IN THE HIGH COURT OF MALAYA AT JOHOR BAHRU
IN THE STATE OF JOHOR DARUL TA’ZIM
[CIVIL SUIT NO. 22-178-2007]
BETWEEN
YAP CHEONG LEONG ... Plaintiff
(I/C NO: 670911-01-6181)
AND
YUNAZRY BIN DAMANHURI ... Defendant
(I/C NO: 800530-01 -6081)
CONTRACT: Validity - Friendly loan agreement - Whether plaintiff
and defendant entered into a friendly loan agreement - Assertion that
defendant unaware of or misled as to the contents of the agreement or
did not understand them - Whether plea of fraud or non est factum
substantiated - Whether agreement valid and enforceable
CONTRACT: Breach - Friendly loan agreement - Whether defendant
defaulted in payment and was in breach of contract
[Plaintiff’s claim allowed with costs.]
Case(s) referred to:
Aik Meng (M) Sdn Bhd v. Chang Ching Chuen [1995] 3 CLJ 639 (refd)
Asia Hotel Sdn Bhd v. Malayan Insurance (M) Sdn Bhd [1992] 2 MLJ
615 (dist)
Lam Eng Rubber Factory (M) Sdn Bhd v. Lim Beng Yew & Ors [1994]
3 MLJ (dist)
Lau Hee Teah v. Hargill Engineering Sdn Bhd & Anor [1980] 1 MLJ
145 (refd)
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Polygram Records Sdn Bhd v. The Search [1994] 3 MLJ 127 (refd)
Wan Salimah bt Wan Jaafar v. Mahmood bin Omar (Anim bt Abdul
Aziz, Intervener) [1998] 5 MLJ 163 (refd)
Wong Swee Chin v. PP [1981] 1 MLJ 213 (refd)
Legislation referred to:
Evidence Act 1950, ss. 102, 103, 114(g)
Other source(s) referred to:
Sarkar on Evidence, 15 t h Edn, p 1451
JUDGMENT
GUNALAN A/L MUNIANDY, JC:
[1] This is a simple claim based on a friendly loan agreement
entered into between the Plaintiff (‘P’) as the lender and the
Defendant (‘D’) as borrower for a sum of RM500,000.00 without
interest.
[2] Upon D’s failure to repay the sum borrowed or any part thereof,
P brought this suit for breach of contract. D denied entering into any
loan agreement with P but alleged instead that the sum of money
received was for sale of shares belonging to him to P.
Plaintiffs Case
[3] Both parties were individuals who had a business
relationship. According to P, vide a friendly loan agreement (FLA) he
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agreed to offer a loan of RM500,000.00 to D at the latter’s request
subject to the terms and conditions stipulated therein. An important
condition of the FLA was that the loan which was interest fee was
repayable on demand upon a notice in writing. In the event of failure
to repay, P was entitled to demand full repayment of the principal
and/or the outstanding balance with interest. D was in breach of
contract when despite a notice of demand dated 19.01.2007 issued
by Plaintiff’s solicitors to him, he failed to repay the total balance of
RM500,000.00 till to date.
Defendant’s Case
[4] D is not aware of any FLA with P and did not execute any
agreement of this kind. He merely entered into a sales and purchase
agreement of sale of his portion of shares in the company known as
Kencana Tegas Holdings Sdn. Bhd. (‘KTH’) to P. He thereby sold a 30%
portion of his shares in KTH to P at an agreed price of RM600,000.00.
KTH was a company established by himself together with a partner,
Pang Fok Choy (‘PFC’) in August 2003. It was PFC who introduced P
to him for the purpose of investing in KTH and injecting capital into it.
P was not a director as yet. However, in Nov. 2008, P purchased a
portion of D’s shareholding in KTH whereupon D resigned as
director and P took control of the company since then as director.
Issues for Determination
[5] (1) Whether the Plaintiff and Defendant entered into a
friendly loan agreement dated 29.11.2005. If so,
whether the said agreement is valid and enforceable?
(2) Whether the Defendant had defaulted payment under the
said friendly loan agreement and therefore, was in breach
of contract?
