Charge Flashcards
(16 cards)
What is the definition of Charge under the National Land Code (NLC) and what is the effect of a registered charge?
Charge is a registered charge under Section 5 (NLC) meaning it must be registered. Under Section 243 of NLC, the effect of registered charge would be valid and enforceable.
What are the elements of charge? (Can be a minimum of 2 points)
- Borrower and lender
- Loan sum
- Both parties entered into a loan agreement and charge document.
- Borrower offers land as a security
- Charge document and Issue Document of Title (IDT) are presented for registration
- A ‘charge’ is created which confers the chargee an indefeasibility of interest.
- As security, if chargee fails to pay loan, remedies are available under NLC. The charged property will be auctioned, to recover outstanding amount or any debt due to the chargee.
What is the procedure to apply for Order of Sale (OFS) by registered chargee?
- Issuances of statutory notice (Either Form 16D & 16E)
- Foreclosure proceedings
- Issuances of (OFS)
- Public Auction
What is the differences between Form 16D & 16E? (OFS)
- Form 16D under Section 254 of the NLC is when the chargee requires to specify the breach while Form 16E under Section 255 do not have to specify breach.
- Form 16D requires chargor’s remedy breach wihtin a month from the date of notice whereas Form 16E is relevant when principle sum is payable on demand.
- Form 16D can be any breach and has continued for a period of at least a month to specified in the charge. If notice issued before a month, it is immature proceeding. Form 16E does not have default or any breach necessary.
What are the conditions to be fulfilled by chargee to apply for an Order of Sale (OFS) and which case was decided of the principle?
As decided in Sivakadatcham P Sethuram Vandayar v CIMB Bank Bhd [2019];
1. The chargee bank must prove that there is a charge document signed.
- There is a breach of the express or implied terms by chargor (i.e. pay loan)
- Express provision are stated in the document, while the implied terms are provided under Section 249 of NLC (eg. pay rent, comply with conditions)
What is the meaning of ‘existence of cause to the contrary’ & what are the examples of situation? (Cases as proof)
- Under Section 256(3), the Court shall order the sale of the land unless it is satisfied of the existence of cause to the contrary.
- Section 263(1) is the Land Administrator (LA) order the sale of the land unless it is satisfied of the existence to the contrary.
- If there exists cause to the contrary, the Court & (LA) will refuse the application for (OFS). However, the meaning has no definition provided by the (NLC).
- There are 3 categories of situations in which ‘cause to contrary’ exists;
- In Low Lee Lian v Ban Hin Lee Banking Bhd [1997], the Federal Court (Gopal Sri Ram) adopted 3 categories of cases;
a. Chargor was able to bring his case within any of the exceptions to doctrine of indefeasibility (Section 340);
b. Chargor could established chargee had failed to meet the conditions precedent for the right to seek (OFS)
c. Chargor show that the grant of the (OFS) would be contrary to any rule of law or equity.
Concurrent action: An Order of Sale (OFS) & civil suit against Borrower/Chargor (1) or Guarantor (2)?
- (OFS) v Chargor/Borrower;
HSBC v Wan Mohd Wan Ngah [1991];
-It was held that to allow the bank to file an action at the HC, where the (OFS) has not yet been completed, is an abuse of power of the court.
-Only if the auction is completed and if there is a short-fall from the sale price to cover the sum owning, the chargee can demand chargor to make good on the difference.
- (OFS) v Guarantor?
-The chargee can take action against the guarantor at the same time (simultaneously) if there 2 different securities (eg. charge & guarantee)
BBMB v Esah Abd Ghani [1986]
-It was held that the bank can pursue all remedies available under the law when the borrower defaults since there are two separate securites.
BBMB v Doric Dev Sdn Bhd [1988]
-There was no express condition requiring foreclosure must first be applied before suing the guarantor.
-The chargee has a complete discretion to do what he wishes, either to enforce the security of the charge by a foreclosure proceedings or enforce the guarantee by going after the guarantors.
What are the manners of taking possession and the effects of it?
- The manner of taking possession are taking actual possession under Section 271 (1)(b) where the chargee goes into possession by himself. Taking constructive possession under Section 271(1) (a) is where the chargee receives the rents payable by a tenant or lessee.
- A chargee in possession of any land by occupation shall be entitled to to manage the land and take all the profits from the land: Section 274(1)
- The chargee shall be liable to the chargor for any act if value of the land is damaged or the chargor is put to any loss: Section 274(1)
Woon Foon Hoh v Muthiah Chetty [1934]
-The court found the failure to give notice of entry was a wrongful act thus chargee to pay for disruption and any loss suffered by chargor. - Every chargee in possession, whether by occupation or by receipt of rent, shall notify the chargor of all sums actually received collected by chargee: Section 274(2)
How is the process of Public Auction?
