Download - Security dealings charge

05/02/23 Ainul Jaria Maidin - LAW 3111-

SECURITY DEALINGS


Meaning • A dealing created to secure the

repayment of a loan.• Elements present – loan, security in

the form of either title or interest over real property


Type of security• Land can be used and accepted as a security

for a loan, owing to it’s special attributes as an immovable property as it is permanent, its’ value is never lost and capable of conferring different interests to various persons as the same time so it is regarded as a good security.

• Further, if borrower fails to repay the money borrowed together with interest, the lender can recover his money by selling the land by way of public auction or by way of private treaty (with consent from the chargor).


Security dealings recognised by National

Land Code 1965


• Charge – Legal Charge or Torrens Charge• Lien –Statutory Lien


Torrens/Legal Charge

• A charge is a form of security dealing created by a registered proprietor or a lessee by using his land as a collateral or security in return for the loan given to him by the Lender.

• One can either go to a bank or a finance company, which is in business of lending money or even to an individual to borrow money and in return may pledge his land as security to pay back the money with interest.


• The Torrens charge is a creation of statute, i.e. the National Land Code 1965 and its characteristics are different from the common law deed of mortgage.

• The Malaysian courts have always appreciated the difference between mortgage and a charge. There are a few differences between the two dealings


Cases

• Gan Khor v Soan Bin Pelita (1935) MLJ 158• Paramoo v Zeno (1968) 2 MLJ 230• BBMB Bhd v Doric Development Sdn Bhd. &

Ors (1988) 1 MLJ 462• Malayan United Finance Bhd. v Tan Lay Soon

[1991] 1 MLJ 504• These cases will be discussed in the first tutorial

session –next week. PLEASE READ!


Powers of Charging• S.241(1)(a)(b)(c) NLC 1965 • The owner of an alienated land has power to

create a charge of his land irrespective of whether final or qualified title or as a parcel in strata title. The landowner’s powers to create a charge is subject to the restrictions imposed in S.241(3)NLC 1965.


What can be charged

• S.241(1) NLC provides for powers of charging and type of property that should be charged.

• Whole, but not part of any alienated land. Undivided shares in alienated land must be the whole undivided share and not only a portion of it.

• the interest of lease in alienated land can also be charged for loan.


• S.241(1)(b) NLC provides that charge can be created over the whole but not a part only of any undivided share in alienated land. This means a co-proprietor is empowered to charge his undivided share in an alienated land. However, only the entire undivided share in the land can be charged, not merely a part.

• Rationale for this provision is to avoid difficulties in identification of the quantification and on default, in the chargee enforcing his remedies.

Problems with charge over part of land


Case

• J Raju v Kwong Yik Bank Berhad [1994] 2 MLJ 408, it was decided that it is possible to charge part of land but only by way of an equitable charge. This transaction however, is not capable of registration. The statutory remedy under the NLC is only available to a registered chargee.


Alienated land

• S.241 -Charge can only be created over alienated land and not any other types of land such land held under TOL, mining lease, squatter land etc.

• Lease of alienated land


secure the repayment of debt

• The charge must be to secure the repayment of any debt or the repayment of any sum other than a debt or of any annuity or other periodic sum. (S.241(1) NLC).


Case• R&I Securities Sdn. Bhd. v Golden Castle

Finance Corp (M) Ltd.[1979] 1 MLJ 46, the creation of a charge where there is no loan transaction is not possible since it defeats the essence of the charge, which is to secure is repayment of the loan and the obligations to repay it.

• In Yee Sin Cheong v UMBC [1992] 2 CLJ 1298 the court said that unless there is a “loan in existence, no security is therefore required.


Express and Implied Conditions

• Express conditions to a charge is prescribed in the charge agreement itself.

• This is often referred as the Annexure to the Charge and it is annexed to the Statutory Form 16A or 16B.

• The Implied conditions are provided in Ss.249-252 NLC.


• These conditions must be observed by the chargor and the chargee during the subsistence of the charge. Failure on the part of the chargee to comply with the express or implied conditions provided in the NLC, then he faces the risk of the chargee instituting foreclosure proceedings.


Restrictions on Powers of Charging• The powers of charging of one’s

property is subject to certain restrictions as specified in s 241(3) NLC 1965:

• (a) any prohibition or Limitation – for example Malay Reservation Enactment 1933 restricts the creation of charge of land held under Malay Reservation title in favour of a non-Malay chargee;


Restrictions ..cont.• b) any restriction on interest, as

specified in Ss.103-129 NLC 1965 wherein the State Authority has endorsed on the issue document of title to the land the restriction to create a charge without first obtaining the written consent of the State Authority;

• (c) if the land is subject to lease then the express and implied conditions of the lease should apply.


Charge in favour of two or more persons

• S.241(4) NLC provides that no charge may be granted to two or more persons or bodies unless they are acting in the capacity of trustees or representatives. In this case the charge may be held jointly by them all. In cases of leases the issue document of title or duplicate lease may be held by the first chargee unless there is a contrary agreement to that effect.


Void Charges

• The charges, which fails to comply with certain requirements, e.g. Non compliance with the terms of the Moneylenders Ordinance 1951, is not enforceable and considered as void charges.