Analysis of Evidence and Facts
[6] P produced sufficient and substantial evidence attesting to both
parties having entered into and executed the FLA willingly and
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voluntarily at the office of the legal firm which had prepared the
agreement. This was done through testimonies from himself, his wife
(PW2) who happened to be present and the solicitor himself (PW3) who
had attested the FLA as witness for both parties.
[7] The material parts of PW1’s evidence are these. D was a
former director of KTH who requested from him (P) a loan of
RM500,000.00 to enable D to purchase shares in KTH. Upon the FLA
being executed, payment to D was made vide 2 cheques dated
23.11.2005 . By letter dated 19.01.2007 , receipt of which was
acknowledged by D, he instructed D to repay the outstanding sum of
RM500,000.00 but there was no response. This prompted him to file
this suit against D through his solicitors.
[8] PW2, in confirming PW1‘s version, said that execution of the
FLA by both parties was done voluntarily at the legal firm of M/S Tam
Cheng Yau & Co. This was a cordial meeting in the presence of
several persons apart from P and D who included one Ong Chong
Keong and the Pang brothers. D did not object to any clause in the
agreement. Neither was any party forced or pressured into signing it.
[9] Most crucial in this case pertaining to the challenge raised by
D to the validity of the FLA was the material evidence of the solicitor
from the above firm (PW3) who prepared it and attended to its
execution.
[10] PW3 who had been in legal practice for more than 13 years,
had this to say regarding this case. Both P and D came together to
see him in the matter of the loan agreement [ Exhibit P1 ]. They
were not known to him previously and consulted him for the sole
purpose of preparing a FLA without any interest. The agreement he
drafted was Exhibit P1 in which he attested the signatures of both
signatories. Before doing so, he went through Exhibit P1 with both of
them and explained to them its nature and contents. Neither party
objected to any clause in Exhibit P1. Nor were any of the parties
pr essur ed i nt o execut i ng t he agr ee ment whi ch was dut y st a mp ed.
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The persons present at that time were the persons mentioned by
PW2.
[11] Against the backdrop of the above evidence presented by P,
it is important to note the extent and nature of the challenge put forth
by the defence. This is how the cross-examination against P’s
evidence went. PW3’s evidence, which was the most crucial
pertaining the allegations of forgery and cheating made by D was not
challenged or contradicted on material facts pleaded in the defence.
There was no suggestion made to him that the agreement which he
had prepared and witnessed was in fact not a FLA but for sale and
purchase of KTH shares between PW1 and DW1. Neither that DW1
did not know or understand the contents of Exhibit P1 and that these
had not been explained to him. Nor that the loan sum had not been
paid to DW1 by way of cheques upon execution of P1. In short, PW3
was not confronted with the thrust of the defence raised to enable him
to provide an explanation. The matters adverted to are crucial to the
defence and ought to have been properly raised during the Plaintiff’s
case in the course of PW3’s testimony. Merely introducing the same for
the first time during the defence case rendered their evidential value
negligible for not having been subjected to the curial test. Moreover,
the evidence in question could be regarded as an afterthought and thus,
in all likelihood, untruthful.
[12] As regards the evidence of PW1, he was only challenged as per
the pleaded defence, that the money claimed to be a loan and
released to DW1 was not a loan but the price of DW1’s shareholding
in KTH that PW1 purchased. No facts in support of the suggestion
was put to PW2. More importantly, his evidence that both parties had
signed the agreement freely and voluntarily before PW3 and that
PW3 had explained the terms and conditions to them was not
contradicted. A similar situation prevailed in respect of the evidence
given by PW2, the material parts of whose testimony fully supported
the present claim and contradicted the defence case that DW1 was
coerced and misled into signing the agreement.
