Gopal Sri Ram JCA:

The appellant is the registered chargee of a piece of land. The respondent is the chargor. But it is not the borrower. It created what the profession calls a third party charge. The borrower was one Ismail bin Omar. He made default in repayment. The appellant then took advantage of the provisions of the National Land Code 1965 ('the Code') and commenced proceedings to obtain an order for sale of the land in question. But they did not succeed. That is because the judge who heard the application came to the conclusion that the respondent chargor had shown cause to the contrary within the meaning of that expression in s. 256 of the Code.

The principal ground upon which the learned judge held in favour of the chargor is that the charge was unsupported by consideration. He found on the evidence that the loan amount was disbursed well before the creation of the charge. Applying principles governing relationships between creditor and surety, he held the consideration to be past. He thought that just like a guarantee is void where consideration is past, so too a charge.

Before us counsel for the appellant, Mr. Achan has argued that the learned judge is wrong for two reasons. First, it is submitted that the annexure to the charge in cl. 1 provides sufficient consideration. That clause when paraphrased says that the respondent is to pay the appellant all sums owing as at the date of the charge. To emphasise the point made, the actual words used by the clause are:

The chargor will on demand pay to the Bank all monies which are now or shall from time to time or at any time hereafter be due and owing by the abovenamed Ismail bin Omar ...

The second reason advanced in support of the appeal is that the learned judge was wrong in treating the contract in the annexure as equivalent to the registered charge. Counsel for the appellant argues that even if the judge was right in holding that the contract was void, the charge survives. In support of this submission counsel cites the decision of the Federal Court in Nkm Properties Sdn. Bhd. V. Rakyat First Merchant Bankers Bhd. [1992] 1 CLJ 244.

Mr. K. Jeyaraj counsel for the respondent has argued that the learned judge was correct in his conclusion. He has submitted that a third party charge is just like a guarantee. It must be supported by consideration. Since the law regards past consideration as being incapable of supporting a promise, a charge created after the disbursement of the loan it secures is void, just as a guarantee is void.

In my judgment counsel for the appellant is correct in his submissions. Whilst it is convenient to refer to a third party charge as being akin to a guarantee (indeed, I have done so myself) it is wrong to conclude that the principles of law that govern guarantees apply with equal force to such charges. The correct position is that stated by Hashim Yeop Sani FJ (as he then was) in Nkm Properties Sdn. Bhd. V. Rakyat First Merchant Bankers Bhd. [1992] 1 CLJ 244. In the simplicity of language characteristic of that eminent judge he said:

Section 340 of the National Land Code confers indefeasible title to the person or body in whose name any charge is for the time being registered and such title shall be defeasible only as provided under sub-s. (2) of that section. See also Tai Lee Finance Co. Sdn Bhd v. Official Assignee & Ors.

It would seem to us that the appellants chose to rely not on the charge but on the annexure to the charge which, it is true, provides as to the manner and conditions for the disbursement of the loan. In our view, however, cl. 3.04 of the annexure merely imposes a duty on the bank to make the disbursement of the loan after the execution and presentation of the charge. But this does not prevent the respondent bank from making disbursement before the execution of the charge as done in this case with the understanding the money was urgently required for the purpose of purchasing the same land. It is to be noted al