1.0
SUMMARY/ FOC
In a
third party charge, a piece of land was charge by the respondent to the
appellant with one Ismail bin Omar as the borrower. The borrower had defaulted
in making payment, for which the appellant had started a proceeding to get an
order for sale of the respective land. The court, in making decision on the
case had rejected the application on the basis that the charge was unsupported
as the loan had been paid out even before the creation of the charge. The appellant appealed.
The
appellate court had overturned the decision made by the inferior court on the
basis that a registered charge shall not be treated as a contract. Therefore,
it should be dealt under the National Land Code 1965 instead of the Contract
Act 1950. The rule of indefeasibility of
title laid out in the National Land Code (NLC) had clearly stated that such
title shall be conferred to the chargee in a dealing of charge. Since the
charge had fulfilled of the requirement, the court thinks that the case
application by the applicant should be allowed.
2.0
ISSUES
i) Whether a charge created after the disbursement of
its consideration is valid?
ii) Whether a charge can be treated the same way as a
contract?
iii) Whether the charge was created with enough
consideration?
3.0
APPELLANT ARGUMENT
The
appellant’s counsel, in his contention had stated two grounds for his plea. The
first one is that the annexure of the charge is an adequate consideration. It
says that the appellant will pay for all the sums that the borrower had
received from the appellant starting from the day the charge took place, be it
in the form of lump sum payment or through installment.
Secondly,
the appellant contended that the registered charge is not corresponding to the
contract in the annexure as it was held in the case of NKM Properties Sdn Bhd v Rakyat First Merchant Bankers Bhd[1]. To put it another way, even if the court is
to conclude that the contract was void, the charge should not be affected by
the decision.
4.0
RESPONDENT ARGUMENT
In
his defense, the respondent stated that a third party charge can be
interchanged with a guarantee, in respect that it has to be supported by
consideration. In a guarantee contract, past consideration is an ineffective
consideration to a promise. In this case, as the loan has been disbursed before
the charge was created, it a void consideration to the charge, in the manner of
a guarantee is invalid.
5.0
JUDGMENTS
In
his speech, the judge had voiced out his view on the issues arise. The court
agreed with the appellant that a third party charge may be similar to a
guarantee. However, although the rough idea of the two can be interconnected,
it should not be overlook that the principle in carrying it out is not the same
and thus, is irrelevant to ‘practice’ the same principle on two different kind
of transaction.
The
judge had also made reference to a decided case of NKM Properties Sdn Bhd v
Rakyat First Merchant Bankers Bhd., Hashim Yeop Sani FJ stated that the
annexure to the charge (which considered as a contract) is merely a contractual
agreement to ensure that the chargee is carrying out his duty to disburse
payment, which accordingly, should be carried out after the charge was created.
However, when there is urgent need of the money to buy the said land, there is
no restriction on the chargee to make payment before the charge was created.
The disbursement of money in view of consideration to a charge, made even
before the creation of the charge itself is valid so long both parties to the
dealing embrace the same idea that the money disbursed is the consideration to
a charge that is to be created.
Apart
from that, it was also held that a registered charge should not be treated like
a contract. It therefore should be enforced as a statutory right, not as an
agreement or contract. Even if the appellant is to raise a claim for breach of
terms in the annexure, he will not succeed in his claim as the judge is in the
view that the annexure was supported by consideration. Thus, it was sufficient
and was not a past consideration.
The court therefore held that that
charge was perfectly valid and allowed the appeal. The court also awarded cost
of RM1000 to the appellant. The judgement by Gopal Sri Ram JCA was agreed by
Abdul Malek Ahmad JCA and Ahmad Fairuz JCA.
6.0 ANALYSIS
I agree with the decision made by
the court in deciding the dispute between appellant and respondent regarding
the charge issue. In this case, there are three issues that must be looked into,
to be specific, the validity of the charge that created after the disbursement
of payment, issue on whether the charge is considered as contract, and also
whether there is sufficient consideration in forming the charge. In this case,
Gopal Sri Ram JCA agreed with all submissions made by appellant counsel
regarding those issues, and his decision is agreed upon by the two other judges
who are Abdul Malek Ahmad JCA, and Ahmad Fairuz JCA.
The first issue concerns on the validity of the charge that was created
after disbursement of the loan. The court held that it was valid, and I
hold the same opinion with the said judgement. It must be noted that for a
charge to be valid, it must be registered under National Land Code. Before we get
into a deeper discussion on this issue, we should take a better look at the
definition of a charge first. Basically, it means a dealing whereby the
registered proprietor of the land or registered lessee uses a particular
property as a security for the repayment of loan advanced to him or to any
third party[2].
Meanwhile, under the National Land Code, charge is described as a registered
charge[3]. Section 243 of the same Code stated
that,
‘Every
charge created under this Act shall take effect upon registration so as to
render the land or lease in question liable as security in accordance with the
provisions thereof, express or implied.’
