The loss from a stakeholder's misappropriation falls on the vendor, as both parties mutually appointed the stakeholder, irrespective of the purchaser's role.

Shaik Daud Ismail JCA:

Both the above appeals were heard together as they form the same transaction involving the purchaser, the vendors, the bank and solicitors over a purchase of lands.

The facts of the matter are not at all in dispute. Koh Guan Industries Sdn. Bhd. (the purchaser) entered into two sale and purchase agreements both dated 22 August 1994 (the agreements) with Lee Lee Fah, Fain Kee, Pan Soo Khyun, Pan Sek Kok, Pan Siew Ming and Pang Siew Kong (the vendors) whereby the vendors agreed to sell and the purchaser agreed to buy two pieces of land on lots 4012 and 813 in the Mukim of Rantau, Negeri Sembilan, at a purchase price of RM291,037.50.

Upon the execution of the agreements, the purchaser paid a deposit of RM29,103.75. By the terms of the agreements, the balance of the purchase price was to be paid on or before the completion date of the agreement, to the solicitors Messrs. Francis Yong, Sulastry & Co (the solicitors) as stakeholder. The purchaser had also applied for a loan in the sum of RM250,000 from OCBC Bank (M) Bhd. (the bank) and as security of the loan, the purchaser agreed to create two charges over the lands in favour of the bank. The purchaser had also settled the difference between the balance purchase price and the loan. Subsequently the bank's solicitors Messrs. Seah

Choon Chye had released the sum of RM250,000 to the solicitors upon presentation of the memorandum of transfer and charges over the lands. Accordingly on 30 November 1994, the solicitors had issued cheques in favour of the vendors. Unfortunately, however, upon presentation of the cheques by the vendors, the cheques were dishonoured with an endorsement "Account Closed". In other words the solicitors who acted as the stakeholder for the balance of the purchase price absconded with the money.

On the misdeed of the solicitors, two issues arise for the determination of the court ie,

(1) In view of the loss of the balance of purchase price, on whom should the burden of the loss fall?

(2) Whether the bank, as an innocent party, should be deprived of its rights as registered chargee in respect of the lands, in the circumstances stipulated in s. 340(2) of the National Land Code 1965 .

The learned judge in the High Court was of the view and he so held that since the purchaser introduced the errant solicitor to the vendor, the purchaser should bear the burden of the loss. He entered judgment in favour of the vendors and ordered vacant possession to be restored to the vendors. The learned judge also dismissed the purchaser's counter-claim, and finally ordered the vendors to return the deposit to the bank to reduce the bank's burden. He also held that the bank being an innocent party ought not to be blamed.

It was argued before us that, it matters not who introduced or appointed the solicitor, since it is common ground that both parties agreed to the handing over of the balance of the purchase price to the particular solicitor. This is evidenced in the agreement itself in cl. 3 thereof where both parties agreed that the solicitor concerned be appointed as the stakeholder. The position of a stakeholder in a sale and purchase agreement was made clear by Lord Edmund Davies in Sorrel v. Finch [1977] AC 728 who repeated what was said in Maloney v. Hardy [1970] 216 EG 1582:

The essence of stakeholding in vendor and purchaser cases is that a binding contract of the sale has been entered into and the intending purchaser deposits with a third party a sum to be held pending completion; meanwhile the third party holding that deposit may part with it to neither contracting party without the consent of the other ...

From this it can be seen that, the purchaser, having deposited the money with the stakeholder, if he changes his m