JUDGMENT

Hashim Yeop Sani SCJ:

The respondent is a bank which operates a branch at No. 19, Jalan Melaka, Kuala Lumpur (hereinafter referred to as the "Bank") where a company known as Quality Tractors (M) Sendirian Berhad (hereinafter referred to as the "company") was a customer. At the date of trial all the appellants, save the 6th appellant, were directors of the company.

Sometime in May 1975 the company through the second appellant as the Managing Director applied to the Bank for overdraft facilities. Negotiations were held between the parties which resulted in the following banking facilities made available to the company:

Facilities Limits

1. Foreign Documentary Letters of Credit RM500,000

2. Shipping Guarantees & Trust Receipts RM350,000

3. Cash Credit (Overdraft) RM 80,000

4. Letters of Guarantee in favour of Government departments RM 25,000

5. Inland Cheques Purchased RM 25,000

Subsequently, the company executed a debenture dated 28 October 1975 in the sum of RM430,000. The 1st, 2nd and 6th appellants executed a guarantee in the sum of RM430,00 on 14 October 1975. This guarantee is known at the trial as the First Guarantee which however has no direct importance to this appeal.

About two years after the execution of the first guarantee and debenture the company executed a further debenture in the sum of RM1 million on 12 September 1977. All the appellants also executed a guarantee for the same amount on various dates between 25 August 1977 and 22 September 1977. This guarantee is known as the Second Guarantee which is the subject of this appeal.

The Bank has elected to rely on its claim under the Second Guarantee and the sole issue apparently was whether there was a valid consideration for that guarantee. However, looking at the arguments here and below the issue would seem to have been crystallised or narrowed down further to whether on the evidence there was a request for forbearance expressed or implied and whether there was forbearance in fact.

The first principle to apply in considering a written guarantee is as stated in Yang Chin Lang V. Tan Chong & Sons Motor Co. Ltd. [1968] following Lloyds v. Harper [1880] 16 Ch D 290 that a guarantee must be construed reasonably having regard to the surrounding circumstances.

It is not in dispute that the account of the company with the Bank had not been maintained satisfactorily. The amount outstanding as at February 1977 was RM969,994.46 and this exceeded the authorised limit by about RM40,000 (p. 105). The Bank could have sued the company then and at the same time could have foreclosed on the company under the first debenture. The remedy was certainly open to the Bank at that stage to do so. But events took a different course. There was an exchange of letters. George Daniel (PW1), the manager of the Bank at that time said at p. 26:

When the bank's solicitor made a demand on the company, the company made a number of proposals. They said they were restructuring the company. Both the Directors and the Executive wanted forbearance from the Bank. In addition to that they suggested that they would like to go to another bank to get a better credit facilities. Hence, we did give them some time for them to negotiate and get approval about these facilities from the decision of the bank. They wanted to borrow from this new bank to pay us. We agreed to the proposals made.

At the negotiation they proposed to open another account because the first Current Account was already overdrawn. They suggested that another account be opened called Account No.2.

On the opening of the second account PW1 said in evidence at p. 78:

When in response to request for an extension of time after some negotiations I allow the company to open the second account.

(emphasis provided)

PW1 admitted however that when his bank agreed to the No. 2 account the bank did ask for another additional securities. But I think that is not the crux of the issue here.

Certain other vital documents speak for themselves. In a letter (at p. 208) the