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Security Transactions

NLC recognizes charges and liens


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

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