rd defendant.

Background

[35] The plaintiff, at the material time, managed a service apartment known as
 Maplelee Property Sdn Bhd
[2004] 2 MLRA v. Tan Lei Fon 491

'Maple Suite'. Desirous of having a food outlet in the service apartment, the 1st
defendant was engaged by the plaintiff to open a coffeehouse cum restaurant
there. The 2nd and 3rd defendants were directors of the 1st defendant. To
assist the 1st defendant financially in this project, the plaintiff lent to the 1st
defendant a sum of RM670,000 to be repaid by instalments. To evidence this
loan, an agreement (loan agreement) was executed by the parties on 22 April
1997. Signing for and on behalf of the 1st defendant were the 2nd and 3rd
defendants, describing themselves as directors.

[36] The recital of the loan agreement sets out the objective of the loan as:

to assist the Borrower to pre-open, equip, finish and fit out the
restaurant premises upon the terms and conditions herein.

[37] The operative part of this agreement repeats the objective of the loan and
then in cl 1.2 declares:

It is hereby agreed the Loan shall be drawdown against production of

valid invoices and progress certifications by the Borrower in respect
of works, services, supplies and equipment related directly to the
restaurant premises and which are deemed acceptable to and/or
approved by the lender at the Lender's sole discretion.

[38] As security for this loan, the 2nd and 3rd defendants in a deed of guarantee
(deed of guarantee) dated 22 April 1997 declares to the plaintiff:

you agreed to make available to the Company (1st defendant) an

unsecured loan for the sum of RM670,000,00... on the terms and
conditions contained in the Agreement (Loan Agreement)... we...
hereby enter into this Letter of Guarantee upon the following terms:

[39] The loan amount was disbursed by the plaintiff to the 1st defendant
upon the 1st defendant forwarding to the plaintiff, from time to time, letters
requesting for drawdowns.

[40] The 1st defendant was unable to repay the loan. Thereupon the plaintiff
repossessed the said food outlet and issued letters of demand to the defendants
for the repayment of the loan. When this drew no response from the defendants,
this claim was filed.

The Learned Judge's Grounds Of Judgment

[41] The learned High Court Judge sets out 2 grounds to support his decision
in dismissing the plaintiff's case against the 3rd defendant. They are:

(1) There was variation to the terms and conditions of the loan
agreement in respect of drawdowns and the 3rd defendant has no
knowledge of this, nor did he approve of it.

(2) Since the plaintiff has taken possession of the food outlet from
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492 v. Tan Lei Fon [2004] 2 MLRA

the 1st defendant in consequence to the default in repayment of the

loan, the plaintiff has enjoyed the benefits of the equipment belonging
to the 1st defendant. The plaintiff did not take such benefits into
consideration.

Reminder

[42] Before I begin to analyse this appeal, it must be reminded that after the
plaintiff closed its case the 3rd defendant elected to adduce no evidence. He
just submitted no case to answer.

Analysis

1st Issue: Was There A Variation Of The Loan Agreement, And If There
Was, Is The 3rd Defendant Exempted From The Guarantee When He Has
Neither Consented To Nor Informed Of The Variation?

[43] Section 86 of the Contracts Act provides:

Any variance, made without the surety's consent, in the terms of the
contract between the principal debtor and the creditor, discharges the
surety as to transactions subsequent to the variance.

[44] Case law has established that:

The true rule in my opinion is, that if there is any agreement between
the principals with reference to the contract guaranteed, the surety
ought to be consulted, and that if he has not consented to the alteration,
although in cases where it is without inquiry evident that the alteration
is unsubstantial, or that it cannot be otherwise than beneficial to
the surety, the surety may not be discharged; yet that if it is not self
evident that the alteration is not substantial, or one which cannot be
prejudicial to the surety, the court will not, in any action against the
surety, go into inquiry as to the effect of the alteration... but will hold
that in such a case the surety himself must be the sole judge whether
or not he will consent to remain liable notwithstanding the alteration,
and that if he has not so consented he will be discharged" - Cotton LJ
in Holme v. Brunskill [1878] 3 QBD 498 which is followed in the Privy
Council in National Bank of Nigeria Limited v. Awolesi [1964] 1 WLR
1311 and adopted by our Federal Court in Citibank NA v. Ooi Boon
Leong amp; Ors [1980] 1 MLRA 221; [1981] 1 MLJ 282 and repeated
in the Supreme Court decision of Kidurong Land Sdn Bhd v. Lim Gaik
Hua amp; Ors [1990] 1 MLRA 188; [1990] 1 MLJ 485; [1990] 1 CLJ
(Rep) 141.

[45] In Kidurong Land Sdn Bhd v. Lim Gaik Hua (supra) the Supreme Court went
further to say that:

The onus of proving that the surety consented to the alterations of the
 Maplelee Property Sdn Bhd
[2004] 2 MLRA v. Tan Lei Fon 493

contract is upon the party seeking to enforce the guarantee.

