Published on March 13, 2014
Question 1 (a) Could Ben redeem the land from Bob, should he utilize the loan he received from Bank Pinjamlah Berhad to pay Bob on 1/4/2012. (10marks) The issue in this situation is whether Bob have the right to refuse Ben from redeeming the said land, on the basis of the agreement being strictly a contract. According to the law, ‘jual janji’ can be defined as a sale of promise or conditional sale, where the land is used as a security to secure the loan which is small in size and value. In Tengku Zahara v Che Yusuf, Briggs J mentioned that “the whole purpose of jual janji transaction is to provide a procedure for securing a loan without infringing the prohibition of usury which is binding on the conscience of all good Muslims”. There are two interpretations taken by the judiciary in regards to jual janji, namely strict and liberal interpretation. Under strict interpretation, the agreement between borrower and lender is only valid as a contract, where time is of the essence. If a term of contract stipulates that time is of the essence, hence the parties are bound by it. In this instance, if the borrower had failed to pay back the loan within time stipulated, therefore the court will not assist to invoke terms to obtain the retransfer of land. In the case of Hj Abdul Rahman v Hassan, it was held that the agreement is not regarded as a security transaction or mortgage, as the only form of mortgage in Malaysia is charge or lien. Another approach taken by the court is the liberal interpretation. In this regard, the collateral agreement for a retransfer in a jual janji transaction is in nature of an equitable security transaction whereby the right to redeem remains irrespective whether the period for repayment has lapsed. In the case of Yaacob bin Lebai Jusoh v Hamisah binti Saad, the question raised was whether the intention of the parties of the agreement to resell the land is treated as a security or a contract of sale. On appeal, the court decided that as the agreement was in nature of a mortgage the right to redeem still remained, although the period within which it was specified the loan should be repaid has expired. Applying the law to the given situation, Ben had obtained a loan from Bob for RM 10,000, and subsequently signed a sale and purchase agreement contending to sell his land in Bangi. Both parties then signed a collateral agreement whereby Bob had agreed to sell the said land back to Ben for the same amount should Ben be able to pay the loan by 31/3/2012. Ben however had failed to do so. In this instance, if Ben is to utilize the loan he later received from Bank Pinjamlah Berhad in order to pay Bob after the final date of repayment, he can still do so. This is due to the fact that the collateral agreement signed by both Ben and Bob had an intention of mortgaging the land to secure the repayment of the sum of RM 10,000 and give Ben the right to redeem. Therefore it can be said that the right to redeem remained, although the final date of repayment has expired. To sum up, Ben could redeem the land from Bob by utilizing the loan he received from Bank Pinjamlah Berhad to pay Bob, even after the final date of repayment, which is 31/3/2012. (b) Advise Dol as to his right as a lien holder.
The issue in this situation is whether Dol still have the right as lien holder over the land which was used as security in return for a loan for Ben. According to the law, Section 281(1) of the National Land Code defines lien as the act of any proprietor depositing his title or duplicate lease to another person as a security for a loan. A lien is a transaction wherein the proprietor intends to use the appropriate document as security for a loan. It creates an equitable interest in the land or lease which gives the holder of that interest the right to enter lien holder’s caveat. In order to create a statutory lien, there are four elements which must be adhered. Firstly, the right to create lien belongs only to Proprietor of the appropriate interest. In this instance, the issue document of title must be registered in the name of the borrower. Prior to 2008, a third party cannot create a lien on behalf of the borrower. In the case of Peter P’chient v Ramasamy Chetty, the court held that the right to deposit the title as security for a loan is restricted only to the proprietor. However, after 2008, the case of Hong Leong Bank Bhd v Staghorn Sdn Bhd ruled that registered proprietor may deposit his issue document of title as security for third party loan with authorisation. Secondly, there must be a deposition of issue document of title. In this instance, the act of keeping the subject matter of lien by the lender, which usually is the issue document of title, will give rise to a lien. A lien holder also may part with the issue document of title, provided that the lien holder’s caveat had been lodged. Section 281(4) of the National Land Code stated that a lien holder may part with the issue document of title upon written request made by the proprietor, but only for the purpose of producing the issue document of title at any Registry of Land Office. In the case of Sitambaram Chetty v Ramanathan Chetty, it was held that the act of an equitable lien holder parting with the issue document of title resulted in the lender losing the right as lien holder. Thirdly, there must be an intention to create lien. The intention need not be expressly documented. It can be in an oral or any written form. The intention can be derived from the fact that the deposition of title by borrower to lender originated from a loan transaction. In the case of Standard Chartered v Yap Sing Yoke, it was held that as the title had all time in the custody of lender, it shows the intention of the lender that he had acquired a lien, albeit in equity, over the land. Lastly there must be a lodgement of lien holder’s caveat. Pursuant to Section 330 (1) of National Land Code, a statutory lien is created upon the entry of lien holder’s caveat. However, if the lender failed to do so, it did not diminish the right as lien holder. In fact, it creates an equitable interest in the land. This is due to the fact that a creditor possesses a right to a lien in equity which is enforceable by way of specific performance under Section 206(3) of the National Land Code. Applying the law to the situation, it is clearly stated that upon the creation of lien, Dol did not enter into a lien holder’s caveat. In this instance, Dol had become an equitable lien holder, as the lien had originated from a loan agreement, and he is entitled to a right to lien by specific performance. However, Dol had parted with the issue document of title after Ben had requested him to return the title for the purpose of producing it before the Land Office. However, as Ben did not actually do so, this means Dol had violated Section 281(4), where it allow lien holder to part with issue document of title upon written request by the proprietor, and restricted only to produce it to land Office. As Dol is
