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Question 4

Two years ago Simran bought an apartment (the said property) from Eco Developers Sdn.
Bhd. (EDSB) financed by Green Bank Bhd. (GBB). As individual document of title had yet
to be issued Simran assigned all her rights, title and interests in the said property by way of
a Loan Agreement cum Assignment to GBB. Strata title has now been issued and EDSB
instructs Simran to sign the transfer form to enable title to be transferred and registered in
Simrans name. However, as Simran did not keep up with her loan repayments, GBB proceed
to sell the said property to Ajit. Consequently, GBB request MDSB to execute the
Memorandum of Transfer directly to them based on the Loan Agreement cum Assignment.
However, EDSB refuse to do so on the grounds that it had not given its consent to the
assignment and no administrative fee had been paid to it for the assignment.

Advise GBB on the validity or otherwise of the claim by EDSB and how it may correctly sell
the said property to recover the amount outstanding on Simrans loan.

Issue :
1. Whether the assignment is absolute on the grounds that EDSB did not consented to it
2. Whether GBB can sell the said property to recover the amount outstanding on Simrans
loan

Rules/Application
Philleoalied Bank(M) Bhd. v Bhupinder Singh Avtar Singh & Anor.[2002]
In order to finance their purchase of a piece of property to which no strata title had been issued,
the Respondents (R) entered into a 'loan agreement cum assignment' ('LACA') with the
Appellant bank (the bank) pursuant to which all their rights, title and interest under the SPA
were assigned absolutely to the bank. The borrowers also executed a joint Power of
Attorney(PA) in favour of the bank. Subsequently, the borrowers defaulted in their repayment
and the bank took steps to auction off the property, relying on the LACA and the PA without
obtaining an order for sale from the court.
A day before the auction, the HC granted the borrowers an injunction restraining the bank from
proceeding with the sale on the ground that:-
(i) the assignment being absolute, the proper procedure was for the bank to commence
proceedings for an order for sale under O. 31 r. 1 RHC 1980.
(ii) if the assignment was not absolute, thereby creating an equitable charge, then the appellant
would have to proceed under O. 83 RHC.
(iii) the PA was invalid.
On appeal the CA dismissed the appeal. On further appeal to the FC:-
FC Held:-
(i) The LACA in the present case amounted to an equitable mortgage and not an equitable
charge. At common law, a legal or an equitable mortgagee has, upon the mortgagor's default
in repayment, the power to sell and convey the legal estate to a third party pursuant to the
express terms of the mortgage deed without an order of the court.
(ii) O.83 RHC provides the procedural means for recourse. It cannot be relied upon to compel the
bank, an equitable mortgagee, to make an application to the court for an order for sale in the
absence of any substantive provision or rule, express or implied, in the NLC or at common
law imposing such an obligation. The court should, therefore, recognise and give effect to the
contractual rights and obligations as had been determined between the borrowers and the
bank.
(iii) Although for most practical purposes a charge should be regarded as a species of mortgage,
there is one essential difference. A mortgage is a conveyance of property, legal or
equitable, subject to a right of redemption. A charge conveys nothing; it merely gives the
chargee certain rights over the property as security for the loan. At common law, only
mortgages can be created; in equity both mortgages and charges are possible. The remedies
of an equitable chargee are inferior to those of a mortgagee.
(iv) Since the assignment under the LACA was absolute and not one 'purporting to be by way of
charge only' within the meaning of s. 4(3) CLA1956, the borrowers, as assignors, were not
even competent to maintain the originating summons. (Nouvau Mont Dor (M) Sdn Bhd v.
Faber Development Sdn Bhd followed).
Appeal allowed.

Hong Leong Bank Bhd. v Goh Sin Khai[2005]


HC held:
The law in relation to absolute assignments is clear. An absolute assignment is an equitable
mortgage and the essence of a mortgage is that there is a transfer of the ownership to the
mortgagee. There is no statute or rule in common law that once an individual title or strata title
is issued, the absolute assignment is extinguished. Likewise, there is nothing to say that the
assignee must extinguish the assignment by ensuring that the assignor takes a transfer of the
property and creates a charge in favour of the lender. In the absence of any statutory provision or
rule of common law, the court must give effect to the intention of the parties that is reflected in the
contractual provisions of the assignment. Unless the contractual provisions in the assignment
provide that it is extinguished upon the issuance of an individual or strata title, the assignment is
not extinguished. Unless the assignment imposes an obligation on the assignee to ensure that
the title is transferred to the assignor and a charge is registered, the court cannot impose such
an obligation on the assignee in the absence of statutory power or common law enabling the court
to do so.

Damai Freight (M) Sdn Bhd v Affin Bank Berhad [2015] 4 CLJ 1 [FC]
Whether a lender having an absolute assignment of rights to land may realize his security under
the terms of the assignment, where document of title to the land was issued subsequently,
without the need to resort to the remedies provided under the National Land Code, 1965.
HELD: appeal is dismissed with costs.
(i) The LACA, has created an absolute assignment not one by way of charge only. This means that
the Bank should have all the rights, title and interest of the assignor/appellant under the Principal
Agreement;
(ii) When title was issued to the Land, the Bank did not lose its security or its power of sale under
the LACA. The absolute assignment under the LACA survives;
(iii) The Bank is thus empowered to realize its security for the loans by way of a private sale of
the Land;
(iv) The Purchaser merely takes a legal right of the chose in action that was assigned to the Bank.
The sale of a chose in action is permissible under section 4(3) of the Civil Law Act 1956;
(v) There is no necessity to first create a charge or for the Bank to resort to the statutory remedy
of a foreclosure action under section 256 of the NLC, to realize its security. The Banks
recovery action stands independently;

Conclusion:
Based on the principle enunciated in Philleoalied, the LACA in the present case amounted to
an equitable mortgage and not an equitable charge . At common law, a legal or an equitable
mortgagee has, upon the mortgagor's default in repayment, the power to sell and convey the
legal estate to a third party pursuant to the express terms of the mortgage deed without an
order of the court . Furthermore, GBB need not extinguish an assignment and convert it to a
charge UNLESS this is SPECIFIED in the DOA or LACA and GBB can sell the property by
way of private treaty without order of court. ROC o.31 r.1 is not required either.