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[13] In support of the defence case, there was only the evidence
of D (DW1) himself, which, on the whole appeared to be self-serving
and wholly lacked credibility. According to DW1, P was once his
business partner whom he had come to know through introduction by
his partner in KTH, one Pang Fok Choy (‘PFC’) in 2003. The
business of KTH was as an authorised distributor/dealer of Proton
cars. Originally, in 2003, the joint shareholders and directors were
himself and PFC who had to subsequently resign in Oct. 2003 as
Proton Edar Sdn. Bhd. (‘PE’) required the company to have 100%
Bumiputera equity. He was replaced by D’s wife, Fauziah. As
dir ect or s, D and F auzi ah r ai sed t he pai d- up capi t al of KT H t o
RM 1,000,000.00 wherein each had a 50% shareholding. In July
2004, he sold all his shares in KTH to P for a sum of RM600,000.00
which included proxy payment for retaining his name in KTH as P
intended to continue with the Proton Edar dealership. He maintained
having disposed of his entire share ownership in KTH to D for which
P paid him the above sum on 23.11.2005 (date of FLA) vide 2
cheques valued at RM450,000.00 and RM 150,000.00. Payment was
a year after the purported transfer because P wanted confirmation of
the PE dealership. Thereafter, he did not have any further interest in
KTH.
[14] DW1’s evidence that he had wholly divested his shareholding
in KTH by the above sale to P, in respect of which he went to the
solicitor (PW3)’s office for the transaction to be executed, was
proven to be absolutely false. This came about when he was
confronted with the relevant documentary evidence in the form of a
company (‘SSM’) search on KTH which proved beyond doubt that he
still owned 500,000 shares in KTH none of which had been
transferred to PW1 or anyone else DW1 had no answer to this piece
of evidence adverse to his case except to say that the sale
documents were processed at the solicitor’s office. The sum of
RM600,000.00 paid by PW1 to him was the purchase price and this is
why it was not RM500,000.00 as per the FLA. Defence counsel
(‘D/C’)’s contention was that the conflict between the loan sum in the
FLA and the sum actually paid by PW1 was incontrovertible evidence
in support of the defence case. Plaintiff’s counsel (‘P/C’), on the
other hand, argued that the difference in the two amounts did not
significantly affect the veracity of PW1’s version as no adverse
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inference could be drawn from a claim being made for a lesser sum
than the sum actually paid. This argument was, in my view, not
untenable and could be appreciated considering the erstwhile
business relationship between these 2 persons as partners. Equally
important, PW1’s version was not challenged from the point of the
said conflict in amount.
[15] In connection with the above issue, it would be pertinent to
note the unchallenged evidence of PW3 under cross-examination
relating to the purchase of shares. PW3 testified that he only
prepared the FLA (Exhibit P1 ) as instructed and nothing else while
the company secretary of KTH who was present, one Ong Cheng
Heong, prepared documentation for transfer of KTH shares from P to
D , the value of which he did not know. This evidence that tallied with
the company search was uncontroverted and seemed to be accepted
by the defence. No suggestion whatsoever was put to PW3 that P1
was not a pure loan agreement but a sale and purchase agreement
of KTH shares. Similarly, the evidence that the documentation was
for transfer of the shares from P to D and not the other way round
remained uncontradicted and must be deemed to be accepted as
true. It is settled law that where the evidence of one party on material
and essential facts is not challenged by the opposing party in cross-
examination, the evidence is deemed to be accepted by the latter as
the truth on those facts. [Wong Swee Chin v. P.P [1981] 1 MLJ 213.]
[16] It is also imperative that a party’s pleaded case be put to his
opponent’s material witness in the course of cross-examination. This
principle applies equally to criminal as well as civil trials. [ Aik Meng (M)
Sdn. Bhd v. Chang Ching Chuen [1995] 3 CLJ 639].
[17] In submitting that a conflict also arose between the evidence
of the sum paid to DW1 (RM600,000.00) and the pleadings
(Statement of Claim) that averred that the friendly loan was for
RM500,000.00 only. D/C referred to a series of authorities on
established principles of pleadings. Amongst others was Lam Eng
Rubber Factory (M) Sdn. Bhd. v. Lim Beng Yew & Ors [1994] 3 MLJ
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405 where the learned judge, KC Vohrah, J (as he then was), held,
based on plaintiff’s evidence, that:
“As these facts were materially different from the facts
averred to in the statement of claim, the claim of the plaintiff
should be dismissed. ”.
