How a Guarantor Failed to Use A Police Report to Dispute his Signature
CCM Chemicals Sdn Bhd v Wan Muhammad Ibrisam Wan Ibrahim
This is a commentary on the case of CCM Chemicals Sdn Bhd v Wan Muhammad Ibrisam Wan Ibrahim as decided in the High Court of Malaya. The salient facts are; the Defendant, who is a Guarantor, had executed a guarantee and indemnity agreement with the Plaintiff for a Company named Ace Polymers Industries Bhd. The guarantee and indemnity agreement was made in consideration for the supply of goods by the Plaintiff to the Company. A credit facility agreement was also executed on the same day.
The Company was subsequently wound up and the Plaintiff filed a suit against it for which judgment in default of appearance was entered. A letter of demand was then sent to the Defendant along with the certificate of indebtedness. The Defendant failed to make payment and later claimed that its signature on the agreement had been forged for which a police report was lodged. The Plaintiff applied for summary judgment against the Defendant.
Judgment & Grounds
The Plaintiff’s application was allowed and the Court held that the Defendant’s claim of forgery failed to constitute a bona fide triable issue. The Defendant did not deny signing the credit facility agreement on the same day as the guarantee and indemnity agreement in his capacity as the managing director of the borrower company. Evidence had disclosed that the defendant was, at the material time, a shareholder of the holding company and hence, an indirect shareholder of the borrower company.
Furthermore, if the defendant was bona fide, he should have submitted his signature to the Chemistry Department for analysis. In addition, there were no further investigations made by the police regarding the report lodged for the forgery. As there were no contemporaneous documents in support, the allegation was only a sham defence and hence, the Defendant failed to raise a triable issue.
As described above, the Defendant is a guarantor, against whom the Plaintiff has a cause of action under the guarantee and indemnity agreement.
Nature and Scope of Guarantee and Indemnity Agreements
A guarantee is a contractual agreement which involves 3 parties. The lender enters into an agreement with the borrower or debtor while the guarantor is responsible for the obligations of the borrower to the lender. Guarantee agreements are typically made as a form of security in the event that the borrower-debtor defaults in his payments or fail to fulfil his obligations.
Guarantee agreements create a relationship where the borrower bears the primary liability while the secondary liability lies with the guarantor. In other words, the liability of the guarantor is contingent on the liability of the borrower towards the lender. The extent of the guarantor’s liability should be no greater or no less than the borrower’s liability. This is known as the principle of co-extensivity which is provided under s 81 Contracts Act 1950.
Since the liability of the guarantor can only arise if the liability of the borrower has been established, the guarantor loses his obligations once the borrower’s liability has been extinguished.
An indemnity is a promise by the indemnifier to compensate for losses suffered by the indemnified. An indemnity differs from a guarantee as the former places the primary liability or obligation on the indemnifier. The liability of the indemnifier arises once the indemnified has suffered losses.
A guarantee agreement may also include an indemnity as seen in this case. From a business perspective, it is more commercially advantageous to include both guarantee and indemnity in an agreement. A guarantee can be extinguished if the contract between the lender and borrower is discharged or rendered void, but the indemnity remains valid and guarantor can still be liable to compensate for the lender’s losses.
Allegation of Forgery in a Contractual Agreement
The pre-condition of every contract are the existence of offer, acceptance, intention to create legal relations and consideration. Contracts may be oral or in writing but they must fulfil those pre-conditions. Failure to do so, will result in the contract being deemed as void and unenforceable.
In addition, a contract must be entered into with the free consent of the parties as provided under s 10 Contracts Act 1950. Where a contract is not made with the free consent of the parties, due to undue influence, misrepresentation, or fraud, then it is liable to become voidable.
Forgery is the offence of falsifying documents or writings with the intent to defraud. It is a serious offence and carries both criminal penalties and civil liabilities. The effect of forging one’s signature on a contract is that the contract would be rendered null and void as forgery involves an element of fraud.
Summary Judgment Procedure
On the facts, there is a summary judgment application by the Plaintiff against the Defendant for the recovery of payment under the guarantee and indemnity agreement. A summary judgment application is a procedure typically resorted to when the Defendant does not have any defence to the claim against him. Hence, it is a cost-effective and efficient way to resolve disputes.
The applicant must comply with a number of requirements under Order 14 Rules of Court 2012. Failure to do so, would result in the application for summary judgment being dismissed. The Defendant can defend or show cause against the summary judgment application by raising triable issues, set-off, counter-claim, or showing some other reason that there ought to be a trial.
The facts of the case indicate that the Defendant raised forgery as his defence. Whether this would amount to a triable issue, would depend on whether it is an issue that ought to be tried. The issue may involve questions of fact or law. In the case of Bank Negara Malaysia v Mohd. Ismail, it was held that where an assertion, denial or dispute made by one party is equivocal, or lacking in precision or is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable in itself, then the judge is duty bound to rejection such assertion or denial, thus rendering the issue not triable.
It was decided in this case, that the issue of forgery raised by the Defendant was untenable and cannot be regarded as raising a bona fide triable issue. The reasoning for this decision is that, firstly, there were no documents to support the Defendant’s allegation. Secondly, the Plaintiff produced an affidavit by a deponent who has witnessed the Defendant’s signature on the guarantee and indemnity agreement. Lastly, the Defendant had not denied signing the credit facility agreement on the same date as the guarantee.
Based on the affidavit produced by the Plaintiff and the failure of the Defendant to produce a contemporaneous document to support his allegation, the court drew the conclusion that the allegation of forgery is merely a sham defence. Furthermore, parties may simply make allegations of forgery without showing proof in order to escape contractual liability, particularly in a guarantee and indemnity agreement which places heavy responsibility on the contracting party.