Mohd Noor Abdullah J:

This is an action by the plaintiff bank against Tan Chong Keat and Khaw Siew Suan as guarantors in Civil Action No. 22-110-1988 and against Huat Tatt Sdn. Bhd. as principal borrower in Civil Action No. 22-142-1989. Both actions are consolidated and heard together.

The Agreed Facts

The plaintiff offered and the principal borrower accepted an overdraft of RM100,000, letter of credit for RM500,000 and a letter of guarantee for RM50,000 totalling RM650,000. The above facilities were secured by a joint and several guarantees executed by the guarantors and also by a third party charge of a piece of land belonging to Castle Hill Sdn. Bhd. Subsequently the plaintiff gave additional facilities amounting to RM2.95 million which was later reduced to RM1.95 million. The whole amount was released by the plaintiff but the defendants' failed to repay the loan.

As at 31 January 1994 the borrowers and guarantors owed plaintiff RM2,492,850.55. From this amount the plaintiff wrote off RM1,254,196.92 leaving a balance outstanding of RM1,213,000. A further sum of RM1,218,000 being the proceeds of sale of the charged property was deducted, leaving an outstanding balance of RM61,187.39 which sum was also written off by the plaintiff. The defendants' conceded that if at all any amount was due to the plaintiff, it was only for RM61,187.39.

The Agreed Issue For Determination

The parties agreed that the sole issue for determination by this court is whether in law the plaintiff is entitled to recover from the defendants both the written off amounts of RM1,254,196.92 and RM61,187.39. My answer to the above question is in the affirmative and I accordingly give judgment for the plaintiff for the above amounts plus interest and costs.

The following facts are highlighted to present the whole picture in its correct and true perspective. By a letter dated 11 November 1996 the borrower's auditors wrote to the plaintiff requesting for the balance of all accounts of the borrower "at the close of business on December 31, 1994 and 1995".

The plaintiff replied by letter dated 4 March 1997 stating:

As at 31 December 1994 - RM145,829.99 DR [and in words] in debit.

As at 31 December 1995 - NIL

On 9 September 2000, the plaintiff's solicitors wrote to the guarantor's solicitors expressing the plaintiff's "regret that the letter dated 4 March 1997 issued by them was a mistake and should not be construed to mean that the debt under the judgement of 22 January 1996 had been extinguished and/or that there was an accord or satisfaction." The guarantor's solicitor replied by letter dated 9 August 2000 disagreeing that "the letter dated 4 March 1997 was issued by mistake" and that the plaintiff is estopped from asserting that there is a debt due.

Having focussed my sight to the whole picture in its correct and true perspective, I must first and foremost understand the meaning of a "write off".

In Spicer and Pegler's Book-Keeping and Accounts(16th edn.) by W.W. Bigg, H.A.R.J. Wilson and A.E. Langton, it is explained that:

when a debt is found to be irrecoverable, it should be written off as a loss by means of a journal entry debiting Bad Debts Account and crediting the amount of the defaulting debtor. At the end of the accounting period the Bad Debts Account is closed by transfer to the Profit and Loss Account. Should a debt which has been written off as bad be subsequently recovered, in whole or in part, the debtor's personal account should be debited and Bad Debts Account credited, the cash received then being credited to the debtor's account.

It is observed that the bad debt is deemed irrecoverable but it is not extinguished and the bad debt may subsequently be recovered fully or partly.

In Re Darker v. Secretary of Department of Social Security [1987] 14 ALD 545, the tribunal explained the effect of a decision to write off a debt as follows:

Generally the writing-off of a debt is a matter of accounting and does not affect the rights and obligati