Mohd. Yusoff Mohamed J:

The Basis of the Relationship between the plaintiffs and the defendants

A purchaser, Penghulu Francis Umpau wished to buy 2 lots of land, namely 1244 and 1248 from the Developers, Ang Construction Co., for purposes of building a house on it. The plaintiffs agreed to finance the purchase of the land and the construction of the house.

An Agreement setting out the arrangement between the 3 parties, the plaintiffs, the Developers and the Purchaser was prepared. It was prepared by the defendants' firm and is dated the 25 July 1966. The Developers signed the Agreement in the presence of an Advocate in the defendants' firm. The common seal of the plaintiffs was affixed in the presence of their Director and their Secretary.

By Clause 5 of the said Agreement as soon as the Developers obtained issued documents of titles to the two lots of land then:

(a) the Developers shall execute a memorandum of transfer of the said land to the Purchaser AND simultaneously

(b) the Purchaser shall execute a memorandum of charge on the said land in favour of the Financier (the plaintiffs) as security for the repayment of the loan of RM70,000 and for the interest on the said land.

On 15 August 1966 the defendants wrote to the plaintiffs a letter (AB12) in which they enclosed a duly registered copy of the said agreement and stated, inter alia, that as soon as the issued document of title is ready, they would prepare ... a memorandum of charge to be executed by the Penghulu in favour of the plaintiffs.

The question that arises is whether there was a contract between the plaintiffs and the defendants whereby the defendants undertook to prepare the memorandum of charge and have it duly executed in favour of the plaintiffs.

It is noted that a retainer to prepare an Agreement is distinct from a retainer to prepare a memorandum of charge.

The Agreement by itself does not clearly establish that the retainer came into existence upon its execution.

However, the terms of the letter AB12 was written subsequent to the Agreement and made express reference to the Agreement. The reference in para. 2 of the said letter appears to be a representation by the defendants as to what they undertake to do upon the issue of the document of title. This letter only makes sense when read together with the Agreement and appears to be explicable only if the defendants were obliged by the terms of the retainer to carry through the preparation of the memorandum of charge as envisaged by Clause 5 of the Agreement.

Further, the letter AB12 could be evidence of subsequent conduct showing a course of dealings. Such course of dealings may give rise to legal obligations. The principle was stated by Lord Denning in Amalgamated Investment v. Texas Commerce International Bank Ltd. [1981] 3 All ER 577:

Although subsequent conduct cannot be used for the purpose of interpreting a contract retrospectively, yet it is often convincing evidence of a course of dealing after it. There are many cases to show that a course of dealing may give rise to legal obligations.

(p. 583 h).

If parties to a contract, by their course of dealing, put a particular interpretation on the terms of it, on the faith of which each of them to the knowledge of the other acts and conducts their mutual affairs, they are bound by that interpretation just as if they had written it down as being a variation of the contract. There is no need to inquire whether their particular interpretation is correct or not, or whether they were mistaken or not, or whether they had in mind the original terms or not. Suffice it that they have, by the course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it. (p. 584 a).

PW1 in his evidence said that he took it that "everything would be alright" and "my interests are protected". (Notes of evidence p. 5), and "I would not have paid the RM69,600 if not for this letter" (Notes of Evidence p. 12).

The conclusion can therefo