JUDGMENT

Salleh Abas LP:

The issue in this appeal is whether a guarantee given by the respondents on 14 October 1975 to the appellants is valid. The respondents are a co-operative society registered under the Co-operative Societies Act 1948 - Revised 1983 as Act 287 - (the Act). By the said guarantee the respondents agreed to indemnify the appellants up to a sum of RM500,000 in the event of a certain company called Syarikat Pembinaan Azlin Sdn. Bhd. (Azlin) failing to perform its contract with the appellants. This contract was signed on 29 September 1975, i.e., about a fortnight before the guarantee.

Azlin failed to perform the contract, whereupon the appellants terminated the said contract and thereafter sued the respondents upon the guarantee. Razak J in the Court below held that the guarantee was not valid because the respondents' by-laws does not permit them to give any guarantee in favour of a non-member. Both the appellants and Azlin were not members of the respondents.

It is true that the by-law of the respondents does not allow the giving of this guarantee, but the by-law should not be the basis of determining the validity or otherwise of this guarantee since it is merely a