Abdul Malik Ishak JCA (delivering judgment of the court)

THE PARTIES

I shall, for convenience, refer the parties in the following manner. Arab-Malaysian Finance Bhd will be referred to as the plaintiff, while Razshah Enterprise Sdn Bhd will be referred to as the defendant guarantor.

The plaintiff was, at all material times, a licensed finance company incorporated in Malaysia and presently it goes by the name of Am-Finance Bhd.

The defendant guarantor is a company incorporated in Malaysia and it is the registered proprietor of fifty-three (53) pieces of land held under qualified title deeds HS(D) 6975/81 to 7027/81 Lot No PT 37692 to Lot No PT 37744 — all in the Mukim of Ulu Kinta, Perak (‘the said lands’).

FACTS OF THE CASE

By way of a loan agreement dated 6 July 1983 (see pp 62–74 of the additional appeal record (‘AAR’)), the plaintiff agreed to grant a term loan of RM2.4m (‘the loan’) to Wan Mokhtar bin Wan Endut (‘the borrower’) upon the terms and conditions stipulated therein. The borrower was one of the directors of the defendant guarantor.

On 16 June 1983, the defendant as a guarantor executed a first legal charge over the said lands in favour of the plaintiff in order to secure repayment of the loan and interest thereon together with all other sums and moneys that may become payable by the borrower under the said charge. It was on 7 July 1983 that the said charge was registered at the Registry of Titles, Perak vide charge presentation No 17080/83, Jilid 1508, Folio 38 (‘the said charge’).

After the said charge was duly registered, the plaintiff proceeded to disburse the loan of RM2.4m to the borrower. This was on 8 July 1983.

The borrower was obliged, under the terms of the said loan, to service the monthly interest payments and was required to repay the principal in one lump sum within two (2) years from the date of the drawdown — and that would be by 8 July 1985.

It was averred that the borrower had defaulted and was indebted to the plaintiff in a sum in excess of RM2.7m as principal and interest on or about 8 July 1985. Calculation wise, the borrower had only paid to the plaintiff the sums of:

(a)RM30,000 on 7 December 1984;

(b)RM60,000 on 6 April 1985; and

(c)RM25,000 on 21 May 1985.

By letter dated 7 October 1985, the plaintiff agreed to re structure the repayment of the principal sum upon the request of the borrower. The revised terms were subject to the borrower updating all the interests outstanding as at that date and that would be in the sum of RM380,199.90.

Unfortunately, the borrower did not comply with the obligations as contained in the plaintiff’s letter to him dated 7 October 1985. With this non-compliance, the arrangement contained in the letter lapsed and it became unenforceable.

By letter dated 12 May 1986 addressed to the borrower and the defendant guarantor, the plaintiff through its then solicitors demanded payment of the balance outstanding and that came to RM3,215,129.18 calculated as at 18 March 1986.

The following payments were then received by the plaintiff which were paid into the borrower’s account on the relevant dates:

(a)31 October 1986 for RM100,000.

(b)6 November 1986 for RM200,000.

(c)25 November 1986 for RM300,000.

(d)15 December 1986 for RM150,000.

(e)24 December 1986 for RM500,000.

(f)2 January 1987 for RM300,000.

(g)28 February 1987 for RM150,000.

(h)30 March 1987 for RM150,000.

(i)26 May 1987 for RM250,000.

(j)15 June 1987 for RM200,000.

The borrower requested to extend the repayment due date of the principal outstanding and the plaintiff by letter dated 10 July 1987 agreed to the borrower’s request. The revised terms were expressly subject to the borrower updating all the outstanding interests which came up to RM219,734.39 based on the principal outstanding sum of RM1,169,734.39.

By the same letter dated 10 July 1987, the plaintiff also gave notice to the borrower in regard to the following changes:

(a)that the interest rate (‘the prescribed rate’) has been reduced from 15%pa on monthly rests to 4½ %pa above