Sale By Private Treaty

The National Land Code, does not prohibit the chargee from selling the encumbered land with the
consent of the chargor. However, there is an opinion saying that once the charge is registered then the
provisions of the NLC will govern the said transaction. There is no way for the parties to opt out from
the provisions of the NLC.

The development of the law under this discussion are as follows:

1. The chargors’s right to sell the property outside the Code is available provided he has not
commenced any action under the Code.

In Chartered Bank v Packiri Maideen & Anor [1963] MLJ 276, a case decided under the proviions of
the earlier Code, Gill J said (at pages 276- 277) that:
"It is ... open to the parties to sell the lands by private treaty before any proceedings are
commenced in court, but once such proceedings are commenced the lands have to be sold by
public auction ... As far as I can remember ... the only reason why the second respondent wished to
have the lands sold by private treaty was that he wished to avoid publicity and consequent disgrace
to his family in the event of the lands being sold by public auction. That, to my mind, was no valid
reason for acceding to his request."
2. Even after order for sale the chargor may still sell the charge property by way of private treaty in the
light of s. 266 of the NLC.

Malayan United Finance Bhd. v Tay Lay Soon (1991) 1 MLJ 504Jemuri Serjan SCJ

"There is no statutory provision for the discharge of the charge by the chargor ....... However, under
section 266(1) any chargor may at any time before the conclusion of a judicial sale of a charged land
tender the amounts due to the Registrar of the court or the Collector"
Chargor retains the right to sell the charged property by Private Treaty until the sale of the the charged
property to third party.

M. J Frozen Food Sdn. Bhd. v Siland Sdn. Bhd. [1994] 1 MLJ 119, [1994] 1 SCR 197
Wan Yahya SCJ at page 309:

"The chargor does not abrogate all his rights to the chargee at the making of the order for sale. He is
merely compelled to abide by the court's order for his property to be sold in accordance with the
statutory safeguards on his interest as provided under ss 257 and 258 of the NLC .......... the divesting
of the chargor's right occurs only on the completion of the contract of sale and conveyance......"
3. The courts have held that where at the first and subsequent public auctions there were no bidders
for the land, the chargee may then be allowed to sell the land by private treaty.

A. In Malaysian Credit Finance Bhd v Yap Hock Choon & Anor [l1989] 1 MLJ 232, the
chargee was allowed by the Court to sell the land for $345,000 by private treaty after two
unsuccessful public auctions.
i. The chargors had objected to the sale on the ground that they had obtained a
purchaser (for $330,000). They contended that this was known to the chargee; they
therefore alleged that the chargee's sale was collusive.
ii. On the evidence-however. the court held that the chargors had consented to the
chargee selling the-land by private treaty.

B. In Chung Khiaw Bank Ltd v Lau Ah Yen & Anor [1989] 2 MLJ247, the chargee had
obtained an order for sale from the Land Administrator.
i. A public auction was held but there were no bidders. The chargee applied to sell the
land by private treaty; at first; the chargors consented but they later changed their minds
and objected to it.
ii. The sale price was much lower than the amount due under the charge.
iii. The circumstances of the case, the court refused to allow the sale by private
treaty, since it could be put up for auction a second time.
 iv. The court was of the view that “it may allow a chargee of any land to sell the land in
question by private treaty in circumstances where the Court is satisfied that the
proceeds of such sale are not less than the amount due to the chargee under the
charge and that the chargee will be duly paid in full out of the proceeds of the said sale”.

