Article

Note: RHB Bank Bhd (Lender) granted banking facilities to Sierra Estates Sdn Bhd (Borrower) for the construction and completion of a residential housing project in Labuan, Malaysia. Lender approved Borrower for a total amount of RM 11 million, which included an overdraft facility of RM 1.6 million and a term loan of RM 3 million. Lender also granted Borrower additional banking facilities for a total of RM 4 million by issuing a bank guarantee in favor of Contractor which if honored would convert into another term loan.

Lender's Letter of Offer required Borrower to provide a duly executed and stamped Letter of Guarantee and Indemnity in favor of Lender. To fulfill that requirement, Borrower and an unnamed third party (Guarantor) executed a Letter of Guarantee and Indemnity. The preamble to the Letter of Guarantee and Indemnity stated that Borrower and Guarantor agreed to pay Lender "all sums of money which now are or at any time or times hereafter during the operation of this Guarantee and Indemnity may become due or owing or may be accruing or becoming due" (emphasis added). It also "expressly provided that [Borrower and Guarantor] jointly and severally guaranteed that they would pay on demand to [Lender]" monies due.

When Borrower defaulted in repayment of the overdraft and term loan facilities, Lender sued Borrower and Guarantor for repayment. The trial court decided that Guarantor was liable to Lender, but dismissed Lender's claim against Borrower. On appeal by Lender, the Court of Appeal, Abu Samah Nordin, Clement Skinner, & Aziah Ali JJCA, J.J., entered judgment against Borrower.

Upon examining the plain language of the Letter of Guarantee and Indemnity, the appellate court decided that the Letter of Guarantee and Indemnity was not limited to Lender's additional banking facilities and applied to the sums then outstanding on the overdraft and term loan facilities. Contrary to Borrower's argument that the Letter of Guarantee and Indemnity only applied to the additional banking facilities, "the Letter of Guarantee and Indemnity expressly provided that [Borrower and Guarantor] jointly and severally guaranteed that they would pay on demand to [Lender] not just monies that may be due and owing by [Borrower] to [Lender] subsequent to the date of execution of the said Letter of Guarantee and Indemnity but also monies 'which now are' due to [Lender]."

Text of Guarantee:

The Opinion included the following excerpt from the Guarantee:

"The preamble to the Letter of Guarantee and Indemnity clearly stated that the 1st and 2nd respondents jointly and severally agreed that, in consideration of the appellant 'opening or continuing an account with and making or continuing to make advances loans or otherwise giving credit or continuing to give credit or accommodation or granting forbearance' to the borrower, the 1st and 2nd respondents guaranteed to pay to the appellant on demand 'all sums of money which now are or at any time or times hereafter during the operation of this Guarantee and Indemnity may become due or owing or may be accruing or becoming due' to the appellant by the borrower or remain unpaid on the general balance of the borrower's account."

[PT]

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