In another word, a charge must be
registered. We must bear in mind that, upon registration, chargee acquires an
interest in the land, giving the chargee the right to commence proceeding for
sale of land by applying to court, in case when the borrower defaulted his
payment. It was also stated in Section
256(3) of the same Act that unless it shown to the contrary, the court
shall grant the order for sale of that particular land to the chargee upon the
application. It must be noted here that, ‘the cause to the contrary’ here means
as justifying the withholding of any order where to make one would be contrary
to some law or equity. The ground as stating existence to cause to the contrary
stated under Section 256(3) of National Land Code where the charger was able to
bring his case within any of exception to the indefeasibility doctrine in
Section 340, when a charger could demonstrate that chargee had failed to meet conditions
for application for order of sale, and also, when a charger could demonstrate
that grant order for sale would be contrary to some rule of law or equity, for
instance, forgery, fraud and et cetera.
Going
back to the main case, the learned judge of High Court Kuala Lumpur had
initially held that the charge was invalid on the basis that it was not
supported by consideration and there was also evidence showing that the loan
amount has been disbursed before creation of charge. It was held so because the
bank had given the loan to the respondent prior to the creation of the charge, rendering
the loan a past consideration to the charge. Therefore, it does not look like a
charge, but more likely to resemble an ordinary type of loan without security
dealing. However, the appellant in this case did not rely on the charge as a
consideration to give loan, instead, he depended on the annexure of the charge
itself before giving such loan to the borrower. Annexure to charge in Clause 1
states that,
‘The chargor will on demand pay to the Bank
all monies which are now or shall from time to time or at any time hereafter be
due and owing by the above named Ismail bin Omar …’
Thus, it is submitted that the
annexure to the charge in Clause 1 had provided sufficient consideration as it
can be connoted from the wording that the respondent shall repay all the sums
that the borrower owed from the appellant as at the date of the charge. I am
also in the opinion that the latter creation of charge in this case does not
make the charge invalid. This is under the understanding that as long as the
charge registered under National Land Code and is abiding all the requirements stipulated
as well as the procedures, such charge shall be valid. It must be cognizant
that validity of charge does not depend merely on consideration and also, the
latter creation of the charge did not contrary to the purpose of the charge
itself like has been stated under Section
256(3) like I have mentioned above. In addition, Section 242(1) of National Land Code stated that,
‘Every charge to secure the repayment of a
debt, or the payment of any sum other than a debt, (in either case, whether the
amount in question is to be paid as a lump sum or by instalments) shall be
effected by an instrument in Form 16A.’
In other word, it means the purpose
of the charge itself is to secure the repayment of the debt or the payment of
any sum other than a debt. Therefore, the creation of charge after disbursement
of the loan shall be considered as valid since it did not change the purpose of
charge itself which is to ensure the payment of debt.
Furthermore, to make a valid charge,
procedures under National Land Code must be followed. Firstly, the one who
wants to charge the land needs to prepare the charge documents under Form 16A,
and also must comply with provisions in Section 207 and 208 of National Land
Code. Section 207 stated about form
for instrument of dealing whereas Section
208 stated about instrument to contain description, etc., of parties. Next,
after preparation of documents needed, these documents must be executed as it
has been stated under Section 210 of
the Code. Section 210 basically stated that every instrument shall be executed
by each of parties, and the execution shall consist of his sign or his
thumbprint. After that, the documents need to be stamped, and later must be
presented to registrar for registration. The registration of documents must
follow Section 294-306 of National Land Code. Only then, the charge shall be
valid after the registration. Therefore, in my opinion, the creation of charge
after disbursement of loan does validate it, as long as it follows the
requirements needed under National Land Code.
For the second issue on whether charge is a contract, Gopal Sri Ram JCA
held that, the creation of charge is different from one of a contract. Even
though the learned judge in High Court Kuala Lumpur considered a third party
charge as similar to guarantor type of contract, the judges in Court of Appeal
decided that, it is not a contract. In fact, it is a statutory instrument,
which is a dealing that the Code authorizes. In my view, there is nothing
incorrect with the said statement. In order to have a better picture on this
issue, I shall define what constitute a third party charge. Essentially, there
are two types of charge that can be created which are called first party
charge, and also third party charge. First party charge may be created when the
borrower and charger is the same person. Meanwhile, a third party charge is the
situation where the borrower and the charger are two different persons. This
can be seen in this case, Co-Operative Central Bank LTD v Y & W
Development Sdn Bhd[4]
whereby the borrower named Ismail bin Omar, meanwhile the charger is
the respondent which is Y & W Development Sdn Bhd. It is my belief that a third
party charge shall not be treated like contract since both are governed by
different act which for contract, it falls under Contracts Act 1950. For
contract of guarantee, the definition falls under Section 79 of Contracts Act 1950 stating that, a ‘contract of guarantee’ is a contract to
perform the promise, or discharge the liability of a third person in case of
his default. The person who gives the guarantee is called the ‘surety’,
meanwhile the person in respect of which default the guarantee is given is
called the ‘principal debtor’, and the person to whom the guarantee is given is
called the ‘creditor’. This provision also stated that a guarantee may be
either oral or written.