an equitable lien holder, the act of him parting with the issue document of title resulted in him losing the right as lien holder. To sum up, Dol has lost his right as a lien holder, based on the fact that he had parted with the issue document of title whilst being an equitable lien holder. Question 2 Discuss whether the order for sale should be granted to the bank. The issue in this situation is whether the court should grant the order for sale of the charged land to the bank. According to the law, in order for the court to grant the order for sale, the court should look whether or not there is any existence of cause to the contrary. In the case of Low Lee Lian v Ban Hin Lee Banking Bhd, the court had adopted three categories of cases in which the ‘cause to the contrary’ might be established. Firstly, when a chargor was able to bring his case within any of the exceptions to Section 340; Secondly, where the chargor could establish that the charge had failed to meet the conditions precedent for the right to seek order for sale; and thirdly, where the charger could show that the grant of the order for sale would be contrary to any rule of law or equity. The first category is whether or not the case by the charger falls under the exceptions to Section 340, in regards to indefeasibility. According to Section 340, a title is considered defeasible if it is obtained via fraud, misrepresentation or forgery. In the case of Tai Lee Finance Co. Sdn Bhd v Official Assignee, the court held that an application for order for sale will not be granted if the charge had been fraudulent. The second category is where the chargor could establish that the chargee had failed to meet the conditions precedent for the right to seek order for sale. In order to seek for the remedy of order for sale, there are two conditions precedent that needs to be fulfilled. They are statutory notice and foreclosure proceeding. A statutory notice is a mandatory requirement to be complied by the chargee before applying for order for sale. In the case of National Bank of Australia v United Hand in Hand, it was decided that failure to give notice would result in the sale cannot be affected and Registrar may refuse to register any transfer. There are three factors that affect the validity of statutory notice: form of notice; content of notice; and service of the notice. There are two forms of notice: Form 16D and Form 16E. Section 254 of the National Land Code underlined regarding Form 16D, where it is used when there is a breach of any express or implied obligations of chargor under the loan agreement. The chargee must prove that there is default, and the breach has been continued at least one month or more. Meanwhile, Section 255 mentioned regarding Form 16E, where it is applicable if the charge agreement states that the chargee is entitled to demand the principal sum at any time. In this instance, the chargee need not to specify the breach. In the case of Jacob v Overseas Chinese Banking Corporation, it was held that either Form 16D or 16E may be used, as there is a breach of obligation on behalf of the borrower, and also it is stated in the charge agreement that the principal sum is payable on demand.
In regard to the content of notice, it must be in accordance with the National Land Code. Form 16D shall indicate, firstly, the amount due, including the principal and interest. Secondly, an instruction requiring the chargor to remedy the breach within the time stipulated in the charge agreement. In the case of Citibank Bhd v Mohamed Khalid bin Farzalur Rahman, the court had applied the golden rule of the interpretation of statute, which means the period of breach referred to in Section 254(1) of National Land Code should be at least one month. Lastly, in regard to the service of notice, Section 431 mentioned that notice can be delivered by way of personal delivery, by leaving the notice at the person’s last known address, pre-paid registered post, or substituted service. Foreclosure proceeding is a phase to determine which tribunal to initiate a foreclosure proceeding, depending on the title of the land. There are two types of tribunal, which are High Court, according to Section 256, and also Land Office, based on Section 263. For registry title, it should be initiated in High Court, meanwhile for Land Office title should be initiated in Land Office. The third category is where the chargor could show that the grant of the order for sale would be contrary to any rule of law or rule of equity. One of the situations is when the charge was registered contrary to restriction of interest. In the case of United Malayan Banking Corp Bhd v Syarikat Perumahan Luas Sdn Bhd, the court held that where the charge is registered in breach of an explicit statutory prohibition imposed on the title to the charged land, the title is defeasible since the registration had been obtained by means of an insufficient or void instrument. Applying the law to the situation, Oren is a registered proprietor of a bungalow, which is subject to restriction in interest in which it cannot be charged, leased or transferred without the consent of the State Authority. Oren then taken a loan from Bank Indah Berhad, and a charge is created to secure the loan. There are several conditions agreed upon by both Oren and the bank, which are: the principal sum is payable on demand; the period to remedy the breach (if there is any) is within 14 days; and consent from the chargee must be obtained before the charged property is leased. Other than that, Oren also created a lease over the bungalow in favour of Ciku.He then received a notice in Form 16D from Bank Indah Berhad. The Bank applied for order for sale. In order to determine whether the order for sale should be granted, we must first look whether there is existence of cause to the contrary. There is no question whether the case falls under the exception to indefeasibility, as the property is not obtained via fraud, misrepresentation or forgery. Other than that, in regards to the condition precedent, the Bank had issued a notice in Form 16D, requiring Oren to pay all outstanding amount on his loan within 14 days. The application of Form 16D is right, as the breach is established. This is due to the fact that Oren had violated the charge agreement by not obtaining the consent from the Bank before leasing the property to Ciku. Even though it was stated that the principal sum is payable on demand, either Form 16D or 16E may be used. However, the problem arose regarding the content of notice: Section 254(1) mentioned that the period to remedy the breach requires one month. Therefore as the period to remedy the breach provided by the Bank is 14 days, therefore the notice is considered void. In regards to the contradiction of rule of law, the property charged by Oren is subject to restriction in interest, whereby the property cannot be charged without the consent of the State Authority. Despite the restriction in interest, Oren still went on to charge the property with the Bank. Therefore, this means that the granting of the order for sale would be contrary to the rule of law.
To sum up, the order for sale should not be granted to the Bank, as the chargee had failed to meet the conditions precedent for the right to seek order for sale, particularly regarding the content of notice. Other than that, the granting of order for sale would be contrary to any rule of law, as there is a restriction in interest on the land.
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