legal issues
 
Tuesday, February 07, 2006
Land Law : Charge
QUESTION:

You act for Bani bin Abu Hashim who comes to your office and relates to you as follows:

My late father, Abu Hashim and his youngest brother, Abu Hisham were co-propriertor of a piece of land in Kuala Perlis. Abu Hashim had eye problems and became blind in 1990.
In January 1992, Abu Hisham became a director of Kembara Sdn. Bhd. (Kembara). Abu hisham Approached Bank Bulan which agreed to grant a loan of
RM 3000, 000 to Kembara, provided that Abu Hisham become guarantor and a piece of land is provided as security.
Abu Hisham decided to charge the land that he shared with Abu Hashim to Bank Bulan but Bank Bulan insisted that Abu Hisham should first obtain the written consent of his co- proprietor to do so.
Hence, in June 1992, Abu Hisham went to see Abu Hashim and told him to affix his thumbprint on a document which he claimed to be Abu Hashim’s consent to allow Abu Hisham to construct a house on the said land.
Unknown to Abu Hashim, the document was his consent to allow Abu Hisham to charge the said land in favour of Bank Bulan.
Bank Bulan disbursed the loan to Kembara upon registration of the charge in January 1993. However, in January 1994, Kembara defaulted in repaying the loan instalments. Bank Bulan is now seeking for an order for sale of the land by virtue of the provisions of the National Land Code 1965.
Advise Bani as to the effect of the charge created by Bank Bulan and the legal action that you can take to safeguard his father's estate in the land concerned.


ANSWER:

In the question, there are 2 issues. First issue is whether charge created by Bank Bulan defeasible or not. Second issues is whether Bani can take any legal act against Bank Bulan.
According to section 340 (1) of NLC when title of interest is registered shall be indefeasible but subject to the following of this section. Section 340 (2) stated the circumstances that title of interest can be challenge. They are fraud, misrepresentation, forgery, void instrument and title of interest that unlawfully acquired. As in the case of OCBC bank v Lee Lee Fah[1], Dato Siti Norma Yaakob held that the only way title can be challenge is for respondent to establish any circumstances in section 340 (2) of NLC.

Generally in the case of fraud, the title shall not be indefeasible. Fraud mean dishonest of some sought. In the case of Waimiha Saw mill v Wai One Timber[2] stated that it is also fraudulent act if it is establish by deliberate and dishonest trip causing an interest not to be registered. Fraud means actual fraud as mention in the case of Asset Co. Ltd. V Mere Roihi[3] . in order to prove fraud, 2 stage must be fulfill. Firstly conduct must be in definition of fraud that is actual fraud. Secondly fraud must be committed by person or his agent and as a result, his name was registered in the title. If the person is not a party within the fraud, then the title shall be indefeasible.

In the question, Abu Hisham went to see Abu Hashim and told him to affix his thumbprint on a document which he claimed to be Abu Hashim’s consent to allow Abu Hisham to construct a house on the land. Abu Hashim had eye problems and blind. Unknown to Abu Hashim the document was his consent to allow Abu Hisham to charge the said land in favour of Bank Bulan.
Thus, we can see that the conduct of Abu Hisham was in definition of fraud that is actual fraud as he dishonestly cheated Abu Hashim that the document he presented to Abu Hashim was actually charge document not document to allow him to build a house on the said land. Abu Hisham also was the party within the fraud and as a result charge was created over the land. Therefore an actual fraud had been committed by Abu Hisham. By virtue section 340 (2) (a) title is defeasible if there is fraud. Similarly in the case of Haji Aishah Bt Lebai Itam v Yah Bt Taib[4] where in this case an illiterate woman was induce to sign a transfer form by one party. The fraud alleged was a fraudulent misrepresentation by Haji Musa to the plaintiff to the effect that the transfer to him which she executed not a transfer but a charge for the amount she owed. The court held that this amount to fraudulent act and the title of the land shall be defeasible.

However there is exception to the exception of defeasibility. According to provision in section 340 (3) "provided that nothing in this sub-section shall effect any title of interest acquired by any purchaser in good faith and for valuable consideration, or by any person or body claiming through or under such purchaser." This mean that if plaintiff can prove there is bona fide purchaser for valuable consideration, then the title shall become indefeasible again. In order to determine bona fide purchaser for valuable consideration, 2 factors must be fulfill. Firstly, person who has pays valuable consideration. If no consideration, he becomes a volunteer and not bona fide purchaser. Consideration must come by the registered proprietor. It is sufficient if has consideration and not need to be adequate. Secondly the person must acts in good faith, means that he has no knowledge whether actual or constructive that the title or interest that he acquired is bad in law.

In the question, Bank Bulan agreed to grant a loan of RM 300,000 to Kembara Sdn. Bhd which Abu Hisham become a director of that company provided that Abu Hisham becomes a guarantor and a piece of land is provided as security. Moreover, Bank Bulan had asked Abu Hisham to obtain the written consent from his co-proprietor who is Abu Hashim in order for him to get the loan.

Bank Bulan can be said to be a bona fide purchaser as the bank had pay a consideration when they disbursed the loan to Kembara upon registration of the charge in January 1993. Bank Bulan also act in good faith since they had no knowledge that the title is bad in law as Abu Hisham had commit a fraudulent act in order to get the consent from his co-proprietor, Abu Hashim. Since Bank Bulan had fulfilled the 2 factors, Bank Bulan can be said as bona fide purchaser for valuable consideration. Similarly in the case of Owe Then Kooi v Au Thiam Seng[5] where the land was transferred to transferee by way of fraud. Subsequently the land was charged to the bank. It was held that the interest which was obtained by the chargee was indeafisible. Abdul Malek Judge stated that "in the event of fraud, the title or interest may be set a side by any person or body to whom it may subsequently vested. 'Subsequently' must mean after the event of the fraud and in our present situation, it is the second defendant in whom the interest is subsequently granted". This case showed that bona fide purchaser for valuable consideration also includes chargee, lessee and easement.

CONCLUSION

As for conclusion, the charge created by Bank Bulan to the land owned by Abu Hisham and Bani's late father, Abu Hashim is defeasible. This is because an actual fraud had been committed by Abu Hisham in obtaining consent from his co-proprietor who was Abu Hashim. However, since Bank Bulan is a bona fide purchaser for valuable consideration because of the bank had paid a consideration and acted in good faith thus the title shall become indefeasible. This means that Bani can not take any legal action against Bank Bulan since the interest title fall in bona fide purchaser for valuable consideration.


[1] (2000) 1 MLJ 134
[2] (1923) NZLR 1137
[3] (1905) Ac 176
[4] (1949) 1 MLJ 128
[5] (1990) 1MLJ 234
posted by Q-KHALIFA @ 8:38 PM  
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