IF the creation of a charge does not comply with the NLC (eg dealing is not registered), the charge is equitable charge IF lien is intended but IDT is not deposited to the lien-holder, an equitable lien is created Jual janji transaction is not recognized as security transactions under the NLC, but have been recognized by the courts as pure contract of sale Common law mortgage AND charge = secure repayment of loans/other amounts Common Law Mortgage v Charge DIFFERENCES Common Law Mortgage Charge Not recognized under the NLC Part Sixteen of the NLC Legal title/ownership is transferred to Title is not transferred to the chargee. mortgagee. Legal ownership remains with the registered proprietor Mortgagor has an equitable right to Chargee acquires an interest in the redeem the land from the mortgagee land. upon repayment of the loan. Upon default, mortgagee may Upon default, chargee may enforce his sell/foreclose/take possession of the security by way of sale of land [s.253] land OR take possession [s.271] Charge Transaction whereby the proprietor of alienated land/ of a lease of alienated land pledges it as security for repayment of a loan/payment of annuity/ other periodical payment. Legal charge = chargor executes a formal instrument of charge in statutory form in favour of the chargee. This instrument (+ IDT/duplicate lease) are handed to the chargee. On registration, the chargee obtains a legal charge over the chargors land/lease [s. 243] Charge Equitable charge = similar as legal charge BUT the instrument of charge is not registered. A chargee under equitable charge may enter caveat to protect his interest pending registration/if the chargor defaults, the chargee can register the instrument and subsequently sell the land [s. 206(3)]
Mahadevan s/o Mahalingam v Manilal & Sons (M) Sdn
Bhd [1984] 1 MLJ 266 Although no charge has been executed/ created under the NLC, an agreement to secure a debt (using the debtors land) in favour of the creditor may create an equitable charge giving rise to equitable rights Equitable Charge Instances where equitable charge is formed: (a) Where a charge instrument has been executed but not presented for registration - Standard Chartered Bank v Yap Sing Yoke [1989] 2 MLJ 49 (b) Where no separate title has been issued, a loan agreement and a deed of assignment are entered into to secure a loan Malayan Banking Bhd v Zahari bin Ahmad [1988] 2 MLJ 135 (c) Where a charge instrument has been erroneously attested Bank Pembangunan dan Infrastruktur Malaysia Bhd v Omar bin Hj Ahmad [2011] 1 MLJ 810 Equitable charge IF the lender holds an instrument of charge in statutory form (+IDT/duplicate lease) but does not register the charge, he cannot pursue the remedies provided for in the NLC in the event of default
He should attempt to register the charge and take
the remedies given by the NLC Equitable Charge IF the equitable charge is not supported by a charge in statutory form (therefore not registrable), lender is not entitled to remedies available to a registered chargee Lender needs to rely on s. 206(3) upon the borrowers default (look at the contract there may be express power to sell on default. IF the contract is silent, prove debt and on default, apply to sell the land) Legal Charge S. 241(1) - created over the whole of any alienated land/lease/undivided share (not a part only ensures that the chargees remedies can be adequately exercised) Undivided share results only in the creation of charge over the land [upon default s. 217] Legal Charge S. 241(1)(aa) & (bb) purpose of charge o Repayment of debt o Payment of any sum other than a debt (e.g overdraft facilities) o Payment of any annuity/other periodic sum (e.g investment purposes) Charge S. 242(1) Form 16A (to secure the repayment of a debt/payment of any sum other than a debt) S. 242(2) Form 16B (to secure the payment of annuity/other periodic sum) S. 242(2)(b) provision that proceeds from sales are to be used to satisfy payments subsequently falling due may be included (cf payments in arrears) S. 242(3) example provisions for s. 242(2)(b) S. 243 takes effect as security for the loan upon registration Registration of Charge Chargor can only lease land subject to chargees consent (which must not be unreasonably held) Chargees priority is protected [if subsequent Remedies in ss 253 & charges exist, they take 251 can be resorted to priority in accordance without needing to with the date of their prove the debt registration]
Chargor can sell the
Effect of Chargee has an interest land but transferee takes which he is able to the land subject to the registration assign charge Charge S. 241(2) registered proprietor may create 2 nd and subsequent charges on the same piece of land (as charge is merely interest in land) S. 244(1) 1st chargee (chargee who is first in registering) is entitled to the custody of the IDT/duplicate lease as long as any liability subsists under the charge (in the absence of any agreement to the contrary) S. 244(2) Chargee required to produce the document within a reasonable period at any Registry/Land Office on the written request of the registered proprietor for any purposes under the NLC Charge S. 244 to ensure that the registered proprietor does not create subsequent charges without the 1st chargees knowledge S. 249 Implied agreements in all registered charges S. 250 Implied agreements which can be negatived