[46] The variation in the loan agreement, as claimed by the 3rd defendant,
is based on the letters, of the 1st defendant to the plaintiff requesting for
drawdowns. The 3rd defendant insisted that these letters of request are not
"valid invoices" as are required in the loan agreement to be presented to the
plaintiff before each drawdown could be entertained. Counsel for the 3rd
defendant even pointed out that this fact was confirmed by the plaintiff's
own witness - PW1, who said in response to a question put to him in cross-
examination that:

This (one of the letters requesting for drawdowns dated 26 April 1997)
is not invoice within cl 1.2 of the Loan Agreement.

[47] To ascertain whether this itself constitutes a variation in the loan agreement
it is necessary to peruse these letters against the recital and the relevant parts of
the loan agreement that I have highlighted in the earlier part of my judgment.

First, I observed that these letters for drawdown commenced with a

standard statement: "With reference to the loan agreement... for the
development and pre-opening of the F & B Outlet... the following
funds are urgently required.

[48] Then it is followed by particulars. The nature of the particulars is best

reflected in the request made on 26 April 1997, which are as follows:

[49] It is my view that though these letters may not be invoices which
are commonly noticed in the commercial market, but they have all the
characteristics of invoices which are: "lists of goods shipped or send, or services
rendered, with prices and charges; a bill" - see Oxford Concise Dictionary. As can
be observed from a typical letter of request of 26 April 1997, the goods and
services provided or to be provided with prices and or charges attached for
the project are itemized. Such contents, going by the definition of the word
as defined, are sufficient to qualify this document and all others with similar
particulars as invoices within the meaning of cl 1.2 of the loan agreement
which is merely to give particulars of all goods or services provided or to be
provided with prices for the project. I agree that one often finds in a commercial
transaction an invoice of a standard format with a heading 'invoice' expressly
printed or written at the top with particulars of goods or services and price
listed below. But such format is not a strict requirement to qualify as an invoice.
So long as all the elements within the definition of this term are observed an
invoice can be in any form. Likewise, in this case, it came in a form of letters
of request for drawdown.

[50] Though the 3rd defendant has seized upon the statement of the plaintiff's
own witness who has uttered that the letter of request of 26 April 1997 is
"not an invoice within cl 1.2 of the loan agreement" as an advantage for his
defence, I believe that this witness is mistaken over the true meaning of the
 Maplelee Property Sdn Bhd
494 v. Tan Lei Fon [2004] 2 MLRA

word 'invoice'. Most probably he has in mind the stereotype of invoice that I
have just mentioned. But in the circumstances of this case, and for reasons as
explained the requirement of an invoice to support a request for drawdown
is in the letter of request itself. The 1st defendant was at the material time in
need of funds to quickly set up the food outlet. All that was necessary was for
the plaintiff to be satisfied that such funds were actually required or expanded.
This cl 1.2 was more for the satisfaction and comfort of the plaintiff. Once
satisfied that the amount was required or actually spent on the project then the
plaintiff will release the loan to the 1st defendant of whom the 3rd defendant
was a director Now that the loan is not repaid, the 3rd defendant turns around
to pick on an error in the plaintiff's testimony that can be explained (for such
mistake) when in actual fact, such loan was actually and properly disbursed to
the 1st defendant for the project according to the terms of the loan agreement.
For this the court would not allow a party to take advantage of this to exempt
himself from liability when all facts and circumstances dictates otherwise.

[51] With these, I find that the trial judge has erred in his conclusion that there
has been a variation to the loan agreement. Consequently, by this, the issue
of whether the 3rd defendant was aware of or consulted over such variation
becomes acadamic.

2nd Issue: Accounting For The Benefits Enjoyed By The Plaintiff In Taking
Over The Restaurant

[52] The next issue of this appeal relates to the finding of the trial judge who
said: "apabila diambil balik oleh plaintif, mereka tidak mengambil senarai
alat-alat yang ada di restoran. Kepada saya nilai alat perlu ditolak kerana jika
plaintif dibayar pinjaman penuh, maka plaintif bukan sahaja akan mendapat
balik RM670,000 tetapi juga alat-alat yang dipasang di restoran itu. (Tidak
diterangkan di mahkamah tentang perbelanjaan hangus yang dibayar plaintif
kepada defendan pertama)." To support this, the learned judge quoted a
passage from Tan Sri Khoo Teck Puat amp; Anor v. Plenitude Holdings Sdn Bhd
[1994] 1 MLRA 420; [1994] 3 MLJ 777; [1995] 1 CLJ 15 which provides:

In considering the overall position of the purchaser, the court should

not wear blinkers and ignore the fact that the purchaser stands to
make a substantial profit on the price increase of the land alone only
because of the breach of contract, which therefore should be deducted
from the loss of profits. Not to do so would be to put the purchaser
in a better position that it would have been if the contract had been
performed in 1988. Also, to countenance such a claim by the purchaser
would amount to countenancing a claim for double recovery.

