Legal Update 8 of 2011

Whether a verbal assurance can contradict a written agreement.

CASE:

Udayakumar a/l Suppiah v Ganga Tharan a/l Shanmugam [2011] 7 MLJ 429

ISSUE:

Whether a verbal assurance can contradict a written agreement.

BRIEF FACTS:

• The plaintiff (Udaya) and the defendant (Ganga) met while working in the same company and soon after decided to form their own company known as Water Path ("WP") where they were both directors.

• Udaya and Ganga held 49% and 51% of the shares in WP respectively.

• WP needed funds after it managed to secure jobs from another company and applied for a total of RM1.5m loan from the bank.

• However, when the loans were being processed, it was found out that Udaya was blacklisted. Ganga then told him that in order to obtain the loans, they needed to make a fresh application without Udaya as shareholder and director.

• So Udaya resigned as director and transferred 46% of his shareholding to Ganga.

• Udaya claims that this was only to be a temporary arrangement whereby Ganga would hold the shares as trustee until the loans were approved.

• Ganga instead claims that when he found out that Udaya was blacklisted, he told him to resolve his financial situation or else he could no longer be director of WP.

• In fact, he claims Udaya was the one that suggested selling 46% of his share to him in order to resolve his financial issues and in consideration thereof, he paid Udaya RM115,000.

• Although Udaya does not dispute signing the transfer forms, he claims that no money changed hands. But he did not have any documentary evidence to support this.

• Ganga produced a witness that testified that he witnessed Udaya signing the transfer form and he in turned signed as a witness.

DECISION: Udaya's claim allowed.

• Since at the material time it was found that he was blacklisted, it was necessary for Udaya to transfer his shares in order to enable WP to secure the loans.

• Udaya was not able to produce any documentary evidence of the alleged arrangement because it was only a verbal agreement and understanding.

• As a general rule, a verbal assurance is not admissible to vary or add to the terms of a written contract, but an assurance given in the course of negotiations may be treated as a separate contract, collateral to the main transaction. It can exist side by side with the main agreement which it contradicts.

• Based on an evaluation of the evidence, Udaya had proved the existence of facts in his favour.

• Ganga had failed to plead from the outset that the transfer involved a consideration of RM115,000 which casts suspicion on his version of events.

• Furthermore, the evidence of money in cash being carried in a black computer bag as testified by Ganga and his witness smacks of complicity and concoction.

• His evidence that he kept RM20,000 in his home and borrowed RM95,000 from four other persons is quite unbelievable since none of them had documentary proof of the source of their money.