DOES A JUDICIAL SALE PURSUANT TO THE NATIONAL LAND CODE GIVE RISE TO A CONTRACT BETWEEN THE CHARGEE BANK AND THE SUCCESSFUL BIDDER TO CONSTITUTE A CAUSE OF ACTION?
Such a question would arise where there is a contractual dispute between a chargee bank and the successful bidder regarding a judicial sale under the National Land Code (“NLC”). Essentially, the answer to that is in the negative as decided by the Federal Court (“FC”) in AmBank (M) Bhd v AIM Edition Sdn Bhd [2022] 1 MLJ 357.
In that case, the respondent claimed against the appellant (chargee bank) for breach of contract because the actual size of the land did not follow what was described in the proclamation of sale, namely the land was 13.48% less than what was purchased.
The FC held that under the English legal system, mortgagees were equated as owners because the land was transferred to the mortgagee and when a mortgagee exercised its rights of sale, it did so as owner/vendor. However, in Malaysia, mortgages (and certainly equitable mortgages) are not technically recognised under the NLC.
“A judicial sale determines the transfer of property rights but does not inherently create a contractual bond between the selling bank and the buyer.”
The FC was of the further view that the FC decision in Ranjit Singh a/l Jarnail Singh v Malayan Banking Bhd [2016] 1 MLJ 165 (‘Ranjit Singh’) and the decision of the Supreme Court (“SC”) in M & J Frozen Food Sdn Bhd & Anor v Siland Sdn Bhd & Anor [1994] 1 MLJ 294 (‘M & J Frozen Foods’) were instructive and of application to the case, namely that there was no contract to begin with. Further, in M & J Frozen Foods, the SC held that the owner of the charged property remained the owner and his proprietary interest was not even transferred at the fall of the hammer. It was further held that the chargee was not capable of passing title of the property concerned as that remained with the owner at all times. As such, a judicial sale pursuant to sec.256 of the NLC clearly did not give rise to a contract between the chargee bank and the successful bidder. Given the fact that the remedy for an order for sale was expressly provided by statute, there was no reason or need to deploy the legal fiction of a contract. Ultimately, this was a judicial sale governed by statute and it was neither correct nor plausible to fit such a creature of statute into the confines of the Contracts Act 1950. It follows that any claims purely for breach of contract under such circumstances would not be tenable.
That said, if there is a claim for negligence under such circumstances, the above argument would not be applicable as a defence by the chargee bank.
Article By
ROBIN LIM
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