As regards the principle applicable to conflict between pleadings and
evidence, the learned judge said [at p. 412]:
“As was pointed out in Supreme Court Practice 1991 at p 281
relating to O 18 r. 7 (in pari material with O. 18 r. 7 Rules of
the High Court 1980) as regards the need to plead all
material facts :
Where the evidence at the trial establishes facts different
from those pleaded by the plaintiff as constituting
negligence, which are not just a variation, modification or
development of what has been alleged but which
constitute a radical departure from the case as pleaded,
the action will be dismissed (Waghorn v. George Wimpey
& Co. Ltd [1969] 1 WLR 1764; [1970] 1 All ER 474).
It was further pointed out:
Moreover, if the plaintiff succeeds on findings of facts not
pleaded by him, the judgment will not be allowed to stand,
and the Court of Appeal will either dismiss the action
(Pawding v. London Brick Co [1971] 4 KIR 207) or in a
proper case will if necessary order a new trial (Llovde v.
West Midlands Gas Board [1971] 1 WLR 749; [1971] 2 All
ER 1240, CA).”.
[18] I held the above submission of the Plaintiff’s evidence in this case
being materially different from the facts averred to in the SOC to be
erroneous and misconceived. This was because PW1 never said in
evidence that the loan, the subject matter of this claim, was for
RM600,00.00 while not denying that he had paid this sum to DW1 as
evidenced by the cheques [ Exhibit P8A1B ]. The clai m was b a s e d
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on Exhibit P1 [FLA] and not the amount received by PW1. The fact of
a bigger sum having been advanced to DW1 from the amount
claimed did not conflict with the SOC as the averment that the loan
was for RM500,000.00 was consistent with the evidence of P that
RM500,000.00 only was advanced towards the loan. The situation in
Lam Eng Rubber Factory (supra) , where the decision turned on its
own facts was far different from the instant case where all material
facts borne out by the evidence relating to the pleaded claim had
been sufficiently pleaded.
[19] Similarly, the decision in the case of Asia Hotel Sdn. Bhd v.
Malayan Insurance (M) Sdn. Bhd [1992] 2 MLJ 615 too, which
concerned failure to plead material facts relied on to establish the
claim, was irrelevant to this case where a failure of this nature did not
occur. In that case, it was held (Per Richard Tallala, J):
“Although O. 18 r. 14(1) of the Rules of the High Court 1980
provided for an implied joinder of issue on the failure to file a
reply to the defence, it is axiomatic that pleadings operate to
define and delimit with clarity and precision the real matters
in controversy between the parties upon which they can
prepare and present their respective cases and upon which
the court will be called upon to adjudicate between them. As
the plaintiffs sought to rely on s. 44A of the Insurance Act
1963 to impute the agent’s knowledge onto the defendants ,
it was imperative that all the material facts on which the
plaintiffs were relying on to establish their case should have
been pleaded.”.
[20] Of i mportance was the response of DW1 on being
challenged in cross- examination that his version was false and
baseless. He did not even seriously dispute signing P1 in the
presence of DW3 as a witness and that DW3 had explained its
contents to hi m. He merely said he could not recall whether he
signed PL This was far different from his pleaded defence that the
agreement entered into, even if it existed, which was amply shown by
P, was induced by cheating and misrepresentation. Neither of this
allegations was supported by any evidence whereas the onus of
proof was borne by D [S. 103, Evidence Act]. It is trite law t h a t a
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higher standard of proof in imposed when allegations of a criminal
nature such as fraud are made in a civil suit. [ Lau Hee Teah v.
Hargill Engineering Sdn. Bhd. & Anor [1980] 1 MLJ 145 at p. 149].
Merely producing a police report lodged on the eve of the trial was
hardly of any purpose. It smacked of afterthought as this case had
been pending since year 2007. DW1’s explanation for this belated
making of the report was nowhere hear being credible and
acceptable. The allegations made, to say the least, were serious.
[21] D/C in his submissions went extensively on the agreement
being to purchase shares despite there being no evidence
whatsoever to prove the existence of such an agreement. This was
in fact the thrust of DW1‘s evidence raised at the defence stage that
he had only signed an agreement to sell shares to PW1, which he
failed to produce. DW1’s assertion was clearly negated by the
neutral evidence produced by P - the SSM search - which proved
that the shares allegedly sold to PW1 remained securely in DW1’s
ownership .
