Lenders free to sell property

03/05/2002 The Star By Chen Mei Ling

KUALA LUMPUR: A lender does not have to obtain a court order first before selling off an immovable property to which it has an absolute assignment of rights to, if the borrower defaults on the loan, the Federal Court ruled yesterday.

Justice Abdul Malek Ahmad said the lender with the loan agreement cum assignment as security, may realise it without having to get an order of sale from the court first in order to recover monies due to it from the borrower.

A loan agreement cum assignment is the normal form of security for housing loans, where the properties concerned do not yet have a title.

Justice Abdul Malek made this observation in his 30-page judgment, when allowing with costs, an appeal by Phileoallied Bank (M) Bhd against the respondents, Bupinder Singh a/l Avatar Singh and Inderbir Singh a/l Datuk Ajit Singh.

Also in agreement with his findings was Chief Justice Mohamed Dzaiddin Abdullah.

Phileoallied Bank was granted leave by the Federal Court on May 8, 2000 to appeal against the decision of the Court of Appeal and High Court that ruled in favour of the respondents.

In reversing those decisions yesterday, Justice Abdul Malek said: “The court may only order a sale whenever it is necessary for the purposes of the action but it is not intended to enable the court to sell real estate when otherwise it has no power to do so.

“All things considered, we were more inclined to agree with the learned counsel for the appellant, in particular with his submission that in the absence of any statutory provisions or common law requiring the equitable mortgagee to obtain a court order to realise its security under an absolute assignment of rights to land, the court should give effect to and recognise the contractual rights as determined between the vendor and the purchaser.”

Bupinder Singh and Inderbir Singh had entered into a sale and purchase agreement with a developer on Nov 12, 1994, to purchase a shop unit in Phileo Promenade.

To finance the purchase, the respondents obtained a term loan of RM359,000 from the bank. A loan agreement cum assignment was entered into on Jan 3, 1996, under which the respondents’ rights, title and interest under the sale and purchase agreement were absolutely assigned to the bank.

On the same date, the two executed a joint power of attorney in favour of the bank. The respondents later defaulted on the monthly instalments.

On Nov 11, 1997, the bank demanded repayment of the balance of the loan but there was no response from the respondents.

The appellant then sent a letter dated Dec 31 the same year, terminating the respondents’ right to occupy the relevant property. It also notified the respondents of its intention to sell the property via public auction.

However, a day before the scheduled auction, the respondents filed an originating summons and obtained an ex-parte injunction to restrain the auction from being held.

The injunction order was consequently confirmed by the High Court on Oct 14, 1998, and the bank’s appeal to the Court of Appeal was dismissed on April 7, the following year.