Cases

• Phuman Singh v Khoo Kwang Chong [1965] 2 MLJ 189 and Associated Finance Corporation Ltd. v Poomani [1972] 1 MLJ 117, the court emphasised that the moneylending agreement (the basis upon which the charge was created) was void for being in contravention of the respective Moneylenders Ordinance in force.


• Menaka v Lum Kum Chum [1977] 1 MLJ 91.

• Keng Soon Finance Bhd. v MK Retnam Holdings Sdn. Bhd [1996] 4 CLJ 52.

http://www.cljlaw.com/auth/cext?url=/db/case/CLJ/1996/4_52&whatstr=LMY_AA_NLC_241&nextdisp=judgement&Partword=ON

http://www.cljlaw.com/auth/cext?url=/db/case/CLJ/1996/4_52&whatstr=LMY_AA_NLC_241&nextdisp=judgement&Partword=ON


Prerequisite or Requirements to Create

a Torrens ChargeConditions to be fulfilled by Chargor &

Chargee in order to create a valid charge.


Requirement to use the Prescribed Stereotype

Statutory Form / Instrument


• Forms 16A or 16B• S 242(1) NLC 1965 prescribes the

statutory instrument or form to be used to create a charge to secure the repayment of a debt or the payment of any sum other than a debt shall be in Form 16A.


• Form 16B is the appropriate form for charges providing for the payment of an annuity or other periodic sum.

• The payment of an annuity is referred to as a rent-charge whereby the payment of an annual sum is charged on the land.

• Any other conditions that need to be imposed on the chargee and chargor will be made out in an annexure to the charge.


Variation to Forms • The Forms may be varied as long as the

variation is not a matter of substance• S.207 NLC 1965 - A matter of substance

is one, which represents a material alteration to the requisite information so that the substantive nature of the underlying transaction or the liability of one party is altered thereby. Any conditions agreed between the chargor and chargee can be inserted in the annexure to the charge.


Use of Form 16A instead of Form 16B?

• Basically the court has held that the Forms are flexible enough, therefore, the use of the wrong Form will not invalidate the charge created.


Case

• In V.Letchumanan v Central Malaysian Finance Bhd.[1980]2 MLJ 96 a charge provided that the loan money is to be paid in instalments after execution of the charge rather than payment in full before execution as was stated in the charge. In the annexure, it was stated that repayment was to be made on demand. As such until demand for payment is made, the loan was repayable on instalments.


• On default, the chargee sought to sell the land, but the chargor objected on the basis that the charge should not have been created using Form 16A because it provided for payment in instalments. The Federal Court held that the use of Form 16A in this case was correct as the statutory form is flexible enough.


• Tan Yen Yee & Anor v Equity Finance Corpn. Bhd [1991] 1 MLJ 237

• A charge was created using Form 16A to secure the payment of rent under chattel-lease of equipment. On default the chargee applied to the Land Administrator for sale of the land. However, the chargor objected on the basis that the charge should have been made using Form 16B and so was invalid.


• The court held that it was a charge within the provisions of Subsec 2, although wrong form had been used, the charge remained valid by s. 62 of Interpretation Act 1948 and 1967.

• The deviation was not of substantial effect nor was it calculated to mislead. The High Court also rejected the contention of the chargor that a charge had to be in one of the two available forms, namely Form 16A (for repayment of principal and Form 16B (for payment of periodic sums)


Registration of Charge


• S 243 NLC 1965 provides that for a charger to be recognised under the Torrens system must be duly registered in accordance with the requirements of the provisions of the NLC 1965.


Position of Unregistered Charges• Situations where the chargee fails to

register a charge instrument:• i. Parties fail to proceed with

registration despite the completion of the instrument of charge, and the title is available.

• Lender will be recognised as an equitable chargee;


• ii. Though the title is available, but the parties do not wish to create a charge, the borrower hands over the title to the lender as a security for a loan.

• Lender has a lien, however, in order to make it a statutory lien, he must proceed to enter a lien-holder’s caveat and in the event of default he can enforce his rights by obtaining a judgment from the court and enforce the same on the Borrower by obtaining an order for sale by way of public auction.


• iii. Title is available but the parties wish to enter into a different type of security transaction, which is not prescribed in the NLC 1965. For instance a Jual Janji transaction.

• If it is a Jual Janji transaction, then the parties must check the terms of the agreement as to whether it has become Jual Putus.


• iv. Title is not available so the parties enters into a Loan Agreement Cum Assignment whereby assigning all the rights, interests and benefits of the Borrower in the property to the Lender.

• The Loan Agreement cum Assignment executed by the parties can be enforced pursuant to s 206(3) NLC 1965.

• Order 45 of the Rules of High is applicable.


• In the four situations mentioned above the lender cannot claim the remedy granted to a registered chargee by NLC 1965.

• Statutory Remedies are Unavailable.


• The charge, which is not registered pursuant to the provisions of the NLC 1965, can claim protection as an equitable charge, but as this type of charge may not be registered it may be granted recognition pursuant to the provisions of s 206(3) NLC 1965.


• Equitable is not different from the legal charge in procedure only that it is not registered and this will not be recognized except under equity. However, such a charge being outside the NLC 1965 provision will not be able to seek the remedies of sale and taking possession.


Cases• Mahadevan v Manilal [1984] 1 CLJ

286 or [1984] 1 MLJ 266• Standard Chartered Bank v Yap

Sing Yoke & Anor [1989] 2 MLJ 49