[22] D/C also sought to invoke s. 114 (g) of the Evidence Act,
1950 for an adverse inference to be drawn against P for failure to call
material witnesses to prove that Exhibit P1 was for a loan to purchase
shares. This contention was, in my view, beyond comprehension and
wholly devoid of merit as the contract itself by clause, explicitly
stipulated that the loan was to be used to purchase shares. To argue
that a party to a contract claiming for breach has to prove the purpose
of a payment that is clearly found in the purpose itself would be an
absurd proposition. The obligation to use the loan for share purchase
was placed on D and to now fault the non-defaulting party for not
proving that D had in fact done so would surely be against the
intention and spirit of the contract. There was no onus on P to prove
anything further upon having adduced prima-facie evidence of breach
of contract by D in not repaying the loan granted to him interest free.
S. 114 (g) can only be invoked, in the circumstances of this claim, for
failure to produce material and essential witnesses necessary to
establish the claim, whose absence would leave a gap in the
Plaintiff’s case. A situation of this kind certainly did not arise in this
case. Merely because a company secretary (C/S) was present
during the execution of the agreement before PW3 to process s h a r e
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documents did not mean that the former was a material witness who
had to be called in this case. Agreement P1, which was under the
purview of PW3 alone, was unrelated to the share transaction being
handled by the C/S. It was D1 who was asserting the existence of
particular facts to contradict or qualify the terms of a valid contract
and as such, the onus would, in law, be on him to prove their
existence [s. 103. Evidence Act]. These was no onus placed on
PW1 to rebut the existence of facts unrelated to his claim. If at all s.
114 (g) could be invoked, it should be done so against D for failing to
call witnesses to establish his defence concerning the alleged share
sale to P.
Validity of The Contract
[23] D’s allegations of cheating and misrepresentation have been
dealt with. Suffice to say that specific particulars of these allegations
are not set out in the SOC, such as the person or persons
responsible and how or where the incidents occurred. Neither were
the allegations directed at Plaintiff or his agents. More importantly,
no evidence whatsoever was adduced to prove these allegations, the
onus of proving which was borne by D. As rightly argued by P/C, D
seemed to have deviated from his pleaded case and focused on
issues not raised in the defence. In the instant case, what D was
alleging was that the contract that he had entered into as produced in
court was materially different from that which he had intended to
enter into as he had been misled as to its nature and contents. This
is akin to a plea of non-est factum which had not been pleaded. Even
if it had been pleaded, there was hardly any likelihood of D
succeeding on the plea as the weight of evidence was in favour of
him knowingly, willingly and voluntarily having signed the simple FLA
and being fully aware of its implications. The evidence of PW3 that
the clauses of P1 had been explained to DW1 and that he was asked
whether he required a second legal opinion was unchallenged.
[24] It is trite law that parties who, under normal circumstances,
enter into a written contract are bound by its terms. The exceptions
are fraud, undue influence, misrepresentation or non-est factum. In
Polygram Records Sdn. Bhd. v. The Search [1994] 3 MLJ 127, Visu
Sinnadurai, J. held, inter-alia, that:
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“The other argument of the defendants that the first contract,
though executed by them, is not binding on them since they
did not ‘agree to the terms’ can be dismissed summarily.
There is no principle of law which states that where a party
does not fully understand certain terms of a contract, the
contract may be vitiated. The general principle of law, of
course, is that a party who signs a written contract is bound
by the terms of the contract, except in the limited cases
where fraud, undue influence, or misrepresentation may be
established. This rule is so strict that even if a party to a
contract has not read the contents of a contract, he is held to
be bound by its items. In the leading case of L’Estrange v. G
Graucob [1934] 2 KB 394, Scrutton LJ pronounced (at p
403):
When a document containing contractual terms is signed,
then, in the absence of fraud, or, I will add,
misrepresentation, the party signing it is bound, and it is
wholly immaterial whether he has read the document or
not.
One exceptional circumstance under which a party to a
written contract may seek to set it aside is on the grounds of
non est factum which by itself is usually difficult to establish .
