Abdul Aziz Mohamad JCA:

The appellant company had charged under the National Land Code a land of theirs to the respondents, a licensed finance company, as one of the securities for a loan given by the respondents to a company called Pembinaan Ikhlas-Jae Sdn Bhd ("the borrower"). The respondents subsequently sought to enforce the charge by applying to the land office for an order for sale. The appellants commenced an action in the High Court for a declaration that the charge was null and void, and for two orders that obviously were consequential orders, namely, an order stopping the enforcement action in the land office and an order that the title to the land be returned to the appellants. The judge dismissed the action and the appellants appealed to this court. We dismissed the appeal.

As far as the appeal was concerned, the facts that need be set out are these. By a letter of offer dated 1 August 1991, as amended on 29 August 1991, the respondents agreed to grant a loan of RM300,000 to the borrower. Among the securities specified in the letter of offer were a first fixed legal charge over 22 plots of land, one of which was the appellants' land, and an assignment from the borrower to the respondents of payments due to the borrower from a project that had been awarded to the borrower by MBf Construction Sdn. Bhd.

On 3 September 1991 a loan agreement was duly executed by the borrower and the respondents for a loan of RM250,000, not RM300,000. The loan agreement did not specify the assignment as one of the securities for the loan. On the same date, 3 September 1991, the appellants executed the charge over their land in favour of the respondents as security for the loan of RM250,000, not RM300,000. The charge was registered on 9 September 1991. By a letter dated 10 September 1991, the borrower sought from the respondents a waiver of the assignment as a security on the ground that MBf Construction Sdn Bhd had refused their consent to the assignment. On 11 September 1991 the respondents replied agreeing to the deletion of the condition as to the assignment in the letter of offer and saying that the loan amount had been reduced from RM300,000 to RM250,000 "due to the insufficient security coverage". On 12 September 1991 the loan sum of RM250,000 was disbursed. It will be obvious from those facts that although the correspondence regarding waiver of the assignment and the consequential reduction of the loan to RM250,000 took place after the loan agreement and the charge were executed on 3 September 1991, when the loan agreement and the charge were executed on that date the waiver and the reduction had already been effected.

Practically the only question that arose in the appeal was whether the charge was null and void in consequence of the operation of 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.

If the section applies in this case, the "principal debtor" would be the borrower, the creditor would be the respondents and the surety would be the appellants. In the appeal, the stand taken by the appellants' counsel was that the contract for the purposes of s. 86 was the loan agreement of 3 September 1991. In submission in the High Court, the variance in the terms of the contract relied on by the appellants was the waiver of the assignment, although the variance specifically mentioned in the statement of claim was the reduction of the loan sum.

This was what the judge said on the question:

To my mind the waiver of the assignment is not a variance that would entitle the plaintiff as a surety to be discharged from its liability. The assignment is another security which is independent of the charge executed by the plaintiff in favour of the defendant. The waiver of the assignment does not in any way alter the liability and obliga