This observation by the court is interesting since it suggest that

a. Auctions must be exhaustive first
b. there is no requirement for the need to obtain consent from the chargor before
the land can be sold by way of private treaty.
c. the Court is satisfied that the proceeds of such sale are not less than the
amount due to the chargee under the charge

C. In Malayan United Bank v Cheah Kim Yu [1991] I ClLJ 280,

i. the chargee had allowed the chargor to sell the land by private treaty and at the same
time had proceeded with his foreclosure proceedings.
ii. the chargee obtained an order for sale for the land on August 29, 1988. The public
auction for the land, however proved abortive (no bidder) and the reserve price was
reduced to RM90,000.
C. In Malayan United Bank v Cheah Kim Yu [1991] I CLJ 280 (contd)
High Court:
i. the chargee had allowed the chargor to sell the land by private treaty and at the same
time had proceeded with his foreclosure proceedings.
ii. the chargee obtained an order for sale for the land on August 29, 1988. The public
auction for the land, however proved abortive (no bidder) and the reserve price was
reduced to RM90,000.
iii. Subsequently the chargor sold the land to the intervener at the price of RM105,000 (an
amount insufficient to discharge the entire debt due to the chargee), A deposit of 10% of
the purchase price was paid on February 12, 1990 and the sale and purchase
agreement was signed on February 27. 1990.
iv. All these transactions were carried with the knowledge and consent of chargee.
However, the chargee went ahead with the public auction and the property was
subsequently sold to one Ng Choon Meng on March 24, 1990. The intervenor sought to
set aside the sale of the land to Ng. The chargee opposed the application, contending
that there could be no sale except in accordance with the provision of the Code.
v. Abdul Malek J upheld the sale to the intervener and set aside the auction sale. In his
brief judgment, the learned trial judge said that as long as the sale was able to satisfy
or lessen the amount owed to the chargee. It was not important whether the sale was
by public auction or by private treaty.
When the case came up on appeal to the Supreme Court (see [1992] AMR 46:244), the court held that under
the Code -
"there is nothing to prevent a chargor with the consent of the chargee to sell the charged property
by private treaty. There are no specific provisions in the Code for such a sale but if such a sale is
concluded as a purely business arrangement, it is for the chargee to discharge the chargor to give full
effect to the sale".
On the merits of the appeal, however, the Supreme Court held that:
the intervener's application should be rejected. The court said that after the issue of the certificate,
the High Court was functus officio. That being so, the judicial sale could not be set aside.
Note:
The decision of the Supreme Court despite making a statement that the chargor with the consent of the charge
can sell the property by private treaty, if the chargee proceed with the auction and the issue of certificate is
issued by the court, then the High Court was functus officio (the judge has no power to make changes in his
decision, which can be questioned by others presiding in the further courts of appeal). The auction will prevail.
D. MUI Bank Bhd. v Cheam Kim Yu (Beh Sai Ming, Intervener) (1993) 1 SCR 188, (1992) 2 MLJ 641

The Applicant applied for an order to set aside the sale by public auction of a piece of land which was
charge by the chargor to the chargee on the ground that the chargee had consented to an agreement
for a private sale enter between the chargor and the chargee. The land was auctioned and a certificate
of sale was issued to a successful bidder.

High Court allowed the application. On appeal to the Supreme Court, the court reversed the judgment.

Harun Hashim SCJ at page 648,

"Under the NLC, there is nothing to prevent a chargor with the consent of the chargee to sell the
charged property by Private Treaty. There are no specific provisions in the code for such sale but if
such sale is concluded as a purely business arrangement, it is for the chargee to discharge the charge
to give full effect to the sale. That was not done here"
E. United Malayan Banking Corporation v Chong Bun Sun (1994) 2 MLJ 221

Visu Sinadurai J. at page 230

"Considering the true nature of the statutory remedy of the chargee to apply for an order for sale
under s 257 of the NLC, this court is of the view that once an order for sale has been made by
the court by way of a public auction under s. 257 of the NLC, the court does not have the power
to make a subsequent order to vary or set aside the earlier order, and to make a new order for
the charge property to be sold by way of private treaty."

at page 234

"So long as the chargee's interest is not adversely affected, there appears to be no reason as to
why a chargor does not have the right to sell the charged land before an order for sale has been
made"
Private Treaty by Pengurusan Danaharta Nasional Berhad

Section 5C of National Land Code (Amendment Act 1998) Act A1034 introduced
Fifteenth Schedule of the National Land Code.

Clause 5 of the said schedule empowered Pengurusan Danaharta Nasional to enter

into private treaty of any charge vested in them in addition other remedies available under the NLC.