The Canton Trust and Commercial Bank Ltd v. Cheng Tai t/a Tai Yuen Farm and Others

DCCJ000196/1968

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT FANLING

CIVIL JURISDICTION

Action No. 196 of 1968

-----------------

-----------------

Coram: Judge Cons.

Date of Judgment: 12 December 1968

-----------------

JUDGMENT

-----------------

1. This is an Action brought by the plaintiff Bank upon a Letter of Guarantee given by the 3rd defendant to cover overdraft facilities made available by the Bank to the 1st defendant. Neither the 1st defendant nor two other defendants to the Action have been served and the trial proceeded solely between the plaintiff Bank and the 3rd defendant. For the sake of convenience, I will call them "the Bank" and "the defendant" respectively and I will refer to the 1st defendant as "the debtor".

2. The basic facts are not in dispute. In 1962, the debtor was running a current account with the Bank. At the end of October last year, he arranged overdraft facilities for six months to the extent of $3,000. In pursuance thereof, on the 29th of that month he signed a normal Letter of Undertaking. In accord with the apparent practice of the Bank, a third party ...(illegible) required as surety and the defendant on the same day signed a Letter of Guarantee to the same extent of $3,000. At the end of the six months' period, that is on the 28th April, 1963, the account of the debtor was overdrawn to the extent of $3,168.45. This was drastically reduced on the 4th of the next month by the payment of the sum of $3,000, and the account throughout May was generally overdrawn to a small extent but was occasionally in credit. At the end of the month the debtor must have come to another agreement for overdraft facilities with the Bank for on the 25th he signed another similar Undertaking, also limited to $3,000 and also for a period of six months. This time Letter of Guarantee was signed by the 2nd defendant, who also signed a further Guarantee when the debtor signed a third similar Undertaking on the 21st of December that year, that is about one month after the expiry of the second. Although there were many payments in and out during 1963, the account maintained from June onwards a fairly consistent debit balance in the region of $3,000. After that year there was little activity. But a few small deposits helped to reduce the balance which, together with the interest debited, stood at $2,757.30 on 12th May, 1965 the date on which the Bank went into liquidation.

3. The defence put forward, as I now understand it, is three-fold. Firstly, it is contended that the guarantee only extended to a six-month period from the 29th of October 1962 to 28th April 1963, and that all the advances made to the debtor during that time have been repaid. So far as the second part of this proposition is concerned, there can be no doubt. The undertaking by the debtor (Exhibit 4) was limited to a period of six months commencing on the date it was signed and it is especially made repayable on or before 28th April 1963. It is also marked as having expired on the same day but I think that the box in which this date appears is not strictly part of the undertaking and is there solely for the administrative convenience of the Bank. I do not overlook the fact that the undertaking also makes the balance repayable at any time when the debtor is called upon to do so, but even upon the interpretation most favourable to the Bank this could not take it past the 24th May, the date of the second undertaking. The evidence of Mr. Jones, the accountant of the Official Receiver confirmed this. At that date, the debtor had a credit balance of $240.76.

4. The plaintiff, however, relies upon the strict wording of the guarantee (Exhibit 3), in particular the words "all debts now owing or accruing to you (i.e. the Bank)" and "shall .... remain in force until cancelled by your (i.e. the Bank's) written authority". It is conceded that there has been no written cancellation and the plaintiff therefore contends that it still remains in force and covers all monies which have been advanced by the Bank whether under the first or any other or no undertaking. It was suggested that the language of the guarantee is clear and unambiguous and that on the authority of the 10th edition of Phipson on Evidence paragraph 1851, the Court was not allowed to look outside it. This is so, but on the same authority, paragraph 1653, the Court is entitled to consider any further evidence which might show that several documents together constitute one single transaction.

5. The defendant tells me that the guarantee and the undertaking were both signed at the same time before the same officer of the Bank. He was not an impressive witness, but there was no evidence to the contrary and what he tells me is in accord with normal practice and commonsense. Furthermore the documents bear the same date and the guarantee contains references to advances to be made by the Bank to the debtor and credit to be given to him. I cannot believe that the Bank would have allowed the debtor to overdraw to this extent without the guarantee and have no hesitation in concluding that the dealings that day between the assistant manager and the debtor and the defendant formed one single transaction and that the proper construction of the guarantee is that it is limited to moneys advanced in respect of the first undertaking only. These advances were cleared by the 9th of May, 1963 or the latest by the 22nd of the same month, and no liability can now be attached to the defendant.

6. The second line of defence was an express release by the assistant manager at about the end of April or the beginning of May, 1963. The defendant alleges that this was given at an interview he had with the assistant manager about that date following the defendant's telling him that the overdraft had been cleared. Had this been the sole evidence I feel I would have had some hesitation in finding for such a release, for the defendant's explanation for not recovering his guarantee or seeing it destroyed or cancelled is not particularly convincing. But his story is borne out by the fact that for the following two years the Bank made no effort to enforce the guarantee, and further, that it took a guarantee for the same amount from a third party only 1 month later. It is suggested that the other guarantee was additional, collateral security, but nothing has been put forward to show why the original security was then thought to be insufficient. To my mind, it points more conclusively to the fact that the Bank was satisfied that the original security had been discharged and I am therefore willing to accept the defendant's evidence that the assistant manager so old him.

7. The third defence suggestion was that the acceptance of second guarantee automatically extinguished the first. The authority for this to which I was informed was Halsbury 3rd edition, Vol. 18 at page 519 on the last line. This might have been the position had the original debt and guarantee still been valid at the time of the record. But for the reasons already given, in my view this was not so. The second undertaking and guarantee formed a composite transaction, completely unrelated to first and were in no way in substitution of them.

8. Judgment on the claim against the 3rd defendant is entered for the 3rd defendant with costs.