Therefore, the guarantor may be liable
if and only if the borrower make default in payment. This also applies under
third party charge where the charger shall be liable once the borrower make
default in payment. However, in my view, there is a slight different between
those two. For the charge to be created, it usually involves land as a security
for a loan. As for the contract of guarantee, the guarantor need not use land
as a security, but when the borrower make default in payment, the guarantor
would be liable to pay the debt. Since charge and guarantee type of contract
governed by different act, therefore for me, it is not right to conclude charge
as a contract. Besides, as written above, about the procedure that need to be
followed to make a valid charge, from preparation of charge documents under
Form 6A until it been registered, it is clear that there are specific acts and
statutes governing charge. That is why it is not a contract and should not be
treated like one. It is a statutory instrument which Code authorizes it. This
can be seen in the case of Ginlon (M) Sdn Bhd v MBF Finance Berhad[5].
This is a latter case that followed the decision in Co-operative Central Bank Ltd v Y
& W Development Sdn Bhd[6].
In Ginlon’s case, the court held that by the charge, the chargor does not
guarantee to perform the promise or discharge the liability of a third person
in case of his default. The remedy under the charge is not against the person or
the chargor himself, but against the property charged by way of remedy of sale
or taking possession of the property. It was decided that a charge is not a
contract of guarantee and the chargor is not a surety. Therefore, a charge is
said to be a statutory instrument.
Lastly, for the third issue is on whether there is enough consideration to create the
charge. This issue is somehow quite related with the above issues about
validity of the charge and whether charge is a contract. If there is not enough
consideration in contract, the contract shall be void. That is why the learned
judge of the High Court Kuala Lumpur held that the charge shall be void under
the principal ground that there was not enough consideration, in reference to
the principle laid out in the contract law. However in the present case, Gopal
Sri Ram JCA held that a charge should not be treated like contract, whereby
insufficient of consideration may not render a charge as void. Also, even if
there is a need for consideration, the annexure to the charge itself was
sufficient consideration. In this issue, I also agree with the said judgement.
Before we analyse the last issue
further, it is cognisant to define what consideration is. Under Section 2(d) of the Contracts Act 1950,
where at the desire of the promisor, the promise has done, or abstain from
doing, or promises to do or abstain from doing something, such act is
considered as consideration. In another words, consideration is a performance
to do or not to do by a party in exchange to something which is valuable for
the other party. Also, consideration is common in the making of contract, and
contract usually governed under Contracts Act 1950, Specific Relief Act 1950,
et cetera.
Back to the main case on whether the
there is sufficient consideration in the charge. In my view, the charge was
made with sufficient consideration. As stated in the first issue, the main
consideration here is not the charge, but on the annexure to the charge itself.
In clause (1) of the annexure, it says that the respondent is to pay the
appellant all sums owing as at the date of the charge. This can be seen in the
prior decided case, NKM Properties Sdn Bhd v Rakyat First Merchant Bankers Bhd[7].
In this case, Hashim Yeop Sani FJ held that appellant chose to rely not on the
charge but on the annexure of the charge which provides for manner and
conditions for disbursement of the loan. It also was constituted that duty of
bank to make disbursement of the loan after execution of the charge does not prevent
respondent bank from making disbursement before execution of charge because the
money was urgently required. Therefore, it is clear that by depending on
annexure to charge, making such consideration is sufficient and not past.
Therefore, the charge shall be perfectly valid.
7.0 CONCLUSION
In conclusion, regarding the three
issues in this case, I agreed with the said judgement that the charge shall be
valid and the order for sale by appellant shall be allowed. For the first
issue, whether the charge created after the disbursement of its considerations
is valid, I agree with the opinion by Gopal Sri Ram JCA that the charge was
perfectly valid and the evidence disclosed no cause to the contrary. For the
second issue on whether a charge can be treated the same way as contract, I
also agree with the said judgement that a registered charge was not a contract
or a contract of guarantee. In fact, it is a statutory instrument, which is a
dealing that the National Land Code authorized. Also, the enforcement of the
charge by the appellant was the assertion of a statutory right. And lastly, for
the third issue on whether the charge was created with enough consideration, I
am in my view that Gopal Sri Ram JCA had made a correct decision. Basically,
lack of consideration does not invalidate the charge, however, even if it is
needed, then the annexure to the charge itself should be considered as a
sufficient consideration because, appellant depended on the annexure of the
charge, not the charged land itself.
All in all, the application for
order of sale made my appellant to the Court of Appeal, shall be allowed.
8.0 REFERENCES
BOOK
Ainul Jaria. (2008).
Principles of Malaysian land law. Singapore: Lexis Nexis Sdn Bhd.
ACTS
National
Land Code (Act 56 of 1965) & Regulations
Contracts
Act 1950 (Act 136)
WEBSITE
Husna Rodzi. (2013). Land law II: Charge. Retrieved on 23th
November 2015, from
No comments:
Post a Comment