Non est factum , has not been pleaded in the present case to
challenge the validity of the first contract, and even it had
been, I doubt very much whether the defendants would have
been successful in establishing it. From the evidence, the
defendants would not be in a position to establish that the
contract entered into by the defendants was ‘radically or
substantially or fundamentally’ different to that they had
intended to sign” see generally Chitty on Contract, General
Principles (26 t h Ed) at para 365.”.
[25] DW1 was in my view in a position worse than that of the
defendants in the above case as the evidence adduced was far from
being able to establish that P1 was “substantially or fundamentally”
different from the contract that he had intended to sign. In fact, the
opposite appeared to be true, that P1 was precisely the contract t h a t
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both parties had knowingly signed on proper legal advice as to its
terms and conditions.
[26] In Wan Salimah bt Wan Jaafar v. Mahmood bin Omar (Anim
bt Abdul Aziz, Intervener) [1998] 5 MLJ 163, the principle that parties
are bound by the terms of the contract that they sign was
emphasized. Abdul Malik Ishak, J (as he then was) said:
“It is trite law that when a party signs a contract knowing it to
be a contract which governs the relations between them, then
in the absence of fraud or misrepresentation, the party
signing it is bound, and it is wholly immaterial whether he
has r ead t he docu ment or not . T he defence of non- est
factum would normally be raised by one who could not read
whether through sheer blindness or actual illiteracy in regard
to a claim based on a promise made under seal.”.
[27] The evidence in the present case disclosed that DW1’s
assertion that he was unaware of or misled as to the contents of the
agreement or did not understand them to be completely untrue.
There was no evidence to support the allegation of fraud or that P
had falsely represented to him the nature and contents of the
agreement. Hence, the defence of non-est factum had to fail. The
contract P1 was valid and binding on both parties.
Decision
[28] Based on the above reasoning, I had no doubts whatsoever
that both parties had duly executed the stamped contract before a
solicitor knowing full well its contents, terms and conditions. It was,
thus, valid and enforceable, there being no exceptional grounds such
as fraud, misrepresentation or non-est factum for it to be rendered
voidable.
[29] P had done all that was necessary in establishing that the
contract (P1) was in existence. Sufficient prima-facie evidence was
adduced, so that the onus shifted to D to prove his defence that P 1
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was invalid and unenforceable based on the grounds pleaded. It was
not for P to disprove the existence of these grounds as there was
enough evidence to maintain his claim on the pleaded cause of action
(s. 102, Evidence Act). The position under s. 102, Evidence Act is
explained in Sarkar on Evidence, 15 th Edn. at p. 1451:
“S. 102 makes it clear that the initial onus is always on the
plaintiff and if he discharges that onus and makes out a case
which entitles him to relief, the onus shifts on to the
defendant to prove those circumstances, if any, which would
disentitle the plaintiff to the same ( Basiruddin v. Sahebulla ,
32 CWN 160).
[30] D, in relying purely on his own oral evidence which was in
conflict with the undisputed documentary evidence, had manifestly
failed to discharge the onus of proving his defence, particularly that
the agreement that had been executed was a share sale agreement .
It was for DW1 to prove affirmatively the alleged agreement and not
for P to negative its existence. DW1’s evidence was, on the whole,
not credible and totally unconvincing, especially on the main issue in
dispute: that the payment by P to him was for purchase of his shares
by P. The documentary evidence introduced by P put this issue to
rest and rendered DW1’s evidence on this point false. DW1’s
evidence was, in totality, absolutely without basis and a concoction to
escape liability for a substantial sum owed to P under the FLA. In
conclusion, I found no doubt at all that the contract was valid and
enforceable against the defendant for failure to repay the loan. I,
therefore, allowed this claim with costs.
Dated: 30 MARCH 2011.
(GUNALAN MUNIANDY)
Judicial Commissioner
High Court
Johor Bahru.
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For the plaintiff - John Fernandez; M/s R Muthu & Co
Advocates & Solicitors
Johor Bahru.
For the defendant - Rosdi Amir; M/s JS Pillay & Mohd Haaziq
Advocates & Solicitors
Johor Bahru.
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