[53] I am of the view the learned judge is mistaken as to cause of action against
the 3rd defendant in this case. The 3rd defendant is sued as a guarantor and not
as a principal debtor As a guarantor, the 3rd defendant is liable under the deed
of guarantee when the 1st defendant "does not make such payment" towards
the repayment of the loan. This is spelt out in cl 2(b) of the deed of guarantee.
 Maplelee Property Sdn Bhd
[2004] 2 MLRA v. Tan Lei Fon 495

In such capacity there is no question of mitigation of damages. The guarantor

pays the amount specified under the guarantee when the principal debtor
defaults. In this case it is a sum of RM670,000. But if the 3rd defendant is sued
as a principal debtor then the proposition in Tan Sri Khoo Teck Puat amp; Anor
v. Plenitude Holdings Sdn Bhd (supra) may apply. Here, the legal consideration is
completely different; the guarantor has to pay out the entire guaranteed sum
when the principal debtor defaults.

Subsidiary Issue: Sections 92, 9394, And 98 Of The Contracts Act

[54] During argument before this court, the defendant accused the plaintiff
of "surreptitiously taken over the assets of the borrower" prejudicing the 3rd
defendant's rights of recourse against the assets of the 1st defendant and such
rights are enshrined under ss 92, 93, 94 and 98 of the Contracts Act 1950.

[55] At the outset, I wish to point out that this issue was never advanced in the
court below. For this, I feel that it should not be entertained at this stage of the
proceedings. For authority, the case of Hj Ali Hj Othman v. Telekom Malaysia
[2003] 1 MELR 7; [2003] 1 MLRA 296; [2003] 3 MLJ 29; [2003] 3 CLJ 310
recently decided by this court would suffice.

[56] In any event, if considered, I find this contention without merits. The
principle provision of the law relied on by the 3rd defendant to base this
argument is, in my view, s 92 of the Contracts Act. The other ss mentioned (ss
93, 94, and 98) are merely to compliment and support this provision. I feel that
once the principle provision is considered then the rest (of the provisions cited)
would just fall into place. However for completeness, I shall spell out each of
the sections relied on and then comment on them.

[57] Section 92 of the Contracts Act provides:

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 surety is discharged.

[58] Section 93 of the Contracts Act provides:

Where a guaranteed debt has become due, or default of the principal

debtor to perform a guaranteed duty has taken place, the surety, upon
payment or performance of all that he is liable for, is invested with all
the rights which the creditor had against the principal debtor

[59] Section 94 of the Contracts Act provides:

A surety is entitled to the benefit of every security which the creditor

has against the principal debtor at the time when the contract of
suretyship is entered into, whether the surety knows of the existence
of such security or not; and, if the creditor loses or, without the
 Maplelee Property Sdn Bhd
496 v. Tan Lei Fon [2004] 2 MLRA

consent of the surety, parts with the security, the surety is discharged
to the extent of the value of the security.

[60] Section 98 of the Contracts Act provides:

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 has rightfully paid
under the guarantee, but not sums which he has paid wrongfully.

[61] Now returning to principal section (s 92 of the Contracts Act), with the
requirements stated therein, I am unable to comprehend how the repossession
of the food outlet by the plaintiff is inconsistent with the rights of the 3rd
defendant, as surety, that would impair his eventual remedy against the 1st
defendant, as a principal debtor To consider what is inconsistent with the rights
of the surety, such rights must first be established. There is no evidence adduced
to elaborate on these. Neither is there evidence revealed on the intended remedy
that may be instituted by the 3rd defendant against the 1st defendant, as the
principal debtor Without such material evidence this accusation is baseless.

[62] Then for s 93 of the Contracts Act, it is only relevant when the surety has
paid to the creditor the guaranteed sum. In this instant case, the 3rd defendant
has not settled with the plaintiff the guaranteed sum to be entitled to this right.

[63] For s 94 of the Contracts Act, from the evidence tendered, I detect no other
security offered by the 1st defendant to the plaintiff for this loan except the
guarantors, of whom the 3rd defendant is one. When this is the only security,
and upon this security the plaintiff is claiming from the 3rd defendant, then the
plaintiff cannot be guilty of losing or, without the consent of the 3rd defendant,
parted with such security to entitle the 3rd defendant to be discharged from his
obligation to pay the plaintiff.

[64] And finally for s 98 of the Contracts Act, the 3rd defendant's right to
recover from the 1st defendant, as principal debtor is assured by the provision of
this piece of legislation. He can still proceed to recover from the 1st defendant,
if he so desires. No one has deprived him of this right.

Conclusion

[65] On the grounds stated above, I am of the view that this appeal should be
allowed with cost here and below.
 Maplelee Property Sdn Bhd
[2004] 2 MLRA v. Tan Lei Fon 497

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