Salleh Abas CJ (Malaya)

(delivering the Judgment of the Court): This is an appeal from the decision of Wan Hamzah J. in refusing the appellant's Originating Summons applying for an order of sale of the first respondent's land and for allowing the Summons in Chambers by the second respondent and two other persons, viz: Harcharan Singh and Sellapan Narayanan, who all applied for an order to intervene in the appellant's application and be added as respondents thereto.off the deal. It sent three demand notices. These are dated August 15, 1980 (TSC 21), September 15, 1980 (TSC 22) and October 27, 1980 (TSC 23). The last demand notice informed the respondent in no uncertain terms that a foreclosure action would be taken if the sum of $18,554.38 was not paid within a week.

The respondent's replies to these notices were that it would make the payment if the appellant would make the loan release.

It appears that on September 19, 1979 the respondent submitted four architect's certificates to the appellant for further release of the loan. The amount involved was $52,405.00 (TSC 30 and MKR 1). No payment was made and despite copies of the certificates having been sent on October 28, 1980 (referred to in TSC 24), the appellant still withheld payment and up to date has not made that payment at all. The stand taken by the appellant which it made known to the respondent as early as July 2, 1979 (TSC 29) was simply that no loan releases would be made unless interest due on the moneys already released was paid, notwithstanding the architect's certificates to the contrary. The respondent on the other hand took the view that interest would be paid after the loan release would be made. Thus the fate of Taman Muhibah and its purchasers hangs upon interest payments which the respondent had to make, but failed to make, and upon the loan release which the appellant had to make but also failed to make. Both parties have taken an uncompromising attitude which eventually led to the present proceeding before Datuk Wan Hamzah J. and finally before us. The learned Judge's ruling:

In dismissing the appellant's application to foreclose the charge the learned judge held that the charge was unenforceable because clauses 3 and 4 of the Sale and Purchase Agreement did not allow the respondent to create the charge but only such encumbrances as would not place the land in jeopardy of being sold, because otherwise the purchasers would not be entitled to vacant possession free of encumbrances which they were entitled to under the agreement. As an alternative ground the learned judge held that the loan was extended and that being the case the appellant should not be entitled to the foreclosure.

As regards the meaning of clauses 3 and 4 of the Sale and Purchase Agreement and their effect upon the charge, with respect to the learned judge, we found ourselves unable to subscribe to his view. It is to be observed that neither of these clauses specifies the type of encumbrances which the respondent as the vendor could create. And it is clear that whatever encumbrances were created, including the charge, clause 4 imposes an obligation on the respondent to discharge them completely before it would hand over vacant possession of the building to its purchaser. Failure to do so surely could not invalidate the charge, as the appellant as chargee is a complete stranger to the Sale and Purchase Agreement. Such failure only amounts to a breach of contract, to be confined solely to the parties thereto. Even assuming that the learned judge's view that clauses 3 and 4 prohibit the creation of the charge is correct, the charge created in breach of these clauses could not render it invalid, unless fraud is proved; the reason being that the appellant is not a party to the Sale and Purchase Agreement. This is a very elementary principle of the law of contract. We, therefore, accept the submission of counsel for the appellant on this point in that the interveners and other purchasers autho