- Under Section 260, the application for (OFS) to (LA) by chargee is in Form 16G (Application for an (OFS) to Land Administrator (LA).
- Also, Section 261(1), (LA) shall hold an enquiry; (a) LA to set time and place for enquiry; (b) notify charge about enquiry and (c) serve summon on chargor to appear and show cause why (OFS) should not be made.
- If at the hearing the chargee fails to appear, (LA) shall dismiss the application under S262(2). However, chargee is allowed to file a new application (S262(5)) (Provisions as to enquiry).
Can an (OFS) be postponed and how?
- Under Section 264A(1), an OFS may be postponed by the LA subject to the following;
-Postpone only once;
-Not exceeding period of 3 months;
-Appplication to postpone made by chargee & agreed by chargor (F16O);
-Application to postpone/cancel to be submitted to LA not less than 7 days before date of the proposed sale.
- Under S264A(3), if LA agrees to postpone, he shall give an order in F16P and such form must be served to affected parties and the public.
What does Form 16D contain (Section 254 NLC) ?
- The breach committed by the chargor.
- Requires the chargor to remedy the breach within one month of the date of notice or any other time stipulated in the charged agreement.
- Service of notice.
What are the effects of both registered and unregistered charge?
- Every charge shall take effect upon registration (Section 243 NLC).
- Chargee aquired an interest in the land that is capable of assignment and acquired indefeasibility of title (IOT).
- Under S214(1)(d), charge can be transferred. Also, a charged land can be transferred by chargor to any 3rd party but subject to a charge (S215(2)).
- In cases of default by the chargor, remedies can be offered to banks through a procedure of sale (S253) or taking possession (S271).
What is a ‘Priority of Charges’ ?
- The general rule is when the first in time shall prevail. Since NLC allows creation more than 1 charge, the first registered charge shall have priority over the later charge.
- However, the priority of charge may be affected by the following:
-Consolidation (S245);
-Tacking (S246) or;
-Postponement (S247) - This means, under the above circumstances, first in time, may not prevail.
Can a chargor pay sums before conclusion of sale?
What is the nature of contract between bidder and chargee bank?
Elaborate further the categories of ‘existence of cause to the contrary”
- 1st category: under expections to S 340, if there is fraud, misrepresentation or forgery, creation of charge is challenged;
Tai Lee Finance Co. Sdn Bhd v Official Assignee [1983]
-An application for OFS will not be granted by the courts in cases where the chargee has been fraudulent/where the chargee and the chargor have acted to defraud 3rd party. (Abdul Hamid FJ) - 2nd: Chargee fails to comply with condition precedent;
(a) Defective statutory notice of demand;
Co-operative Central Bank Ltd v Meng Kuang Properties [1991]
-Chargee included default interest which was more than prescribed interest = notice defective
RHB Bank Bhd v Syarikat Sg. Nal Timber Industries Sdn Bhd [2007]
-No specific details of breach in F16D and amount claimed was more than allowed.
(b) Invalid service of statutory notice;
Malayan United Finance v Tan Ah Moi [1993]
-The service of statutory notice was invalid, contrary to Section
431(1)(c) by ordinary post. Court refused to grant OFS.
Siong Holdings Sdn. Bhd. v. Development &
Commercial Bank Bhd [1997] 1 CLJ 590
-To obtain an OFS, the Chargee just need to show the fact of the inability of the Chargor to settle
the loan. The alleged mistake raised by Chargor was after the service of the Form 16D (incorrect account), it is irrelevant. Applying to cause to contrary concept which Chargor failed to prove, OFS granted.
(c) Application for OFS made to wrong tribunal;
Tan Teng Pan v Wong Fook Shang [1973]
-In this case, the land was held under Land Office Title, the court
has no jurisdiction to order sale of that land.
-Thus, if OFS is granted by the High Court, the chargor can
challenge the decision as there is “existence of cause to
contrary”
(d) Delay to consolidate account;
Public Finance Bhd v Hock Seng Housing Development Sdn Bhd [1992]
-The application for OFS was dismissed on the ground that the delay to consolidate account by the chargee.
-Court held that it was not fair to purchasers and amounted to a cause to the contrary.
- 3rd: Contrary to rule of law
Oriental Bank v Chup Seng Restaurant (Butterworth) Sdn Bhd [1990]
-The court viewed that the charge requires registration in its prescribed form before a chargee can enforce his right of foreclosure under NLC. If there is no charge, no OFS granted.
