JUDGMENT

Lee Hun Hoe CJ (Borneo):

We allowed the appeal and stated we would give reasons later. We do so now. The only issue is the question whether the learned Judge was right to stay the creditor's petition against the respondent.

On 21 May 1979 the respondent Esah binti Abdul Ghani became a guarantor (the surety) for a loan of RM16,000 granted by the appellant Bank Bumiputra Malaysia Bhd. (the bank) to Mohd. Yusoff bin Haji Ibrahim (the principal debtor). As security the bank also held a charge over two properties EMR 877 Lot 937 and EMR 878 Lot 939 in Luit, Pekan belonging to the principal debtor and two others, namely Alias bin Haji Ibrahim and Rokiah binti Haji Ibrahim. The two pieces of land were valued at RM21,500 on 4 January 1979. The principal debtor failed to pay the loan. On 20 August 1980 the bank took foreclosure proceedings on the land but before the issuance of an order of sale one of the owners died. So foreclosure was not proceeded with. Instead, the bank took out a writ against the principal debtor and the surety. On 14 October 1983 judgment was entered against both. On 7 April 1984 based on the said judgment, a bankruptcy notice was issued calling on the surety to pay the amount owing. The surety failed to do so. On 11 August 1984 the bank filed a creditor's petition. On 27 October 1984 the surety filed a notice of intention to oppose the petition, that is, to prevent a receiving order being made against her. The learned Judge stayed the creditor's petition pending the decision of the petition against the principal debtor. Hence, the appeal.

Just because the bank did not proceed with the foreclosure proceedings on the death of one of the owners but by going after the surety, the learned Judge castigated the bank for adopting such method which he considered to amount to an extortion. At p. 20 of the appeal record he said:

... To my mind such method albeit may be legal, may amount to an abuse of the process of the Court. Furthermore, as conceded by the Counsel for the bank, the bank had also issued a bankruptcy notice to the principal debtor. By virtue of this the bank has two avenues to proceed and recover its money. In the final analysis, this petition against the respondent may turn out to be a useless piece of litigation.

It must be pointed out that we are not concerned with moral but legal problem. The bank has obtained a proper judgment against the surety and is entitled to enforce the judgment. The bank elected to do so under O. 45 r. 1(d) of the Rules of the High Court 1980 which judgment may be enforced by "the appointment of a receiver". Further, as Fry J in Lloyds v. Harper [1880] 16 Ch D 290 stated:

A guarantee, like every other contract, must be construed reasonably; it must be construed by the words used but also with regard to the surrounding circumstances.

In this country letters of guarantee seem to be the most common and popular documents used by the banks despite the fact that a guarantor may turn out to be just as unreliable as the principal debtor. Nevertheless, the bankers appear to be quite satisfied with such a document which enables them to proceed with both the principal debtor and the guarantor. Sometimes one wonders if a guarantor realises his responsibility when he gives his guarantee. He can be called to pay the debt of the principal debtor - a debt which in most cases he is in no way responsible. Therefore, it is quite understandable that he is invariably reluctant to pay the debt of another and will deny liability on the flimsiest ground.

The letter of guarantee in this case is clear. Paragraph 3 states that the guarantee shall be without prejudice to and shall not be effected nor shall the surety be released or exonerated, inter alia, by way of the following matters:

(a) Any securities negotiable or otherwise including other guarantees which the bank may then or any time thereafter hold from the principal debtor or any other person or persons in respect of any money thereby g