JUDGMENTBY: PEH SWEE CHIN FCJ (DELIVERING THE JUDGMENT OF THE COURT)

PEH SWEE CHIN FCJ (DELIVERING THE JUDGMENT OF THE COURT) This appeal brings into focus some problems, inter alia, as to whether the charging of additional interest by a bank for default by a borrower is caught by s 75 of the Contracts Act 1950. First, a brief summary of facts and events leading to this appeal will have to be set out. The bank (the respondent/plaintiff) in this instant case is not an ordinary commercial bank but a co-operative society registered under the Co-operative Societies Act 1948.

The appellant/defendant was the chargor and the respondent/plaintiff the chargee (hereinafter the chargor and the chargee respectively as the case may be). The chargee applied for an order of the sale of land charged to secure money lent to one Khalid bin Ramlee by the chargee. A statutory order of sale was made on 10 April 1992; the charged land was duly sold by public auction and the proceeds of sale had been paid to the chargee pending an appeal against the said order of sale dated 10 April 1992 on several grounds.

First, it was submitted that the charge was void on the ground that though the loan of RM3m in question was made to one Khalid bin Ramlee -- a member of the co-operative society which was the chargee in this case -- it was, in fact, a loan taken and utilized by a company called Kemajuan Perkasa Sdn Bhd of which the said Khalid bin Ramlee was an agent, a fact known to the chargee at all material times (the company is hereinafter referred to as the said company). The said company was the actual borrower, the said Khalid bin Ramlee a nominal one who became a member of the chargee (ie the Co-operative Bank) for the purpose of obtaining the loan, thereby rendering the loan void for being ultra vires by contravening s 30 of the Co-operative Societies Act 1948.

Very briefly, the chargee relied on a passage which was accepted by the court below from an unreported judgment of Siti Norma Yaacob J under the name of Co-operative Central Bank v Gayabaru Construction, at p 2, in the High Court at Kuala Lumpur (Originating Summons No 1085/1985) on similar facts and the passage says:

Since s 30(1)(a) of the (Co-Operative Societies) Act empowers a

registered society to make loans to its members, I do not see anything

objectionable to the plaintiff granting the loan to Seah who, after

all, is one of its members. As the section does not specify to what

purpose such a loan should be utilized, I also do not see anything

objectionable to Seah using the loan granted by the plaintiff for the

benefit of the defendant of which he is its managing director. As

lending money to Seah must be one of the objects of the plaintiff to

which s 4 of the Act applies, I hold that the loan is valid and is

enforceable against the defendant, the chargor, who provided the

security for the loan.

We approve the dictum as stating the correct legal position on facts there similar to those as found in the present appeal. This thus disposes of the first point.

The further submission for the chargor was to the effect that as Khalid bin Ramlee was an agent of the said company to the full knowledge of the chargee, the party liable to the chargee should have been the said company. The chargor, not being the said company, was not liable. Here, the chargor had expressly and in writing charged the land in question to the chargee in consideration of money lent to the said Khalid bin Ramlee -- this argument or evidence of knowledge of agency described above tending to contradict or vary the charge instrument is inadmissible and is without avail to the chargor, which had executed what is commonly known as a third party charge.

The third point raised is of considerable importance. It is about additional interest charged by the chargee -- or for that matter by any financial institution -- for default of a borrower in the payment of any

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